The Scheme to Pay Off France’s Debts

The national debt was fifteen to sixteen hundred million, partly in contracts for perpetual annuities, partly in State notes which would soon be due.

Continuing John Law Promotes The Mississippi Bubble,
our selection from The Mississippi Bubble – A Memoir of John Law by Louis Adolphe Thiers published in 1859. The selection is presented in five easy 5 minute installments. For works benefiting from the latest research see the “More information” section at the bottom of these pages.

Previously in John Law Promotes The Mississippi Bubble.

Time: 1716
Place: Paris

The prompt realization of the promises of Law, the importance and extent of the last privileges granted to the company, the facilities accorded to the subscribers, everything, induced a subscription to the new shares. The movement became animated. One could, by the favorable terms offered, by paying out five hundred fifty francs, obtain eleven shares instead of one, and thus, with a little money, speculate to a considerable amount. To this method of attracting speculators Law added another; he procured a decision that no one should subscribe for the new shares without exhibiting four times as many old ones. It was necessary, therefore, to hasten to obtain them in order to fulfil the requisite condition. In a short time, they were carried up to par, and far above that. From three hundred francs, at which they were at the start, they rose to five hundred, five hundred fifty, six hundred, and seven hundred fifty francs; that is, they gained 150 per cent. These second shares were called the “daughters,” to distinguish them from the first.

Law contemplated at last the completion of his project by uniting the collection of the revenues to the other privileges of the Indian Company, and redeeming the national debt. This was the greatest and most difficult part of his plan.

The national debt was fifteen to sixteen hundred million, partly in contracts for perpetual annuities, partly in State notes which would soon be due. The interest on the debt was eighty million, or one-half the revenue of the government. Some combination was necessary to meet the state notes at their maturity, and to reduce the annual charges which the public treasury could no longer sustain.

Law conceived the idea of substituting the company for the government, and converting the whole national debt into shares in the Indian Company. To accomplish this, he wished the company to lend the treasury the fifteen to sixteen hundred million which would redeem the debt; and that, to obtain this enormous sum, it should issue shares to that amount. In this manner, the fifteen or sixteen hundred million furnished to the government by the company, and paid out by the government to its creditors, must return to the company by the sale of its shares. Let us see the means which Law had devised to insure the success of his scheme. The government would pay 3 per cent. interest for the sum loaned to it, which would make forty-five or forty-eight million a year. The treasury would thus effect an annual saving of thirty-two or thirty-five million in the interest on the debt. In return, the collection of the revenue must be transferred to the company, notwithstanding that it had been actually granted to the brothers Paris. The collection would pay the collectors a net profit of fifteen or sixteen million. The company, receiving 3 per cent. interest on the capital invested, and reaping from another source a profit of fifteen or sixteen million, would be in a position to pay 4 per cent. on the sixteen hundred million of the debt converted into shares.

The profits from commerce and its future success might soon enable it to increase this dividend. According to the prevailing rates of interest, which had fallen to 3 per cent. since the establishment of the bank, this was a sufficient remuneration on the shares. They had, besides, the hope of increasing their capital. The shares having, in fact, doubled in value during the opposition of the “Antisystem,” they ought to increase still more rapidly since they were relieved from this opposition. The expectation that the fifteen or sixteen hundred million of the debt would be invested in the shares was well founded. There was even a certainty of it; for this immense capital, forcibly expelled from its investment in state securities, could find no other place for investment than in the company.

This plan of Law’s was vast and bold. Its success would liquidate the state debt and diminish the annual charges on the treasury, reducing the interest from eighty million to forty-five or forty-eight million. The annual charges from which the treasury was to be relieved were to be paid from the profits on the collection of the revenue and the contingent profits of commerce. The whole operation was to pay the creditors of the state 3 per cent. per annum, and the profits and monopolies heretofore granted to farmers of the revenue and commercial companies. This 3 per cent. interest, these profits, and these monopolies, as we shall soon see, might easily amount to the sum of eighty million annually, which the creditors were formerly paid. Thus, far they were not defrauded by this forced conversion of securities; a credit entirely new was substituted for one which was worn out; an establishment had been created, which, combining the functions of a commercial bank and the administration of the finances, must become the most colossal financial power ever known.

The first subscription having been taken up in a few days, Law opened a new one on September 28th, for the same amount and on exactly the same conditions as the preceding.

The eagerness of subscribers was the same. The creditors passed whole days at the offices of the treasury to obtain their receipts, and there were some even who had their meals brought to them there, so that they might not lose their turn in the ranks. The state notes were, of course, much in demand, and had rapidly risen to par. They had even given rise to a most reprehensible speculation. A confidential clerk of Law, the Prussian Versinobre, having known in advance of the decree regarding the payment, abused his knowledge of the secret, and caused to be bought by brokers with whom he was associated a large amount of state notes at 50 or 60 per cent. below their nominal value, and employed them for the subscriptions when they were received at par. When it is considered that the subscriptions, already, were sold at a large advance, and that by means of the state notes they were bought at about half price, it will be understood what a profit this company of brokers must have realized.

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