Accession of Louis XV.--National debt of France.--Debasement of
coinage.--Arraignment of tax collectors.--Council of Finances
consider Law’s proposals unfavourably.--Petition for permission
to establish private bank granted.--Constitution of the
Bank.--Its Success.--The “Pitt” diamond and its purchase.
[Illustration]
Louis XIV. died on 1st September, 1715, and was succeeded by his
great-grandson Louis XV., then a mere boy of five years old. The Duc
d’Orleans was called to the Regency, and wielded the power of an
absolute monarch. He brought to his office the singular gifts of a
statesman, and man of affairs, modified by the vices and indifference
of a debauchée. The Duc de Saint-Simon speaks of the “range of his
mind, of the greatness of his genius, and of his views, of his
singular penetration, of the sagacity and address of his policy, of
the fertility of his expedients and of his resources, of the dexterity
of his conduct under all changes of circumstances and events, of
his clearness in considering objects and combining things; of his
superiority over his ministers, and over those that various powers sent
to him; of the exquisite discernment he displayed in investigating
affairs; of his learned ability in immediately replying to everything
when he wished.” No doubt this high estimate is the eulogium of a
courtier, and requires to be discounted to some extent, but, on
the whole, with little modification it may be considered a fair
representation of the abilities of the man who was about to place Law
in practical command of the government of France.
One of the first, as it also was one of the most important and
pressing, matters to which the Regent’s attention was demanded, was the
financial condition of the country. The adoption of drastic measures
was imperative. The national debt amounted to 3500 millions of livres,
and while the revenue produced 145 millions, the expenditure of the
Government absorbed 142 millions, leaving 3 millions with which to
liquidate interest upon the national debt, or 1-10th per cent. A
deficit of 150 to 200 millions was thus accumulating each year, and
every resource which ingenuity could conceive having long ago been
exhausted, the situation was daily becoming more difficult. The Regent,
shortly after his accession, called a meeting of the Council for the
purpose of devising a means of relieving the intolerable strain.
National bankruptcy was suggested by a few of its members, notably the
Duc de Saint-Simon. The Regent would give no ear to such a course, and
waved the suggestion aside as alike dishonourable and disastrous to all
possibility of good government. No one, however, seemed capable of
offering any plan of permanent value. The schemes proposed were merely
expedients promising temporary relief, and no other policy but one of
despair being apparent at the moment, the Regent was eager for their
immediate execution.
A commission or visa was appointed to investigate the nature of the
national debt, and, by classifying the claims, to bring order out of
chaos. By methods, in many instances more rigorous than just, the
national debt was reduced by 1500 millions, and interest was made
uniform at the rate of four per cent. Of the 2000 millions at which
the debt now stood, 1750 millions were funded, and the balance of
250 millions was converted into a general floating debt represented
by _billets d’état_. A substantial reduction was thus made in the
amount of interest payable by the Treasury; but, without an increase
of permanent revenue, which, if it were to be accomplished by the
imposition of fresh taxation, neither the Regent nor his Councillors
would face, or without a reduction in expenditure to an extent which
would have rendered the public service inefficient, the solution of the
financial difficulty was as distant as ever. Recourse was accordingly
had to two measures, which served the purpose of the moment. The first
was the old expedient of debasing the coinage. With the ostensible
object of having a new currency with the new king’s effigy, the old
coinage was recalled. The fresh issue, however, was depreciated in
the process to the extent of about 30 per cent., and the Government
profited by the transaction sufficient to liquidate one year’s interest
of the National Debt. The second device for replenishing the Exchequer
was the establishment of a Chamber of Justice, a kind of inquisition
for the investigation of the conduct of the tax-collectors. These men
by their unscrupulous dealings, had come to be regarded as the evil
genii of the French peasantry. Like vampires, they had for years been
sucking the very life-blood of the nation. No redress was open to their
victims, and resistance only had the effect of increasing the burdens
laid upon their shoulders. The institution of the Chamber of Justice
was accordingly received with unbounded joy. Every tax-farmer was
arraigned before this tribunal. The most searching investigation was
made, not only into his own dealings, but also into the dealings of the
hordes of satellites whom he employed to bleed his unfortunate victims.
