The Crayon Papers

I exulted in the beauty of the scene, and augured a prosperous voyage; but the veteran master of the ship shook his head, and pronounced this halcyon calm a "weather-breeder." And so it proved. A storm burst forth in the night; the sea roared and raged; and when the day broke, I beheld the late gallant convoy scattered in every direction; some dismasted, others scudding under bare poles, and many firing signals of distress.

I have since been occasionally reminded of this scene, by those calm, sunny seasons in the commercial world, which are known by the name of "times of unexampled prosperity." They are the sure weather-breeders of traffic. Every now and then the world is visited by one of these delusive seasons, when "the credit system," as it is called, expands to full luxuriance, everybody trusts everybody; a bad debt is a thing unheard of; the broad way to certain and sudden wealth lies plain and open; and men are tempted to dash forward boldly, from the facility of borrowing.

Promissory notes, interchanged between scheming individuals, are liberally discounted at the banks, which become so many mints to coin words into cash; and as the supply of words is inexhaustible, it may readily be supposed what a vast amount of promissory capital is soon in circulation. Every one now talks in thousands; nothing is heard but gigantic operations in trade; great purchases and sales of real property, and immense sums made at every transfer. All, to be sure, as yet exists in promise; but the believer in promises calculates the aggregate as solid capital, and falls back in amazement at the amount of public wealth, the "unexampled state of public prosperity."

Now is the time for speculative and dreaming or designing men. They relate their dreams and projects to the ignorant and credulous, dazzle them with golden visions, and set them madding after shadows. The example of one stimulates another; speculation rises on speculation; bubble rises on bubble; every one helps with his breath to swell the windy superstructure, and admires and wonders at the magnitude of the inflation he has contributed to produce.

Speculation is the romance of trade, and casts contempt upon all its sober realities. It renders the stock-jobber a magician, and the exchange a region of enchantment. It elevates the merchant into a kind of knight-errant, or rather a commercial Quixote. The slow but sure gains of snug percentage become despicable in his eyes; no "operation" is thought worthy of attention that does not double or treble the investment. No business is worth following that does not promise an immediate fortune. As he sits musing over his ledger, with pen behind his ear, he is like La Mancha's hero in his study, dreaming over his books of chivalry. His dusty counting-house fades before his eyes, or changes into a Spanish mine; he gropes after diamonds, or dives after pearls. The subterranean garden of Aladdin is nothing to the realms of wealth that break upon his imagination.

Could this delusion always last, the life of a merchant would indeed be a golden dream; but it is as short as it is brilliant. Let but a doubt enter, and the "season of unexampled prosperity" is at end. The coinage of words is suddenly curtailed; the promissory capital begins to vanish into smoke; a panic succeeds, and the whole superstructure, built upon credit and reared by speculation, crumbles to the ground, leaving scarce a wreck behind:

"It is such stuff as dreams are made of."

When a man of business, therefore, hears on every side rumors of fortunes suddenly acquired; when he finds banks liberal, and brokers busy; when he sees adventurers flush of paper capital, and full of scheme and enterprise; when he perceives a greater disposition to buy than to sell; when trade overflows its accustomed channels and deluges the country; when he hears of new regions of commercial adventure; of distant marts and distant mines, swallowing merchandise and disgorging gold; when he finds joint-stock companies of all kinds forming; railroads, canals, and locomotive engines, springing up on every side; when idlers suddenly become men of business, and dash into the game of commerce as they would into the hazards of the faro table; when he beholds the streets glittering with new equipages, palaces conjured up by the magic of speculation; tradesmen flushed with sudden success, and vying with each other in ostentatious expense; in a word, when he hears the whole community joining in the theme of "unexampled prosperity," let him look upon the whole as a "weather-breeder," and prepare for the impending storm.

The foregoing remarks are intended merely as a prelude to a narrative I am about to lay before the public, of one of the most memorable instances of the infatuation of gain to be found in the whole history of commerce. I allude to the famous Mississippi Bubble. It is a matter that has passed into a proverb, and become a phrase in every one's mouth, yet of which not one merchant in ten has probably a distinct idea. I have therefore thought that an authentic account of it would be interesting and salutary, at the present moment, when we are suffering under the effects of a severe access of the credit system, and just recovering from one of its ruinous delusions.

