The Crayon Papers. Washington Irving
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led to listen to the cruel alternative of a national bankruptcy.
Under these circumstances, Law confidently brought forward his scheme of a bank, that was to pay off the national debt, increase the revenue, and at the same time diminish the taxes. The following is stated as the theory by which he recommended his system to the regent. The credit enjoyed by a banker or a merchant, he observed, increases his capital tenfold; that is to say, he who has a capital of one thousand livres, may, if he possess sufficient credit, extend his operations to a million, and reap profits to that amount. In like manner, a state that can collect into a bank all the current coin of the kingdom, would be as powerful as if its capital were increased tenfold. The specie must be drawn into the bank, not by way of loan, or by taxations, but in the way of deposit. This might be effected in different modes, either by inspiring confidence or by exerting authority. One mode, he observed, had already been in use. Each time that a state makes a recoinage, it becomes momentarily the depositary of all the money called in, belonging to the subjects of that state. His bank was to effect the same purpose; that is to say, to receive in deposit all the coin of the kingdom, but to give in exchange its bills, which, being of an invariable value, bearing an interest, and being payable on demand, would not only supply the place of coin, but prove a better and more profitable currency.
The regent caught with avidity at the scheme. It suited his bold, reckless spirit, and his grasping extravagance. Not that he was altogether the dupe of Law's specious projects; still he was apt, like many other men, unskilled in the arcana of finance, to mistake the multiplication of money for the multiplication of wealth; not understanding that it was a mere agent or instrument in the interchange of traffic, to represent the value of the various productions of industry; and that an increased circulation of coin or bank bills, in the shape of currency, only adds a proportionably increased and fictitious value to such productions. Law enlisted the vanity of the regent in his cause. He persuaded him that he saw more clearly than others into sublime theories of finance, which were quite above the ordinary apprehension. He used to declare that, excepting the regent and the Duke of Savoy, no one had thoroughly comprehended his system.
It is certain that it met with strong opposition from the regent's ministers, the Duke de Noailles and the Chancellor d'Anguesseau; and it was no less strenuously opposed by the Parliament of Paris. Law, however, had a potent though secret coadjutor in the Abbe Dubois, now rising, during the regency, into great political power, and who retained a baneful influence over the mind of the regent. This wily priest, as avaricious as he was ambitious, drew large sums from Law as subsidies, and aided him greatly in many of his most pernicious operations. He aided him, in the present instance, to fortify the mind of the regent against all the remonstrances of his ministers and the parliament.
Accordingly, on the 2d of May, 1716, letters patent were granted to Law, to establish a bank of deposit, discount, and circulation, under the firm of "Law & Company," to continue for twenty years. The capital was fixed at six millions of livres, divided into shares of five hundred livres each, which were to be sold for twenty-five per cent of the regent's debased coin, and seventy-five per cent of the public securities; which were then at a great reduction from their nominal value, and which then amounted to nineteen hundred millions. The ostensible object of the bank, as set forth in the patent, was to encourage the commerce and manufactures of France. The louis d'ors and crowns of the bank were always to retain the same standard of value, and its bills to be payable in them on demand.
At the outset, while the bank was limited in its operations, and while its paper really represented the specie in its vaults, it seemed to realize all that had been promised from it. It rapidly acquired public confidence, and an extended circulation, and produced an activity in commerce unknown under the baneful government of Louis XIV. As the bills of the bank bore an interest, and as it was stipulated they would be of invariable value, and as hints had been artfully circulated that the coin would experience successive diminution, everybody hastened to the bank to exchange gold and silver for paper. So great became the throng of depositors, and so intense their eagerness, that there was quite a press and struggle at the bank door, and a ludicrous panic was awakened, as if there was danger of their not being admitted. An anecdote of the time relates that one of the clerks, with an ominous smile, called out to the struggling multitude, "Have a little patience, my friends; we mean to take all your money;" an assertion disastrously verified in the sequel.
Thus, by the simple establishment of a bank, Law and the regent obtained pledges of confidence for the consummation of further and more complicated schemes, as yet hidden from the public. In a little while, the bank shares rose enormously, and the amount of its notes in circulation exceeded one hundred and ten millions of livres. A subtle stroke of policy had rendered it popular with the aristocracy. Louis XIV. had several years previously imposed an income tax of a tenth, giving his royal word that it should cease in 1717. This tax had been exceedingly irksome to the privileged orders; and in the present disastrous times they had dreaded an augmentation of it. In consequence of the successful operation of Law's scheme, however, the tax was abolished, and now nothing was to be heard among the nobility and clergy but praises of the regent and the bank.
Hitherto all had gone well, and all might have continued to go well, had not the paper system been further expanded. But Law had yet the grandest part of his scheme to develop. He had to open his ideal world of speculation, his El Dorado of unbounded wealth. The English had brought the vast imaginary commerce of the South Seas in aid of their banking operations. Law sought to bring, as an immense auxiliary of his bank, the whole trade of the Mississippi. Under this name was included not merely the river so called, but the vast region known as Louisiana, extending from north latitude 29° up to Canada in north latitude 40°. This country had been granted by Louis XIV. to the Sieur Crozat, but he had been induced to resign his patent. In conformity to the plea of Mr. Law, letters patent were granted in August, 1717, for the creation of a commercial company, which was to have the colonizing of this country, and the monopoly of its trade and resources, and of the beaver or fur trade with Canada. It was called the Western, but became better known as the Mississippi Company. The capital was fixed at one hundred millions of livres, divided into shares, bearing an Interest of four per cent, which were subscribed for in the public securities. As the bank was to co-operate with the company, the regent ordered that its bills should be received the same as coin, in all payments of the public revenue. Law was appointed chief director of this company, which was an exact copy of the Earl of Oxford's South Sea Company, set on foot in 1711, and which distracted all England with the frenzy of speculation. In like manner with the delusive picturings given in that memorable scheme of the sources of rich trade to be opened in the South Sea countries, Law held forth magnificent prospects of the fortunes to be made in colonizing Louisiana, which was represented as a veritable land of promise, capable of yielding every variety of the most precious produce. Reports, too, were artfully circulated, with great mystery, as if to the "chosen few," of mines of gold and silver recently discovered in Louisiana, and which would insure instant wealth to the early purchasers. These confidential whispers of course soon became public; and were confirmed by travelers fresh from the Mississippi, and doubtless bribed, who had seen the mines in question, and declared them superior in richness to those of Mexico and Peru. Nay, more, ocular proof was furnished to public credulity, in ingots of gold conveyed to the mint, as if just brought from the mines of Louisiana.
Extraordinary measures were adopted to force a colonization. An edict was issued to collect and transport settlers to the Mississippi. The police lent its aid. The streets and prisons of Paris, and of the provincial cities, were swept of mendicants and vagabonds of all kinds, who were conveyed to Havre de Grace. About six thousand were crowded into ships, where no precautions had been taken for their health or accommodation. Instruments of all kinds proper for the working of mines were ostentatiously paraded in public, and put on board the vessels; and the whole set sail for this fabled El Dorado, which was to prove the grave of the greater part of its wretched colonists.
D'Anguesseau, the chancellor, a man of probity and integrity, still lifted his voice against the paper system of Law, and his project of colonization, and was eloquent and prophetic in picturing the evils they were calculated to produce; the private distress and public degradation; the corruption of morals and manners; the triumph of knaves and schemers; the ruin of fortunes, and downfall of families. He was incited more and more to this opposition by the Duke de Noailles, the Minister of Finance, who was jealous