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ART. 1.--THE MISSISSIPPI SCHEME.
In the spring of 1716, a few months after the death of Louis XIV., there was established in the house of a Scotch banker in Paris, an institution which lifted France from the distress which had arisen from a century of war; and which, when a few months more were passed, cast her into a bankruptcy which was only relieved by the destruction of the system that induced it. In the Spanish wars of Louis XIV., which wasted the most profuse taxation on foreign troops in a foreign country, may be found the source of the complete prostration which was experienced under his successor. The terrible revolution that followed, was hastened by the ruinous expedients which were taken to conceal the debt which had been thus created, and which doubled its principal under cloak of paying its interest. The people were involved as stockholders or as note-owners in a bank, which, as soon as it had sucked in their investments, shut its flood-gates, and locked up in its basin the wealth which it had thus obtained. We propose at present to consider, in the first place, the rapid steps by which the Mississippi Scheme achieved that wonderful victory over the laws of credit and the customs of trade, which placed under the control of its projector the entire resources of the kingdom; and in the second place, the steps, even still more rapid, by which, after the victory was won, and the capital of the state secreted in the coffers of the Scotch banking-house, the fabric gave way, and involved those who had taken shelter under it in a ruin from which they could only extricate themselves by the overthrow of the dynasty under which it had been produced.
John Law was born in 1671, and before he was of age, had spent the patrimonial estate which the prudence and thrift of his ancestors had amassed. He sold his lands in Lauriston, though in a quarter from which he afterward received them discharged of the incumbrances to which they had been subjected, and entered, as soon as the restraint of his wardship could be cast aside, into the whirl of London dissipation. The fondness for game, which in the sequel of his life displayed itself still more destructively, led him into a series of embarrassments, which forced him at last to leave the country as a culprit. He was involved in a quarrel which terminated in his killing his antagonist, and as the circumstances were such VOL. V.NO. I.
as could afford little palliation on the ground of passion or heedlessness, he was found guilty, in April, 1694, of murder. As was usual, however, in such cases, and as may have been anticipated by the jury themselves, his connections found themselves powerful enough to secure a majority of the privy council, and a petition for his pardon was presented to the king, backed with influence which could not be resisted. But the family of the murdered man were unable to appreciate the reasons which could be brought in to stay the ordinary course of justice in a case so ripe for her consideration, and an appeal, according to the forms of the old English law, was lodged in the Court of King's Bench, the necessary result of which was that Mr. Law was carried back again to prison to wait till the first judicial tribunal in the kingdom had pronounced on his case. But finding that the exceptions to the proceeding which he offered to the couri. were immediately overruled, he thought it better to avoid the doubtful issue thus presented, and by the aid of gold within, and the intrigues of his high-born friends without, succeeded in escaping to the continent, having acquired all the lustre which a triumphant duel in those times could throw around him, without running into the martyrdom by which it was so often followed. In Amsterdam, where he first emerged, after the long obscurity into which the circumstances of his escape had involved him, he officiated for a time as secretary to the British resident, and through the advantages thus opened to him, obtained an intimate acquaintance with the celebrated bank there situated, which at that time exercised so mysterious an influence on the monetary system. He returned to Scotland at the commencement of the seventeenth century, at a time when the country was plunged in the deepest commercial distresses, and when, through the suspension of the banks, and the consequent scarcity of specie, the currency of the kingdom was frozen in its channels. Under the support of the first Duke of Argyle, of the Marquis of Tweeddale, and other powerful Scotch noblemen of the day, he offered to the imperial parliament a plan which he styled “a proposal for supplying the nation with money.” In the work which was meant to be the key to the scheme itself, he entered at large into the subject of banking and of the currency, and filled up with the most gorgeous coloring the outline which he had previously laid down. The ancient monetary system was to be abolished. Gold and silver must cease to be the medium of exchange. How can they adapt themselves, he argued, to the exigencies of trade ? Our commerce extends every day, but if it is stretched out and nailed down on a rack so contracted as that which is afforded by a metallic circulation, how will it bring itself to bear on the points where it is needed, and how will its resources be brought into the necessary action ? Forgetting that as trade became wider, and the objects of investment multiplied, the medium, whatever it might be, would increase in value till the same proportion was maintained that had previously existed, he assumed that the precious metals in the kingdom would become grossly inadequate in another revolution to the purposes of circulation, and insisted, therefore, that a medium should be sought which should be both more intrinsically valuable, and more capable of adaptation. The objections which bear against a metallic currency, he fancied would not operate against a paper circulation based upon the landed credit of Great Britain. The allodium of the realm remaining in the king, who was, in theory at least, lord paramount, and the moneyed interests being represented by the commons, it was proposed that parliament should appoint commissioners,
into whose hands should be thrown the kingdom in the shape of a vast farm, on the credit of which they were to issue notes, whose circulation was to be enforced by statutes which would make them the sole medium of exchange. Being secured on landed property, and bound not only to the credit, but to the actual existence of the country, he maintained that they would speedily drive gold and silver from the market, and finally, by running over the Channel, and becoming the basis on which the continen. tal currency would be regulated, they would in the end secure to Great Britain the entire command of the moneyed interests of Europe.
