The Formation of the Company

In 1855, the Compagnie parisienne de l'éclairage et du chauffage par le gaz was born and quickly developed into one of France's greatest industrial enterprises. It supplied at least half the coal gas consumed in France through the 1870s.^[2] The firm was indeed an exemplar of the new indus-

[1] Le Gaz: Organe special des intérêts de I'industrie de I'éclairage et du chauffage par le gaz, August 31, 1864, p. 108.

[2] Archives départementales de la Seine et de la ville de Paris (henceforth cited as AP), V 8 O , no. 269, "Usine des Ternes."

trial capitalism that was just beginning to transform the French and European economies. Its legal form, a limited-liability corporation, was still rare in a world of family enterprises and partnerships. The salaried managers who took charge had to coordinate processes across quasi-autono-mous departments and oversee the allocation of resources on a scale that was exceptional. Corporate assets of the Parisian Gas Company (PGC) grew from 55 million francs at the founding to 256 million thirty years later. Managers oversaw a factory labor force of forty-two hundred (in 1885), of which only a tiny fraction had attachments to the conventional crafts. Another new social type, the salaried white-collar employee, numbered 1,975 in 1885. By that time the PGC had become the ninth-largest enterprise and the largest manufacturing firm in France. Only transportation concerns and the Anzin mines were bigger.^[3] The PGC also foreshadowed the rise of big business based on high technology. It is true that the production of coal gas was not in itself enormously sophisticated. It required only roasting coal in air-tight retorts and collecting the escaping gases.^[4] Yet the necessary quality-control techniques as well as the transformation of residues into industrial chemicals fused applied science and enterprise in a particularly innovative manner.

The PGC was a private enterprise, but its operations necessarily entailed coordination with the public authorities. The precise obligations that the city of Paris imposed on gas producers and that the companies expected of the city were the subject of literally continuous negotiations, reconsiderations, and debate—often acrimonious—from the moment gaslights appeared on the streets of Paris before 1820. Here politics entered the picture. The public authority tried to safeguard the interests of both the community and consumers, and the two interests did not always coincide. At the same time, gas manufacturers, being powerful capitalists, sought the best possible deal for themselves and their investors. They had the ability to manipulate issues and confound the authorities by withholding expertise or limiting options. Conflicts of interest explain why the seemingly innocuous effort to put gaslights on the streets and into stores and homes engendered interminable and rancorous discussion.

[3] Bertrand Gille, La Sidérurgie franfaise au XIX siècle (Geneva, 1968), p. 295, ranks the thirty largest firms in 1881 on the basis of capital.

[4] On the early history of gas production, see Malcolm Peehles, Evolution of the Gas Industry (London, 1980); Trevor Williams, A History of the British Gas Industry (Oxford, 1981); Wolfgang Schivelbusch, Disenchanted Night: The Industrialization of Light in the Nineteenth Century, trans. Angela Davies (Berkeley and Los Angeles, 1988); Arthur Elton, "The Rise of the Gas Industry in England and France," in Actes du VI Congrès international d'histoire des sciences, Amsterdam, 1950, 2 vols. (Paris, 1953), 2:492-504.

The formation of the PGC is shrouded in some of the mystery that surrounds most other aspects of public administration under the rule of "the Sphinx," as Emperor Louis-Napoléon was known.^[5] In place of fact a legend has arisen about the creation of an imposing gas corporation as a result of the bold entrepreneurship of those paragons of Imperial capitalism, Isaac and Emile Pereire. The claim has often been made that the PGC was one of their pioneering accomplishments, along with Europe's first industrial bank.^[6] Their role in the making of the PGC was in truth peripheral and even parasitic. The PGC was formed from the merger of six preexisting gas firms following the wishes of their owners and the urgings of the public authorities. A single, powerful gas firm was a solution to the difficult problem of producing and distributing an urban amenity that was quickly becoming vital for some key elements in the population.

