THE MISSISSIPPI SCHEME 1716-1721

CHAPTER FIVE – THE BILL COMES DUE

The French have suffered economic collapse.  John Law’s schemes have been declared a disaster. People have acknowledged their folly. They are angry and seeking retribution. [Chapter 1] [Chapter 2] [Chapter 3] [Chapter 4]

The Bill for Mismanagement Comes Due

The 25 million livres secured by Paris municipal revenues, at a low 2.5% interest was unpopular among the large Mississippi stockholders. Converting the securities was difficult; many preferred to keep the stock, hoping it might recover. On August 15, to hasten the conversion, an edict was passed that all notes valued between 1,000 and 10,000 livres, must convert into annuities and bank accounts, or pay installments due on shares already purchased.

In October another edict rendered all notes worthless after November. Managing the mint, collecting revenues, and all other privileges of the Indies Company were revoked, and it became a mere private company. This was the deathblow. Law had lost all influence in the Council of Finance. His Company, without government contracts, could not operate.

When the bubble burst, those suspected of illegal profits received heavy fines. The original proprietors had already been ordered, if they still owned shares, to deposit them with the company. Also, those who had neglected to buy all the shares for which they committed, should now buy them for 13,500 livres, though they had a market value of only 500 livres. Rather than pay such an inflated price, these shareholders fled and sought refuge in foreign countries. Orders were immediately issued at the ports and frontiers, to halt all travelers who sought to leave France, and keep them in custody, until it was determined whether they carried any metals or jewelry or had been stockbrokers. When apprehended, punishment was arbitrary and severe.

Law Departs in Disgrace

Law, in despair, decided to leave France where his life was not safe. At first, he only asked to leave Paris for one of his country estates; the regent cheerfully granted permission. The regent was much affected by the disastrous affair, but his faith in Law continued. His eyes were opened to his own errors; and during his few remaining years he longed to establish the system on a sounder basis. At his last interview with the Duke, Law said, “I have committed many faults because I am a man, and all men make mistakes; but none were from wicked or dishonest motives.”

Three days after his departure, the regent sent Law a kind letter with new passports, permitting him to leave France any time. He offered Law any money he might need. Law respectfully declined the money and set out for Brussels in borrowed coach escorted by six horse-guards. He went on to Venice, where he remained for some months. He was an object of curiosity because people believed he had enormous wealth.

They could not have been more wrong. For a professed gambler, he was quite generous. He refused to enrich himself at the expense of a ruined nation. During the frenzy for Mississippi stock, he had never doubted that his projects would make France the richest, most powerful nation in Europe. He invested all his gains in land in France. He hoarded no precious metals or jewelry and sent no money to foreign countries. All he had, except one diamond worth about 5,000 pounds sterling, was invested in the French soil. He left France almost a beggar.

The government confiscated all his estates and his valuable library. An annuity of 200,000 livres for his wife and children, purchased for 5 million livres, was forfeited, even though a special edict previously declared that the annuity could never be confiscated. The people were greatly disappointed that Law had escaped. They and the parliament would have been pleased to see him hanged. The few who had not suffered financial loss still rejoiced that the quack had left the country; but all those (and they were many) who lost their fortunes regretted that his intimate knowledge of the distressed finances and its causes was not available to seek a solution.

Aftermath

The Council of Finance and the General Council of the Regency received reports that notes in circulation were 2.7 billion livres. The regent was asked to explain why there was a discrepancy between the dates on which the notes were issued and the edicts that authorized them. He might have taken the blame himself, but he preferred that the absent Law should bear a share. He said that Law, on his own authority, had issued 1.2 billion notes at different times, and that he (the regent), seeing that the thing had already been done, protected Law by backdating the council’s decrees. It would have been to his credit if he had truthfully told that it was mainly his own extravagance and impatience that caused Law to overstep the bounds of safe issue.

The national debt, on the 1st of January 1721, amounted to about 3.1 billion livres, with accrued interest of 3.2 million. A commission, or visa, was appointed to examine the individual state bond holders, divided into five classes. The first four had bought their notes and held bonâ fide documents, and the fifth could give no proof of purchase, and their notes were to be destroyed, The first four classes were subjected to rigid scrutiny. A visa  recommended lowering the interest on these securities by 98%. This drastic reduction, the visa justified because of the embezzlement and extortion they had discovered. Parliament published an edict to this effect.

Another tribunal examined the corruption in government financial departments. A Master of Requests, the Abbé Clement, and two of their clerks had embezzled a million livres. The first two were sentenced to beheading, and the latter to be hanged. But all were commuted to life in prison in the Bastille. Numerous other officials were punished by fine and imprisonment.

Former Chancellor D’Argenson was as unpopular as Law and the Duke of Orange, as was everyone connected with the Mississippi madness. He was dismissed as Chancellor, but he kept the title of Keeper of the Seals and could attend the councils whenever he pleased. He left Paris and lived a secluded life in the country. But he did not take to retirement. Becoming moody and discontented, he died in less than a year. The Parisians so detested him, that they carried their hatred to his grave. As his funeral procession drove to his family gravesite, a riotous mob threatened his two sons, chief mourners, and they had to flee.

Law hoped to return to France, to help put credit on a firmer basis. But the regent’s sudden death in 1723, destroyed that hope, and Law was reduced to his former life of gambling. He sometimes had to pawn his diamond, the sole remnant of his former wealth, but good luck generally enabled him to redeem it. He returned to England for about four years, and then went to Venice, where he died in 1729, in poor circumstances.

What is Different Now?

The crash was not so much Law’s fault as that of the people. He could not imagine the greedy frenzy of a whole nation, that both confidence and mistrust, could be increased almost ad infinitum. And that hope and fear run equally rampant.

This story, like contemporary stories, is about people who go mad in a “herd.” Unlike today, the herd did gather in one place – Paris. That concentration magnified the drama and the excitement. Today, the herd never physically convenes; it congregates on the internet.

Now, imagine that today’s FTX events all take place in lower Manhattan. The many buyers and sellers are in Battery Park or at the corner of Broad and Wall. No internet; no phones. The FTX account holders gather before the courthouse waiting to see the FTX defendants enter court. Would that crowd behave differently than the French? It is a blessing that we have the internet and are dispersed, else we would probably embarrass ourselves with bad behavior, as the Parisians did.