Before entering into the story of this famous chimera, it is proper to give a few particulars concerning the individual who engendered it. John Law was born in Edinburgh in 1671. His father, William Law, was a rich goldsmith, and left his son an estate of considerable value, called Lauriston, situated about four miles from Edinburgh. Goldsmiths, in those days, acted occasionally as bankers, and his father's operations, under this character, may have originally turned the thoughts of the youth to the science of calculation, in which he became an adept; so that at an early age he excelled in playing at all games of combination.

In 1694 he appeared in London, where a handsome person, and an easy and insinuating address, gained him currency in the first circles and the nickname of "Beau Law." The same personal advantages gave him success in the world of gallantry, until he became involved in a quarrel with Beau Wilson, his rival in fashion, whom he killed in a duel, and then fled to France, to avoid prosecution.

He returned to Edinburgh in 1700, and remained there several years; during which time he first broached his great credit system, offering to supply the deficiency of coin by the establishment of a bank, which, according to his views, might emit a paper currency equivalent to the whole landed estate of the kingdom.

His scheme excited great astonishment in Edinburgh; but, though the government was not sufficiently advanced in financial knowledge to detect the fallacies upon which it was founded, Scottish caution and suspicion served in the place of wisdom, and the project was rejected. Law met with no better success with the English Parliament; and the fatal affair of the death of Wilson still hanging over him, for which he had never been able to procure a pardon, he again went to France.

The financial affairs of France were at this time in a deplorable condition. The wars, the pomp and profusion, of Louis XIV., and his religious persecutions of whole classes of the most industrious of his subjects, had exhausted his treasury, and overwhelmed the nation with debt. The old monarch clung to his selfish magnificence, and could not be induced to diminish his enormous expenditure; and his minister of finance was driven to his wits' end to devise all kinds of disastrous expedients to keep up the royal state, and to extricate the nation from its embarrassments.

In this state of things, Law ventured to bring forward his financial project. It was founded on the plan of the Bank of England, which had already been in successful operation several years. He met with immediate patronage, and a congenial spirit, in the Duke of Orleans, who had married a natural daughter of the king. The duke had been astonished at the facility with which England had supported the burden of a public debt, created by the wars of Anne and William, and which exceeded in amount that under which France was groaning. The whole matter was soon explained by Law to his satisfaction. The latter maintained that England had stopped at the mere threshold of an art capable of creating unlimited sources of national wealth. The duke was dazzled with his splendid views and specious reasonings, and thought he clearly comprehended his system. Demarets, the Comptroller-General of Finance, was not so easily deceived. He pronounced the plan of Law more pernicious than any of the disastrous expedients that the government had yet been driven to. The old king also, Louis XIV., detested all innovations, especially those which came from a rival nation; the project of a bank, therefore, was utterly rejected.

Law remained for a while in Paris, leading a gay and affluent existence, owing to his handsome person, easy manners, flexible temper, and a faro-bank which he had set up. His agreeable career was interrupted by a message from D'Argenson, Lieutenant-General of Police, ordering him to quit Paris, alleging that he was "rather too skillful at the game which he had introduced."

For several succeeding years he shifted his residence from state to state of Italy and Germany; offering his scheme of finance to every court that he visited, but without success. The Duke of Savoy, Victor Amadeus, afterward king of Sardinia, was much struck with his project; but after considering it for a time, replied, "I am not sufficiently powerful to ruin myself."

The shifting, adventurous life of Law, and the equivocal means by which he appeared to live, playing high, and always with great success, threw a cloud of suspicion over him wherever he went, and caused him to be expelled by the magistracy from the semi-commercial, semi-aristocratical cities of Venice and Genoa.

The events of 1715 brought Law back again to Paris. Louis XIV. was dead. Louis XV. was a mere child, and during his minority the Duke of Orleans held the reins of government as Regent. Law had at length found his man.

The Duke of Orleans has been differently represented by different contemporaries. He appears to have had excellent natural qualities, perverted by a bad education. He was of the middle size, easy and graceful, with an agreeable countenance, and open, affable demeanor. His mind was quick and sagacious, rather than profound; and his quickness of intellect, and excellence of memory, supplied the lack of studious application. His wit was prompt and pungent; he expressed himself with vivacity and precision; his imagination was vivid, his temperament sanguine and joyous; his courage daring. His mother, the Duchess of Orleans, expressed his character in a jeu d'esprit. "The fairies," said she, "were invited to be present at his birth, and each one conferring a talent on my son, he possesses them all. Unfortunately, we had forgotten to invite an old fairy, who, arriving after all the others, exclaimed, 'He shall have all the talents, excepting that to make a good use of them.'"

