Extraordinary Popular Delusions and the Madness of Crowds

by Charles MacKay

  It was after this repulse that he visited Italy. His mind being still occupied with schemes of finance, he proposed to Victor Amadeus, Duke of Savoy, to establish his land-bank in that country. The Duke replied that his dominions were too circumscribed for the execution of so great a project, and that he was by far too poor a potentate to be ruined. He advised him, however, to try the King of France once more; for he was sure, if he knew anything of the French character, that the people would be delighted with a plan, not only so new, but so plausible.

  Louis XIV died in 1715, and the heir to the throne being an infant only seven years of age, the Duke of Orleans assumed the reins of government, as Regent, during his minority. Law now found himself in a more favourable position. The tide in his affairs had come, which, taken at the flood, was to waft him on to fortune. The Regent was his friend, already acquainted with his theory and pretensions, and inclined, moreover, to aid him in any efforts to restore the wounded credit of France, bowed down to the earth by the extravagance of the long reign of Louis XIV.

  Hardly was that monarch laid in his grave ere the popular hatred, suppressed so long, burst forth against his memory. He who, during his life, had been flattered with an excess of adulation, to which history scarcely offers a parallel, was now cursed as a tyrant, a bigot, and a plunderer. His statues were pelted and disfigured; his effigies torn down, amid the execrations of the populace, and his name rendered synonymous with selfishness and oppression. The glory of his arms was forgotten, and nothing was remembered but his reverses, his extravagance, and his cruelty.

  The finances of the country were in a state of the utmost disorder. A profuse and corrupt monarch, whose profuseness and corruption were imitated by almost every functionary, from the highest to the lowest grade, had brought France to the verge of ruin. The national debt amounted to 3000 millions of livres, the revenue to 145 millions, and the expenditure to 142 millions per annum; leaving only three millions to pay the interest upon 3000 millions. The first care of the Regent was to discover a remedy for an evil of such magnitude, and a council was early summoned to take the matter into consideration. The Duke de St. Simon was of opinion that nothing could save the country from revolution but a remedy at once bold and dangerous. He advised the Regent to convoke the States-General, and declare a national bankruptcy. The Duke de Noailles, a man of accommodating principles, an accomplished courtier, and totally averse from giving himself any trouble or annoyance that ingenuity could escape from, opposed the project of St. Simon with all his influence. He represented the expedient as alike dishonest and ruinous. The Regent was of the same opinion, and this desperate remedy fell to the ground.

  The measures ultimately adopted, though they promised fair, only aggravated the evil. The first, and most dishonest measure, was of no advantage to the state. A recoinage was ordered, by which the currency was depreciated one-fifth; those who took a thousand pieces of gold or silver to the mint received back an amount of coin of the same nominal value, but only four-fifths of the weight of metal. By this contrivance the treasury gained seventy-two millions of livres, and all the commercial operations of the country were disordered. A trifling diminution of the taxes silenced the clamours of the people, and for the slight present advantage the great prospective evil was forgotten.

  A chamber of justice was next instituted, to inquire into the malversations of the loan-contractors and the farmers of the revenues. Tax collectors are never very popular in any country, but those of France at this period deserved all the odium with which they were loaded. As soon as these farmers-general, with all their hosts of subordinate agents, called maltotiers [From maltote, an oppressive tax.], were called to account for their misdeeds, the most extravagant joy took possession of the nation. The Chamber of Justice, instituted chiefly for this purpose, was endowed with very extensive powers. It was composed of the presidents and councils of the parliament, the judges of the Courts of Aid and of Requests, and the officers of the Chamber of Account, under the general presidence of the minister of finance. Informers were encouraged to give evidence against the offenders by the promise of one-fifth part of the fines and confiscations. A tenth of all concealed effects belonging to the guilty was promised to such as should furnish the means of discovering them.

  The promulgation of the edict constituting this court caused a degree of consternation among those principally concerned which can only be accounted for on the supposition that their peculation had been enormous. But they met with no sympathy. The proceedings against them justified their terror. The Bastile was soon unable to contain the prisoners that were sent to it, and the gaols all over the country teemed with guilty or suspected persons. An order was issued to all innkeepers and postmasters to refuse horses to such as endeavoured to seek safety in flight; and all persons were forbidden, under heavy fines, to harbour them or favour their evasion. Some were condemned to the pillory, others to the gallies, and the least guilty to fine and imprisonment. One only, Samuel Bernard, a rich banker, and farmer-general of a province remote from the capital, was sentenced to death. So great had been the illegal profits of this man, – looked upon as the tyrant and oppressor of his district, – that he offered six millions of livres, or 250,000 pounds sterling, to be allowed to escape.