As a new industry in the early decades of the nineteenth century, gas faithfully traced the limits of scale set by technology, financial markets, and consumer demand. These forces at first imposed a relatively modest scale on gas producers, just as they did on forge masters and on textile manufacturers. In 1852 there were six gas concerns serving Paris and four more in the suburbs (in addition to one purveyor of bottled gas).^[7] Neither the firms themselves nor the principal gas plants anticipated the large concentrations of capital that the PGC would eventually entail, as the figures in table 1 suggest. A major constraint on the size was the limited demand for gas within the circumscribed areas that their distribution systems could reach. Theoretically it was possible to produce huge batches of coal gas at a centralized plant simply by multiplying the number of retorts roasting coal. But the ability to deliver the gas to faraway customers effectively and at a reasonable cost was lacking. As the distance from the source increased, enormous amounts of gas were lost through leaks in the mains, and gas pressure at the destination fluctuated so widely as to make its use impossible. Thus, gas production became dispersed in modest-sized plants

[5] On the lack of public sources for the history of Paris under the Second Empire, see Anthony Sutcliffe, The Autumn of Central Paris: The Defeat of Town Planning , 1850-1970 (Montreal, 1971), pp. 335-336.

[6] Rondo Cameron, "The Credit mobilier and the Economic Development of Europe," Journal of Political Economy 61 (1953), 464; Theodore Zeldin, France, 1848-1945, 2 vols. (Oxford, 1973-1977), 1:82; David Harvey, Consciousness and the Urban Experience (Oxford, 1985), p. 80; Alain Plessis, De la Fête impériale au tour des fédérés (Paris, 1979), p. 104.

[7] On the pre-merger gas situation, see Journal de l'éclairage au gaz (1852-1855); Henri Besnard, L'Industrie du gaz à Paris depuis ses origines (Paris, 1942), chaps. 1-2; Frederick Colyer, Gas Works: Their Arrangement, Construction, Plant, and Machinery (London, 1884), chaps. 1-4.

in the midst of populous neighborhoods. No one firm was up to the task of serving the city as a whole. The Compagnie française, for example, served the present-day third and fourth arrondissements from a factory on the rue du Faubourg Poissonnière.^[8]

The dynamism of nineteenth-century capitalism quickly expanded these limits. Improvements in the manufacturing of gas pipes and joints and the development of mechanical means for regulating pressure permitted the concentration of production. Moreover, the experience of the railroad companies paved the way for the accumulation of ever-greater amounts of capital through the sale of bonds, which tapped the savings of cautious and modest investors.^[9] By the 1840s there was no longer any reason one large firm could not control the Parisian gas industry. That situation seemed all the more desirable since it was obvious that the industry was still in its infancy and would call for rare technological and

[8] AP, V 80 , no. 24, "Canalisation: Extraits des rapports et délibérations, 1834 1855"; Préfecture de la Seine, Pièces diverses relatives à l'éstablissement des con-duites pour l'éclairage au gaz dans Paris (Paris, 1846).

[9] AP, V 80 , no. 25, "Canalisation"; Charles Freedeman, Joint-Stock Enterprises in France , 1807-1867 (Chapel Hill, N.C., 1979), p. 83.

entrepreneurial talent to handle the vast investments that would soon be necessary.^[10]

Another impetus for merger came from the municipal authorities, who increasingly insisted on uniformity of marketing arrangements from the various producers. The introduction of gas services had immediately raised in Paris, as it did in all other large cities, the thorny problem of regulation in a liberal era. Private lighting had heretofore been a matter of individuals buying oil lamps or candles, but gas required sinking mains under streets, spurring concern for public safety. The authorities gradually (and reluctantly) arrived at viewing gas as a "natural monopoly" and then sought means to protect customers and derive financial benefits for the city. By 1822, when gas was still a novelty, the prefect had already given the companies exclusive rights to particular sectors of the city (though there were disputes over precise boundaries) and soon imposed the obligation to serve streets with a minimal demand. The city was not yet ready to set uniform gas rates, and there was as yet no set of uniform contractual obligations for gas producers. These would come with the agreement of 1846, which made gas into a regulated industry,^[11]

