Extraordinary Popular Delusions and the Madness of Crowds

by Charles MacKay

  The twenty-five millions secured on the municipal revenues of the city of Paris, bearing so low an interest as two and a half per cent., were not very popular among the large holders of Mississippi stock. The conversion of the securities was, therefore, a work of considerable difficulty; for many preferred to retain the falling paper of Law’s Company, in the hope that a favourable turn might take place. On the 15th of August, with a view to hasten the conversion, an edict was passed, declaring that all notes for sums between one thousand and ten thousand livres; should not pass current, except for the purchase of annuities and bank accounts, or for the payment of instalments still due on the shares of the company.

  In October following another edict was passed, depriving these notes of all value whatever after the month of November next ensuing. The management of the mint, the farming of the revenue, and all the other advantages and privileges of the India, or Mississippi Company, were taken from them, and they were reduced to a mere private company. This was the deathblow to the whole system, which had now got into the hands of its enemies. Law had lost all influence in the Council of Finance, and the company, being despoiled of its immunities, could no longer hold out the shadow of a prospect of being able to fulfil its engagements. All those suspected of illegal profits at the time the public delusion was at its height, were sought out and amerced in heavy fines. It was previously ordered that a list of the original proprietors should be made out, and that such persons as still retained their shares should place them in deposit with the company, and that those who had neglected to complete the shares for which they had put down their names, should now purchase them of the company, at the rate of 13,500 livres for each share of 500 livres. Rather than submit to pay this enormous sum for stock which was actually at a discount, the shareholders packed up all their portable effects, and endeavoured to find a refuge in foreign countries. Orders were immediately issued to the authorities at the ports and frontiers, to apprehend all travellers who sought to leave the kingdom, and keep them in custody, until it was ascertained whether they had any plate or jewellery with them, or were concerned in the late stock-jobbing. Against such few as escaped, the punishment of death was recorded, while the most arbitrary proceedings were instituted against those who remained.

  Law himself, in a moment of despair, determined to leave a country where his life was no longer secure. He at first only demanded permission to retire from Paris to one of his country-seats; a permission which the Regent cheerfully granted. The latter was much affected at the unhappy turn affairs had taken, but his faith continued unmoved in the truth and efficacy of Law’s financial system. His eyes were opened to his own errors, and during the few remaining years of his life, he constantly longed for an opportunity of again establishing the system upon a securer basis. At Law’s last interview with the Prince, he is reported to have said – ”I confess that I have committed many faults; I committed them because I am a man, and all men are liable to error; but I declare to you most solemnly that none of them proceeded from wicked or dishonest motives, and that nothing of the kind will be found in the whole course of my conduct.”

  Two or three days after his departure the Regent sent him a very kind letter, permitting him to leave the kingdom whenever he pleased, and stating that he had ordered his passports to be made ready. He at the same time offered him any sum of money he might require. Law respectfully declined the money, and set out for Brussels in a postchaise belonging to Madame de Prie, the mistress of the Duke of Bourbon, escorted by six horse-guards. From thence he proceeded to Venice, where he remained for some months, the object of the greatest curiosity to the people, who believed him to be the possessor of enormous wealth. No opinion, however, could be more erroneous. With more generosity than could have been expected from a man who during the greatest part of his life had been a professed gambler, he had refused to enrich himself at the expense of a ruined nation. During the height of the popular frenzy for Mississippi stock, he had never doubted of the final success of his projects, in making France the richest and most powerful nation of Europe. He invested all his gains in the purchase of landed property in France - a sure proof of his own belief in the stability of his schemes. He had hoarded no plate or jewellery, and sent no money, like the dishonest jobbers, to foreign countries. His all, with the exception of one diamond, worth about five or six thousand pounds sterling, was invested in the French soil; and when he left that country, he left it almost a beggar. This fact alone ought to rescue his memory from the charge of knavery, so often and so unjustly brought against him.