Under proper tuition, the duke might have risen to real greatness; but in his early years he was put under the tutelage of the Abbe Dubois, one of the subtlest and basest spirits that ever intrigued its way into eminent place and power. The abbe was of low origin and despicable exterior, totally destitute of morals, and perfidious in the extreme; but with a supple, insinuating address, and an accommodating spirit, tolerant of all kinds of profligacy in others. Conscious of his own inherent baseness, he sought to secure an influence over his pupil, by corrupting his principles and fostering his vices; he debased him, to keep himself from being despised. Unfortunately he succeeded. To the early precepts of this infamous pander have been attributed those excesses that disgraced the manhood of the regent, and gave a licentious character to his whole course of government. His love of pleasure, quickened and indulged by those who should have restrained it, led him into all kinds of sensual indulgence. He had been taught to think lightly of the most serious duties and sacred ties; to turn virtue into a jest, and consider religion mere hypocrisy. He was a gay misanthrope, that had a sovereign but sportive contempt for mankind; believed that his most devoted servant would be his enemy, if interest prompted; and maintained that an honest man was he who had the art to conceal that he was the contrary.

He surrounded himself with a set of dissolute men like himself; who, let loose from the restraint under which they had been held, during the latter hypocritical days of Louis XIV., now gave way to every kind of debauchery. With these men the regent used to shut himself up, after the hours of business, and excluding all graver persons and graver concerns, celebrate the most drunken and disgusting orgies; where obscenity and blasphemy formed the seasoning of conversation. For the profligate companions of these revels, he invented the appellation of his roués, the literal meaning of which is men broken on the wheel; intended, no doubt, to express their broken-down characters and dislocated fortunes; although a contemporary asserts that it designated the punishment that most of them merited. Madame de Labran, who was present at one of the regent's suppers, was disgusted by the conduct and conversation of the host and his guests, and observed, at table, that God, after he had created man, took the refuse clay that was left, and made of it the souls of lackeys and princes.

Such was the man that now ruled the destinies of France. Law found him full of perplexities, from the disastrous state of the finances. He had already tampered with the coinage, calling in the coin of the nation, restamping it, and issuing it at a nominal increase of one-fifth; thus defrauding the nation out of twenty per cent of its capital. He was not likely, therefore, to be scrupulous about any means likely to relieve him from financial difficulties; he had even been led to listen to the cruel alternative of a national bankruptcy.

Under these circumstances, Law confidently brought forward his scheme of a bank, that was to pay off the national debt, increase the revenue, and at the same time diminish the taxes. The following is stated as the theory by which he recommended his system to the regent. The credit enjoyed by a banker or a merchant, he observed, increases his capital tenfold; that is to say, he who has a capital of one thousand livres, may, if he possess sufficient credit, extend his operations to a million, and reap profits to that amount. In like manner, a state that can collect into a bank all the current coin of the kingdom, would be as powerful as if its capital were increased tenfold. The specie must be drawn into the bank, not by way of loan, or by taxations, but in the way of deposit. This might be effected in different modes, either by inspiring confidence or by exerting authority. One mode, he observed, had already been in use. Each time that a state makes a recoinage, it becomes momentarily the depositary of all the money called in, belonging to the subjects of that state. His bank was to effect the same purpose; that is to say, to receive in deposit all the coin of the kingdom, but to give in exchange its bills, which, being of an invariable value, bearing an interest, and being payable on demand, would not only supply the place of coin, but prove a better and more profitable currency.

The regent caught with avidity at the scheme. It suited his bold, reckless spirit, and his grasping extravagance. Not that he was altogether the dupe of Law's specious projects; still he was apt, like many other men, unskilled in the arcana of finance, to mistake the multiplication of money for the multiplication of wealth; not understanding that it was a mere agent or instrument in the interchange of traffic, to represent the value of the various productions of industry; and that an increased circulation of coin or bank bills, in the shape of currency, only adds a proportionably increased and fictitious value to such productions. Law enlisted the vanity of the regent in his cause. He persuaded him that he saw more clearly than others into sublime theories of finance, which were quite above the ordinary apprehension. He used to declare that, excepting the regent and the Duke of Savoy, no one had thoroughly comprehended his system.

