Modern history

D) THE FINANCIAL AND ECONOMIC CONTEXT OF THE REGENCY

From 1715 until 1720, the Regent, pragmatic through self-discipline, restrained in so many of his projects and policies, and prudent in his disarticulation of oppositional forces within the state, presided over one of the most audacious experiments in financial innovation in early modern European history. The episode – unpragmatic, unrestrained and quite imprudent – was linked to the presence in Orléans’s entourage of the Scottish financier John Law. In order to understand the Regent’s uncharacteristic attraction to the latter’s seductive ideas, we must first map the sorry condition of the French economy and the state’s finances in 1715.

On his accession to the Regency in 1715, Orléans was faced – as master of requests, Richer d’Aubé, summarized it – by ‘a wretched situation [characterized by] immense debts … a population crippled by taxes … numbers diminished … (and) trade less flourishing [than hitherto]’.23 Yet few doubted the country’s potential for recovery. Roughly 20 million of Europe’s population of 100 million were located within French borders, making one European in five a French man or woman. Spain’s population was roughly one-third of France’s, England’s a quarter, the United Provinces’ a tenth. A large population did not necessarily translate into state power, of course – after all, Poland had some 9 million inhabitants, but lacked an army and remained a diplomatic minnow. Yet what was striking about France was that over the seventeenth century it had found ways of making its numerical superiority tell, turning raw population numbers into naked military power and international dominance.

Shaped from the late sixteenth century onwards, the Bourbon political project combined a domestic programme of centralization of authority on the monarch, the removal of institutional restraints on financial policy (Estates General, provincial estates, etc.) and the development of a state bureaucracy with the build-up of a huge standing army and the creation of an impressive navy. These allowed France to undertake an aggressive quest for European hegemony and to expand France’s population and wealth by extending its size. Geographically speaking, Louis XIV’s annexations completed the construction of France, expanding it by nearly 10 per cent – from 470 million square kilometres to some 514 million – and bringing nearly one and a half million new subjects under Bourbon rule. There would be very little added in the eighteenth century: Lorraine was fully integrated in 1766 and Corsica was annexed in 1768, while the Revolution did some in-filling, incorporating enclaved territories such as the Comtat Venaissin around Avignon, which belonged to the pope, and the independent free city of Mulhouse.24 Abroad too, Louis built up a colonial empire, establishing France in North America (notably in Canada, Louisiana and the West Indies) and in the south seas (at Mauritius and Réunion), and also developing trading posts in the Levant, in India and in West Africa. The achievement was all the more impressive in that expansion was complemented by the work of Louis XIV’s master military engineer, Vauban, in equipping the frontiers with a ceinture de fer (‘iron belt’) of fortresses and defences which provided France with greater security than ever before from military incursions by its enemies.

These intense military efforts were, however, extremely expensive. The last serious attempt to call out the feudal levy of old, in 1674, had ended in fiasco, and thereafter everything to do with the huge standing army and cost-intensive navy had to be paid for by the state. The need to increase the country’s wealth as well as its armed forces and its bureaucracy showed that the Bourbon political project had strong economic and financial as well as military, diplomatic and political dimensions. The most notable achievements in this regard occurred under the stewardship of Colbert, as Controller-General Louis’s most important minister between 1661 and 1683. Colbert’s aim was for the state to use all means at its disposal to mobilize the gold and silver which could put men in the field and battleships on the high seas, and could also finance the style of life to which Louis XIV and his courtiers were keen to grow accustomed. With this link between domestic and foreign policy, state subsidies were given to industry, particularly for the production of army supplies (military uniforms, weapons, artillery, etc.) and for luxury goods (mirrors, glassware, tapestries, fine cloths, etc.) which not only served the royal court but could also be an export item which would bring foreign currency into the kingdom. This was accompanied by an aggressive tariffs policy, and the chartering of trading companies to dominate European markets and begin colonial penetration. In addition, Colbert aimed to set the French to work: in the so-called ‘great confinement of the poor’ initiated in the 1650s and implemented from the 1670s, major cities were equipped with a poor-house or ‘general hospital’ (hôpital général) in which the needy and recalcitrant poor could be adapted to labour discipline and set to work on export commodities.