  As soon as his departure was known, all his estates and his valuable library were confiscated. Among the rest, an annuity of 200,000 livres, (8000 pounds sterling,) on the lives of his wife and children, which had been purchased for five millions of livres, was forfeited, notwithstanding that a special edict, drawn up for the purpose in the days of his prosperity, had expressly declared that it should never be confiscated for any cause whatever. Great discontent existed among the people that Law had been suffered to escape. The mob and the Parliament would have been pleased to have seen him hanged. The few who had not suffered by the commercial revolution, rejoiced that the quack had left the country; but all those (and they were by far the most numerous class) whose fortunes were implicated, regretted that his intimate knowledge of the distress of the country, and of the causes that had led to it, had not been rendered more available in discovering a remedy.

  At a meeting of the Council of Finance, and the general council of the Regency, documents were laid upon the table, from which it appeared that the amount of notes in circulation was 2700 millions. The Regent was called upon to explain how it happened that there was a discrepancy between the dates at which these issues were made, and those of the edicts by which they were authorised. He might have safely taken the whole blame upon himself, but he preferred that an absent man should bear a share of it, and he therefore stated that Law, upon his own authority, had issued 1200 millions of notes at different times, and that he (the Regent) seeing that the thing had been irrevocably done, had screened Law, by antedating the decrees of the council, which authorised the augmentation. It would have been more to his credit if he had told the whole truth while he was about it, and acknowledged that it was mainly through his extravagance and impatience that Law had been induced to overstep the bounds of safe speculation. It was also ascertained that the national debt, on the 1st of January, 1721, amounted to upwards of $100 millions of livres, or more than 124,000,000 pounds sterling, the interest upon which was 3,196,000 pounds. A commission, or visa, was forthwith appointed to examine into all the securities of the state creditors, who were to be divided into five classes, the first four comprising those who had purchased their securities with real effects, and the latter comprising those who could give no proofs that the transactions they had entered into were real and bona fide. The securities of the latter were ordered to be destroyed, while those of the first four classes were subjected to a most rigid and jealous scrutiny. The result of the labours of the visa was a report, in which they counselled the reduction of the interest upon these securities to fifty-six millions of livres. They justified this advice by a statement of the various acts of peculation and extortion which they had discovered, and an edict to that effect was accordingly published and duly registered by the parliaments of the kingdom.

  Another tribunal was afterwards established, under the title of the Chambre de l’Arsenal, which took cognizance of all the malversations committed in the financial departments of the government during the late unhappy period. A Master of Requests, named Falhonet, together with the Abbe Clement, and two clerks in their employ, had been concerned in divers acts of peculation, to the amount of upwards of a million of livres. The first two were sentenced to be beheaded, and the latter to be hanged; but their punishment was afterwards commuted into imprisonment for life in the Bastile. Numerous other acts of dishonesty were discovered, and punished by fine and imprisonment.

 
; D’Argenson shared with Law and the Regent the unpopularity which had alighted upon all those concerned in the Mississippi madness. He was dismissed from his post of Chancellor, to make room for D’Aguesseau; but he retained the title of Keeper of the Seals, and was allowed to attend the councils whenever he pleased. He thought it better, however, to withdraw from Paris, and live for a time a life of seclusion at his country-seat. But he was not formed for retirement, and becoming moody and discontented, he aggravated a disease under which he had long laboured, and died in less than a twelvemonth. The populace of of Paris so detested him, that they carried their hatred even to his grave. As his funeral procession passed to the church of St. Nicholas du Chardonneret, the burying-place of his family, it was beset by a riotous mob, and his two sons, who were following as chief-mourners, were obliged to drive as fast as they were able down a by-street to escape personal violence.

