Company acquires right of coinage.--Issue of fresh stock and rise
in price.--Attempts made to discredit Law.--Stair’s account of
the situation.--Law defeats the anti-scheme.--The concluding
proposal of his schemes.--The Company’s capital and sources of
revenue.--Report of directors for 1719.--Law’s bank converted
into a Royal bank against Law’s wish.--The Regent divests
notes of the bank of their most valuable features.--Provincial
branches established.--Restriction of gold and silver
tender.--Extravagance of successful speculators.
[Illustration]
The Indian Company had only yet touched the fringe of the monopolies
Law intended it to embrace. It had embarked upon a sea of dazzling
speculation, but its journey was only at its commencement. Its
destination, however, was by no means uncertain in the mind of the
great financier, and this he was to reach in the space of four months.
The first great acquisition of value and importance was the transfer to
the Company of the right of coinage. This was effected on 25th July,
1719. The right was to extend over a period of nine years, and the
price was fixed at 50,000,000 livres, payable within fifteen months
of the date of the grant. To place the Company in a position to carry
out the bargain a fresh issue of shares was made, and Law on this
occasion took greater advantage of public enthusiasm than he did on
the occasion of the previous issue. In the latter case the shares were
offered at a premium of ten per cent., the public, although paying 550
livres, receiving stock only of the value of 500 livres. In the present
instance the 500 livres share was to be allotted on payment of 1000
livres, thus necessitating the issue of only 50,000 shares. In addition
to enacting a premium, Law employed a device he had before resorted to.
He made it a condition that subscribers should be already possessors
of previously issued shares to the extent of five times more than the
number of new shares they desired to have allotted to them. The effect
of this was magical. The demand for old shares was so intense that they
rose immediately to 2000 livres, and the rapidity of the rise only
served to widen the circle of speculators. Law was thus bringing within
his grasp practically the whole of the nation as participants in his
schemes.
The universal enthusiasm, however, was not unmixed. The unaccustomed
magnitude of Law’s transactions was productive in certain quarters of
considerable misgivings, and not a few were able amidst the general
excitement to regard his schemes with more than usual calmness. Amongst
those, of course, were found the financier’s bitterest enemies.
To discredit Law, and to baulk him in his efforts, they lost no
opportunity; and to instil doubt in the public mind as to the sanity
of their speculations was by no means a difficult task. It was only
necessary to secure the support of a few in order to depress the value
of the Mississippi stock. Extensive sales, ostensibly for the purpose
of saving a further loss, but really for the purpose of undermining the
market, produced in the following month a sharp reaction. The Earl of
Stair writing to Secretary Craggs on 20th August, 1719, remarks in the
course of his letter upon this sudden and disturbing attitude of the
public. He says:--
“Mississippi begins to stagger; the actions fall and there are no more
buyers; which has happened by Law’s imprudence, and boundless desire
for gain. He had raised the actions to such a price that it required
above forty millions to pay the interest at four per cent. When the
French, by degrees, began to make this calculation, and found that it
was impossible that even the King could find his account to furnish
such a sum annually to support Mississippi, they found themselves
cheated; and they are now crowding to sell out. Law will do what he can
to support the actions, but the thing is impossible. The mystery of
the matter is this: in the original fund of one hundred millions, the
King and the Regent had about forty millions; and the same proportion
of additional subscription of fifty millions. The company bought the
coinage of the King at fifty millions, to be paid in fifteen months.
Besides these fifty millions, the King or the Regent, by selling out
when the actions were at four hundred, might have got two hundred
millions; at which rate they might have been supported. But by buoying
them up to six hundred, to make the Regent win three hundred millions,
Law risks to have the whole fabric tumble to the ground. For the
French, who run on boldly and impetuously in the beginning of all
enterprises, run back with the same impetuosity when once they are
rebuffed. I do not know if I have explained this matter to you, so as
that you will be able to understand. It is, certainly, something more
extravagant and more ridiculous than anything that ever happened in any
other country. I wish for your diversion I could but talk one hour to
you upon that subject.”
Law, however, was equal to the opposition of his enemies, and treated
their efforts to undermine his position with the utmost indifference
and contempt. He proceeded apace with the completion of his schemes,
and was now approaching the zenith of his power. All that now remained
for him to accomplish of his original plans was the purchase of the
great farms and several other smaller sources of the national revenues.
The anti-scheme attempted by the brothers Paris, under the auspices
of D’Argenson, had been carried out to the extent of a lease of the
great revenue farms having been granted to Aymard Lambert, D’Argenson’s
valet-de-chambre, but had not been put into operation. Law now came
forward and secured the lease on behalf of the Western Company,
accomplishing the three-fold object of acquiring a valuable asset for
the company, relieving the taxpayers from the intolerable exactions
of the farmers, and, lastly, humiliating D’Argenson for the part he
took in the anti-scheme. The grant of the great farms was formally
made on 27th, and of the other departments of taxation on 31st August.
