The Online Library of Liberty

A project of Liberty Fund, Inc.

• Banking In the Latin Nations.
• Part I.: Banking In France.
• Chapter I.: Its Status Before the Revolution.
• Chapter II.: The Bank and “system” of Law.
• Chapter III.: The Discount Bank—la Caisse D’escompte.
• Chapter IV.: Assignats—the Basis of Their Issue.
• Chapter V.: The Bank of France.
• Chapter VI.: Banks and Bankers After the Revolution.
• Chapter VII.: Banking In the French Colonies.
• Part II.: Banking In Italy.
• Chapter I.: Primitive Banks.
• Chapter II.: Banking Under the Unification of the Kingdom.
• Chapter III.: Italian Co-operative Banks.
• Chapter IV.: The Bankers of Florence.
• Chapter V.: Banks and Bankers In Sicily.
• Part III.: Banking In Spain.
• Chapter I.: The Earliest Banks.
• Chapter II.: The Bank of Spain.
• Part IV.: Banking In Belgium.
• Part V.: Banking In Switzerland.
• Part VI.: Banking In Portugal, 1750 to 1891.
• Chapter I.: The First Great Banks.
• Chapter II.: The Bank of Portugal.
• Part VII.: National Bank of Roumania.
• Part VIII.: The Latin Monetary Union.
• Part IX.: Dynamics of Circulation.
• Part X.: The Banks of Alsace-lorraine After the Annexation. *
• Banking In Canada.
• Author’s Preface.
• Chapter I.: Currency Expedients.
• Chapter II.: 1817-1841. Banking Under Joint-stock Charters.
• Chapter III.: 1841-1867. Banking In Old Canada.
• Chapter IV.: Banking Under the Dominion.
• Chapter V.: Scope of Existing Laws.
• Chapter VI.: Land Banks—loan Companies.

PART I.

BANKING IN FRANCE.

CHAPTER I.

ITS STATUS BEFORE THE REVOLUTION.

ANCIENT BEGINNINGS.

THE business of banking and loaning money at interest has existed from the earliest forms of civilization, because it responds to an imperative need of society. It was conducted in Athens, probably in Carthage, and certainly in Rome; but, after the establishment of Christianity, it encountered serious obstacles.

Profits derived from loaning capital—which was regarded as including money, whereas money is only a representative of capital—were regarded as illegitimate; which is virtually the position assumed by modern socialists. “Money,” it was said, “is in its very nature sterile, and not reproductive.” Profits accuring from the sale of merchandise or the establishment of a productive industry were held to be just and proper; but it was not conceded that a loan of that capital, which could immediately be transformed into merchandise or instruments of production, entitled the lender to remuneration. This course of reasoning seemed to be supported by the Gospel injunction that we loan to the needy without hope of recompense. These prejudices, which have continued to our own day, cast a shade of suspicion upon all commerce in money and caused it to be carried on clandestinely and by men constituting a distinct caste, such as Jews and Lombards. Lenders at interest, or usurers, being always exposed to the hatred of their creditors and victims of the cupidity of governments, made it their constant care to keep their capital in the form most readily convertible into money and least likely to attract attention.

THE JEWS AS MONEY-LENDERS.

Thus it is that we find the Jews, in all ages, following the pursuits of money-changer, goldsmith, dealer in precious stones, to which they have added that of lender on pawn. Community of language and of origin and exposure to the same dangers impelled them to seek one another out, to establish the closest relations among themselves, though dwelling far apart, and to invent divers means of transmitting money from one to another, the earliest being the bill of exchange. We find an indubitable instance of the bill of exchange in 1246, that by means of which the Pope, Innocent IV., sent 25,000 marks of silver to the pretender, Henri Raspon, an amount which was paid to him at Frankfort by a Venetian banking house. Even earlier than this, in 1202, the Crusaders had given to Henri Dandolo, Doge of Venice, bills payable to order as security for 85,000 marks, in silver, demanded of them by the Venetians in return for vessels furnished to carry them to Syria. It was to pay this immense debt that the Crusaders aided Dandolo to recapture the city of Zara in Dalmatia. In France, the Jews, though contemned and despised, lived in comparative security until the time of the Crusaders, trafficking in money with a fair degree of impunity. They were, indeed, persecuted from time to time, but the persecutions were never of long duration. Under Philip Augustus, their situation grew worse. In 1182, the King became convinced that the Jews were too numerous in Paris and throughout the kingdom, and that they were amassing great wealth. They were accused of having Christian servants, whom they seduced from the true faith, and of despoiling nobles and commoners of their goods under pretence of having loaned them large sums of money. To these accusations the populace added fabricated accounts of divers misdemeanors, and the King issued a decree banishing the Jews, allowing them to take their personal property with them, or to sell it, but confiscating their real estate. Philip the Fair, on the contrary, was very kindly disposed toward the Jews at the beginning of his reign. With that fiscal genius which he afterward put to such evil use, he appreciated the value of money-dealers; and while he extorted heavy taxes from them, he forbade that they be any longer subjected to imprisonment at the behest of the first monk who might demand it; this was in 1288. Rendered over-confident by the protection which Philip thus accorded them from interested motives, the Jews became less cautious than they had previously been. Their indiscretion was severely punished; for, in 1306, the King ordered the arrest of all Jews in his dominions, confiscated their goods, and ordered them to leave the kingdom under pain of death.

