Chap. XXIV. In a few months after his death, the debt was reduced to 100 millions, by the turn of a wheel. The coin was put at 40 livres the marc. But as the hundred millions sterling, in intrinsic value, after the reduction, contained as many livres in verbal denomination, as the hundred and forty millions did before, the greatest inconvenience discovered by the people was confined to the necessity imposed upon them to sell their old coin at the King’s price.
At this time Law set up his bank, and without doubt assisted people in that respect, with very great benefit to himself.
Chap. XXV. He divided the capital stock of the bank into 1200 shares, of 5000 livres each (the livre at this time was exactly a shilling sterling); and the purport of the notes he issued was, that payment should be made, at all times, in livres of the same intrinsic value.
This bank was established on the principles of the Scots banks, and lent sums upon every species of good security. The consequence was, that in less than three years, France, from being in the most miserable situation for want of money, credit, consumption, and industry, was raised, as by magic, to the greatest affluence. The reason was plain: there wanted nothing but an instrument to set all the inhabitants to work. This Law gave them in a moment; and their own work was the cause of the affluence which astonished them.
This effect was produced by an inconsiderable sum of notes: they did not exceed three millions sterling when Law gave up his bank. But credit and confidence were established by that small sum; and the notes brought out all the coin which had been formerly locked up. It is not a great quantity of money, but an exact proportion of it, according to demand, which supports trade and industry. That proportion may be sustained by the means of banks, but by no other expedient whatever.
Chap. XXVI. Law’s bank was no sooner established, than he sought to enlarge his bottom. He found a trading company ruined in their affairs, though intitled to great privileges. He found also large sums of public state billets circulating at great discredit, from an ill paid interest. He got a grant of the company to himself and associates. He opened a subscription for 200,000 shares, of 500 livres each. He took payment in those discredited obligations; and when he had got the state billets, (given in at subscribing) he engaged the Regent to promise punctual payment of the interest. This was no sooner done, than the discredited paper, which was become an action, or a share, as we have called it, only by being subscribed for to Mr. Law, rose above par. The nation cried out, a Miracle! Law was a saviour, in the eyes of some, a conjuror in the opinion of others.
His credit and his capacity for conducting the greatest undertaking within the power of numbers and computation, being established, inspired the Duke of Orleans with a scheme of unbounded ambition, which, in favour of many who have never rightly comprehended the nature of it, I have been at very great pains to trace, in the eight following chapters. And as a recapitulation is useful to assemble ideas within a small compass, which have been dispersed through many combinations in the work itself, I shall here, in a few lines, give a general idea of the whole plan.
The Regent perceiving the use of paper money, well secured on solid property, resolved to take the bank into his own hands, in order to issue paper sufficient to pay off the whole debt of France. Now paper issued for paying debts is secured upon no fund at all. It is the same as if it were issued for payment of meat and drink. The whole security therefore was his own word.
But the difficulty was to prevent this paper from instantly returning upon the bank; because it far exceeded all the uses of circulation, and, consequently, could not be suspended in it.
The expedient fallen upon was to raise the value of the actions of Law’s company, (which by the subsequent incorporation of new privileges were multiplied beyond 600 000) to a great height, by promising great dividends upon them. The company accordingly promised a dividend of 200 livres a year, upon a capital which was originally worth no more than 500 livres.