CHAPTER 13

Debts and the Dangerous Game of the Stock Market

IN 1854, JOÃO Ferreira da Cruz Forte published his two-act comedy O jogo do burro, ou, A febre das ações (The fool’s game, or, Stock market fever). The play follows the misadventures of Frederico, an ambitious young man who is in love with Lala, against the backdrop of Rio de Janeiro’s stock exchange in Praça do Comércio. The young woman’s father, the merchant João Dias, is opposed to their courtship because he considers Frederico to be a good-for-nothing and wants Lala to marry his close friend and fellow merchant, Lourenço Mendes. This is basically the plot of the comedy, which, in addition to Frederico and Lala’s love story, revolves around the stock market fever that was sweeping Rio de Janeiro at the time:

LALA—I don’t know for certain yet . . . but, my dear Frederico . . . what can I do? . . . You know very well that Daddy is not the sort of man who gives in easily . . .

FREDERICO—We will see . . . for now you only need to stand firm, anyway . . . A month is enough . . . In this resistance is our salvation . . . I tell you . . . You know what’s going on in this city with the stock market? . . . It’s a yellow fever . . . a terrible game . . . the devil’s afoot . . . it’s a game that takes your shirt . . . it’s like they’re all mad . . . Anyone who has skill and energy and a scrap of wealth will make rivers of money! . . . you can make a fortune in an instant . . . Your father also trades there . . . He may already have made more than fifty million . . .

LALA—Really? . . . but what does that have to do with our situation, my dear Frederico? . . .1

In the remainder of the scene, the young man tells his beloved that he, too, has been profiting from the “game of shares.” In addition to Frederico, other characters want to join in the game and spare no effort to do so. Gertrudes, Lala’s mother, has sold the slaves Florindo and Luciana without hesitation so her husband could buy shares at the bourse in Praça do Comércio. For the same reason, the sacristan pawned off his only slave, a retired officer pawned his uniforms and furniture, a teacher sold all his books, a civil servant, his wife’s jewels, and an apothecary, all his wares. At the stock market in Praça do Comércio, the scene of the second act, the companies distributing shares have absurd names, such as the Imaginary Bank of the Five Parts of the World, with funds that could be realized with brown-paper certificates, the Aerostatic Steam Packets to the Moon in Twenty Seconds Company, the Gold Company for the Exploration of Metal in Sugarloaf Mountain, the Fantastic Speed-Teaching Company for army recruits and wet nurses “through the ultra-new electric umbrella method in twenty-four hours,” and the Odoriferous Company “for waste and filth in the city using patchouli extracts.” In the end, after making a fortune with shares in the Aerostatic Steam Packets to the Moon company, Frederico saves João Dias from going bankrupt due to the crash in shares in the Fantastic Speed-Teaching Company. And, as the reader may already have guessed, our hero also wins his beloved’s hand.

Around the time of the publication of that comedy, Paula Brito’s Marmota fluminense published a caricature that also portrayed that “fool’s game.” Entitled “A febre da praça” (Stock market fever), it does not refer directly to Cruz Forte’s play, but portrays “the people in a state of tumult” due to shares in the Banco do Brasil, the Banco Hipotecário mortgage bank, and “the railway and gas lighting companies.”2 Looking closely at the picture, just below the donkey’s head, on the pediment supported by the columns, we see the emblems of the companies in whose shares the merchants—represented by clerics, military men, and capitalists in coats and top hats—were purchasing wildly. Thus, both the cartoon and comedy provide an interesting insight into that singular moment when corporations were causing a furor in the Imperial capital.

FIGURE 22. Stock exchange fever

However, the long-term effects of that singular moment were extremely harmful. At least, this was the assessment of Sebastião Ferreira Soares, who focused on understanding the financial crisis that led to the collapse of the Banco Souto in September 1864. According to Ferreira Soares, the recycling of capital from the slave trade had undeniable benefits for “the material improvement” of the country. However, “Commerce in Brazil was not yet sufficiently familiar with the development and management of industrial corporations, nor for banking operations, when they appeared in great profusion in the Rio de Janeiro market.” Indeed, the “immoral game of usury in all classes of society” stemming from the trading of the shares in those companies was one of the main drivers of the crisis.3

The collapse of the Banco Souto per se is not relevant here. However, the causes and immediate effects of that “immoral game of usury” on corporations established in Rio de Janeiro is extremely pertinent. Paula Brito, who had founded Empresa Tipográfica Dous de Dezembro in late 1850, was about to establish his literary publishing house at a time when stock market fever was starting to burn in Rio de Janeiro’s bourse. However, like yellow fever, which occasionally caused death and desolation, stock market fever could also be fatal. According to Ferreira Soares, the stock speculation that plagued Rio de Janeiro began with a blunder by the Marquess of Paraná in 1854—“great men, great mistakes,” concluded Ferreira Soares. In 1853, the Minister of the Interior, the Viscount of Itaboraí, planned the merger of Rio de Janeiro’s two main banks, Banco Comercial and Banco do Brasil to centralize the credit system and regulate the circulation of currency. In the meantime, the cabinet fell in September 1853, and it was up to the powerful Minister Honório Hermeto Carneiro Leão, the Marquess of Paraná, to conclude the merger.