But the lender at interest is too important a wheel in the machinery of the commonwealth to be destroyed with impunity. The absence of the Jews very soon made itself felt, and there was such a general desire to have them back that, in 1315, Louis X. recalled them for twelve years, restored to them such of their houses and synagogues as had not been destroyed, and gave them permission to sue in the courts for those debts which the agents of Philip the Fair had not been able to discover, on condition that two-thirds of all amounts recovered should be paid over to the King.* During the following reigns, persecutions against the Jews were renewed upon the most absurd pretexts. Every ridiculous charge brought against these unfortunates found ready credence not only among the common people, but among the more enlightened classes as well, all of whom being more or less indebted to the Jews, hoped by persecuting them to escape payment of their debts. The Jews were alternately banished and recalled. In 1361, the Duke of Normandy, destined to a glorious reign as Charles V., persuaded his father, John the Good, to allow the Jews to take up their residence, for a period of twenty years, in the provinces of Langue d’Oil, for the sake of the heavy taxes that might be wrung from them, and the quickening of monetary circulation and industrial activity. The Comte d’Etampes, a prince of the blood, was appointed guardian of the unreasonable and excessive privileges thus sold to the Jews, and to him was given exclusive jurisdiction of all their suits at law. They were allowed to charge interest at the rate of 6 deniers per livre per week, or 130 per cent. per annum; and the oath of any Jew touching the amounts due him was accepted as final unless the debtor could establish the contrary by affirmative evidence. No class of Christians was so zealously protected against arbitrary exactions and prosecutions. Upon the death of Charles V. the persecutions were renewed. During the troubled reign of Charles VI., Jews and Lombards were robbed and butchered by the people of Paris at their will. But, in spite of tyranny and extortion, the Jews remained in France, exercising always secret but powerful influence in public and private affairs alike.

Their archives have never been published, and it is not easy to learn the exact nature and extent of the business to which they devoted themselves. Loaning on pawn was the occupation in which they most commonly engaged; but it is probable that their transactions took on a much wider range, including at least the transfer of funds throughout France and to foreign countries, and probably loans to the King. The persecutions to which money-dealers were subjected resulted, unfortunately, in the destruction of those documents which it would be indispensable to consult in order to arrive at the extent and importance of the commerce in money during the Middle Ages; we are confined, therefore, at least in dealing with the subject in France, almost wholly to conjecture. In Italy, on the contrary, the documentary evidence is full and complete; and that we shall freely use when we come to treat of banking in that country. The influence of the Jews and their competitors, the Lombards, was of necessity merely local. It was most potent, however, because by means of loans frequently and skillfully renewed they held within their power a large part of the population. But their business was carried on in secret. They employed a language and modes of procedure known only to themselves; and their transactions were not such as to familiarize the people with the true nature of credit and the services it is capable of rendering under wise and honest management.

JACQUES COEUR.

