The other example shall be taken from what has succeeded the revolution. Few men at that time looked forward enough to foresee the necessary consequences of the new constitution of the revenue that was soon afterwards formed; nor of the method of funding that immediately took place; which, absurd as they are, have continued ever since, till it is become scarce possible to alter them.
Few people, I say, foresaw how the creation of funds, and the multiplication of taxes, would increase yearly the power of the crown, and bring our liberties, by a natural and necessary progression, into more real, though less apparent danger, than they were in before the revolution. The excessive ill husbandry practiced from the beginning of king William's reign, and which laid the foundations of all we feel and all we fear, was not the effect of ignorance, mistake, or what we call chance, but of design and scheme in those who had the sway at that time.
I am not so uncharitable, however, as to believe that they intended to bring upon their country all the mischiefs that we, who came after them, experience and apprehend. No, they saw the measures they took singly, and unrelatively, or relatively alone to some immediate object.
The notion of attaching men to the new government, by tempting them to embark their fortunes on the same bottom, was a reason of state to some: the notion of creating a new, that is, a moneyed interest, in opposition to the landed interest, or as a balance to it, and of acquiring a superior influence in the city of London at least by the establishment of great corporations, was a reason of party to others: and I make no doubt that the opportunity of amassing immense estates by the management of funds, by trafficking in paper, and by all the arts of jobbing, was a reason of private interest to those who supported and improved this scheme of iniquity, if not to those who devised it.
They looked no farther. Nay, we who came after them, and have long tasted the bitter fruits of the corruption they planted, were far from taking such an alarm at our distress, and our danger, as they deserved; till the most remote and fatal effect of causes, laid by the last generation, was very near becoming an object of experience in this.
Your lordship, I am sure, sees at once how much a due reflection on the passages of former times, as they stand recorded in the history of our own, and of other countries, would have deterred a free people from trusting the sole management of so great a revenue, and the sole nomination of those legions of officers employed in it, to their chief magistrate. There remained indeed no pretense for doing so, when once a salary was settled on the prince, and the public revenue was no longer in any sense his revenue, nor the public expense his expense.
Give me leave to add that it would have been, and would be still, more decent with regard to the prince, and less repugnant if not more conformable to the principle and practice too of our government, to take this power and influence from the prince, or to share it with him, than to exclude men from the privilege of representing their fellow-subjects who would choose them in parliament, purely because they are employed and trusted by the prince.
Your lordship sees not only
how much a due reflection upon the experience of other ages and countries
would have pointed out national corruption, as the natural and necessary
consequence of investing the crown with the management of so great a revenue;
but also the loss of liberty, as the natural and necessary consequence of
national corruption.
LET us recapitulate the events of the system, in order to review the whole and understand more clearly the causes of its downfall.A Scotchman, going from a poor country into the midst of a rich one, had been struck with the spectacle of an extensive circulation, and had been led to think that all prosperity originated in an abundance of money. Perceiving that banks had the means of increasing the amount of money by giving to paper the currency of coin, he conceived the plan of a general bank, uniting commercial enterprises with the administration of the public revenue, issuing paper money for large payments, coin being reserved for the smaller; thus joining to the crea. tion of an abundant circulation that of a convenient and profitable investment.
Repulsed in different countries, this Scotchman was listened to in France, where he found a government reduced to expedients and inclined to adopt new ideas. He established, at first, a private bank, which the need of an institution for credit caused to succeed. He then established, but entirely distinct from the bank, a commercial company, to which he granted privileges very different in their nature, designing to unite it with the bank eventually, and complete the vast system which he had projected.
The first shares of the company were delivered to holders of different government securities which represented the floating debt, so that the creditors of the Treasury were paid with the privileges which constituted the fortune of the company. Soon, Law transferred to this company the principal leases of the revenue, on the condition that it should assume the funded debt, amounting to sixteen hundred millions. In this way all the creditors of the state were gradually to become shareholders in the company, and although they received only three per cent on their capital, they would find their income increased by the profits of an immense enterprise.
The project was accomplished: the sixteen hundred millions were transferred; but, managed without proper caution, they were precipitated upon the shares by the apprehension of the public that the investment would be taken up immediately. The shares rose to thirty-six times their cost, and the debt which, transformed into shares, should have been two billions at the utmost, rose to eight or ten. A universal intoxication seized the imagination of everybody. People hastened no longer to seek an investment, but to make a fortune by the marvelous rise in the value of capital. A crowd of landed proprietors sold their estates, which did not increase in value, to purchase this imaginary property, which increased in value hourly.
Then the holders of the shares, better informed than those who came later, hastened to dispose of them for wealth which was real. This example was followed, and every one wished to realize. From this moment, the fictitious being contrasted with the real, the illusion ceased, and the decline of the shares soon became rapid. Those who had seen the fictitious capital rise to ten billions, now saw it fall to eight, and then to six billions, and gave themselves up to despair. It was proper to lament this depreciation, but not to attempt to prevent a catastrophe which had become inevitable.
Law, who had permitted people to idolize him for this sudden creation of wealth, committed the fault of attempting to maintain it, and he conceived the unfortunate plan of uniting the shares to the bank notes. He attempted to establish the value of the notes by obliging the use of them in all payments above one hundred francs, and prohibiting the possession of more than five hundred francs in coin at a time. He then fixed the value of the shares in notes, and ordered that a share should be received at the bank for nine thousand francs in notes. Immediately, the shares were exchanged for this forced money, and for all kinds of property which could be bought. What followed?