The treasury had derived from these sources the annual revenue of
48,000,000 livres, but Law offered a further sum of 3,500,000 livres
for the privilege which was to extend over a period of nine years. The
Company now declared its ability to pay a dividend of 200 livres upon
its shares, or 40 per cent. upon its capital. Such a declaration at
once counteracted the devices of Law’s opponents to lower the price
of the shares, and within a few days they rose to a premium of 1000
per cent., at which extravagant price it was even extremely difficult
to make substantial purchases. The demand was also created by the
condition that allotment of the recently issued shares would only be
in favour of those already possessed of stock. “The public,” says Lord
Stair, “has run upon this new subscription with that fury that near
the double of that sum is subscribed for; and there have been the
greatest brigues and quarrels to have place in the subscription, to
that degree, that the new submissions are not yet delivered out, nor is
the first payment received. Mr. Law’s door is shut, and all the people
of quality in France are on foot, in hundreds, before his door in the
Place Vendôme.”
Law now made the concluding proposal of his schemes. The absorption
of _billets d’état_ by the Company, although extensive, had not yet
exhausted them. There still remained almost 1500 million livres
in circulation, and Law was anxious to have them liquidated. He
accordingly proposed to lend the King a sum of money sufficient for the
purpose at 3 per cent. per annum, and at the same time to reduce the
interest upon the 100 millions previously advanced at 4 per cent. to a
similar rate; and in return for an offer so advantageous, he secured an
extension of the various grants to the Company for the uniform period
of fifty years. To carry through this, the largest and most important
transaction upon which the Company had entered as yet, an issue of
300,000 new shares was made at a price of 5000 livres, thus yielding a
premium of 4500 livres. These shares, however, were not to be allotted
to the public. The Regent was fully alive to the possibility of
enriching himself by securing the whole of the issue and profiting by
the rise which would certainly take place in their value. He already
was holder of 100,000 of previously issued shares, and of the whole
capital of the company only 200,000 were in the hands of the public.
The supply was accordingly unequal to the demand, and in the course of
two months the shares reached the incredible price of 10,000 livres. A
kind of madness had seized the nation. A royal road to fortune had been
opened up by the ingenious foreigner; and had lured along its easy path
an excited throng of princes and people, peers and commoners, clergy
and laity, rich and poor--in short all who by any means could hope to
secure the coveted scrip. The memoirs of the period teem with instances
of the excessive folly and rashness which characterised these halcyon
days of the scheme, and display a want of balance on the part of the
French nation entirely beyond belief.
That the public should thus have allowed their excitement of feelings
to destroy their judgment so far as to ignore the primary elements of
caution and of foresight can hardly be attributed to Law. No evidence
can be brought of any intention on his part to utilize his financial
genius for the purpose of blinding the nation to its own interests,
and turning it merely to his own exclusive advantage. The effect of
his schemes was entirely beyond his control. So far as the reception
they would receive from the French nation was concerned, his own
anticipations were only too clearly exceeded. He undoubtedly perceived
the dangerous courses upon which the public had entered, but it would
have been imprudent on his part to have endeavoured by any arbitrary
act to check it. He firmly believed in the adequacy of his system to
accomplish the objects which he stated he had in view. He may have
been, and was, somewhat over-sanguine, but that was merely a fault of
temperament, not a consequence of sinister motive. He may have been
extravagant in praise of the possibilities of his schemes, but that was
due to intensity of confidence in their efficacy, not to any deliberate
intention to deceive.
The total capital of the company was now 300,000,000 livres, and to pay
the promised dividend of 200 livres per share would require profits of
at least 120,000,000 livres. Those profits were drawn principally from
the interest payable by the State upon the advances made by the Company
for the purposes of liquidating the national debt, from the coinage,
from the tobacco monopoly, from the great farms, from the collection of
general taxes, and from their general commerce. Amongst these the only
leakage which could occur would be in the latter, and Law’s estimate of
the profits derivable from it were placed at one-third of the whole.
Such an estimate, however, may have been so wide of the mark that the
expenditure incurred in the administration of the Company’s commercial
transactions might possibly have been so great as to absorb the whole
of the surpluses accruing from the other departments. Time, however,
could alone supply the test of this, but the downfall of the system
anticipated the opportunity. Other contingencies arose, foreign to the
business of the Company, which struck at its stability and brought its
career to an unexpected end.
The closing months of 1719, and the opening months of 1720, saw the
system at the height of its prosperity. Everything proceeded smoothly.