Toward the end of the Middle Ages, there arose a man who transacted his business openly and who probably would have made clear the true nature and value of credit if he had confined himself to his rôle of merchant. Jacques Coeur, son of a furrier of Bourges, after spending part of his youth in the shop of his father, became assistant, about 1427, of the Mint-Master of Bourges. Implicated with the Master in a prosecution for issuing coin below the legal standard, Coeur made a thorough study of the nature of money—a subject which Nicolas Oresme, Bishop of Lisieux under Charles V., had already analyzed with great clearness. He studied with special care and imitated the business methods by which the Italian republics had enriched themselves. A bold and clear-sighted man, he established branch houses along all the shores of the Mediterranean; he obtained permission to trade with “infidels” without incurring the censure of the Church, and he became very rapidly one of the richest merchants and ship-owners in Europe. In 1435, Coeur returned to Bourges and secured the position of Mint-Master of that city and of Paris. He put an end to the debasement of the coinage, and all coins were kept at full weight and fineness throughout the reign of Charles VII. Having become a member of the Council of the King, he was appointed King’s Treasurer, meanwhile continuing his private business. His public office gave him a monopoly of money-changing; meanwhile, his commercial and banking transactions, carried on upon a scale hitherto unknown, brought him a very large fortune, which he devoted to the most worthy uses. It was he who supplied Charles VII. with the resources needful for driving the English out of France and bringing to an end the Hundred Years’ War. Jacques Coeur’s title of “King’s Treasurer” does not mean that he exercised the functions of a finance minister; his duties were those of steward of the royal palace. His fortune was such that he was enabled to make large loans to the King; but this was not, properly speaking, a banking operation. He was, first of all, a merchant, and his banking operations consisted simply in exchanging foreign moneys (which he could dispose of through his numerous branch establishments), and especially in purchasing copper and silver coins, which he exchanged for gold in Egypt. The immense fortune of Coeur and a desire to share his spoils created enemies against him. He was accused of poisoning Agnes Sorel, mistress of Charles VII., who had died in childbirth after appointing him to act as her executor. He was placed on trial, threatened with the rack, and finally condemned to death. Remembering his former services, Charles VII. refused to have the sentence executed, but commuted it to imprisonment for life. With the aid of one of his former clerks, and after a series of romantic adventures, he finally made his escape. He took refuge in Rome, where he was received with great cordiality by the Pope, Nicholas V., and the latter’s successor, Calixtus III., made him commander of a squadron which he was fitting out against the Turks. Worn out by sorrows and hardships, Jacques Coeur died at Scio in November, 1456. Louis XI. ordered a re-examination of the case against him and cleared his memory of the stain upon it. History does not record the name of another merchant of like calibre. After his time, bankers confined themselves more and more to the business of loaning on collateral and exchanging money, and this latter transaction must have been a source of great profit. It may be cited in illustration of the profits made by money-changers, that, a few years ago, there was found and published the diary of one De Gouberville, a country gentleman who had lived in the neighborhood of Cherbourg. In this diary, which extends from 1553 to 1562, mention is made of thirty-five coins differing in origin, value, and name. One Spanish coin, the “ecu pistolet,” often mentioned in the diary of De Gouberville, varied in value between February and December, 1555, from 43 to 49 sous. A German coin, the “angelot,” was even more unstable, and the smaller coins were often counterfeit. Under date of July 16, 1556, De Gouberville writes: “I sent Lajoye to Cherbourg to exchange one crown. Jean Simon, son of Gabrielle, changed it for him, keeping one sou for the service, and he gave him six sous counterfeit money, wherefore I sent back the said Lajoye to return them to him.” This passage brings out very clearly the need there was of money-changers and the extent of their profits. In the case we have cited the commission was twice as great as that which an ordinance of 1565 made lawful.

REVENUE FARMERS AS BANKERS.

The Italian wars of Charles VIII., Louis XII., and Francis I. directed toward France the attention of Italian bankers. Having a knowledge of finance and credit far superior to that of the French ministers, they were well received, and little by little they came to fill a very important place in the economic organization of France. In addition to the domanial dues, the Royal Treasury, since the fourteenth century, had been in the habit of levying, for temporary needs, a variety of dues, sanctioned by the States-General, under the name of “aids.” Continual wars, and more especially a very loose administration of the finances, had increased these aids and made them permanent. It was at this juncture of affairs that the Italian financiers conceived the idea of farming out these “dues”; and, after the battle of Pavia and the capture of Francis I., when it became necessary to pay the ransom demanded by Charles V., the “Traitants,” as the farmers of the revenue were called, became persons of great importance. There are, unfortunately, very few original documents relative to French finance, all those in existence at the time of these usages having been destroyed when the offices of the Finance Minister were burned by the Paris Commune in 1871. We are compelled, therefore, to rely very largely upon information more or less fragmentary and second-hand. For this reason, it is impossible to follow step by step the improvement in the various methods of tax collection; but, leaving the details aside for the most part, we can at least trace the general outlines of these operations. During the reigns of the later Valois, rendered so sadly famous by religious wars, the financial affairs of the kingdom fell into the most grievous confusion. The remedy was applied by Sully, the firm and able minister of Henry IV. In a memoir drawn up at the beginning of his ministry, Sully estimated the total of the taxes levied upon the people in the King’s name at 47,000,000 livres; of which about 20,000,000 livres remained in the hands of the receivers and farmers of taxes. Out of the salt taxes and certain temporary dues which had been granted to him through the intervention of the revenue farmers, the Grand Duke of Tuscany was in receipt of an annual revenue of about 2,000,000 livres. The sub-contractors were the bane of the system, because they were compelled to make a profit out of the collection after paying large sums to their immediate grantors. Sully’s remedy was a very simple one; he compelled the sub-contractors to show their contracts and to turn over their collections directly to the Treasury; by this means the Government could learn the exact product of the taxes, and it had a sound basis upon which to treat. Sully brought together, in a single lease, all the taxes of the same general nature, adopted a new form of award, introduced competitive bidding, and thus obtained better prices for the concessions. After the death of Henry IV, and the removal of Sully from office, financial confusion reigned again; but, finally, under the ministry of Colbert, the tax leases took on the form which they preserved for a hundred years. The principal business of revenue farmers was the collection of the taxes; but they were also bankers in the sense that it was to them that priests, nobles, and commoners intrusted their money to gain them favors at Court, either because the sums were too small to be offered in the form of a direct loan or because the owners shrank from proffering a loan directly to the King.