It is certain that it met with strong opposition from the regent's ministers, the Duke de Noailles and the Chancellor d'Anguesseau; and it was no less strenuously opposed by the Parliament of Paris. Law, however, had a potent though secret coadjutor in the Abbe Dubois, now rising, during the regency, into great political power, and who retained a baneful influence over the mind of the regent. This wily priest, as avaricious as he was ambitious, drew large sums from Law as subsidies, and aided him greatly in many of his most pernicious operations. He aided him, in the present instance, to fortify the mind of the regent against all the remonstrances of his ministers and the parliament.

Accordingly, on the 2d of May, 1716, letters patent were granted to Law, to establish a bank of deposit, discount, and circulation, under the firm of "Law & Company," to continue for twenty years. The capital was fixed at six millions of livres, divided into shares of five hundred livres each, which were to be sold for twenty-five per cent of the regent's debased coin, and seventy-five per cent of the public securities; which were then at a great reduction from their nominal value, and which then amounted to nineteen hundred millions. The ostensible object of the bank, as set forth in the patent, was to encourage the commerce and manufactures of France. The louis d'ors and crowns of the bank were always to retain the same standard of value, and its bills to be payable in them on demand.

At the outset, while the bank was limited in its operations, and while its paper really represented the specie in its vaults, it seemed to realize all that had been promised from it. It rapidly acquired public confidence, and an extended circulation, and produced an activity in commerce unknown under the baneful government of Louis XIV. As the bills of the bank bore an interest, and as it was stipulated they would be of invariable value, and as hints had been artfully circulated that the coin would experience successive diminution, everybody hastened to the bank to exchange gold and silver for paper. So great became the throng of depositors, and so intense their eagerness, that there was quite a press and struggle at the bank door, and a ludicrous panic was awakened, as if there was danger of their not being admitted. An anecdote of the time relates that one of the clerks, with an ominous smile, called out to the struggling multitude, "Have a little patience, my friends; we mean to take all your money;" an assertion disastrously verified in the sequel.

Thus, by the simple establishment of a bank, Law and the regent obtained pledges of confidence for the consummation of further and more complicated schemes, as yet hidden from the public. In a little while, the bank shares rose enormously, and the amount of its notes in circulation exceeded one hundred and ten millions of livres. A subtle stroke of policy had rendered it popular with the aristocracy. Louis XIV. had several years previously imposed an income tax of a tenth, giving his royal word that it should cease in 1717. This tax had been exceedingly irksome to the privileged orders; and in the present disastrous times they had dreaded an augmentation of it. In consequence of the successful operation of Law's scheme, however, the tax was abolished, and now nothing was to be heard among the nobility and clergy but praises of the regent and the bank.

Hitherto all had gone well, and all might have continued to go well, had not the paper system been further expanded. But Law had yet the grandest part of his scheme to develop. He had to open his ideal world of speculation, his El Dorado of unbounded wealth. The English had brought the vast imaginary commerce of the South Seas in aid of their banking operations. Law sought to bring, as an immense auxiliary of his bank, the whole trade of the Mississippi. Under this name was included not merely the river so called, but the vast region known as Louisiana, extending from north latitude 29° up to Canada in north latitude 40°. This country had been granted by Louis XIV. to the Sieur Crozat, but he had been induced to resign his patent. In conformity to the plea of Mr. Law, letters patent were granted in August, 1717, for the creation of a commercial company, which was to have the colonizing of this country, and the monopoly of its trade and resources, and of the beaver or fur trade with Canada. It was called the Western, but became better known as the Mississippi Company. The capital was fixed at one hundred millions of livres, divided into shares, bearing an Interest of four per cent, which were subscribed for in the public securities. As the bank was to co-operate with the company, the regent ordered that its bills should be received the same as coin, in all payments of the public revenue. Law was appointed chief director of this company, which was an exact copy of the Earl of Oxford's South Sea Company, set on foot in 1711, and which distracted all England with the frenzy of speculation. In like manner with the delusive picturings given in that memorable scheme of the sources of rich trade to be opened in the South Sea countries, Law held forth magnificent prospects of the fortunes to be made in colonizing Louisiana, which was represented as a veritable land of promise, capable of yielding every variety of the most precious produce. Reports, too, were artfully circulated, with great mystery, as if to the "chosen few," of mines of gold and silver recently discovered in Louisiana, and which would insure instant wealth to the early purchasers. These confidential whispers of course soon became public; and were confirmed by travelers fresh from the Mississippi, and doubtless bribed, who had seen the mines in question, and declared them superior in richness to those of Mexico and Peru. Nay, more, ocular proof was furnished to public credulity, in ingots of gold conveyed to the mint, as if just brought from the mines of Louisiana.