Where information was withheld, or even where it was suspected that the
information given was tainted with inaccuracy, encouragement was given
to informers by holding out promises of 20 per cent. of any fines that
might be levied. Such a system, of course, was bound to bring evils
in its train as great as those it was intended to remove. A reign of
terror set in amongst the farmers-general. No sympathy was extended to
them by their judges. All confidence in their honesty had long ago been
destroyed. They were already prejudged. No effort on their part could
by any possibility ward off the weight of accusation against them.
Prison accommodation was soon taxed beyond its capacity. Those who were
fortunate enough to escape this Jeddart justice by bribery, by payment
of enormous fines, or by quietly submitting to wholesale confiscation,
left the country as a measure of personal safety. The records of the
period teem with the decisions of the Chamber of Justice and their
consequences. Most of the cases reflect a degree of moral obliquity on
the part of the judges not less than on the part of the accused. We are
told of one instance where a contractor had been taxed, in proportion
to his wealth and guilt, at the sum of twelve millions livres. A
courtier, possessing considerable influence with the Government,
offered to procure a remission of the fine for a bribe of one hundred
thousand crowns. “You are too late, my friend,” replied the contractor,
“I have already made a bargain with your wife for fifty thousand.”
In the course of a few weeks almost the whole of the fraternity had
run the gauntlet of the Chamber of Justice. They had been stript of
their power, their influence and their possessions. The country had
been effectively cleared of their presence, but to comparatively small
advantage. The total fines and confiscations amounted to one hundred
and eighty million livres, of which the Government received only one
half, and its parasites the other. As a consequence, its career was
brought to a close, and with it the ingenious financial devices of the
Council of Ministers.
Law was an amused spectator of the puerile efforts of the Regent and
his advisers to restore financial stability to their country. He
regarded them no less with scorn, and probably rejoiced in the futility
of their efforts, in the hope that each successive step they took would
bring the realisation of his own ambition within measurable distance.
The position he occupied, however, was one of difficulty, and demanded
a display of considerable tact and judgment. He had educated the Regent
up to the point of implicit confidence in his scheme, but there still
remained a dead weight of opposition in the Council, and without the
support of both the ground was very uncertain.
No time was lost by Law in an attempt to bring his proposals to a
head. He repeatedly interviewed the Regent within the first few weeks
after the death of Louis XIV., and submitted definite schemes for
relieving the situation. He urged that by the adoption of a system of
paper credit, not necessarily for supplanting, but for supplementing,
the coinage in currency, not only would the trade of the country
increase in volume, but the national debt would be effectively dealt
with. He based his argument upon the principle that the quantity of
money in circulation in a country determines its industrial activity.
Recognising that money, whether it be specie or paper, is not itself
the wealth of a country, but only the measure of its wealth, and
that in whatever form it exists it must represent either the whole
or part of that actual wealth, he conceived the idea of issuing the
notes against the landed property of France, and the ordinary State
revenues. He pointed out, as examples in support of his proposals,
the immense benefits which had flowed from the adoption of a similar
system by England, Holland, Venice, and Genoa. The Regent, convinced
before by Law’s arguments, was now determined to put them into
operation. He convened the Council of Finances, and invited to its
deliberations the principal bankers and merchants of Paris and of the
provinces. The sederunt took place on 24th October, 1715, only eight
weeks after the King’s death, but the Regent had personally interviewed
beforehand several of the members to secure their support for Law. To
this assembly Law unfolded the general outline of his proposals. “He
was listened to as long as he liked to talk. Some, who saw that the
Regent was almost decided, acquiesced; but the majority opposed.” The
precise ground of opposition is nowhere recorded, but probably the
fear, expressed at the former Council in July, had not been dissipated,
that the system would lend itself to abuse at the hands of an absolute
monarch, and might bring in its train greater evils than those it was
intended to remedy. The letters patent of 2nd May, 1716, granting
private banking privileges to Law, refers to the decision of this
assembly, but being couched in the language of official ambiguity,
gives no clue to the reasons which actuated the rejection of the
scheme. “Mr. Law having some time since proposed a scheme for erecting
a bank, which should consist of our own money, and be administered in
our own name, and under our authority, the project was examined in
our Council of Finances, when several bankers, merchants and deputies
from our trading cities being convened and required to give their
advice, they were unanimous in the opinion that nothing could be
more advantageous to our kingdom, which, through its situation and
fertility, added to the industry of its inhabitants, stood in need
of nothing more than a solid credit for acquiring the most extensive
and flourishing commerce. They thought, however, that this present
conjunction was not favourable for the undertaking; and this reason,
added to some particular clauses of the project, determined us to
refuse it.”