Many elements in Colbert’s programme – to which historians have attached the label ‘mercantilism’ – were not ineffectual. A spell of peace from 1659 onwards provided a good setting for the Controller-General’s work, and the third quarter of the century saw the French economy in pretty good shape. Buoyant cereal production, even in a period of generally low agricultural prices, owed something to the relaxation of war taxes. Government stimulation also aided textiles production of all kinds – woollens in Flanders, Artois and Normandy, draperies in Languedoc, luxury fabrics around Valenciennes, silk around Lyon and in the Vivarais, and lace-making around Aurillac. Government demand for luxury goods and military and naval supplies also played a part, as did the opening-up of colonial and Levantine trade through Colbert’s trading companies. It was not inevitable that the return to war from the late 1670s onwards should have undercut these achievements. After all, as well as capturing new resources for the state, warfare could also stimulate important sectors of the economy, by boosting demand, encouraging large-scale production and technical innovation and helping market formation. It also mobilized capital and credit so that the bills of war could be paid. For this to be effective, however, war needed to be successful. In the event, the grim picture of European struggle from the 1680s to the 1710s was toxic rather than tonic for the French economy.

The heart of the problem lay on the land. As we shall show below,25 France was still an essentially agrarian country in which poorly funded, subsistence-orientated and technologically limited peasant farming produced the vast bulk of the national product – and also the lion’s share of the state’s tax revenue, since social privilege insulated the elite from the demeaning status of taillable (payer of the taille, the main direct tax). Neglected by government – for agriculture had entered only tangentially into Colbertist plans – the countryside was subject to violent short-term oscillations in its economic fortunes from the 1690s onwards, linked not only to war, but also to those other customary scourges of any pre-industrial society, famine and disease. The damage these caused spread like a cancer into most domains of the industrial sector as well as causing a major deterioration in national wealth – and consequently state finance.

The climate from 1680 down to 1720 was particularly disturbed, with numerous spells of exceptionally cold, wet weather alternating with unseasonal periods of drought conditions to wreak havoc with harvest yields. Bad harvests had a devastating effect on populations living close to the breadline. The effects of hunger were often conjugated with epidemic disease. Horrific mortality crises ensued as famine stalked the land. Those which occurred in 1692–4 and 1709–10 were particularly appalling. The former caused as many deaths – 2.8 million, or some 15 per cent of the total population – as World War I was to inflict on a population double the size. France, polemicized Fénelon, was nothing more than ‘a massive poorhouse, devastated and without provisions’.26Nearly a million individuals – some 3.5 per cent of the population – were victims of the legendary winter of 1709–10, when seed froze in the ground, olive and fruit trees were blasted by killer frosts, rivers iced over, ink froze in stands, wineglasses to lips, and birds to branches.

Meteorological and epidemiological disasters could be freely ascribed to the wrath of God; yet contemporaries thought the hand of man was detectable in mass mortality too – and one man in particular, the king. It was less the direct demographic impact of warfare – for though armies were relatively large, battles were few – than its indirect effects which stunted economic development and inhibited demographic recovery: increased tax loads, military requisitioning of food and livestock, incidental damage to the means of production, and armies’ role as vectors of epidemic disease. Contemporaries who ascribed the mass poverty and high mortality to the ill-considered quest for personal and dynastic gloire, moreover, could add to war-related deaths the demographic losses caused by royal religious policy. The Revocation of the Edict of Nantes in 1685 led to mass emigration by Huguenots unwilling to go through the sham of becoming ‘New Converts’: between 1685 and 1690 roughly 140,000 individuals left France for England, the United Provinces and other destinations, and a further 40–60,000 followed their steps as part of the ‘Protestant Diaspora’ in the following decades of repression.

Louis had done much to bring new resources into the economy through territorial aggrandisement and had achieved an impressive level of frontier security. Yet ruling over a huge and complex kingdom and keeping armed forces and bureaucracy functioning effectively in the midst of socio-economic difficulties was a tough challenge for any king, even one as hard-working and talented as Louis XIV. When set against the indirect costs of war, the rewards seemed rather paltry – a perception which also, as we have seen,27was at the heart of a burgeoning critique of royal absolutism within the political elite. The strain was increasingly showing, moreover, where it mattered most: on the battlefield. French armies had won most of their battles down to the 1680s; by the 1700s they were losing more than they won, as rival armies caught up. The navy, too, sustained serious losses in the early years of the War of Spanish Succession, and the fleet never put out in anger after 1704.

The strains of war had a damaging impact on the financial machinery of state. Now that territorial acquisitions and productivity gains in the economy were no longer helping to make war pay for itself, government had to demand a larger share of what, in terms of national wealth, was a shrinking cake. Government expenditure doubled between 1689 and 1697, with war costs gobbling up three-quarters of revenue. New universal direct taxes had to be introduced in 1695 (the capitation) and 1710 (the dixième), while the burden of indirect taxes was also made heavier, with new imposts being levied on an ensemble of items ranging from playing cards to wigs. Another staple of state finance, the sale of offices within the state bureaucracy, also went into overdrive. By the end of the reign, the system of venality had been extended to bailiffs, funeral directors and oyster-sellers, and was generally believed to have reached its absolute maximum level. Despite these initiatives, tax receipts still failed to keep up, as evasion and increased levels of poverty reduced the tax take. Resort was made to extraordinary means of raising revenue. Some measures were merely symbolic one-off steps – such as the state lottery of 1700, or Louis’s decision to melt down the Versailles silverware to help pay for the war effort in 1709. Recoinage was a further financial instrument increasingly desperately deployed. There were nearly forty changes in the legal value of the coinage, and the livre tournois – the country’s currency of account – lost one-third of its metal value within two decades. In 1701 a further recoinage edict was linked to the recall of currency and the issue in its place of state paper notes (billets de monnaie), which in theory could be used in commercial transactions. They depreciated almost instantly, and were withdrawn in 1710.

