368 LAW
taxes was let to them, under an assumed name, for 48½ million livres yearly. A company was formed the exact counterpart of the Mississippi company. The capital was the same, divided in the same manner, but the payments were to be entirely in money. The returns from the public revenue were sure; those from the Mississippi scheme were not. Hence the shares of the latter were for some time out of favour. Law proceeded unmoved with the development of his plans. On the 4th December 1718 the bank became a Government institution under the name of La Banque Royale. Law was director, and the king guaranteed the notes. The shareholders were repaid in coin, and, to widen the influence of the new institution, the transport of money between towns where it had branches was forbidden. The paper issue now reached 110 millions. Law had such confidence in the success of his plans that he agreed to take over shares in the Mississippi company at par at a near date. The shares began rapidly to rise. The next move was to unite the companies Des Indes Orientales and De Chine, founded in 1664 and 1713 respectively, but now dwindled away to a shadow, to his company. The united association was called La Compagnie des Indes: it had practically the monopoly of the foreign trade of France. These proceedings necessitated the creation of new capital to the nominal amount of 25 million livres. The payment was spread over 20 months. It required four of the old shares and a premium of 50 livres to obtain a new one. All these 500 livre shares rapidly rose to 750, or 50 per cent. above par. Law now turned his attention to the obtaining of additional powers within France itself. On the 25th July 1719 an edict was issued granting the company for nine years the management of the mint and the coin issue. For this privilege the company paid 5 million livres, and the money was raised by a new issue of shares of the nominal value of 500 livres, but with a premium of other 500. The list was only open for twenty days, and five of the former shares were required to obtain a new one. At the same time two dividends per annum of 6 per cent. each were promised. Again there was an attempt to ruin the bank by the commonplace expedient of making a run on it for coin; but the conspirators had to meet absolute power managed with fearlessness and skill. An edict appeared reducing, at a given date, the value of money, and those who had withdrawn coin from the bank hastened again to exchange it for the more stable notes. Public confidence in Law was increased, and he was enabled rapidly to proceed with the completion of the system. A decree of 27th August 1719 deprived the rival company of the farming of the revenue, and gave it to the Compagnie des Indes for nine years in return for an annual payment of 52 million livres. Thus at one blow the anti-system was crushed. One thing yet remained; Law proposed to take over the national debt, and manage it on terms advantageous to the state. The mode of transfer was this. The debt was over 1500 million livres. Notes were to be issued to that amount, and with these the state creditors were to be paid in a certain order. Shares were to be issued at intervals corresponding to the payments, and it was expected that the notes would be used in buying these. The Government was to pay 3 per cent. for the loan. It had formerly been bound to pay 80 millions, it would now pay under 50, a clear gain of over 30. As the shares of the company were almost the only medium for investment, the transfer would be surely effected. The creditors would now look to the Government payments and the commercial gains of the company for their annual returns. Indeed the creditors were often not able to procure the shares, for each succeeding issue was immediately seized upon. The third, on the 2d October, for 500 millions, divided into shares of (with premium) 5000 livres each, was taken up as eagerly as its predecessors, and the shares immediately resold at 8000 livres in the Rue Quincampoix, then used as a bourse. They went on rapidly rising as new privileges were still granted to the company. Law had now more than regal power. The exiled Stuarts paid court to him; the proudest aristocracy in Europe humbled themselves before him; and his liberality made him the idol of the populace. After, as a necessary preliminary, becoming a Catholic, he was made controller-general of the finances in place of D'Argenson, who was removed to make way for him. Finally, in February 1720, the bank was in name as well as in reality united to the company.
The system was now complete; but it had already begun to decay. In December 1719 it was at its height. The shares then had mounted to 20,000 livres, forty times their nominal price. A sort of madness possessed the nation. Men sold their all, and hastened to Paris to speculate. The population of the capital was increased by an enormous influx of provincials and foreigners. Trade received a vast though unnatural impulse. Everybody seemed to be getting richer, no one poorer. Those who could still reflect saw that this prosperity was not real. The whole issue of shares at the extreme market price valued 12 milliard livres. It would require 500 million annual revenue to give a 5 per cent. dividend on this. Now, the whole income of the company as yet was hardly sufficent to pay 5 per cent. on the original capital of 1 milliard 677 million livres. The receipts from the taxes, &c., could be precisely calculated, and it would be many years before the commercial undertakings of the com- pany with which only some trifling beginning had been made would yield any considerable return. People began to sell their shares, and to buy coin, houses, land, any thing that had a stable element of value in it. There was a rapid fall in the shares, a rapid rise in all kinds of pro- perty, and consequently a rapid depreciation of the paper money. Law met these new tendencies by a succession of tho most violent edicts. The notes were to bear a premium over specie. Coin was only to be used in small payments, and only a small amount was to be kept in the possession of private parties. The use of diamonds, the fabrica- tion of gold and silver plate, was forbidden. A dividend of 40 per cent. on the original capital was promised. By several ingenious but fallaciously reasoned pamphlets Law endeavoured to restore public confidence. The shares still fell. At last, on the 5th March, an edict appeared fixing the price of these at 9000 livres, and ordering the bank to buy and sell them at that price. The fall now was transferred to the notes, of which there were soon over 2½ milliard livres in circulation. A large proportion of the coined money was removed from the kingdom. Prices rose enormously. There was everywhere distress and complete financial confusion. Law became an object of popular hatred. He lost his court influence, and was obliged to consent to a decree (21st May 1720) by which the notes and consequently the shares were reduced to half their nominal value. This created such a commotion that its promoters were forced to recall it, but the mischief was done. What confidence could there be in the depreciated paper after such a measure 1 Law was removed from his office, and his enemies proceeded to demolish the system. A vast number of shares had been deposited in the bank. These were destroyed. The notes were reconverted into Government debt, but there was first a visa which reduced that debt to the same size as before it was taken over by the company. The rate of interest was lowered, and the Government now only pledged itself to pay 37 instead of 80 millions annually. Finally the bank was abolished, and the company reduced to a mere trading association. By November the system had disappeared. With these last