Nothing ruffled the high hopes entertained by all as to its future. At
the General Assembly of the proprietors of the Company held, on 30th
December, 1719, for the purpose of communicating its position since
the previous assembly, and of submitting the accounts for this year,
it was reported that, although an accurate balance could not be struck
owing to the overwhelming duties of the directors in carrying through
the extensive negotiations of the previous months, “the proprietors
may be assured that everything passes for the good and advantage of
the Company; that the colonies of Louisiana are going on prosperously;
that the trade to India, and that to Africa, and to the north, are
assuming new vigour; that the produce of the Farms General is visible
increasing; that there will be very considerable profits arising from
the administration and striking of the coin and from the refining of
the materials; that the Company wish to economize the expenses of
taxations, and of the emoluments given to the Receivers General of
Finance, so that the dividend of the old shares of the Western Company
might be fixed at present at the proportion of 40 per cent. and a like
dividend for the hundred and fifty millions of the new shares in the
India Company.”
The board of directors consisted of thirty members, each of whom was
obliged to deposit 200 shares as security for his good administration.
Their salaries were originally fixed at 6000 livres, but at the same
meeting were increased to 30,000 livres, by no means an exorbitant sum
in view of the magnitude of their labours and the greatness of their
responsibility.
Interesting as had been the progress of the Company during the past
year, the Bank which Law had founded had also undergone a great and
momentous change. Since its institution in May, 1716, its operations
had met with great success, and had secured the utmost confidence
of the public, not only because of the soundness of the principles
which dominated its administration, but also because of its careful
and cautious management. The currency became more stable than it
hitherto had been, and foreign trade developed where before it had
been impossible by reason of the great uncertainty of the rates of
exchange. The Regent, influenced by its success and labouring under the
idea that this success could be permanently maintained even though its
principal features were radically changed, determined to take control
of Law’s bank, and convert it from a private into a royal institution.
Accordingly, on 4th December, 1718, the General Bank of Law and Company
was proclaimed a Royal Bank, to be administered in future by the King
and his advisers. This change was opposed by Law, who, knowing the
character of the Regent, foresaw the possibility of disastrous results,
but the Duc d’Orleans had decided upon the step, and opposition was of
no avail. The new ordinance was to come into force on 1st January,
1719. The King reimbursed in specie the holders of the shares, and
guaranteed the due payment of the notes in circulation which at that
date amounted to 59,000,000 livres. The proprietors, who had, as
already seen, only paid one fourth of their holding in specie and the
remaining three fourths in depreciated _billets d’état_, thus realised
their investment in cash to the face value of their securities. Law was
appointed Director-General of the Bank, acting under the instructions
of the King through the Regent. Thus the King by this change became
the sole proprietor of the Bank, and the dignity he conferred upon it
secured it even more, if that were possible, in the good favour of his
people.
It has already been stated that the notes of the General Bank were
always convertible at sight into coin of the weight and standard of
the day of issue, and that here lay its strength and security. The
Regent, however, in all probability unwilling to restrict himself from
taking advantage of depreciating the coinage at any time a favourable
opportunity should present itself, divested the notes of the Bank of
this excellent feature, and in the future they bore that. “The Bank
promises to pay the bearer, at sight, ---- livres in silver coin,
value received.” This change, also opposed by Law, struck at the
very root principle of good credit. It endeavoured to make paper the
standard of currency, while no guarantee was given that the coinage
would remain of a fixed and unvarying value. No legislative decree,
no royal proclamation, can place an artificial value upon the medium
of currency, unless there is also present the indispensable element of
public confidence. A paper currency can only circulate at its nominal
value if there is behind it the security of a fixed coinage and a fund
of specie in reserve for conversion. The Regent in issuing his new
notes offered neither of these, but on account of the favour into which
the Bank had been brought by Law, the confidence of the public remained
as yet at least unshaken. We will see, however, at a later stage the
consequences which this disastrous change involved.
A further important step in the development of the Bank was the
establishment of branches in the five important centres--Lyons, La
Rochelle, Tours, Orleans, and Amiens. Those towns, which enjoyed the
privilege of local parliaments, such as Toulouse, Bordeaux, Rouen,
Grenoble, Dijon and Metz, were carefully avoided by the Regent, who
anticipated that the extension of the Bank to them might provoke
unpleasant opposition. Other towns, again, where no provincial
parliaments existed to consult, had otherwise displayed hostility to
the Bank, and these also were not honoured by the presence of its
branches. “Lisle, Marseilles, Nantz, Saint Malo, and Bayonne, were
distinguished by this prudent exclusion.” At the same time it was
decreed that where branches of the Bank existed specie should only be
legal tender up to 600 livres, notes being necessary for amounts beyond
that sum, and that gold and silver were on no account, unless by
special permission of the Bank authorities, to be transmitted to such
towns. By these restrictions it was hoped that specie as a medium of
currency would fall into desuetude and notes alone become recognised
for purposes of exchange. This hope was expressed in the decree of
22nd April, 1719, which authorised the issue of 100,000,000 additional
notes. “These cannot be subject to any diminution, as the specie is,
inasmuch as the circulation of the Bank bills is more useful to the
subjects of his Majesty, than that of the specie of gold and silver,
and that they deserve a particular protection, in preference to the
coin made of materials brought from foreign countries.”