TREASURY BANKERS.

Side by side with the farmers of the revenue, or even among them, was always to be found a person who, under one title or another, and sometimes with no title at all, was in reality the King’s banker. Such had been Jacques Coeur under Charles VII., and such under Louis XIII. was Barthelemy d’Herwart. This Barthelemy d’Herwart, whose name is little known to-day, loaned very large sums to the Treasury, by way of furnishing supplies for the army, of which he was commissary. At the death of Bernhard of Saxe-Weimar (July 18, 1639), his army, left without means of subsistence, would probably have taken service under some foreign power had not d’Herwart retained it for France by supplying a considerable part of its needs. The famous Superintendent of Finance, Fouquet, was also a banker whose duty it was to settle with the farmers-general and to make advances to the King. Among the various persons who acted as bankers of the Treasury, that is to say, who advanced the funds necessary for the public service while the taxes were being collected, there was one singular individual known as Samuel Bernard. Born in 1651, he was received as master in the guild of jewelers, gold-wire-drawers, and dealers in cloth of gold. Apparently, his fortune was chiefly made in various foreign ventures.* It was to him that application was made whenever the State had need of funds. We find him in 1697 sending 200,000 crowns to Dantzic bankers in an attempt to ensure the throne of Poland to the Prince of Conti. Thirty-six years later, in February, 1733, he was once more busied with an election to the Polish throne, when he loaned 4,000,000 livres to Stanislas Leczinski, who was elected, but retained the dignity for only two years. Everyone is familiar with the anecdote that Saint-Simon tells of Bernard. When the Minister Chamillard solicited a loan from him in the name of the King, he received this reply: “When anyone has need of others, the least he can do is to make the request himself.” Minister Desmarets remembered this reply, and in 1708 he persuaded Louis XIV. to receive Samuel Bernard at the Chateau of Marly and show him the honors in person; in return for this act of condescension, Bernard advanced all the money that was demanded of him. In the following year, during the month of April, 1709, Bernard, who then had large business interests in Lyons, met with severe reverses. He suspended payments with liabilities amounting to between 37,000,000 and 38,000,000 livres. Desmarets, who had a high appreciation of the banker’s services, rendered him all the assistance in his power; the greater part of his debts were paid, and, strangely enough, the credit of Bernard was hardly dimmed, and his business affairs were soon in prosperous shape once more. Notwithstanding the aid he had frequently extended to the State, Samuel Bernard fell under the condemnation of the Chamber of Justice in 1716 and was fined 5,000,000 livres. Under the Regency and during the existence of Law’s system, he was kept in the background, and though, up to the time of his death, which occurred in 1739, he was often appealed to for assistance, he never regained his former prominence.†

It may be asked, What was the exact nature of the banking operations of Samuel Bernard and other bankers of the time? So far as we can judge, they consisted largely of speculations in the paper issues of France and foreign countries, in supplying funds for business enterprises, in opening credit accounts, and in discounting paper; but the chief business appears to have been that of making loans directly to the Government. That also was the most dangerous and aleatory of their ventures, and the one which most frequently resulted in their ruin; for the King’s minister never hesitated to break faith with financiers, assured as he was that his course would meet with the approval of the public. The people regarded the bankers as leeches living upon the blood of the State; the fact being, on the contrary, that they were always coming to its aid in the most disinterested manner and supplying it with means which it could not have secured from any other source. The farmers-general suffered most severely from popular ignorance and governmental dishonesty. On May 7, 1794, the Revolutionary Tribunal rendered the following judgment, which had previously been drawn up by the Committee of Public Safety:

“Inasmuch as it is incontestable that a plot has been formed against the French people tending to further the success of the enemies of France in every way, and especially by the practice of all manner of extortion and peculation; by mixing with the tobacco water and other adulterants dangerous to the health of those who use it; by taking six or seven per cent. of interest both upon the security which the revenue collectors must furnish to the State, and also upon the money needed to carry on their business; by robbery; by plundering the public treasury in all possible ways in order to deprive the nation of large sums needful to wage war with the despots now in arms against the French Republic: all so offending are condemned to death and their goods shall become the property of the Republic.”

Not one of these charges had any foundation in fact, yet it was under such a judgment as this that twenty-eight farmers-general were executed on May 8, 1794, one of them the creator of modern chemistry, the illustrious Lavoisier. Though French bankers strove in every way, during the Revolution, to avoid publicity, and though commerce was dead, speculation was carried on upon a very extensive scale, the dealings being most active in assignats, public securities, and army supplies.

GABRIEL JULIEN OUVRARD.

One of the most interesting characters of these times was the financier Gabriel Julien Ouvrard. Born in 1770, he received a good education and established at Nantes a business in colonial products. When the Revolution began and the liberty of the press was declared, he bought all the printing paper from the paper mills of Poitou and Angoumois, and sold it two months later to the editors at a profit of 300,000 livres, with which he enlarged his dealings in colonial products. In 1793, he was brought before the bar of Carrier, and in order to escape the fate reserved for all “suspects,” he enlisted in the army. He was aid-de-camp of several generals, and he exerted himself vigorously in behalf of the accused citizens of Nantes, many of whom he saved by securing a postponement of their appearance before the Revolutionary Tribunal until after the fall of Robespierre, when they were set at liberty. Upon his return to civil life, Ouvrard married the daughter of one of those he had befriended, and embarked in vast business enterprises. In 1797, he was appointed Commissary-General, in which capacity he procured supplies for the French and Spanish navies at a profit to himself of about 15,000,000 livres, of which he loaned 10,000,000 to the Directory. When Bonaparte had become First Consul he applied to Ouvrard for a loan of 12,000,000 francs, but was refused.

During the early days of the Empire, Ouvrard, in connection with one Desprez. a former bank messenger, and a grain merchant named Vanlerberghe, formed an association under the title of “The United Merchants’ Company,” for the purpose of supplying the needs of the army and navy. Spain, allied with France against England, had promised to Napoleon a sum of money, which she was unable to pay because the English cruisers prevented the arrival of the piastres from Mexico and Peru. Ouvrard proposed to Barbé-Marbois, the French Finance Minister, that he discount the Spanish debt and accept in payment of it supplies furnished by The United Merchants’ Company. His proposition was accepted. At the same time, he offered to furnish to Spain, then threatened with a famine, a full supply of grain, and to take in payment the piastres due from Mexico at the rate of 3.25 francs each, their value in Paris being at least 5 francs. This also was agreed to. As he had no hope of being able to elude the vigilance of the English cruisers, he completed the transaction in this manner: England herself being in need of coin, he sold the piastres to the banking house of Hope, in Amsterdam, who, in turn, transferred them to Baring, in London; the latter had no difficulty in getting the money from Mexico, and nothing remained except to remit from London to the Continent the amount to be paid for them, which was easily accomplished. That transaction was skillfully planned and ought to have redounded to the profit of all concerned; but, unfortunately, The United Merchants’ Company was not only heavily indebted to the Treasury, but it had other pressing obligations to meet before the arrival of the piastres. In this situation, Barbé-Marbois very unwisely turned over to the company certain Treasury claims, which the latter discounted at the Bank of France. These were not always honored at maturity, and by the close of 1805 a very serious crisis had arrivd, and the Bank, having practically exhausted its resources, was on the point of closing its doors. Desprez had put in circulation certain paper known as “notes of M. Desprez,” which were accepted as money by the Treasury and which depended for their value upon the rather doubtful solvency of The United Merchants’ Company; it was this paper that caused the most serious difficulty to the Treasury and the Bank.