The state was thus obliged to borrow increasingly massively just to keep afloat. The credit machine which the Bourbons had created strained perilously under the load. Loans were levied by selling state annuities (rentes). Lending was often organized through major corporative bodies such as the clergy, the provincial estates and municipal governments. In a peculiarity which said much about the baroque complexities of the Bourbon polity, the king also relied for loans on his main financial officials and the bureaucracy. Targets of choice in this respect were the individuals entrusted with farming indirect taxes (the fermiers) and the venal officers (known as receveurs) who were responsible for collecting taxes in the provinces or who were in charge of the budget in major government departments such as the army or the navy. Financiers were fabulously wealthy individuals who were able to make the tax moneys which passed through their hands work for them to build up their own fortunes. They were especially needed for short-term credits when times were tight. The state could draw on these individuals with some confidence, knowing that they would reimburse themselves from the tax loads they collected, while the high interest rates they charged also allowed them to feather their nests.

The Crozat brothers were a notable example of such specialists in financial services. From a banking family in Languedoc, they developed colossal fortunes based on an early commitment to financial office, Pierre as treasurer of the Estates of Languedoc and of the clergy, Antoine as receveur in the généralité of Bordeaux. They invested heavily in maritime trade, colonial ventures and slave trading, but also performed invaluable service during the War of Spanish Succession, and accepted Louis XIV’s invitation to help finance the Jacobite rising of 1715. The king also developed a close link with another international banker, the multi-millionaire Samuel Bernard. A post-1685 ‘New Convert’, Bernard worked out of Lyon and drew on the money-raising potential of his Protestant family and friends scattered throughout Europe. Ironically, the ‘Protestant Diaspora’ caused by the Revocation of the Edict of Nantes helped fund some of the key military campaigns of the war: it was the Protestant bankers of Amsterdam, for example, who in 1703 provided a 3 million livre loan to keep the French Army of Flanders in the field.

Wealth of this sort – both excessive and seemingly new – was the target for vituperative criticism which echoed the austere morality of Fénelon. Financial lobbies working hand in hand with the king’s ministers were accused of placing the personal enrichment of a few dramatically before collective felicity. Lesage’s popular play, Turcaret, or The Financier (1708) was a typically violent satirical attack. It combined an attack on corruption and luxury with a critique of the social mobility which accompanied new wealth – hence the leading character was a footman-turned-financier. Such attacks on financial milieux underestimated, however, the extent to which the scapegoat financier was in cahoots with the landed aristocracy. Besides mobilizing their own wealth and the resources of their tax constituents, financiers also nurtured close links with the political elite. Financiers provided the necessary discretion in brokering deals and acting as fronts for the landed nobility, which was keen to make money by lending to the crown at high rates of interest, but which was anxious about the laws of derogation which entailed loss of noble status for engagement in demeaning and mercantile activity. To a greater extent than contemporaries grasped, the king’s aggressive foreign policy was funded by his tapping the huge wealth of his nobility, based on massive property-holding, rental income and seigneurial privileges, on highly advantageous terms for the noblemen. This subterranean linkage, in which the financiers acted as lubricant, provided another example of that alliance between a reconstructed nobility and a putatively absolutist monarchy which we have suggested was a distinctive feature of Louis XIV’s political system.28

This world of credit in which governmental figures, financial officials and wealthy nobles seemed to be perpetually in each other’s pockets formed a powerful vested interest within the state. The monarch was utterly reliant on the ability of this pivotal financial milieu to shake free money from France’s social elite, from European money-markets and from the kingdom’s tax-payers. The more money the king needed, moreover, the wealthier the financial milieu became. Crozat and Bernard probably ranked with the prince de Condé and the duc d’Orléans as the richest men in France. Yet the financial juggling could go spectacularly wrong. In 1709, after effectively funding all foreign transactions associated with the war for five years, for example, Bernard went bust, and had to retire from the fray to rebuild his fortune. The political credit of Chamillart, Controller-General since 1699, who had worked closely with him, was destroyed at a stroke. Chamillart’s successor, Desmaretz, nephew of the great Colbert, found himself in a desperate situation, with the next three years of tax revenue already assigned to the repayment of debts. He fell back on a cartel of a dozen receveurs to help provide the short-term credits needed to get him through to the Utrecht peace negotiations, which he followed up with severely deflationary policies.