With this agreement Paris established once and for all the practice of granting to a utility a monopoly for a fixed number of years. Later, some public figures would express their regret over the failure to follow the British example of creating perpetual utility companies, but the municipality would return repeatedly to a concession with limited duration. Most politicians agreed that this arrangement was in keeping with French custom.^[12] The charter of 1846 gave the six gas companies a concession lasting seventeen years. Before this charter was in effect, prices for gas had varied from one firm to another, reaching as high as sixty centimes per cubic meter, but averaged forty-eight centimes. In the 1846 agreement, the companies undertook to charge forty-seven centimes and to reduce the price by a centime a year until the rate of forty centimes was attained. The firms would sell gas to the city for street lighting at the putative at-cost rate of twenty-four centimes. Furthermore, they agreed to pay certain duties and to sell the gas mains to the city at a low price when the concession ended as compensation for their monopoly.^[13] With

[10] The companies were eager to merge partly to prevent competition and stop customers on border streets from bargaining for lower rates. See AP, V 8 O no. 751, "Affaire Deschamps."

[11] Besnard, Gaz à Paris, chap. 2.

[12] Procès-verbaux des délibérations du Conseil municipal de Paris (henceforth cited as Conseil municipal), March 8, 1881.

[13] Besnard, Gaz à Paris , chap. 2. Note that gas was sold mainly by the hour, not by volume, at this time.

the several firms at last adhering to a single set of regulations, the stage was set for a merger of the firms, which was triggered by an unforeseen economic perturbation.

The charter of 1846 was sealed just as the Parisian economy was shaken by the most serious crisis of the century followed by the uncertainties of political revolution. Gas consumption fell (according to one source by as much as 25 percent), and owners felt the heavy burdens of amortizing the capital for so short a concession. In February 1850 they petitioned the prefect to revise the gas charter on the basis of unification and a longer concession.

A new agreement was hammered out and approved by the administration with what appeared in retrospect to be record speed. The city and the companies were ready to accept in 1852 another eighteen-year concession, with the cost of gas being reduced in stages to thirty-five centimes per cubic meter. The "revolution of 1852," with the simultaneous recovery of economic confidence and the imposition of the steady, guiding hand of a Bonaparte, undoubtedly quickened the negotiations. It brought the producers to settle for a shorter concession than they might have wished in the hope of benefiting from the sudden commercial upturn. The unusual concord between the industrialists and the municipal authorities proved futile, however, for the Council of State rejected the agreement on the grounds that it could be made more favorable to private consumers. This action opened a final round of negotiations, which centered on the price of gas, a matter that would continue to trouble the Parisian gas industry throughout the rest of the century.^[14]

A great deal of ink flowed from the companies, outside experts, and public officials about manufacturing costs. Estimates were generally in the range of twenty to twenty-five centimes per cubic meter, but one went as low as three centimes.^[15] The industrialists offered, and the city accepted, a rate of thirty-three centimes for private consumers; but once again the Imperial administration upset the accord. Louis-Napoleon had appointed a commission to examine the matter, and its finding was that prices could be lower Showing foresight for which he never received credit, the emperor insisted on the consumer's interests, and negotiations were on the

[14] Ibid., chaps. 2-3; Journal de l'éclairage au gaz (1854-1855).

[15] Compagnies de l'éclairage par le gaz de la ville de Paris, Rapports et délibérations de la commission municipale : Mémoires et documents divers , 3 vols. (Paris, 1855-1856); A. Chevalier, Observations sur le projet de traité pour l'éclairage au gaz de la ville de Paris (Paris, 1854); Mary et Combes, Rapport sur le prix de revient du mètre cube du gaz de l'éclairage tel qu'il résulte des livres de commerce des compagnies anglaises, françaises, et parisiennes (Paris, 1854); Pelouze, Rapport de la sous-commission du gaz : 19 août et 2 septembre 1853 (Paris, n.d.).

verge of collapse. It was at this crucial moment that the Pereire brothers entered the picture and "created" the PGC.