Extraordinary measures were adopted to force a colonization. An edict was issued to collect and transport settlers to the Mississippi. The police lent its aid. The streets and prisons of Paris, and of the provincial cities, were swept of mendicants and vagabonds of all kinds, who were conveyed to Havre de Grace. About six thousand were crowded into ships, where no precautions had been taken for their health or accommodation. Instruments of all kinds proper for the working of mines were ostentatiously paraded in public, and put on board the vessels; and the whole set sail for this fabled El Dorado, which was to prove the grave of the greater part of its wretched colonists.

D'Anguesseau, the chancellor, a man of probity and integrity, still lifted his voice against the paper system of Law, and his project of colonization, and was eloquent and prophetic in picturing the evils they were calculated to produce; the private distress and public degradation; the corruption of morals and manners; the triumph of knaves and schemers; the ruin of fortunes, and downfall of families. He was incited more and more to this opposition by the Duke de Noailles, the Minister of Finance, who was jealous of the growing ascendency of Law over the mind of the regent, but was less honest than the chancellor in his opposition. The regent was excessively annoyed by the difficulties they conjured up in the way of his darling schemes of finance, and the countenance they gave to the opposition of parliament; which body, disgusted more and more with the abuses of the regency, and the system of Law, had gone so far as to carry its remonstrances to the very foot of the throne.

He determined to relieve himself from these two ministers, who, either through honesty or policy, interfered with all his plans. Accordingly, on the 28th of January, 1718, he dismissed the chancellor from office, and exiled him to his estate in the country; and shortly afterward removed the Duke de Noailles from the administration of the finances.

The opposition of parliament to the regent and his measures was carried on with increasing violence. That body aspired to an equal authority with the regent in the administration of affairs, and pretended, by its decree, to suspend an edict of the regency, ordering a new coinage and altering the value of the currency. But its chief hostility was leveled against Law, a foreigner and a heretic, and one who was considered by a majority of the members in the light of a malefactor. In fact, so far was this hostility carried, that secret measures were taken to investigate his malversations, and to collect evidence against him; and it was resolved in parliament that, should the testimony collected justify their suspicions, they would have him seized and brought before them; would give him a brief trial, and, if convicted, would hang him in the courtyard of the palace, and throw open the gates after the execution, that the public might behold his corpse!

Law received intimation of the danger hanging over him, and was in terrible trepidation. He took refuge in the Palais Royal, the residence of the regent, and implored his protection. The regent himself was embarrassed by the sturdy opposition of parliament, which contemplated nothing less than a decree reversing most of his public measures, especially those of finance. His indecision kept Law for a time in an agony of terror and suspense. Finally, by assembling a board of justice, and bringing to his aid the absolute authority of the king, he triumphed over parliament and relieved Law from his dread of being hanged.

The system now went on with flowing sail. The Western or Mississippi Company, being identified with the bank, rapidly increased in power and privileges. One monopoly after another was granted to it; the trade of the Indian seas; the slave trade with Senegal and Guinea; the farming of tobacco; the national coinage, etc. Each new privilege was made a pretext for issuing more bills, and caused an immense advance in the price of stock. At length, on the 4th of December, 1718, the regent gave the establishment the imposing title of "The Royal Bank," and proclaimed that he had effected the purchase of all the shares, the proceeds of which he had added to its capital This measure seemed to shock the public feeling more than any other connected with the system, and roused the indignation of parliament. The French nation had been so accustomed to attach an idea of everything noble, lofty, and magnificent to the royal name and person, especially during the stately and sumptuous reign of Louis XIV., that they could not at first tolerate the idea of royalty being in any degree mingled with matters of traffic and finance, and the king being in a manner a banker. It was one of the downward steps, however, by which royalty lost its illusive splendor in France, and became gradually cheapened in the public mind.

Arbitrary measures now began to be taken to force the bills of the bank into artificial currency. On the 27th of December appeared an order in council, forbidding, under severe penalties, the payment of any sum above six hundred livres in gold or silver. This decree rendered bank bills necessary in all transactions of purchase and sale, and called for a new emission. The prohibition was occasionally evaded or opposed; confiscations were the consequence; informers were rewarded, and spies and traitors began to spring up in all the domestic walks of life.