But the house of commons were not prepared for a measure which would throw the property of the realm, by a general escheat, into the hands of the crown. A resolution was immediately passed, declaring "that to establish
any kind of paper credit, so as to oblige it to pass, was an improper expedient for the nation.” The old whig party, which had not then been wheeled from the vantage ground on which the revolution had placed it, refus. ed peremptorily to consent to a scheme which would carry England two centuries back, and place her in the midst of the feudal system. The old tory party was looking from its high observatory to the green shores of France, and there saw gathering a little army, whose progress they eagerly watched, and whose advent they devoutly prayed for. But how could the Pretender, leaning on his bare sword, conquer the moneyed colossus that would issue forth to meet him? The tories, consequently, were unwilling to concur in any measure which would throw the entire resources of the kingdom in the hands of the ruling establishment; and both parties agreed in rejecting a scheme which would be so equally prejudicial to the treason which the first were nourishing, and the liberties which the others had obtained.
It is probable that Mr. Law became disgusted with the dulness of a nation who were unable to seize upon speculations of such gigantic dimensions with sufficient avidity to throw them into play. He felt that it would require a warmer sun to ripen his plans, and constitutions more inflammable to receive them. In the splendid scenes of a Roman carnival, he found his mind wrought up to a pitch which adapted it for the construction of those wild but splendid plans which a little while after, in the chivalry of the Parisian court, he found dispositions sanguine enough to espouse. To the king of Sardinia he is said first to have offered the benefits of the panacea which was afterward brought to bear on the more cumbrous body of the French empire; but that monarch modestly declined being made the subject on whom the experiment should be tried, and recommended the speculatist to turn his attention to a theatre more suitable to the execution of such vast designs. Louis XIV. had just died, having left behind him a kingdom impoverished by the empty schemes of personal distinction, with which he had spent a reign the longest and the most auspicious which had ever fallen to a French monarch. The provinces which he had spent his treasury in conquering, had been snatched from him by Marlborough before he had paid from their profits a single year's interest on the debt which it had cost him to buy them. All industry had been checked, because the poor man's wages were insufficient to buy the necessaries whose price had been doubled by imposts; all manufactures were stopped, because the producer found that the demand for his staples had ceased; and commerce was rapidly sinking, because the nation which could not raise its domestic necessaries, could not find money to squander on foreign luxury. The fields and the granaries of the kingdom were shorn and
emptied, and were converted into one great poorhouse, in which the peas. antry collected themselves in hecatombs to expiate, in a summary way, the crimes of the great monarch who had just immortalized them. Under the regency of the Duke of Orleans, in the minority of Louis XV., it was proposed to suffer a national bankruptcy at once, so as to throw off at a toss, from the shoulders of the nation, the terrible load which was grinding it to the dust. That vast crash of credit, which succeeded fifty years afterward, when all means of alleviation had been tried and failed, was on the brink of taking place at the beginning, when the desperation of the evil was first discovered. The regent, however, in honor to a name which would otherwise have little to recommend it, refused his assent to so grand a fraud, and instituted at once a commission, or vista, for the investigation of the demands against the state. A day was appointed on which all claims were to be heard; and at once, from the office of every capitalist in Europe, from the treasuries of the German principalities, from the dens of the proscribed Jews, there started up creditors who pounced upon the quarry with an eagerness which shook the whole fabric of the government. The debt in gross was found to amount to two thousand millions of livres, which at twenty-eight livres to the marc of standard silver, (two pounds sterling,) was equal to one hundred and forty-two millions sterling. As stated by Stewart in his Political Economy, (vol. II., p. 236,) seventeen hundred and fifty millions of livres of the whole amount were settled in various funds at four per cent interest; while the creditors of the remain. ing two hundred and fifty millions were satisfied with what were called billets d'etat, of the same interest. But the distressed condition of the kingdom prevented the collection of a revenue sufficiently extended to defray so vast a drain as the interest thus created, and the government found itself in a position, in which, like that of King Charles before the revolution, it was obliged to resort to the most odious usurpations, and the most refined frauds, to meet the current expenses of the day.