When Napoleon returned from the Campaign of 1805 and learned the true state of affairs, he was very angry with Barbé-Marbois and The United Merchants’ Company, which owed the Treasury more than 140,000,000 francs, represented by the “notes of M. Desprez.” He removed the minister and seized the assets of the company, amounting to about 80,000,000 francs in real estate and claims against the Treasury and against individuals. The remaining 60,000,000 francs he recovered in the form of debts due from Spain. The Emperor had a high appreciation of the services of Vanlerberghe, and retained him as commissary; but Desprez was forced into bankruptcy and died in poverty. As for Ouvrard, he also was declared a bankrupt, and in 1809 was arrested and imprisoned, but was afterward set at liberty on condition that he would not go beyond the boundaries of France. Having made a visit to Holland, he was again arrested and kept in prison until October, 1813. During the Restoration he once more entered into contracts on a large scale, but for certain irregularities he was imprisoned, for the third time, in 1825. He was released at the end of five years, but was never again a factor in the business world. He died in London in 1846, completely forgotten. Ouvrard was the last banker of the Treasury, and he marks the transition from the old state of things to the new. By this distinction he is entitled to a place in that series of financial notables the first member of which is Jacques Coeur and the last himself.

CHAPTER II.

THE BANK AND “SYSTEM” OF LAW.

France at the Close of the Reign of Louis XIV.

BY his continual wars and the building of fortifications, Louis XIV. at his death left the finances of France in wretched disorder. “The manner in which fiscal affairs had been administered since the death of Colbert, in 1683.” writes Dutot, cashier of Law’s bank, “had perhaps wrought as much damage to the State as was caused by the enormous expenses of the last two wars. The sole object of the Administration, apparently, was to extort money from the people by any means; and no thought was taken of the harm that might result to real estate, to commerce, or to industry. This procedure produced results which had certainly not been foreseen. It gave an exaggerated value to the very money so sadly needed, and thus made it more difficult to procure; it deprived realty, commerce, and industry of those facilities by the aid of which they would always have been in position to furnish money to the State. In its paper issues, the State would have had a valuable resource and a salutary instrument of credit if it had not, soon after their emission, offered to pay interest upon them, thus depriving them of public confidence. The only use the Treasury had for these notes was to make payments with them; so far from being willing to accept them himself, the King expressly forbade their acceptance in payment of public dues. At the same time, he commanded that they be received as a legal tender between individuals, even in payment of letters of credit. But, in spite of these facts, the people had such confidence in the bills at first that the King was enabled to pay off part of the war debt with them, even while their interest-bearing quality and the fact that they were refused in public payments showed that it would be impossible to maintain their credit permanently. In the end, this credit disappeared entirely. Finally the bills were converted into rentes in this manner: on the occasion of the general recoinage of 1709, by virtue of which it was hoped to remedy the evils caused by the bills, rentes were issued and exchanged for the bills and gold and silver of the old coinage, the proportion being one-sixth bills and five-sixths specie.

“To complete the operation, the coinage was debased by a fictitious increase of twenty-three per cent. in its value. That difference at once aroused the enlightened cupidity of our neighbors, impelling them to gather up the old coins and carry them away in order to adjust their value to that of the debased new coins, and then return them to us. Thus France was placed at a great disadvantage relatively to the neighboring States, independently of the large sums the latter were enabled to gain at the expense of the King and the State. The Treasury was replenished by means of loans at a rate of interest beyond the means of the Government to pay. The greater the depreciation of the paper so issued, the more it was necessary to issue it in order to raise the amounts needed by the State; the Treasury continued in this way, ignoring the fact that every increase in the number of bills added to the distrust with which they were regarded and so decreased the demand for them; in this manner all the advantage was thrown away that might have been secured by a careful management of the nation’s credit. Among the bills so issued were bills from the tax departments and the Navy, supply bills, trust fund bills, and an enormous quantity of various other descriptions.”

By 1715, the arrears aggregated 711,000,000 livres, and the deficit for that year was 78,000,000, so that the debt due upon demand was 789,000,000 livres, equivalent to 1,420,000,000 francs of these times. Not only were the resources of the Treasury exhausted, but the citizens were reduced to such a state of poverty that they were no longer able to pay their taxes. It was this unskillful management of the finances that suggested to Vauban the composition of his famous “Dime Royale,” which brought him into disgrace with Louis XIV. In one of the first councils following the death of the Great Monarch the wretched state of the finances was revealed without reserve. Some of the councilors proposed that the State be simply declared bankrupt. The Regent strenuously dissented from that proposal, but only to advocate measures that were no better, if, indeed, they were not much worse. With a view to the reduction of the outstanding debt, it was determined that, inasmuch as the State bills had greatly depreciated, their nominal value should be reduced to their actual market price. An ordinance of December 7, 1715, directed all holders of State obligations to present them for “official inspection.” The debts thus inspected were scaled down and replaced by State bills bearing four per cent. interest, and payable at various intervals. By this process, the debt of 652,000,000 livres was exchanged for 250,000,000 livres in State bills.