On coming to power in 1715, then, Orléans seemed to have only a limited set of financial instruments at his disposal for righting the listing ship of state. He could have been forgiven for looking enviously towards England and the United Provinces, which – though far less blessed than the French in terms of population size and agrarian wealth – seemed to have proved more effective in mobilizing credit to finance large-scale warfare. The innovatory fiscal mechanisms which the English and Dutch pioneered in London and Amsterdam for raising large amounts at low rates of interest seemed, however, to be heavily dependent on their political context: governments seemingly stood a better chance of inspiring lending confidence in their populations if those populations felt that they had a share in power. In France, however, sovereignty was undivided, and Samuel Bernard and Desmaretz were at one in believing that there was ‘no foundation for a banking establishment … in a country in which everything depends on the wishes of the king’.29 In theory, France’s absolute monarch had a trump card in his hand: if he chose, he could renounce his debts at a stroke – a move which more parliamentary systems like those of England and the United Provinces could not match. The political fall-out from a state bankruptcy would, however, be intense – especially in a Regency – while it would also prove difficult to attract further loans in the short-term at least.

Initially, therefore, Orléans chose the path of orthodox financial rectitude. Sacking Desmaretz, and then working closely with the duc de Noailles, president of the new Finance Council, he followed classic methods of redressment made all the more essential by his own predilection for handing out lavish political bribes (funded partly by massive personal loans from the Crozat clan). He set about streamlining the administrative machinery of the state’s finances and put auditing procedures in place designed to cut waste and maximize tax inflows. The Regent realized that, given the financial situation, war was off France’s immediate agenda, and his deliberately pacifist foreign policy was combined with a continuation of the military demobilization started in 1713. Severe economies were also introduced into the court as well as the military establishment. In order to reduce the soaring royal debt, moreover, the Regent turned to a new clique of financiers, the four Paris brothers from the Dauphine, who had begun their rise to power in military supply after 1700. These were now called in to operate a procedure known as the ‘Visa’, whereby holders of state bonds had to submit them to a commission to be reviewed and (invariably) reduced. This was in effect a partial state bankruptcy, and though it helped reduce state obligations, it had a lamentable effect on public confidence, which fell to abysmal levels. Few wished to trust a government which utilized every trick in the book to escape or reduce its financial commitments.

In order to win public confidence, Noailles turned to that regular standby in such times, a swingeing attack on financiers accused of malversation of state funds. Like others which had been held in the past, the ‘Chamber of Justice’ (Chambre de justice) of 1716 performed ritualistic but largely symbolic damage on the hated figure of the corrupt state financier. The largest fines – 12 million livres overall – were levied on Antoine Crozat and Samuel Bernard, but both men lived to fight another day. In general, punishment rained down on the sprats, leaving most big fish able to swim away relatively undamaged. Over 4000 individuals were sentenced, but probably only a small proportion of the 219 million livres worth of fines which were meted out to them ever arrived in the state treasury.

Down to 1718, Orléans had shown some ingenuity in living up to his Fénelonian aim of ruling in an aura of international peace and financial rectitude and punishing fiscal wrongdoing so as to nurture an atmosphere of love and trust in his subjects. There were limits, however, to the extent to which good accountancy, even when combined with external peace, could nurture subjects’ affections and restore public confidence – let alone boost an economy so severely tested by the trials of warfare. The punishment of errant financiers and the removal from the councils of state of the Desmaretz clan had done nothing to lessen governmental dependence on the financial services of cliques of private individuals and financial officials. Indeed, it may have made matters worse, for the symbolic attack of the Chambre de Justice pushed the financial milieu towards hoarding and spending rather than seeking to bail the government out. In 1717, with France shaping up to go to war with bellicose Spain, Noailles even considered convening the Estates General for the first time since 1614 to try to get out of the fiscal impasse.

The Regent had by now realized that in order to free the state from a relationship which seemed to have subverted France’s natural strengths, some imaginative rethinking of power and authority was required. He seemed so boxed in by circumstances that something quite out of the ordinary was called for. A good deal of rethinking had indeed been going on in the last years of Louis XIV’s reign, in the scheming of figures in the circle of the duke of Burgundy. Their interest reflected a broader concern, evident right across Europe, to find ways of living comfortably with continuing large-scale warfare, in particular by devising ways of reconfiguring the authority of states so that they could enlist their inhabitants’ trust – and credit. This international debate was led by a new, cosmopolitan class of financial projectors and schemers, and it was to one of the most imaginative – or fanciful? – of such figures that the Regent now turned: the Scot John Law.

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