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That I may rise and stand, o'erthrow me, and bend
Labour t' admit you, but oh, to no end;
Reason, your viceroy in me, we should defend,
Wilt thou love God, as he thee? then digest,
Father, part of his double interest
Unto thy kingdom thy Son gives to me;
His jointure in the knotty Trinity
He keeps, and gives to me his death's conquest.
This Lamb, whose death with life the world hath bless'd, Was from the world's beginning slain; and he
Hath made two wills, which, with the legacy
Of his and thy kingdom, thy sons invest:
Yet such are these laws, that men argue yet
205.-THE MISSISSIPPI SCHEME.
TUCKER. [THE "South Sea Bubble," and the "Mississippi Scheme," are amongst the most striking examples of public folly, when the whole community is bent upon believing that wealth is to be acquired without labour— when, in point of fact, the nation becomes one great gambling-house. The best account we have met with of the great bubble of France, more than a century ago, is given in a Treatise on Money and Banks,' by Mr. Tucker, Professor of History and Political Economy in the University of Virginia.]
The first bank of circulation in France was established two-andtwenty years after the Bank of England, and, though it lived little more than four years, it became more memorable than any other, from its connection with the most extensive and ruinous scheme of speculation which history records.
This bank, which has given celebrity to its founder, John Law, a Scotchman, was established in 1716, under the auspices of the Duke of Orleans, then Regent of France, for the express purpose, as some suppose, of wholly or partially paying off the public debt then amounting to 2,000,000,000 of livres, and of which the government was unable to pay the interest.
Law had, before he left Scotland, written a book on the subject of money and trade; and the principles he therein maintained no doubt influenced him in the execution of his great financial schemes, and thus contributed to the wide-spread ruin that attended their failure. With some just theory, expressed with shrewdness and force, he mixed up the following untenable positions :-That money owes its value to the public confidence; and that paper, or any thing else, may answer
purpose as well as the precious metals; (the first, as well as the last, he regarded as the mere signs of wealth:) that land was a better commodity for money than silver, and that the currency of a country might be increased to the whole value of its lands: that the effect of such an increase would be not depreciation, but merely a lowering of interest, by which trade would be encouraged and wealth augmented. The great number of persons, who, from that day to this, have supported similar fallacies, would seem to show that they are as plausible as they are dangerous.
The capital of Law's bank was 6,000,000 of livres, divided into twelve hundred shares of one thousand crowns each; and its notes soon obtained a general credit and currency. Two circumstances mainly contributed to their early success. One was, that the govern ment, according to an habitual abuse of the royal privilege, was then calling in the gold currency for a recoinage; and the louis d'or, which, when restamped, the government meant to pass for twenty livres, it received at no more than sixteen. The bank gave a higher price for these coins than the government, and thus received many in exchange for its notes. The other favourable circumstance also grew out of an abuse of the royal prerogative. The marc of silver, a determinate quantity, had been sometimes made equivalent to a greater and sometimes to a less number of livres, at the pleasure of the crown; so that all contracts in livres (the general money of account) were exposed to the risk of these alterations in their value. Law therefore prudently made the notes of his bank payable in livres of the same weight and fineness as the current coin at the date of the note.
These judicious measures, added to the intrinsic recommendations of paper currency when not used to excess, soon brought the notes of the bank into such general request, that, out of Paris, they commanded a premium of from one to one and a half per cent.
In the following year (1717) the rights of a company, long before incorporated for the purposes of trading to Louisiana and Canada, and which were alleged to have been forfeited, were transferred to Law, to erect a new company; and then, if not before, the plan was formed of paying off the national debt by the joint aid of the company and the bank.
Books were immediately opened for subscriptions to this Company
of the West, or Mississippi Company, to the amount of 100,000,000,000 of livres, in shares of 500 livres, payable in a part of the public debt, which was then passing at about thirty per cent. of its nominal amount. The shares were soon subscribed; and, as the government then punctually paid to the company the interest (four per cent.) on these 100,000,000,000, the company was able to make a correspondent dividend on its capital; that is, four per cent. on its nominal amount; by reason of which, the shares, which had cost in the market but 160 or 170 livres, now rose to par, or 500 livres; and the rise was imputed, by an indiscriminating public, to Law's financial skill, and the operation of his bank.
About the close of the succeeding year, the regent, by way of giving greater credit to the bank, and of enlarging the sphere of its opera tions, paid off the original shareholders, and converted it into a royal bank. The notes it had then circulated amounted to 59,000,000near twelve times its capital, but not quite a twentieth of the current coin of the kingdom, which was then estimated at 1,200,000,000.
It would seem that the regent already anticipated inconvenience from the tenor of the notes first issued; and, in those issued by him, it was changed to a simple promise to pay the bearer the stated number of livres in silver coin. The reason assigned for this change (for governments rightly think that, with the mass of mankind, a bad reason is better than none) was, that the bank money, instead of being liable to perpetual fluctuations, as it had been, when compared with the livre, should be hereafter fixed. It is said by Stewart, Law's apologist, that he strenuously opposed this change.
Although this alteration in the tenor of the note was calculated to excite distrust, it seems not to have had that effect; but the bank paper retained its credit, notwithstanding the large additions which the regent made to its amount. It is even asserted by contemporary writers, that their credit seemed unimpaired throughout the year 1719, though the issues of the bank then amounted to 1,000,000,000!
The first project of the regent and Law is supposed to have been to pay off portions of the public debt with the coin which was constantly flowing into the bank, in consequence of the premium it bore over coin; and in this way the regent might obtain the use of the whole coin of the kingdom; and that the money thus paid to the pub
lic creditors would gradually return to the bank, in the payment of the public revenues-or, at least, enough of it to redeem such notes as should be returned to the bank.
It was not foreseen by them, that no considerable addition could be made to the currency without depreciating it; and that such large issues of paper as their plan contemplated must necessarily drive gold and silver out of the country. Accordingly, it was found, soon after the regent took charge of the bank, that coin did not continue to flow into the bank as at first; and it therefore became necessary to change their plan, and to adopt one by which they might use the notes of the bank to discharge the public debt, without raising a suspicion of their credit. To effect this purpose, their plan was, for the regent to purchase shares of the Mississippi Company with the notes of the bank; then borrow of the company at a low interest, and with them, when thus endowed with a false credit, pay off the public creditors. throwing the shares into the market, the regent might withdraw the notes from circulation. The result of these operations would be, that the public creditors would find themselves transformed into shareholders in the Mississippi Company; the government would have transferred a part of its revenues to the company, instead of owing all of them to its creditors, and be a gainer, first, by the lower interest paid to the company, and, secondly, by the advance the shares would naturally experience, when so large an addition had been made to the currency by paying off the national debt.
In the execution of this vast scheme, which it seems as difficult to reconcile with uprightness of intention as soundness of judgment, the bank proceeded to make new notes, and the company to create new shares, to raise the value of which every expedient was resorted to. In May, 1719, Law's company was incorporated with the East India Company. In June, the mint was transferred to it for 50,000,000; and, to give it a supply of cash, fifty thousand shares were sold for 550 livres a share. A few ships were then purchased, to aid in deluding the credulous public with the hope of gain from traffic; and, in the succeeding month, 50,000 additional shares were sold at the advanced price of 1000 livres a share.
The spirit of speculation being now called into existence, no time was lost in profiting by it. In August, the company farmed all the public revenues, and it agreed to lend to the government 1,600,000,000