  As regards Law, he for some time entertained a hope that he should be recalled to France, to aid in establishing its credit upon a firmer basis. The death of the Regent, in 1723, who expired suddenly, as he was sitting by the fireside conversing with his mistress, the Duchess de Phalaris, deprived him of that hope, and he was reduced to lead his former life of gambling. He was more than once obliged to pawn his diamond, the sole remnant of his vast wealth, but successful play generally enabled him to redeem it. Being persecuted by his creditors at Rome, he proceeded to Copenhagen, where he received permission from the English ministry to reside in his native country, his pardon for the murder of Mr. Wilson having been sent over to him in 1719. He was brought over in the admiral’s ship, a circumstance which gave occasion for a short debate in the House of Lords. Earl Coningsby complained that a man, who had renounced both his country and his religion, should have been treated with such honour, and expressed his belief that his presence in England, at a time when the people were so bewildered by the nefarious practices of the South Sea directors, would be attended with no little danger. He gave notice of a motion on the subject; but it was allowed to drop, no other member of the House having the slightest participation in his lordship’s fears. Law remained for about four years in England, and then proceeded to Venice, where he died in 1729, in very embarrassed circumstances. The following epitaph was written at the time : –

  “Ci git cet Ecossais celebre,

  Ce calculateur sans egal,

  Qui, par les regles de l’algebre,

  A mis la France a l’Hopital.”

  His brother, William Law, who had been concerned with him in the administration both of the Bank and the Louisiana Company, was imprisoned in the Bastile for alleged malversation, but no guilt was ever proved against him. He was liberated after fifteen months, and became the founder of a family, which is still known in France under the title of Marquises of Lauriston.

  In the next chapter will be found an account of the madness which infected the people of England at the same time, and under very similar circumstances, but which, thanks to the energies and good sense of a constitutional government, was attended with results far less disastrous than those which were seen in France.

  THE SOUTH SEA BUBBLE

  At length corruption, like a general flood,

  Did deluge all, and avarice creeping on,

  Spread, like a low-born mist, and hid the sun.

  Statesmen and patriots plied alike the stocks,

  Peeress and butler shared alike the box;

  And judges jobbed, and bishops bit the town,

  And mighty dukes packed cards for half-a-crown:

  Britain was sunk in lucre’s sordid charms.

  – Pope.

  The South Sea Company was originated by the celebrated Harley, Earl of Oxford, in the year 1711, with the view of restoring public credit, which had suffered by the dismissal of the Whig ministry, and of providing for the discharge of the army and navy debentures, and other parts of the floating debt, amounting to nearly ten millions sterling. A company of merchants, at that time without a name, took this debt upon themselves, and the government agreed to secure them, for a certain period, the interest of six per cent. To provide for this interest, amounting to 600,000 pounds per annum, the duties upon wines, vinegar, India goods, wrought silks, tobacco, whale-fins, and some other articles, were rendered permanent. The monopoly of the trade to the South Seas was granted, and the company, being incorporated by Act of Parliament, assumed the title by which it has ever since been known. The minister took great credit to himself for his share in this transaction, and the scheme was always called by his flatterers “the Earl of Oxford’s masterpiece.”

  Even at this early period of its history, the most visionary ideas were formed by the company and the public of the immense riches of the eastern coast of South America. Everybody had heard of the gold and silver mines of Peru and Mexico; every one believed them to be inexhaustible, and that it was only necessary to send the manufactures of England to the coast, to be repaid a hundredfold in gold and silver ingots by the natives. A report, industriously spread, that Spain was willing to concede four ports, on the coasts of Chili and Peru, for the purposes of traffic, increased the general confidence; and for many years the South Sea Company’s stock was in high favour.

  Philip V of Spain, however, never had any intention of admitting the English to a free trade in the ports of Spanish America. Negotiations were set on foot, but their only result was the assiento contract, or the privilege of supplying the colonies with negroes for thirty years, and of sending once a year a vessel, limited both as to tonnage and value of cargo, to trade with Mexico, Peru, or Chili. The latter permission was only granted upon the hard condition, that the King of Spain should enjoy one-fourth of the profits, and a tax of five per cent. on the remainder. This was a great disappointment to the Earl of Oxford and his party, who were reminded much oftener than they found agreeable of the

  “Parturiunt montes, nascitur ridiculus mus,”

  But the public confidence in the South Sea Company was not shaken. The Earl of Oxford declared, that Spain would permit two ships, in addition to the annual ship, to carry out merchandise during the first year; and a list was published, in which all the ports and harbours of these coasts were pompously set forth as open to the trade of Great Britain. The first voyage of the annual ship was not made till the year 1717, and in the following year the trade was suppressed by the rupture with Spain.