The imaginary capital declined in the form of notes as rapidly as it would have done in the form of shares; only the notes, which might have been saved, were sacrificed. Everyone who had anything to sell refused the notes in payment, or demanded four times the value of their property. Only creditors, who were bound by their contracts, were forced to accept the notes at their full nominal value, and they were ruined. There was an attempt to reduce the nominal value on the 21st of May, in order to end this financial fiction; but a violent clamor arose, the attempt was abandoned, and the fiction was suffered to continue.
The ruin of the system was none the less inevitable, for so monstrous an imposition could not maintain itself. The system must be abolished, the shares and notes converted into government securities, and the old form of the public debt resumed, after the most frightful disorders, and the ruin of so many fortunes. Such was the system of Law, and its sad results.
If this financial catastrophe is compared with that of the "assignats," and of the Rank of England in the present century, a remarkable resemblance will be seen in the events of a credit system, and useful lessons can be drawn from the comparison.
Credit always anticipates the future, by employing values yet to be produced and using them as already existing.
Law, anticipating the success of a vast commercIal enterprise, represented the profits of it by shares, and used them to pay the public debt.
The French revolution wished to pay for the ecclesiastical offices which had been abolished, the debt of the monarchy and the expenses of a universal war, with the national property; this property not being disposable, on account of its quantity and the want of confidence, it anticipated the sale and represented the results by papers called "assignats."
The Bank of England, by discounts and by loans to government, anticipated and accepted as real two kinds of values: commercial bills, which represented immense quantities- of colonial produce, difficult to define, and the obligations of the government, values infinitely fluctuating and depending upon the success of war and policy.
In these three cases there was a supposititious value; the shares of Law represented commercial successes and fiscal products, which were very uncertain; the assignats represented the price of goods, which would perhaps be diverted from their revolutionary destination; the notes of the Bank of England represented obligations which the government might not be able to fulfill.
The crisis produced by loss of confidence differed in the three cases according to the difference of circumstances. The prestige of a newly discovered country, the sudden displacement of an enormous sum, caused the shares of Law to rise in an extravagant manner. But a blind confidence must soon lead to a blind despair. It is.well-founded confidence, based upon the real success of lab or, slow in its progress, which alone is exempt from these sudden reverses which resemble tempests.
The assignats could not be ruined in the same manner. They could not rise, because they represented the value of land, which is not susceptible of increase. But as the success of the revolution began to be distrusted, and doubts arose as to the maintenance of the national sale, they declined; and as they declined, the government, to supply the deficiency in value, was obliged to double the issue, and the repletion contributed, with the distrust, to depreciate them. The notes of the Bank of England, based upon merchandise which might depreciate, and upon engagements of the government, which the victories of France caused to diminish in value, suffered a decline, but comparatively a moderate one, because only one part of the property pledged was destructible.
In the three cases, the authorities wishing to compel confidence met with a failure proportioned to the doubtful valueof the securities, the reality of which it attempted to establish by violent measures.
Law fixed the value of the shares in notes, and attempted to fix the value of the notes themselves, by rendering theacceptance of them compulsory at a determined rate.
The revolutionary French government gave a forced currency to the assignats, and punished with death those who refused to take them at their nominal value.
The Bank of England was authorized to refuse to pay its notes at sight.
The result of these different measures was a deplorable disturbance in every kind of exchange. All those making bargains would not accept the depreciated money at its nominal rate, and demanded double or triple price, according to the degree of depreciation; but those who were obliged to accept payment on
a previous bargain-in a word, all creditors-were ruined, because they were obliged to accept a value purely nominal.
In proportion as the resistance to the oppression increased,the authorities became more tyrannical, because they invaded domestic life. Law forbade the possession of more than five hundred francs in coin, and authorized informations.
The revolutionary government, more violent and extreme in every thing, established a maximum and regulated the rate of all exchanges, but succeeded no better.
The Bank of England, more moderate, because the values which it proclaimed as certain were nearer the true standard, threw itself upon the patriotism of the London merchants, who assembled and declared that they would receive the notes in payments. The notes continued to circulate at a moderate discount.
But forced measures cannot prevent the fall" of what must inevitably perish. The eight or ten billions of Law did not fall below what they were really worth. The assignats, issued beyond all proportion to the property which they represented, became utterly worthless. The Bank of England notes declined twelve and fifteen per cent and rose again after the general peace, when specie payment was resumed, but they would have succumbed if Napoleon had employed the infallible aid of time against the English policy.
Certain general truths appear from these facts.
Credit ought to represent positive values, and should be at
most a very limited anticipation of these values.
As soon as values become uncertain, force can accomplish
nothing to sustain them.
Forced values are refused by all who are at liberty to refuse them, and ruin those who, by previous contracts, cannot refuse them.
Thus falsehood, oppression, spoliation, destruction of all fortunes, these are the ordinary result of a false credit soon followed by a forced credit. The least deplorable of these experiences, which caused but a momentary embarrassment, that of the Bank of England, owed its safety to a successful battle. The entire wealth of a country should never depend upon the deceitful favors of fortune.
Law, unhappy man, after having made Europe resound with the name of himself and of his system, traveled through different countries, and at last took up his residence at Venice. Notwithstanding the capital which he had taken to France and that which he had left there, he ended his life in poverty.
Continuing in correspondence with the Duke of Orleans, and afterward with the Duke of Bourbon, he never ceased to claim that which the French government had the injustice to refuse him. He wrote to the Duke of Bourbon, "Aesop was a model of disinterestedness, however, the courtiers accused him of keeping treasure in a trunk which he visited often; they found there only the garment which he possessed before he became a favorite of the prince. If I had saved my garment, I would not change condition with those employed in the highest places; but I am naked; they require that I shall subsist, without having any property to maintain me, and that I shall pay my debts when I have no money." Law could not obtain the old garment which he demanded. A few years after his departure from France, in 1729, he died at Venice, destitute, miserable, and forgotten.