  His bribe was refused, and he suffered the penalty of death. Others, perhaps more guilty, were more fortunate. Confiscation, owing to the concealment of their treasures by the delinquents, often produced less money than a fine. The severity of the government relaxed, and fines, under the denomination of taxes, were indiscriminately levied upon all offenders. But so corrupt was every department of the administration, that the country benefited but little by the sums which thus flowed into the treasury. Courtiers, and courtiers’ wives and mistresses, came in for the chief share of the spoils. One contractor had been taxed in proportion to his wealth and guilt, at the sum of twelve millions of livres. The Count * * *, a man of some weight in the government, called upon him, and offered to procure a remission of the fine, if he would give him a hundred thousand crowns. “Vous etes trop tard, mon ami,” replied the financier; “I have already made a bargain with your wife for fifty thousand.” [This anecdote is related by M. de la Hode, in his Life of Philippe of Orleans. It would have looked more authentic if he had given the names of the dishonest contractor and the still more dishonest minister. But M. de la Hode’s book is liable to the same objection as most of the French memoirs of that and of subsequent periods. It is sufficient with most of them that an anecdote be ben trovato; the veto is but matter of secondary consideration.]

  About a hundred and eighty millions of livres were levied in this manner, of which eighty were applied in payment of the debts contracted by the government. The remainder found its way into the pockets of the courtiers. Madame de Maintenon, writing on this subject, says, “We hear every day of some new grant of the Regent; the people murmur very much at this mode of employing the money taken from the peculators.” The people, who, after the first burst of their resentment is over, generally express a sympathy for the weak, were indignant that so much severity should be used to so little purpose. They did not see the justice of robbing one set of rogues to fatten another. In a few months all the more guilty had been brought to punishment, and the chamber of justice looked for victims in humbler walks of life. Charges of fraud and extortion were brought against tradesmen of good character, in consequence of the great inducements held out to common informers. They were compelled to lay open their affairs before this tribunal in order to establish their innocence. The voice of complaint resounded from every side, and at the expiration of a year the government found it advisable to discontinue further proceedings. The chamber of justice was suppressed, and a general amnesty granted to all against whom no charges had yet been preferred.

  In the midst of this financial confusion Law appeared upon the scene. No man felt more deeply than the Regent the deplorable state of the country, but no man could be more averse from putting his shoulders manfully
to the wheel. He disliked business; he signed official documents without proper examination, and trusted to others what he should have undertaken himself. The cares inseparable from his high office were burdensome to him; he saw that something was necessary to be done, but he lacked the energy to do it, and had not virtue enough to sacrifice his case and his pleasures in the attempt. No wonder that, with this character, he listened favourably to the mighty projects, so easy of execution, of the clever adventurer whom he had formerly known, and whose talents he appreciated.

  When Law presented himself at court, he was most cordially received. He offered two memorials to the Regent, in which he set forth the evils that had befallen France, owing to an insufficient currency, at different times depreciated. He asserted that a metallic currency, unaided by a paper money, was wholly inadequate to the wants of a commercial country, and particularly cited the examples of Great Britain and Holland to show the advantages of paper. He used many sound arguments on the subject of credit, and proposed, as a means of restoring that of France, then at so low an ebb among the nations, that he should be allowed to set up a bank, which should have the management of the royal revenues, and issue notes, both on that and on landed security. He further proposed that this bank should be administered in the King’s name, but subject to the control of commissioners, to be named by the States-General.

  While these memorials were under consideration, Law translated into French his essay on money and trade, and used every means to extend through the nation his renown as a financier. He soon became talked of. The confidants of the Regent spread abroad his praise, and every one expected great things of Monsieur Lass. [The French pronounced his name in this manner to avoid the ungallic sound, aw. After the failure of his scheme, the wags said the nation was lasse de lui, and proposed that he should in future be known by the name of Monsieur Helas!]

  On the 5th of May, 1716, a royal edict was published, by which Law was authorised, in conjunction with his brother, to establish a bank, under the name of Law and Company, the notes of which should be received in payment of the taxes. The capital was fixed at six millions of livres, in twelve thousand shares of five hundred livres each, purchasable one-fourth in specie and the remainder in billets d’etat. It was not thought expedient to grant him the whole of the privileges prayed for in his memorials until experience should have shown their safety and advantage.

  Law was now on the high road to fortune. The study of thirty years was brought to guide him in the management of his bank. He made all his notes payable at sight, and in the coin current at the time they were issued. This last was a master-stroke of policy, and immediately rendered his notes more valuable than the precious metals. The latter were constantly liable to depreciation by the unwise tampering of the government. A thousand livres of silver might be worth their nominal value one day and be reduced one-sixth the next, but a note of Law’s bank retained its original value. He publicly declared at the same time that a banker deserved death if he made issues without having sufficient security to answer all demands. The consequence was, that his notes advanced rapidly in public estimation, and were received at one per cent. more than specie. It was not long before the trade of the country felt the benefit. Languishing commerce began to lift up her head; the taxes were paid with greater regularity and less murmuring, and a degree of confidence was established that could not fail, if it continued, to become still more advantageous. In the course of a year Law’s notes rose to fifteen per cent. premium, while the billets d’etat, or notes issued by the government, as security for the debts contracted by the extravagant Louis XIV, were at a discount of no less than seventy-eight and a half per cent. The comparison was too great in favour of Law not to attract the attention of the whole kingdom, and his credit extended itself day by day. Branches of his bank were almost simultaneously established at Lyons, Rochelle, Tours, Amiens, and Orleans.