The Pereires did not contribute bold entrepreneurship but simply facilitated concessions from all sides. Some thirty-seven years after the fact, a municipal councilman depicted their role as a matter of bribing the proper authorities. His claim was corroborated by one of the firm's stockholders, who revealed in a private letter that the Pereires dispensed three million francs to get the project off the ground.^[16] There is of course no means to probe the allegations. One way or another the Pereires managed to include themselves in what would prove to be an excellent investment. Under their guidance the emperor, the companies, and the city agreed to a fifty-year concession, the longest ever considered, with gas for thirty centimes for private consumers. The Pereires joined the pioneer industrialists of the coal gas industry as founders of the PGC and provided fifteen million of the fifty-five million francs of capital. That was an investment the financiers would never have to regret.

The provisions of the contract, which took effect on January 1, 1856, provided the framework in which the PGC operated until its demise at the end of the concession.^[17] In addition to fixing the cost of gas once and for all at thirty centimes for private consumers, it gave the city a price of fifteen centimes for public lighting. The new company was obligated to lay gas mains under a street when a minimal level of demand existed. There were provisions specifying the quality of gas that had to be maintained and the supply of coal the company had to keep in stock to ensure against shortages. The city also negotiated certain financial benefits for itself. The PGC was obligated to pay a two-centime duty on every cubic meter sold. At the end of the concession the city was entitled to the distribution system below the thoroughfares without owing any compensation. Most important, Paris gained the right to half the profits of the PGC after 1872, calculated after a deduction of 8.4 million francs for reserves and debt service. That stipulation made the city a partner in a profitable private enterprise.

The charter of 1855 eventually proved to be a source of political embarrassment for the Imperial government. Critics, especially republican ones, characterized it as a sellout to the interests of "financial feudalism," as an

[16] Conseil municipal de Paris, Rapports et documents: 1892, no. 14, "Rapport . . . par E Sauton," pp. 30-31; AP, V 8 O , no. 616, Graverand to director, April 12, 1880; Maurice Charany, "Le Gaz à Paris," La Revue socialiste 36 (1902): 425.

[17] For published copies of the charters, see Prefecture de la Seine, Service public et particulier de l'éclairage et du chauffage par le gaz dans la ville de Paris (Paris, 1883). Besnard, Gaz à Paris , chap. 3, covers the details of the charter of 1855.

alienation of the public interest to selfish monopolists. Under the Third Republic municipal councilmen endlessly discussed the failings of the charter. However, a more balanced assessment is in order. The essential objection made against the gas agreement—that the contract allowed the PGC to charge far too much for gas and thereby reap fabulous, unearned profits—needs qualification. First, the agreement did result in a substantial and immediate reduction in gas rates. If there had been no new charter, consumers would have paid forty centimes or more for another seven years. Aldermen had been under pressure from consumer groups to effect this reduction, and many gas users were probably more interested in immediate costs than the long-term consequences of the concession.^[18] Moreover, fixing the rate at thirty centimes happened before the PGC had substantially reduced the cost of production—as it would do in the decade after the charter was signed. Thirty centimes might have seemed indefensibly high in 1865, but not in 1855. Finally, municipal councilmen chose to pursue the interest of the city over that of individual consumers in this agreement. Had they not procured so many financial advantages for Paris, they might have lowered the gas rate for customers. In effect, the public officials decided to impose a hidden tax of sorts on gas users. Given the social profile of consumers—a matter I shall soon explore—this was one of the more progressive taxes levied by the city. Where the Imperial authorities were at fault was in neglecting to create the means to reduce prices in anticipation of falling production costs. They might have been more mindful of the fact that gas companies of London produced handsome returns while selling gas for 15.5 centimes. Yet the agreement did not merit all the opprobrium it received for the rest of the century.^[19]

In fact, the revision of the charter worked out in 1861 deserves far more censure, for the opportunity to rectify problems was utterly wasted. The context for the renegotiations was the annexation of the Parisian suburbs. It was already evident that production costs were falling dramatically and that a reduction of the gas rates was in order. Moreover, the city had the leverage to force the PGC into concessions. The company wanted the right to supply gas to the new districts of the enlarged capital, destined for spectacular development. The city might have threatened to award the lucrative gas contract to a new firm. Yet the authorities did not strike a worthy

[18] Journal de l'éclairage au gaz , 1854, no. 7 (October 20): 98-99.