Law was thus foiled again, but weakness of purpose was far from being
a feature of his character. Irrefragable determination steeled him
against all rebuffs. He saw more than ever that France was his last
and only opportunity. He saw that the plastic minds of most of the
ministers were susceptible to the pressure of the Regent’s influence if
applied with sufficient strength. This was not difficult of operation.
The Regent’s influence was at Law’s command, and he made unsparing use
of it. With prudent calculation, however, of the future, should his
plans fail in their object by some mishap, he modified his scheme to
the extent of petitioning for permission to establish a private instead
of a national bank. In order, too, that the members of the Council
and those who would be called to the deliberations in connection with
his proposal should have some more definite and complete knowledge
of his theories than could be conveyed in conversation, or in course
of an address at the Council table, Law translated his book on Money
and Trade, published in Edinburgh in 1705, supplementing what he had
written there by separate papers giving his maturer ideas.
Early in 1716 every preparation had been made, and all contingencies
provided against. The Regent called again the Assembly of the previous
October. The scheme was solemnly discussed. Opposition dwindled to
a mere shadow. The scheme was passed, and remitted to the Regency
Council for final ratification. This last stage in the process is well
described by the Duc de Saint-Simon, whose opposition not even the
Regent could overcome.
M. le Duc d’Orléans took the trouble to speak in private to each
member of the council, and gently to make them understand that he
wished the bank to meet with no opposition. He spoke his mind to
me thoroughly; therefore a reply was necessary. I said to him that
I did not hide my ignorance or my disgust for all finance matters;
that nevertheless, what he had just explained to me appeared
good in itself, that without any new tax, without expense, and
without wronging or embarrassing anybody, money should double
itself at once by means of the notes of this bank, and become
transferable with the greatest facility. But along with this
advantage I found two inconveniences, the first, how to govern
the bank with sufficient foresight and wisdom, so as not to issue
more notes than could be paid whenever presented: the second,
that what is excellent in a republic, or in a monarchy where the
finance is entirely popular, as in England, is of pernicious use
in an absolute monarchy such as France, where the necessities of
a war badly undertaken and ill sustained, the avidity of a first
minister, favourite or mistress, the luxury, the wild expenses,
the prodigality of a King, might soon exhaust a bank, and ruin all
the holders of notes, that is to say overthrow the realm. M. le
Duc d’Orléans agreed to this; but at the same time maintained that
a King would have so much interest in never meddling or allowing
minister, mistress, or favourite to meddle with the bank, that
this capital inconvenience was never to be feared. Upon that we
for a long time disputed without convincing each other, so that
when, some few days afterwards, he proposed the bank to the regency
council, I gave my opinion as I have just explained it, but with
more force and at length: and my conclusion was to reject the bank,
as a bait the most fatal, in an absolute country, while in a free
country it would be a very good and very wise establishment.
Few dared to be of this opinion: the bank passed. M. le Duc
d’Orléans cast upon me some little reproaches but gentle, for
having spoken at such length. I based my excuses upon my belief
that by duty, honour, and conscience, I ought to speak according
to my persuasion, after having well thought over the matter, and
explained myself sufficiently to make my opinion well understood,
and the reason I had for forming it. Immediately after, the edict
was registered without difficulty at the Parliament. This assembly
sometimes knew how to please the Regent with good grace in order to
turn the cold shoulder to him afterwards with more efficacy.