Before the close of the year, fresh issues were made to the extent of
900,000,000 livres; and on 21st December, silver and gold suffered
further restriction as tender, the former being limited to ten livres
and the latter to three hundred. The purpose of this was to force a
paper currency, and as far as possible discourage the use of specie.
By reducing to so low a limit the tender of gold and silver, a demand
was created for the notes of the Bank, and very shortly the Bank
had attracted to itself a large proportion of the coinage then in
currency. People “ran there in crowds, conjuring and imploring the
clerks to receive their specie, and thinking themselves happy when they
succeeded. Upon which, a merry fellow wittily called out to those who
were the most forward; ‘Don’t be afraid, gentlemen, that your money
should remain on your hands; it shall all be taken from you.’”
The effect was to a large extent as the Regent had wished. Paper
circulated with the greatest freedom, and the highly speculative
mood in which the people indulged was productive of an appearance
of peculiarly false prosperity. Money as represented in notes
became exceedingly abundant because of the manner in which it was
distributed. Everyone spent with a lavish hand, regardless of the
possibility of Law’s schemes receiving a sudden and unexpected check,
thus bringing about a dislocation of the supply of money. Luxuries
became necessaries, and domestic life displayed the grossest degrees
of unbridled extravagance. To supply the great demand for rich cloths,
costly furniture, and all the various luxuries which only find a ready
market when prosperity spreads over a whole community, new industries
arose throughout the country, and labour not only became scarce but
was able to command in some cases four times its previous value. A
taste arose too for works of art, and the best of the continent was
sent into France where fabulous prices were obtained with a readiness
proportionate to the ease with which the fortunes of the investors
were made. Duhautchamp, in his History of the Scheme, gives several
instances of this extravagance on the part of the _nouveaux riches_.
Of one he says that, “He carried his magnificence so far, that most
of the deeds related of him appear fabulous. His hotel in Paris, his
gardens, his furniture, his equipage, the number of his servants of
all degrees and professions, equalled those of the greatest princes.
A certain jeweller declares that he supplied him with more than three
millions worth of precious stones, without reckoning the beautiful
diamond of the Count de Nocé, for which he paid 500,000 livres, and a
girdle buckle which a Jew sold him for the same sum. With regard to his
furniture, being a connoisseur of good taste, he had selected the whole
so well, that, to form an idea of the magnificence of his apartments,
we must have recourse to descriptions which are used of fairy palaces.
Not content with 4000 marcs of silver and silver gilt service which
he had first ordered, he found means to carry off from the jeweller’s
that which had been made for the King of Portugal, under pretext that
the agents of that prince had been wanting in punctuality of payment.
Besides this magnificent table service, he furnished himself with
stands, mirrors, braziers, orange-tree cases, flower pots, &c. Lastly
all his cooking utensils were of silver. As for his upholstery, he
took everything which could be imagined of that kind that was most
precious. He had no less than eighty horses in his stables--his
equipages equalled in number those of the grand Sultan. The number of
his servants was nearly ninety, amongst whom were comprised intendant,
secretaries, steward, surgeon, valets de chambre, upholsterers, four
young ladies as chamber maids, and for his grooms four footmen of birth
very superior to that of their master. Even when he went to dine away
from home, he had his own table served as sumptuously as if he were
present. It was served with everything most exquisite, principally
during the year 1720. He was supplied with young peas which had cost
100 pistoles the pint. Nothing was wanting that the most voluptuous
gourmet could think of. The desserts that were served were fitted to
surprise the most expert mechanicians. Large fruits, which would have
deceived the eyes of the most clear sighted, were so artistically
contrived that when anyone, surprised at seeing a beautiful melon in
winter, attempted to touch it, he caused a number of little fountains
to spring up of different sorts of spirituous liquors which delighted
the sense of smell, whilst the master of the house, pressing his foot
on a concealed spring, made an artificial figure walk round the table
and pour out nectar to the ladies, before whom he was made to stop.
In a word I doubt whether the famous feasts of Antony and Augusta,
so vaunted in history, had anything more rare than those which our
fortunate millionaire took a pleasure in giving.”