[19] Placing the agreement in a larger context, one could argue that the state proved no more capable of extracting concessions from the new railroad companies. See Kimon Doukas, The French Railroad and the State (New York, 1945), pp. 34-43; Jeanne Gaillard, "Notes sur l'opposition au monopole des compagnies de chemin de fer entre 1850 et 1860," Révolution de 1848 44 (December 1950).

bargain. Indeed, they not only left the defective provisions of the 1855 charter intact, but they also allowed gas executives to impose expensive burdens on the city. The municipal government wound up subsidizing the PGC's lucrative expansion into the annexed areas by guaranteeing a 10 percent return on capital expenditures, paying seventeen francs for each meter of gas main laid there and contributing 0.14 centimes for each cubic meter of gas sold. The ostensible reason for the generosity to the rich gas company was to compensate for the putative risks of the venture. Reasonable observers might have concluded that the negotiators greatly exaggerated those risks. Furthermore, the revision of 1861 finalized another expensive mistake, the city's sharing the firm's amortization costs. Parisian negotiators should have insisted, as several councilmen had since 1855, that the company alone bear that expense. The city's capitulation brought it a concession not worth having, the right to half of the corporate assets when the charter ended in 1906. This was not a wise arrangement for the city because the PGC now had an incentive to allow its plant and equipment to deteriorate as the charter neared its end.^[20] In fact, when a new firm took over gas production in 1907, the management decided that several of the PGC's factories were essentially worthless. The successor company had to undertake more than a hundred million francs of immediate capital improvements.^[21] Not only did Paris receive little for supporting amortization costs; it paid the cost twice—once when the PGC charged the expenditure to the operating budget and again when the company deducted 8.4 million francs before sharing profits. The courts eventually put a stop to the double payment, but not until Paris had sacrificed millions of francs.^[22] Perhaps the authorities who accepted the revised charter were only taking their cue from the state, which had agreed to an excessively generous settlement with the railroad companies a year earlier to encourage development at any price.^[23] Nonetheless, the charter of 1861 was indefensible. It represented, at best, a dereliction of duty on the part of Baron Georges-Eugene Haussmann and his staff or, at worst, an instance of corruption. Compared with prior bargaining, this charter signaled an

[20] Rapport pr é senté par le Conseil d'administration de la Compagnie parisienne du gaz à I'Assemblée générale (henceforth cited as Rapport ), September 14, 1860, pp. 3-13; Besnard, Gaz à Paris, chap. 3.

[21] AP, V 8 O , no. 1643, "Société du gaz de Paris," deliberations of June 7, 1910.

[22] Rapport, March 28, 1899, p. 41.

[23] Doukas, French Railroad and the State , pp. 34-35. The railroad agreement of 1859 had many of the same features as the PGC's new charter, including public aid for new construction and sharing in the profits after 1872. See also M. Blanchard, "The Railroad Policy of the Second Empire," in Essays in European Economic History, 1789-1914, ed. Francois Crouzet et al. (New York, 1969), pp. 98-111.

alarming decline in the ability of the Imperial administration to defend the public interest.

One more opportunity to modify the gas contract arose in 1870; but at that point the city had little to offer the PGC in exchange for renouncing its most lucrative privileges. As a result of the newest round of bargaining, Paris advanced the onset of profit sharing by two years. In return, the PGC raised the amount of profits exempted from sharing by four million francs. The 1870 charter also put an end to public subsidies for operations in the annexed zone, but not before the PGC had rushed to lay gas lines ahead of need so that the municipality would share the cost.^[24] Though this contract marked a return to a higher level of public responsibility than in 1861, Paris still remained unable to wring real benefits from the PGC. The negotiators unwisely treated impending armed conflict with Otto yon Bismarck as a remote possibility. The Franco-Prussian War, ruining gas sales, deprived the treasury of the early shared profits it had paid dearly to receive.

Once the 1870 charter was signed, relations between the city and the company were finalized—much to the regret of aldermen in subsequent decades. Despite a excess of venom on the part of consumers and efforts at negotiations from both sides, no successful new agreement emerged. The provisions laid down in 1855 allowed the PGC to become a very large and rich enterprise even as it presented the firm with serious public-relations problems.