Letters patent were issued on 2nd and 28th May, 1716, incorporating
the Bank, and three days after the latter date, these letters were
registered in the Parliamentary journals. The Bank was formed under
the name of the General Bank of Law & Company, the principal partners
being Law himself and his brother William. The capital was fixed at
six million livres, a sum approximately equal to £300,000, divided
into 1200 shares of 5000 livres each. The price of the shares allotted
to subscribers was payable in four equal instalments of which only
one required to be in cash, the balance being in _billets d’état_.
The management of the Bank and its general policy was placed in the
hands of the shareholders themselves, the extent of their voting
interest being determined by the number of their individual shares,
each five shares conferring one vote. A bi-yearly audit was to be
made of the Bank’s financial position, and shareholders were to be
convened at least twice a year. The business of the Bank was similar
in its nature to ordinary banking business of the present day, and
wise provision was made against engaging in commercial undertakings.
In short, the regulations were modelled upon the soundest principles
of finance. The one great feature of the Bank, however, and a feature
that displayed Law’s remarkable foresight, because its establishment
was only the first step in the development of his vast designs whose
ultimate accomplishment depended upon present success, consisted in
the character of the note issue. All notes were drawn at sight to
bearer, and were promises to pay in coin of the weight and standard of
the day of issue. Here rested the foundation of the Bank’s phenomenal
success. The coinage had in previous years been subject to sudden and
arbitrary changes of relative value, and consequently its purchasing
power was always of a speculative character. But, further, as the
Government alone secured the profit upon depreciation of the coinage,
each alteration brought with it dislocation of commercial transactions
and indirectly affected the volume of trade of the country. Law’s notes
in a very short time established themselves in the confidence of all
classes. Their value was permanent and unaffected by any fluctuations
in the coinage. Credit business was rendered possible where before
it had been folly. Industry in general experienced the stimulus of
financial stability, and underwent remarkable expansion. The notes,
and not the current coinage, became the medium of exchange, and soon
acquired a value in excess of the specie they nominally represented. To
these advantages Law was careful to add ease of immediate conversion.
Although the capital payable in cash only amounted to £75,000, yet
the large deposits, and the extensive floating business of the Bank,
together with the high estimate in which the notes were held, combined
to make the risk of inability to convert the notes a very remote
contingency.
In view of all these substantial advantages, the success of Law’s
scheme came in a measure as a matter of course. Business of the most
profitable nature flowed into the Bank. By enabling commercial men to
trade upon their securities at a low rate of interest, not only did
he usurp the functions of the usurer, functions which the bad policy
of the Government had placed in his hands, but the ramifications
of the Bank spread throughout the whole country, and made its
beneficent influences felt in a striking degree. Law himself very
shortly became the supreme protector of industrial prosperity. His
statesmanlike instincts led him to revive many branches of trade which
had degenerated, and to induce the establishment of others for which
he saw the resources of France were eminently suited. In order to
facilitate the business of the Bank he opened in the principal centres
branch establishments which acted both as feeders and as outlets for
the central institution. No one was more surprised than the Regent
himself at the extraordinary measure of success which had attended
Law’s scheme. Law accordingly occupied more than ever a high position
in the Regent’s estimation. He was regarded as the financial saviour of
France, a heaven-sent legislator before whom the hereditary advisers
of the Crown were small and paltry. Law was sufficiently astute to
press the advantage he had gained, and judging from the conduct of
the Duc D’Orleans at this time, he evidently had the latter under his
control. Saint-Simon tells us of the forced interviews he was compelled
by the Regent to grant to Law in order that he might be tutored into
approval, if not appreciation, of the new state of affairs. The wily
courtier was impervious, however, to the blandishments of his tutor. He
only deferred to the wish of the Regent, and merely gave a courteous
acquiescence to the arguments and statements that were showered upon
him. The object of these interviews obviously was to capture the
confidence of Saint-Simon who had been sufficiently courageous on
previous occasions to thwart Law’s designs in face of the Regent’s
wishes, and who might prove an awkward element in accomplishing
the development of his plans for the future. There was, however, a
subsidiary purpose, and Saint-Simon was not slow to recognise it. “I
soon knew,” says Saint-Simon, “that if Law had desired these regular
visits at my house, it was not because he expected to make me a skilful
financier, but because, like a man of sense--and he had a good deal--he
wished to draw near a servitor of the Regent who had the best post in
his confidence, and who long since had been in a position to speak to
him of everything and of everybody with the greatest freedom and the
most complete liberty, to try by this frequent intercourse to gain my
friendship, inform himself by me of the intrinsic qualities of those
of whom he only saw the outside, and by degrees to come to the Council;
through me, to represent the annoyances he experienced, the people with
whom he had to do, and, lastly to profit by my dislike to the Duc de
Noailles, who, whilst embracing him every day, was dying of jealousy
and vexation, and raised in his path, underhand, all the obstacles and
embarrassments possible, and would have liked to stifle him. The Bank
being in action and flourishing, I believed it my duty to sustain it.