DOINGS OF THE CHAMBER OF JUSTICE.

But the needs of the State were too great to be fully met by such an act of bankruptcy; for while this procedure lessened the demand liabilities, it brought nothing into the Treasury. As a further step in this direction, recourse was had to a form of proceeding which was none the less odious because it happened to have numerous precedents in its favor. Financiers, and especially revenue farmers, having become extremely obnoxious to the people, who imputed to them misfortunes for which the rapacity of the Treasury should have been held accountable, the Regency determined upon an indiscriminate spoliation of this class, or, as the saying was, upon making them “disgorge.” To this end, they were forbidden to quit the country, under pain of death, and a Chamber of Justice was erected to take cognizance of their official extortions. The mode of procedure was most simple. All the accused were required to produce their books and accounts. for the past twenty-seven years, to prove affirmatively what they were worth at the beginning of that period, and to draw up a minute and detailed account of their possessions at the time of the investigation. Every false declaration was punishable by sentence to the galleys for life; a reward was offered to informers, and all persons were forbidden, under pain of death, to reproach those spies for their treachery. Whenever, by the use of these means, the Chamber of Justice was unable to prove any offence against the accused, it simply confiscated four-fifths of his earnings for the twenty-seven years, compelling him to acknowledge, at the same time, that he retained the remaining fifth at the bounty of the King. These intolerable measures, comparable only to the proscriptions of Marius and Sulla, brought in less than had been expected. About 6000 persons were brought to judgment, whose possessions, by their own showing, aggregated some 1,200,000,000 livres; 4410 of these were condemned to pay a total of 219,000,000 livres; but many of them were able to find powerful protectors, and by 1717 the Treasury had recovered only 70,000,000 livres, and barely half of the fines imposed were ever collected at all.

The Regency then resorted once more to a debasement of the coinage, and the piece of 3 livres 10 sous, which weighed an ounce at the death of Louis XIV., was reduced to less than half an ounce. The people of France had reached the lowest depths of wretchedness; the conspiracy of Cellamare had just obscured the political sky and threatened to bring back the evil days of the Fronde, when a stranger appeared upon the scene and promised to make all bright again.

JOHN LAW APPEARS.

“A Scotchman, I know not of what family,” writes the Duke of Saint-Simon in his memoirs, “a great gambler and schemer, who had gained much in the various countries he had visited, had come to Paris during the last days of the deceased King. His name was Law, but when he became better known, people grew so accustomed to call him Lass that his name of Law disappeared.* He was mentioned to M. le Duc d’Orleans as a man familiar with banking and commercial matters, with the movements of the precious metals, and with moneys and finance. From this description the Regent was desirous of seeing him.” John Law’s manner of life had been a most erratic one. Son of an Edinburgh goldsmith, of the upper middle or lower titled class, he had received a very thorough education. He traveled extensively over Europe, where his constant success and large gains at gambling caused him to be regarded with suspicion, though no case of cheating was ever proved against him. Having fought a duel in London and killed his antagonist, he was condemned to death, but succeeded in escaping. He fled to Paris, but being driven out of that city, he retired first to Italy, but finally took up his abode in Amsterdam, where he applied himself seriously to a study of credit. About 1700, he returned to Scotland and published, under the title “Money and Trade Considered,” a scheme of finance, which he summarizes thus: “It is proposed that Parliament shall appoint forty commissioners, who shall be accountable for their management of affairs; and that these commissioners shall be empowered to issue notes to be a legal tender for all purposes. The Parliament shall choose one of these three methods of issue: The first method is to authorize the Commission to loan its bills, at ordinary interest, on mortgage security, the loan in no case to exceed half the value of the realty mortgaged; the second mode is to give out in notes the full value of the land, estimated upon the basis of twenty years’ revenue, or more or less according to the valuation that may be placed upon it; the Commission, or its authorized agents, being empowered to enter into possession of the land by wadsett redeemable within a certain period; the third plan is to issue notes to the full value of the land upon sale of it irredeemably to the Commission or its representatives. These notes will always be as valuable as specie, because they will represent a mortgage value exactly equivalent to the coin it could be exchanged for. If there should be any losses, a fourth of the Commission’s income would suffice, in all probability, to cover them. This paper money will not depreciate as coin has depreciated in the past, and may again in the future, and we shall always have as much specie as we can use, but never any more.”