It was in France that Mr. Law found a stage opening of dimensions sufficiently extended for his great designs. The old essay on money and trade, which had first been used as a means of influencing the British par. liament, had been translated, and spiced with illustrations which made it more suitable to its new purposes, and presented to the consideration of the French court. Assuming that the prosperity of a people increases in proportion to the amount of the money circulating among them, he made use of those great resources which his long acquaintance with banking had afforded him, to show that as specie can never be increased beyond a certain mark, it is necessary to resort to paper money, and to paper money whose value should be arbitrarily fixed, to carry the state onward in those necessary improvements which the increase of its population and of its wants would suggest. The Bank of Amsterdam, he argued, had increased its circulation widely beyond the narrow limits of its specie, because it based its emissions on its great landed estate, and its greater commercial securities; and could not the government of France, by the erection of its treasury into a banking capital, and its taxes into a permanent revenue, become the master of its own currency, and create and model it as was most beneficial to its interests? What splendid prospects would then open to the occupant of a throne, who by a single nod could double at once both the currency and the prosperity of his kingdom, and, by the issue of a se. ries of paper slips, buy, in the ordinary course of commerce, countries, to
which the provinces which it had striven for in other times through fire and blood, should be trifles? But loose and romantic as were the views of the counsellors of Louis XV., there was something in the scheme of the Scotch theorist which was too startling to admit of its immediate adoption. The reasoning appeared to them very just, and the advantages very striking, but the bait was so glittering that they suspected that a hook must lay behind it. In the preamble of the letters patent of the French king, dated 2d May, 1716, it is stated in sum, that Mr. Law had formally proposed his plan to the government, and that they agreed on its entire validity and advantage, but thought, under the advice of the most promi. nent of their counsellors, that the present conjuncture was not suitable for its development. Mr. Law, however, was allowed to set up a private bank, in the Place de Louis le Grand, which was to be built entirely on funds furnished by himself, and by those who should voluntarily enter into the subscription, and from which he promised, in a proportionate degree, those great results which he had sketched out as the consequences of the erection of a national institution.
The constitutions of the first English joint-stock companies were formed very much on the model of the celebrated institution which was thus established. Had Mr. Law's bank been allowed to sail as she was launched, she would without doubt have made her voyage with safety, and greatly to the advantage of those who were concerned in the adventure. We can. not imagine a more safe construction, for an institution which must from the want of a distinct charter be obliged to lean on its natural resources, than that which was adopted by the Scotch banking establishment, before it was taken under the fostering wings of the state. Its stock was to consist of 1200 actions, or shares, of 1000 crowns, or 5000 livres each, which amount. ed, individually, according to the denomination then fixed by law, to £250; so that the whole stock was worth £300,000. The liberty of subscription was made general, and letters patent were issued by the gov. ernment, at the request of the bank authorities, which declared that the securities belonging to, and the funds deposited by foreigners, should be exonerated from any confiscation or imposition whatever in case of war between the nation to which they belonged, and that under which the bank was constituted. Two general courts were to be held yearly, in which an exposition of the state of the institution was to be given by the officers, to be discussed and acted upon by the proprietors themselves. The proprietors consisted of the stockholders of the bank, whose individual influence was graduated according to the shares they held. Every stock. holder who owned five shares was possessed of a vote, and for every five more shares that he acquired, another vote was placed to his account. The election of officers, the valuation of the dividends, the investment of the funds, and the distribution of the surplus of the bank, was subject by the constitution to the control of a majority of the proprietors, or in fact, to the wishes of those who held the greater part of the stock. The accounts were to be balanced twice a year, and as such published generally throughout the market. The notes were intended to be issued only to the extent of the specie or the landed estate in the possession of the proprietors; and as they were made payable at sight, they obtained a rapid circulation in a country which had been flooded with the irredeemable scrip of government securities. The bank was excluded from all commercial