Part 2

The latter half of the reign of Frederick the Great was very different from its beginning. He had encountered war sufficient to satiate even his reckless appetite, and he clung to peace. Prussia became for a while the centre of European government and intrigue; and Frederick, by far the ablest sovereign of his time, remained until his death (1786) the leader in that system of paternal government, of kindly tyranny, which typifies the age. He husbanded the resources of his country with jealous care; he compelled his people to work, and be provident, and prosper, whether they would or no. Maria Theresa treated her subjects with much the same benevolence; and her son and successor Joseph II became the most ardent of the admirers of Frederick. Russia also came under a ruler of similar ideas, Catharine II,[20] a German princess by birth, who wedded a czar, deposed him, and, ruling in his stead, became the most Russian of the Russians. She ruled her land wisely and well, with a little more than Frederick's tyranny, a little less than his benevolence. She was cynical, as was the fashion, and her moral life shocked even that easy-going age. Also she was a philosopher, and invited Diderot, chief of the French Cyclopædists, to dwell at her court, much as Voltaire had dwelt at Frederick's. French literature was still the literature of Europe, and both Frederick and Catharine openly despised the tongue of their own lands.

It was among these three congenial rulers, of Russia, Prussia, and young Joseph of Austria, that the scheme arose of dividing Poland among themselves.[21] This has been termed "the crime of the century," but it was in strict accordance with what the rest of Europe had attempted to do to Austria and then to Prussia. Only, the first two victims had proved unexpectedly capable of resistance, the third was more shrewdly selected. Kindly benevolent despotism had also a voice in the matter, for Poland was wretchedly misgoverned, a source of constant danger to herself and to her neighbors. It was really a kindness, as those neighbors explained, to relieve her of half her territories. So well were their successors of the next generation pleased with the results, that they took each another slice, and then, fully convinced of the ancestral wisdom and good-will, divided what was left.

SHADOW OF COMING CHANGES

The new cynicism and philosophy which was thus spreading even among monarchs, was soon destined to have most explosive results. It found expression first in a further revolt against the dominion of the Roman Church. Most of the sovereigns joined in a determined attack against the Jesuits, the enthusiastic and devoted priests who had become the mainstay of the papal power. After a long resistance, the Jesuits succumbed; their order was abolished by Pope Clement XIV in 1773.

The next startling symptom of the changing times was the rapid literary development of Germany. Its young men had been left free to think and talk. Frederick half contemptuously declared that his people might believe what nonsense they pleased so long as they remained orderly. The poet Lessing by his books roused the ancient spirit of liberty, long dormant in the German mind. Goethe and Schiller became the foremost of a crowd of younger men whose revolt at first took the form of an extravagant devotion to romance as opposed to the dull workaday world about them.[22] Pestalozzi, a Swiss, conceived the idea of reforming the world through its children, encouraging the little ones by constant, loving example to develop all the strength and goodness that was in them.[23]

Yet the first open defiance given to despotism by the fast-growing spirit of freedom came not from Europe but from America; was a revolt not against the lazy tyranny in France or the kindly tyranny of Eastern Europe, but against the constitutional government of England. When the French minister signed the treaty surrendering to England all his country's possessions in America he justified himself with a well-turned phrase, "I give her all, on purpose to destroy her."

The words seemed prophetic, England's loss came through her gain. The Indians, devoted to the French, refused to submit peacefully to the change of rule. Pontiac, often regarded as the ablest statesman of his fading race, gathered them into a widespread confederacy, and for years held the English at bay in the region of the Great Lakes.[24] The expenses involved both upon England and upon her American colonists by this strife and by the French war itself were a constant source of friction. England insisted that she had spent her substance in defence of the colonists, and should be repaid by them. They on the other hand asserted that she had fought for her own glory, and had been well repaid by her vast increases of territory both in India and America; that they had become impoverished, while she had now the richest trade in the world, and stood upon the top-most pinnacle of national grandeur with wealth pouring in to her from every quarter of the globe.

Neither side being able to convince the other by abstract argument, England exerted her authority and passed the "Stamp Act," laying new taxes on the colonists.[25] They responded with protests, argumentative, eloquent, fiery, and defiant. They refused to trade with Great Britain, and became self-supporting. Thus the obnoxious laws, instead of bringing money to the mother country, caused her heavy losses. English merchants joined the Americans in petitioning for the repeal of the offensive acts of Parliament; and soon every tax was withdrawn except a tiny one on tea, so small that the money involved was trifling. But it was not the money, it was the principle involved, which had aroused the Americans; and their resistance continued as vigorous as against the previous really burdensome taxation. The tea which King George commanded should be sent forcibly to the colonists, they refused to receive. In Boston it was dumped into the harbor.[26]

The English Parliament drew back in amazement; its members found themselves dealing, as one of them put it, with a nation of lawyers. They were wrong; they had encountered a force far more potent, a nation of freemen who had been permitted for a century and a half to rule themselves, who had reached the fullest measure of self-reliance and self-assertion. America had become earliest ripe for the Age of Revolution toward which the European middle classes, more lately left to themselves, were more slowly, but not less surely, developing.