I lent myself, therefore, to the instructions Law proposed, and soon
we spoke to each other with a confidence I never have had reason to
repent.”
Notwithstanding the pressure of work upon Law’s shoulders at this period
when the enormous amount of details consequent upon the establishment
of the Bank required his unremitting attention, he yet found ample time
for indulging in those trifling matters which bulk so largely in the
estimation of a courtier, and, especially if they entail extravagant
expenditure, often cloud his limited horizon to the exclusion of
affairs of greater importance.
The Duc de Saint-Simon, with a fine eye and a keen judgment for the
dainty trifles of this world, had set his mind upon the purchase
for the King of a priceless diamond which had come into the market
early in 1717. This gem, variously known as the “Pitt” or “Regent”
diamond, possessed a rather questionable history. It had been
discovered in 1701 in the Parteal mines of the Great Mogul by a slave,
who immediately decamped with his precious find to the coast. Here
he negotiated a sale with an English captain, who sold it to the
Governor of Fort St. George, an office held at that time by Thomas
Pitt, grandfather of the first Earl of Chatham. A model of it was made
and shown to Law, who had been approached with a view to using his
influence with the Regent for its purchase. The price, however, was a
stumbling-block, and Law at once requested the assistance of the Duc de
Saint-Simon. The Duc, who was always superior to any trifling financial
difficulty, thought “that it was not consistent with the greatness of
a King of France to be repelled from the purchase of an inestimable
jewel, unique of its kind in the world, by the mere consideration of
price, and the greater the number of potentates who had not dared to
think of it, the greater ought to be his care not to let it escape
him.” Saint-Simon’s record of his interview with the Regent is an
excellent example of the arguments the extravagant spendthrift makes
use of to salve his conscience when any whim is to be satisfied. The
Regent “feared blame for making so considerable a purchase, while the
most pressing necessities could only be provided for with much trouble,
and so many people were of necessity kept in distress. I praised
this sentiment, but I said that he ought not to regard the greatest
King of Europe as he would a private gentleman, who would be very
reprehensible if he threw away 100,000 livres upon a fine diamond,
while he owed many debts which he could not pay; that he must consider
the honour of the crown, and not lose the occasion of obtaining a
priceless diamond which would efface the lustre of all others in
Europe! that it was a glory for his Regency which would last for ever;
that, whatever might be the state of the finances, the saving obtained
by a refusal of this jewel would not much relieve them, for it would be
scarcely perceptible; in fact, I did not quit M. le Duc d’Orléans until
he had promised that the diamond should be bought. M. le Duc d’Orléans
was agreeably deceived by the applause that the public gave to an
acquisition so beautiful and so unique.... I much applauded myself
for having induced the Regent to make so illustrious a purchase.”
Through Law the price was fixed at two millions, or, approximately,
£150,000. So reduced, however, was the exchequer that payment was
impossible at the time, and thus an additional debt was added to an
already over-burdened Treasury. The purchase of the gewgaw was a simple
matter, and Saint-Simon was eminently capable for this portion of the
negotiations. The payment was more difficult, and was postponed to be
dealt with by Law himself.