The storm broke out when Paraná authorized the distribution of shares in the new Banco do Brasil at 10 percent interest, triggering the furore in the stock exchange. According to Ferreira Soares, as soon as the measure was implemented “the organization of banking and corporate plans for several companies began, and without being legally incorporated, their shares were distributed and issued in the market, bought and sold at a higher or lower premium.”4 What seems to be the key issue behind the “fool’s game” or “stock market fever” was the lack of capital underlying the creation of so many corporations and banks. Paula Brito is a good example of this, since the incorporation of the Dous de Dezembro literary publishing house depended on funds from the Treasury. Now, the very need for a government subsidy suggests the fragility of the Rio de Janeiro stock market. Therefore, between 1854 and 1857, a period that coincides with a thwarted attempt at expansion and consequent bankruptcy of Paula Brito’s company, “those were years when a great deal of money was lost in Rio de Janeiro`s market; and in this immoral game of the stock market many unwary individuals sacrificed their wealth, and the good clever capital profited.”⁵ The debts that played a very important role in the Dous de Dezembro debacle indicate that Paula Brito was one of the unwary.

Between 1853 and 1856, many of Paula Brito’s assets were seized to be auctioned off due to lawsuits brought in the Business Tribunal of Rio de Janeiro—the most important assets were his lithographic and printing presses. The Business Tribunal was an institution recently created by the Business Code enacted in June 1850, shortly before the enactment of the law definitively banning the transatlantic slave trade to Brazil. In this regard, 1850 was a unique year in the history of the Second Reign because, in addition to the Business Code and the Eusébio de Queirós Law, another equally important law promulgated that year was the Land Act—a trinity essentially linked to a single issue. Thus, while one law banned the “infamous trade,” another regulated latifundia as a means of compensating landowners deprived of a constant supply of African captives, and finally a third regulated business activities, anticipating the return of assets previously employed in the lucrative trade in human beings.6 In other words, Paula Brito and the other merchants in Brazil were subject to a new mercantile law that had just come into effect in the shadow of the abolition of the African slave trade.⁷

Among the Business Tribunal records filed in the National Archives of Rio de Janeiro, I have found nineteen cases against the publisher, through which it is possible to follow the progress of Dous de Dezembro’s bankruptcy. According to the provisions of the mercantile legislation adopted in 1850, a business lawsuit was carried out in three stages. First, conciliation was sought between the parties before the parish judge of the nearest parish. In the cases studied, Paula Brito did not attend any of the conciliatory hearings to which he was summoned. Therefore, without conciliation between the parties, the case was referred to the Business Tribunal, where the debt was judged through a ten-day legal action which, as its name implies, obliged the debtor to pay the debt plus interest and court costs within ten days. When this did not happen, judicial enforcement followed, at which time the debtor’s assets were assessed and auctioned off to pay the creditors.

Paula Brito was sued by four of his suppliers, including Saportas e Companhia and Eugênio Bouchaud, dealers who supplied Rio de Janeiro’s printers with a varied range of items. In October 1853, Paula Brito did not redeem the bill of exchange for a little more than a million that he had signed when he purchased “printing items” from Saportas e Cia. It is interesting in this case that the document was endorsed by Luiz Thorey, an importer of French printing presses and supplier of printing items. During the execution of the debt, as early as November 1854, Paula Brito very nearly lost two of his Stanhope presses.⁸ De Bouchaud’s “large foundry and type store” was the place where Rio de Janeiro’s printers found “a vast variety of fantasy types, state-of-the-art vignettes of all genres, as well as a rich collection of emblems . . . printing ink, French boxes, boughs, twigs, roller trimmings, roller molds, dies, biseaux [bevels], setting rules, brushes, and all the accoutrements of the typographic art.”9 Paula Brito had spent 500,000 réis or so on type for his workshop at Bouchaud’s establishment in January 1856. However, the bill only was paid in December, after the supplier had gone to court to have “two iron lithographic presses complete with their accoutrements, in very good condition” seized and auctioned off.¹⁰

Francisco José Gonçalves Agra, a merchant based on Rua do Ouvidor, struggled to receive over 1,000,000 réis that the publisher owed him for the purchase of tea and paper in January 1854. In this case, the payment was divided into five installments of 250,000 réis at interest of 1.5 percent per month. A written promissory note was issued for each installment, the first of which fell due on the fifth of March and the last on the fifth of July. Paula Brito failed to honor any of them, and when he received a court order to pay all five, the publisher nearly lost three lithographic presses. Calculating the total value of the assets to be auctioned off, each press must have been worth about 460,000 réis. However, the equipment was spared because the debt was paid in a notary’s office the month after the assets were attached.¹¹ The debt contracted with Gonçalves Agra reinforces the importance of tea among the articles sold by Paula Brito, in addition to novels and periodicals. Ads regularly published in Marmota featured that product among the many items sold in the bookstore, such as stamped paper, cigars, office supplies, dolls, playing cards, and an “endless variety of interesting things.”¹²

