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Rh of the new institution, the transport of money between towns where it had branches was forbidden. The paper-issue now reached 110 millions. Law had such confidence in the success of his plans that he agreed to take over shares in the Mississippi company at par at a near date. The shares began rapidly to rise. The next move was to unite the companies Des Indes Orientales and De Chine, founded in 1664 and 1713 respectively, but now dwindled away to a shadow, to his company. The united association, La Compagnie des Indes, had a practical monopoly of the foreign trade of France. These proceedings necessitated the creation of new capital to the nominal amount of 25 million livres. The payment was spread over 20 months. Every holder of four original shares (mères) could purchase one of the new shares (filles) at a premium of 50 livres. All these 500-livre shares rapidly rose to 750, or 50% above par. Law now turned his attention to obtaining additional powers within France itself. On the 25th of July 1719 an edict was issued granting the company for nine years the management of the mint and the coin-issue. For this privilege the company paid 5 million livres, and the money was raised by a new issue of shares of the nominal value of 500 livres, but with a premium of other 500. The list was only open for twenty days, and it was necessary to present four mères and one fille in order to obtain one of the new shares (petites filles). At the same time two dividends per annum of 6% each were promised. Again there was an attempt to ruin the bank by the commonplace expedient of making a run on it for coin; but the conspirators had to meet absolute power managed with fearlessness and skill. An edict appeared reducing, at a given date, the value of money, and those who had withdrawn coin from the bank hastened again to exchange it for the more stable notes. Public confidence in Law was increased, and he was enabled rapidly to proceed with the completion of the system. A decree of 27th August 1719 deprived the rival company of the farming of the revenue, and gave it to the Compagnie des Indes for nine years in return for an annual payment of 52 million livres. Thus at one blow the “anti-system” was crushed. One thing yet remained; Law proposed to take over the national debt, and manage it on terms advantageous to the state. The mode of transfer was this. The debt was over 1500 million livres. Notes were to be issued to that amount, and with these the state creditors must be paid in a certain order. Shares were to be issued at intervals corresponding to the payments, and it was expected that the notes would be used in buying them. The government was to pay 3% for the loan. It had formerly been bound to pay 80 millions, it would now pay under 50, a clear gain of over 30. As the shares of the company were almost the only medium for investment, the transfer would be surely effected. The creditors would now look to the government payments and the commercial gains of the company for their annual returns. Indeed the creditors were often not able to procure the shares, for each succeeding issue was immediately seized upon, though the 500-livre share was now issued at a premium of 4500 livres. After the third issue, on the 2nd of October, the shares immediately resold at 8000 livres in the Rue Quincampoix, then used as a bourse. They went on rapidly rising as new privileges were still granted to the company. Law had now more than regal power. The exiled Stuarts paid him court; the proudest aristocracy in Europe humbled themselves before him; and his liberality made him the idol of the populace. After, as a necessary preliminary, becoming a Catholic, he was made controller-general of the finances in place of d’Argenson. Finally, in February 1720, the bank was in name as well as in reality united to the company.

The system was now complete; but it had already begun to decay. In December 1719 it was at its height. The shares had then amounted to 20,000 livres, forty times their nominal price. A sort of madness possessed the nation. Men sold their all and hastened to Paris to speculate. The population of the capital was increased by an enormous influx of provincials and foreigners. Trade received a vast though unnatural impulse. Everybody seemed to be getting richer, no one poorer. Those

who could still reflect saw that this prosperity was not real. The whole issue of shares at the extreme market-price valued 12,000 million livres. It would require 600 million annual revenue to give a 5% dividend on this. Now, the whole income of the company as yet was hardly sufficient to pay 5% on the original capital of 1677 million livres. The receipts from the taxes, &c., could be precisely calculated, and it would be many years before the commercial undertakings of the company—with which only some trifling beginning had been made—would yield any considerable return. People began to sell their shares, and to buy coin, houses, land—anything that had a stable element of value in it. There was a rapid fall in the shares, a rapid rise in all kinds of property, and consequently a rapid depreciation of the paper money. Law met these new tendencies by a succession of the most violent edicts. The notes were to bear a premium over specie. Coin was only to be used in small payments, and only a small amount was to be kept in the possession of private parties. The use of diamonds, the fabrication of gold and silver plate, was forbidden. A dividend of 40% on the original capital was promised. By several ingenious but fallaciously reasoned pamphlets Law endeavoured to restore public confidence. The shares still fell. At last, on the 5th of March 1720, an edict appeared fixing their price at 9000 livres, and ordering the bank to buy and sell them at that price. The fall now was transferred to the notes, of which there were soon over 2500 million livres in circulation. A large proportion of the coined money was removed from the kingdom. Prices rose enormously. There was everywhere distress and complete financial confusion. Law became an object of popular hatred. He lost his court influence, and was obliged to consent to a decree (21st May 1720) by which the notes and consequently the shares were reduced to half their nominal value. This created such a commotion that its promoters were forced to recall it, but the mischief was done. What confidence could there be in the depreciated paper after such a measure? Law was removed from his office, and his enemies proceeded to demolish the “system.” A vast number of shares had been deposited in the bank. These were destroyed. The notes were reconverted into government debt, but there was first a visa which reduced that debt to the same size as before it was taken over by the company. The rate of interest was lowered, and the government now only pledged itself to pay 37 instead of 80 millions annually. Finally the bank was abolished, and the company reduced to a mere trading association. By November the “system” had disappeared. With these last measures Law, it may well be believed, had nothing to do. He left France secretly in December 1720, resumed his wandering life, and died at Venice, poor and forgotten, on the 21st of March 1729.

Of Law’s writings the most important for the comprehension of the “system” is his Money and Trade Considered. In this work he says that national power and wealth consist in numbers of people, and magazines of home and foreign goods. These depend on trade, and that on money, of which a greater quantity employs more people; but credit, if the credit have a circulation, has all the beneficial effects of money. To create and increase instruments of credit is the function of a bank. Let such be created then, and let its notes be only given in return for land sold or pledged. Such a currency would supply the nation with abundance of money; and it would have many advantages, which Law points out in detail, over silver. The bank or commission was to be a government institution, and its profits were to be spent in encouraging the export and manufacture of the nation. A very evident error lies at the root of the “system.” Money is not the result but the cause of wealth, he thought. To increase it then must be beneficial, and the best way is by a properly secured paper currency. This is the motive force; but it is to be applied in a particular way. Law had a profound belief in the omnipotence of government. He saw the evils of minor monopolies, and of private farming of taxes. He proposed to centre foreign trade and internal finance in one huge monopoly managed by the state for the people, and carrying on business through a plentiful supply of paper money. He did not see that trade and commerce are best left to private enterprise, and that such a scheme would simply result in the profits of speculators and favourites. The “system” was never so far developed as to exhibit its inherent faults. The madness of speculators ruined the plan when only its foundations were laid. One part indeed might have been saved. The bank was not necessarily bound to the company, and had its note-issue been retrenched it might have become a permanent