  The King’s speech, at the opening of the session of 1717, made pointed allusion to the state of public credit, and recommended that proper measures should be taken to reduce the national debt. The two great monetary corporations, the South Sea Company and the Bank of England, made proposals to Parliament on the 20th of May ensuing. The South Sea Company prayed that their capital stock of ten millions might be increased to twelve, by subscription or otherwise, and offered to accept five per cent. instead of six upon the whole amount. The Bank made proposals equally advantageous. The House debated for some time, and finally three acts were passed, called the South Sea Act, the Bank Act, and the General Fund Act. By the first, the proposals of the South Sea Company were accepted, and that body held itself ready to advance the sum of two millions towards discharging the principal and interest of the debt due by the state for the four lottery funds of the ninth and tenth years of Queen Anne. By the second act, the Bank received a lower rate of interest for the sum of 1,775,027 pounds 15 shillings due to it by the state, and agreed to deliver up to be cancelled as many Exchequer bills as amounted to two millions sterling, and to accept of an annuity of one hundred thousand pounds, being after the rate of five per cent, the whole redeemable at one year’s notice. They were further required to be ready to advance, in case of need, a sum not exceeding 2,500,000 pounds upon the same terms of five per cent interest, redeemable by Parliament. The General Fund Act recited the various deficiencies, which were to be made good by the aids derived from the foregoing sources.

  The name of the South Sea Company was thus continually before the public. Though their trade wit
h the South American States produced little or no augmentation of their revenues, they continued to flourish as a monetary corporation. Their stock was in high request, and the directors, buoyed up with success, began to think of new means for extending their influence. The Mississippi scheme of John Law, which so dazzled and captivated the French people, inspired them with an idea that they could carry on the same game in England. The anticipated failure of his plans did not divert them from their intention. Wise in their own conceit, they imagined they could avoid his faults, carry on their schemes for ever, and stretch the cord of credit to its extremest tension, without causing it to snap asunder.

  It was while Law’s plan was at its greatest height of popularity, while people were crowding in thousands to the Rue Quincampoix, and ruining themselves with frantic eagerness, that the South Sea directors laid before Parliament their famous plan for paying off the national debt. Visions of boundless wealth floated before the fascinated eyes of the people in the two most celebrated countries of Europe. The English commenced their career of extravagance somewhat later than the French; but as soon as the delirium seized them, they were determined not to be outdone. Upon the 22nd of January 1720, the House of Commons resolved itself into a Committee of the whole House, to take into consideration that part of the King’s speech at the opening of the session which related to the public debts, and the proposal of the South Sea Company towards the redemption and sinking of the same. The proposal set forth at great length, and under several heads, the debts of the state, amounting to 30,981,712 pounds, which the Company were anxious to take upon themselves, upon consideration of five per cent. per annum, secured to them until Midsummer 1727; after which time, the whole was to become redeemable at the pleasure of the legislature, and the interest to be reduced to four per cent. The proposal was received with great favour; but the Bank of England had many friends in the House of Commons, who were desirous that that body should share in the advantages that were likely to accrue. On behalf of this corporation it was represented, that they had performed great and eminent services to the state, in the most difficult times, and deserved, at least, that if any advantage was to be made by public bargains of this nature, they should be preferred before a company that had never done any thing for the nation. The further consideration of the matter was accordingly postponed for five days. In the mean time, a plan was drawn up by the Governors of the Bank. The South Sea Company, afraid that the Bank might offer still more advantageous terms to the government than themselves, reconsidered their former proposal, and made some alterations in it, which they hoped would render it more acceptable. The principal change was a stipulation that the government might redeem these debts at the expiration of four years, instead of seven, as at first suggested. The Bank resolved not to be outbidden in this singular auction, and the Governors also reconsidered their first proposal, and sent in a new one.