[FOR THE NEXT SECTION OF THIS GENERAL SURVEY SEE VOLUME XIV]

FOOTNOTES:

[1] See _Defeat of the Young Pretender at Culloden_, page 117.

[2] See _Cotton Manufacture Developed_, page 341.

[3] See _John Law Promotes the Mississippi Scheme_, page 1.

[4] See _Bursting of the South Sea Bubble_, page 22.

[5] See _Voltaire Directs European Thought from Geneva_, page 144.

[6] See _Bach Lays the Foundation of Modern Music_, page 31.

[7] See _First Modern Novel_, page 100.

[8] See _Watt Improves the Steam-engine_, page 302.

[9] See _Benjamin Franklin Experiments with Electricity_, page 130.

[10] See _Settlement of Georgia_, page 44.

[11] See _Rise of Methodism: Preaching of the Wesleys and of Whitefield_, page 57.

[12] See _Prince Eugene Vanquishes the Turks: Siege and Battle of Belgrad_, page 16.

[13] See _Conquests of Nadir Shah: Capture of Delhi_, page 72.

[14] _See Frederick the Great Seizes Silesia: Maria Theresa Appeals to the Hungarians_, page 108.

[15] See _Seven Years' War: Battle of Torgau_, page 204.

[16] _See Clive Establishes British Supremacy in India: The Black Hole of Calcutta: Battle of Plassey_, page 185.

[17] See _Braddock's Defeat_, page 163.

[18] See _Exile of the Acadian Neutrals_, page 181.

[19] See _Conquest of Canada: Victory of Wolfe at Quebec_, page 229.

[20] See _Usurpation of Catharine II in Russia_, page 250.

[21] See _First Partition of Poland_, page 313.

[22] See _Intellectual Revolt of Germany_, page 347.

[23] See _Pestalozzi's Method of Education_, page 364.

[24] See _Conspiracy of Pontiac_, page 267.

[25] See _American Colonies Oppose the Stamp Act_, page 289.

[26] See _Boston Tea Party_, page 333.

JOHN LAW PROMOTES THE MISSISSIPPI SCHEME

A.D. 1716

LOUIS ADOLPHE THIERS

Known under the various titles of the "Mississippi Scheme," the "Mississippi Bubble," and the "System," the financial enterprise originated by John Law, under authority of the French government, proved to be the most disastrous experiment of the kind ever made by a civilized state.

Louis XIV ended his long reign in 1715, leaving his throne to his great-grandson, a child of five years, Louis XV. The impoverished country was in the hands of a regent, Philippe, Duke of Orléans, whose financial undertakings were all unfortunate. John Law, the son of a Scotch banker, was an adventurer and a gambler who yet became celebrated as a financier and commercial promoter. After killing an antagonist in a duel in London, he escaped the gallows by fleeing to the Continent, where he followed gaming and at the same time devised financial schemes which he proposed to various governments for their adoption. His favorite notion was that large issues of paper money could be safely circulated with small security.

Law offered to relieve Orléans from his financial troubles, and the Regent listened with favor to his proposals. In 1716 Law, with others, organized what he called the General Bank. It was ably managed, became popular, and by means of it Law successfully carried out his paper-currency ideas. His notes were held at a premium over those of the government, whose confidence was therefore won. Two years later Law's institution was adopted by the state and became the Royal Bank of France. The further undertakings of this extraordinary "new light of finance," the blowing and bursting of the great "bubble," are recorded by Thiers, the French statesman and historian, himself eminent as his country's chief financier during her wonderful recovery after the Franco-German War.

Law was always scheming to concentrate into one establishment his bank, the administration of the public revenues, and the commercial monopolies. He resolved, in order to attain this end, to organize, separately, a commercial company, to which he would add, one after another, different privileges in proportion to its success, and which he would then incorporate with the General Bank. Constructing thus separately each of the pieces of his vast machine, he proposed ultimately to unite them and form the grand whole, the object of his dreams and his ardent ambition.

An immense territory, discovered by a Frenchman, in the New World, presented itself for the speculations of Law. The Chevalier de la Salle, the famous traveller of the time, having penetrated into America by Upper Canada, descended the river Illinois, arrived suddenly at a great river half a league wide, and, abandoning himself to the current, was borne into the Gulf of Mexico. This river was the Mississippi. The Chevalier de la Salle took possession of the country he had passed through for the King of France, and gave it the beautiful name of Louisiana.

