The Historic New Orleans Collection, The L. Kemper and Leila Moore Williams Founders Collection, 60-63
Rue Quincampoix, the “Exchange Alley” of Paris, from The Great Mirror of Folly, 1720.
the country’s debt into actionable shares
and c) eliminate the tax-farms and their
capital-immobilizing annuities.
This plan was in fact favored by Louis
XIV in 1715, but on September 1 that year,
the monarch died. His nephew Philippe II,
duc d’Orléans, not the unanimous choice
as regent for five-year-old Louis XV, took
several months to secure power. Once
he did, he made some initially welcomed
efforts at reform and encouraged fresh
ideas to solve the debt problem. Seizing
the opportunity Law, with his charm and
his impressive command of facts and figures,
worked his way fully into Philippe’s
confidence, and the Regency Council
finally accepted his proposal for a bank—
just not the one he wanted.
The tax-farming nobility and traditional
financiers who profited from France’s dysfunctional
revenue structure were a force
in Parlement, and naturally opposed a
system promising to eliminate their livelihood.
So on May 2, 1716, Law was granted
letters patent for a private, note-issuing
bank, the Banque Générale of Paris. Its
start-up capital of six million was not
enough to tackle the national debt, which
stood at over two billion , but it gave Law
the chance to put theory into practice.
The bank sold 1,200 shares at 5,000 .
Three-fourths of payment had to be made
in billets d’état, treasury notes into which
France’s various instruments of floating
debt, some 600 million worth, had been
devalued (to a third that sum) and consolidated
in 1715.
If successful, the bank could at least
retire 4.5 million of state debt. However,
it was initially derided for its size and
inscrutable business model: no fees for
exchanging foreign currency? But this and
other perks attracted wealthy depositors,
as did especially its guaranteed one-toone
exchange rate, in specie for its bank
notes, protecting them from the state’s
unpredictable currency devaluations. Law
proved an able banker; by October 1716,
the Treasury would only accept his bank’s
notes for tax payments, making them,
in effect, legal currency. As the Regent
funneled his own money and the state’s
business through the bank, he not only
ensured its success, but paved the way for
the central bank required by Law’s System.
In January 1717, Crozat, unable to
make a profit on Louisiana, renounced
his monopoly in return for the Treasury’s
forgiving a large portion of his 6.6
million tax bill. But in March he proposed
a new trading company. Whether
inspired by the Bank of England, by Law’s
Banque Générale, or both, Crozat’s company
would issue 500 shares worth 1.5
million , payable in billets d’état: a bit of
France’s floating debt could be exchanged
for shares in its threadbare colony.
The Regency Council embraced the
concept, but lacked financing and expertise.
As 1717 dragged on the Council tinkered
with Crozat’s plan, finally asking
Law—now respected for his bank’s help
with state finances—to buy a large number
of shares. Needing the company for
the next phase of his System, Law countered
with his own proposal, differing
from Crozat’s in one essential feature:
his company would raise 100 million
in capital. In August, letters patent were
issued for the “Company of the West,”
with Law, and Crozat in name only, as
financial directors; from September 14–24,
more than 28 million in mères (“mother”
shares) were sold.
www.MoAF.org | Summer 2020 | FINANCIAL HISTORY 33