  The Regent appears to have been utterly astonished at his success, and gradually to have conceived the idea, that paper, which could so aid a metallic currency, could entirely supersede it. Upon this fundamental error he afterwards acted. In the mean time, Law commenced the famous project which has handed his name down to posterity. He proposed to the Regent, who could refuse him nothing, to establish a company, that should have the exclusive privilege of trading to the great river Mississippi and the province of Louisiana, on its western bank. The country was supposed to abound in the precious metals, and the company, supported by the profits of their exclusive commerce, were to be the sole farmers of the taxes, and sole coiners of money. Letters patent were issued, incorporating the company, in August 1717. The capital was divided into two hundred thousand shares of five hundred livres each, the whole of which might be paid in billets d’etat, at their nominal value, although worth no more than 160 livres in the market.

  It was now that the frenzy of speculating began to seize upon the nation. Law’s bank had effected so much good, that any promises for the future which he thought proper to make were readily believed. The Regent every day conferred new privileges upon the fortunate projector. The bank obtained the monopoly of the sale of tobacco; the sole right of refinage of gold and silver, and was finally erected into the Royal Bank of France. Amid the intoxication of success, both Law and the Regent forgot the maxim so loudly proclaimed by the former, that a banker deserved death who made issues of paper without the necessary funds to provide for them. As soon as the bank, from a private, became a public institution, the Regent caused a fabrication of notes to the amount of one thousand millions of livres. This was the first departure from sound principles, and one for which Law is not justly blameable. While the affairs of the bank were under his control, the issues had never exceeded sixty millions. Whether Law opposed the inordinate increase is not known, but as it took place as soon as the bank was made a royal establishment, it is but fair to lay the blame of the change of system upon the Regent.

  Law found that he lived under a despotic government, but he was not yet aware of the pernicious influence which such a government could exercise upon so delicate a framework as that of credit. He discovered it afterwards to his cost, but in the mean time suffered himself to be impelled by the Regent into courses which his own reason must have disapproved. With a weakness most culpable, he lent his aid in inundating the country with paper money, which, based upon no solid foundation, was sure to fall, sooner or later. The extraordinary present fortune dazzled his eyes, and prevented him from seeing the evil day that would burst over his head, when once, from any cause or other, the alarm was sounded. The Parliament were from the first jealous of his influence as a foreigner, and had, besides, their misgivings as to the safety of his projects. As his influence extended, their animosity increased. D’Aguesseau, the Chancellor, was unceremoniously dismissed by the Regent for his opposition to the vast increase of paper money, and the constant depreciation of the gold and silver coin of the realm. This only served to augment the enmity of the Parliament, and when D’Argenson, a man devoted to the interests of the Regent, was appointed to the vacant chancellorship, and made at the same time minister of finance, they became more violent than ever. The first measure of the new minister caused a further depreciation of the coin. In order to extinguish the billets d’etat, it was ordered that persons bringing to the mint four thousand livres in specie and one thousand livres in billets d’etat, should receive back coin to the amount of five thousand livres. D’Argenson plumed himself mightily upon thus creating five thousand new and smaller livres out of the four thousand old and larger ones, being too ignorant of the true principles of trade and credit to be aware of the immense injury he was inflicting upon both.

  The Parliament saw at once the impolicy and danger of such a system, and made repeated remonstrances to the Regent. The latter refused to entertain their petitions, when the Parliament, by a bold, and very unusual stretch of authority, commanded that no money should be received in payment but that of the old standard. The Regent summoned a lit de justice,
and annulled the decree. The Parliament resisted, and issued another. Again the Regent exercised his privilege, and annulled it, till the Parliament, stung to fiercer opposition, passed another decree, dated August 12th, 1718, by which they forbade the bank of Law to have any concern, either direct or indirect, in the administration of the revenue; and prohibited all foreigners, under heavy penalties, from interfering, either in their own names, or in that of others, in the management of the finances of the state. The Parliament considered Law to be the author of all the evil, and some of the counsellors, in the virulence of their enmity, proposed that he should be brought to trial, and, if found guilty, be hung at the gates of the Palais de Justice.

  Law, in great alarm, fled to the Palais Royal, and threw himself on the protection of the Regent, praying that measures might be taken to reduce the Parliament to obedience. The Regent had nothing so much at heart, both on that account and because of the disputes that had arisen relative to the legitimation of the Duke of Maine and the Count of Thoulouse, the sons of the late King. The Parliament was ultimately overawed by the arrest of their president and two of the counsellors, who were sent to distant prisons.