There was much said of the magnificence and fertility of this new country, of the abundance of its products, of the richness of its mines, which were reported to be much more extensive than those of Mexico or Peru. Law, taking advantage of this current of opinion, projected a company which should unite the commerce of Louisiana with the fur trade of Canada. The Regent granted all he asked, by an edict given in August, 1717, fifteen months after the first establishment of the bank.

The new company received the title of the "West Indian Company." It was to have the sovereignty of all Louisiana on the condition only of liege homage to the King of France, and of a crown of gold of thirty marks at the commencement of every new reign. It was to exercise all the rights of sovereignty, such as levying troops, equipping vessels-of-war, constructing forts, establishing courts, working mines, etc. The King relinquished to it the vessels, forts, and munitions of war which belonged to the Crozat Company,[27] and conceded, furthermore, the exclusive right of the fur trade of Canada. The arms of this sovereign company represented the effigy of an old river-god leaning upon a horn of plenty.

Law revolved in his mind many other projects relating to his Western company. He spoke, at first mysteriously, of the benefits which he was preparing for it. Associating with a large number of noblemen, whom his wit, his fortune, and the hope of considerable gains attracted around him, he urged them strongly to obtain for themselves some shares, which would soon rise rapidly in the market. He was himself soon obliged to buy some above par. The par value being five hundred francs, two hundred of them represented at par a sum of one hundred thousand francs. The price for the day being three hundred francs, sixty thousand francs were sufficient to buy two hundred shares. He contracted to pay one hundred thousand francs for two hundred shares at a fixed future time; this was to anticipate that they would gain at least two hundred francs each, and that a profit of forty thousand francs could be realized on the whole. He agreed, in order to make this sort of wager more certain, to pay the difference of forty thousand francs in advance, and to lose the difference if he did not realize a profit from the proposed transfer.

This was the first instance of a sale at an anticipated advance. This kind of trade consisted in giving "earnest-money" called a premium, which the purchaser lost if he failed to take the property. He who made the bargain had the liberty of rescinding it if he would lose more by adhering to it than by abandoning it. No advantage would accrue to Law for the possible sacrifice of forty thousand francs, unless at the designated time the shares had not been worth as much as sixty thousand francs, or three hundred francs each; for having engaged to pay one hundred thousand francs for what was worth only fifty thousand, for instance, he would suffer less to lose his forty thousand francs than to keep his engagement. But, evidently, if Law did wish by this method to limit the possible loss, he hoped nevertheless not to make any loss at all; and, on the contrary, he believed firmly that the two hundred shares would be worth at least the hundred thousand francs, or five hundred francs each, at the time fixed for the expiration of the contract. This large premium attracted general attention, and people were eager to purchase the Western shares. They rose sensibly during the month of April, 1719, and went nearly to par. Law disclosed his projects; the Regent kept his promise, and authorized him to unite the great commercial companies of the East and West Indies.

The two companies of the East Indies and of China, chartered in 1664 and 1713, had conducted their affairs very badly: they had ceased to carry on any commerce, and had underlet their privileges at a charge which was very burdensome to the trade. The merchants who had bought it of them did not dare to make use of their privileges, for fear that their vessels would be seized by the creditors of the company. Navigation to the East was entirely abandoned, and the necessity of reviving it had become urgent. By a decree of May, 1719, Law caused to be accorded to the West India Company the exclusive right of trading in all seas beyond the Cape of Good Hope. From this time it had the sole right of traffic with the islands of Madagascar, Bourbon, and France, the coast of Sofola in Africa, the Red Sea, Persia, Mongolia, Siam, China, and Japan. The commerce of Senegal, an acquisition of the company which still carried it on, was added to the others, so that the company had the right of French trade in America, Africa, and Asia. Its title, like its functions, was enlarged; it was no longer called the "West India Company," but the "_Indian_ Company." Its regulations remained the same as before. It was authorized to issue another lot of shares, in order to raise the necessary funds either to pay the debts of the companies which it succeeded or for organizing the proper establishments. Fifty thousand of these shares were issued at a par of five hundred francs, which made a nominal capital of twenty-five millions. But the company demanded five hundred fifty francs in cash for them, or a total of twenty-seven millions two hundred fifty thousand francs, inasmuch as it esteemed its privileges as very great and its popularity certain. It required fifty francs to be paid in advance, and the remaining five hundred in twenty equal monthly payments. In case the payments should not be fully made, the fifty francs paid in advance were forfeited by the subscriber. It was nothing but a bargain made at a premium with the public.

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 millions, partly in contracts for perpetual annuities, partly in State notes which would soon be due. The interest on the debt was eighty millions, 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 millions 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 millions 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 millions a year. The treasury would thus effect an annual saving of thirty-two or thirty-five millions 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 millions. The company, receiving 3 per cent. interest on the capital invested, and reaping from another source a profit of fifteen or sixteen millions, would be in a position to pay 4 per cent. on the sixteen hundred millions 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 millions 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 millions to forty-five or forty-eight millions. 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 millions 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.