Like Gonçalves Agra, the wholesaler Adriano Gabriel Corte Real also supplied “interesting things” that were sold by retailers like Paula Brito. In October 1855, the publisher spent over 3,500,000 réis on unspecified “goods” purchased from Corte Real. On that occasion, the publisher managed to negotiate much longer payment terms, as the promissory note only came due in nine months, in June 1856. Even so, just a few weeks after that date, Dous de Dezembro filed for bankruptcy protection, leaving it to the company’s shareholders to make decisions about the payment of the publisher’s debts. Little pleased, or not at all, Corte Real and his attorney proceeded with the ten-day legal action against Paula Brito, who, in turn, did not even attend the conciliation hearing, much less the hearing at the Business Tribunal, where he was judged in absentia.¹³

While owing his suppliers considerable sums, Paula Brito also found it difficult to pay debts of less than 300,000 réis. In May 1855, João de Souza Monteiro, a resident of Rua Nova de Sao Francisco da Prainha, executed a promissory note from the publisher worth 188,649 réis. The document was not transcribed or attached to the case file, which makes it hard to determine the nature of the debt. In any case, if he had not paid his creditor with interest, including court costs, Paula Brito would have lost a fully equipped Stanhope press,14 which would have been a terrible deal, since a Stanhope with all its accessories could cost nearly 600,000 réis, three times the amount of the debt.¹⁵ The widow Mariana Augusta d’Oliveira received from Dr. Joaquim Pereira de Araújo, a homeopathic doctor whom we will get to know better later, a promissory note worth 300,000 réis that Paula Brito had signed in March 1855.¹⁶ All indications are that the note was for a loan, as the publisher had turned to the doctor on other occasions to try to restore his company’s financial health. Mariana Augusta d’Oliveira did her best to reach an agreement in the tribunal of the justice of the peace of the third district of Santíssimo Sacramento parish, but, as usual, Paula Brito did not attend the hearing. This time, however, the lawsuit filed by the widow and her attorneys did not go on for long. Perhaps embarrassed by seeing a creditor in mourning, Paula Brito offered to redeem the promissory note, paying it in a notary’s office, plus interest and fees.¹⁷

In most cases where assets were attached, by stating that he was ready to pay his debts, Paula Brito managed to be named the depository of his printing and lithographic presses. As a result, the equipment remained in the workshop while the publisher sought a means of saving them from being sold at auction. However, there were cases in which the equipment actually was auctioned off. In late March 1854, Paula Brito borrowed 1,000,000 réis from Bernardino Ribeiro de Souza Guimarães. The promissory note stated that it would be redeemed “in exactly two months.” However, Paula Brito failed to keep that promise, and his creditor began taking steps to recover the loan.¹⁸ A warrant of attachment was issued in late September. According to the valuation of the assets involved, they were “two Stanhope presses in perfect condition and all their accessories,” each valued at 600,000 réis.¹⁹ In late October, auction notices were posted in the courthouse and published in Rio de Janeiro newspapers. We can imagine Paula Brito’s reaction when he leafed through the Diário do Rio de Janeiro on October 25, 1854, and read the dreadful edict on the third page.²⁰ This time, the publisher managed to save at least one of the presses. In December, Souza Guimarães informed the Business Tribunal that he had received 700,000 réis from the publisher, a considerable part of the debt. From that point on, the fate of one of the presses becomes uncertain. Souza Guimarães asked the judge to recalculate the debt and continue the attachment of the other press. The judge upheld the petition and a new warrant of attachment was issued. However, the records for the proceedings do not show whether the publisher managed to save that press. All indications are that he did not.21

In any event, the foreclosure auction notices published in the newspapers made the Dous de Dezembro company’s difficulties public. Certainly aware of the news, and fearing that promissory notes signed or simply endorsed by Paula Brito would go unpaid, long-standing creditors flocked to the Business Tribunal. In these cases, the publisher may have been surprised when José Antonio de Oliveira Bastos, a merchant established at Rua da Alfandega, simultaneously protested four promissory notes signed by Eugênio Aprigio da Veiga, which totaled a considerable 4,600,000 réis. Eugênio Aprigio had moved to Campos dos Goytacazes, so Paula Brito was responsible for the debt in Court, as an endorser. However, the lawsuit may have gone well in Campos, for the case was abruptly closed.²² Then there was Duarte José de Puga Garcia, who had lent 500,000 réis to the publisher as far back March 1848. However, Puga Garcia’s lawyer reported that Paula Brito had not paid of interest on the loan since October 1853. Thus, although it only began in November 1855, the litigation dragged on until October of the following year. The execution notices were not concluded, but a statement by Puga Garcia’s legal representative said that the slow proceedings were “due to the delays that the petitioner [Paula Brito] has requested.”²³

In 1856, the situation worsened, and, faced with the bankruptcy of his company, Paula Brito had plausible reasons to “request delays.”