The theories of Law which we have here set forth are extremely dangerous, for he does not point out any method by which the paper is to be redeemed; there could, in fact, be but one method, a sale of the lands, and we may instance the assignats issued during the French Revolution as proof of the fact that real estate cannot be made to serve as the basis of paper money. For this purpose there is no reliable security but coin. The Scottish Parliament very wisely repudiated Law’s project, whereupon he set out once more upon his travels and was in France at the time of the unfortunate measures we have described.

LAW’S BANK SCHEME.

Law disapproved of these measures, saying that they would produce none of the expected results; that they would make the evil worse instead of curing it, and that he would guarantee to ameliorate the commerce and finances of the country without injuring anyone. It was at this time that he was presented to the Regent, whom he won over completely. His plan consisted in the establishment of a bank of issue, to be managed by the State, for its own profit, and at its own risk. The Council of Finance opposed the plan. Law, not in the least discouraged, next worked out a new scheme looking to the establishment of an independent bank, its capital to be furnished by shareholders and its affairs to be managed by them under the supervision of a committee composed of some of the principal officers of the State. In spite of vigorous opposition, letters patent were issued on May 2, 1716, and registered by the Parliament on the 23d of the same month, authorizing a general bank, in the following terms.

This preamble was followed by the organic laws of the bank, in ten articles, which may be thus summarized: Exclusive authority is given to Law and his associates to maintain a general bank in the kingdom for a period of twenty years, beginning with the registry of his letters patent. The bank is authorized to keep its books and issue its bills upon a specie basis, in terms of “ecus de banque”; that is to say, coins of the weight and fineness constituting the standard on the day the bills are issued. Citizens of France and foreigners alike are privileged to contract in terms of “ecus de banque,” in order to avoid all difficulties arising from changes in the standard of weight and fineness between the date of the contract and the day of payment. The bank is exempt from all taxes and assessments. Shares belonging to aliens are not liable to droits d’aubaine, nor to confiscation even in time of war. The bank is compelled to give its notes in exchange for specie to all who demand them. Counterfeiting the bills of the bank is punishable by death. The last article provided that the privileges conferred upon Law should not be construed to the prejudice of the other bankers of the kingdom, who should be allowed to continue their business as usual.

The regulations of the bank, approved by letters patent of May 20, 1716, fixed the capital at 1,200,000 “ecus de banque” (equivalent to 6,000,000 livres in current money), divided into 1200 registered shares of 1000 “ecus” each. It was to begin business as soon as the 1200 shares were taken and a stockholders’ meeting had been held for choosing officers. The stated meetings of stockholders were to be on June 20th and December 20th. Stockholders were entitled to one vote for every five shares in their possession, and a balance-sheet was to be published every six months. The bills of the bank were to be signed by the manager and one stockholder chosen at a stockholders’ meeting, and were to be registered by number, date, and amount in a book kept for the purpose. The bank opened accounts current and made payments by transfers upon its books for a commission of 5 sous upon the 1000 livres; it discounted commercial paper and bills of exchange. It was forbidden to engage in any commercial transaction on its own account, or as agent, or to issue any bills not due on demand. These rules were all very reasonable, and if stock-jobbing and the needs of the Government had not impelled Law to misuse the instrument he had created, France would have anticipated by eighty-four years the possession of an establishment that would have shielded her from many misfortunes. The capital was payable in four installments, one-fourth in specie and three-fourths in State bills; the fact that these bills were worth at the most not over one-third of their face value, together with a general desire to stand well with the Regent, caused the shares to be rapidly subscribed. The bank began business toward the end of May, 1716. Its capital was so small that no jealousy was excited in any quarter, while the fact that its bills were payable in coins of a determinate weight and fineness, and the convenience of making payments through the bank—a method not common at that time in France—soon brought it a clientage. Every business man had his account at the bank, and the demand for its bills in exchange for coin was so great that the bank was soon in a position to exact a premium for its paper. It was of great value to the community from the day of its inception. The heavy losses sustained by all men of means had left the field free to usurers, and the best commercial paper could not be placed at less than thirty per cent. per annum. The bank announced its readiness to discount paper at six per cent., and in this way found an outlet for the deposits, which soon began to assume respectable proportions; it was not long before the rate of discount was reduced to four per cent. But Law was not long content with the modest rôle of a discounter; he anticipated the needs of commerce, offered his assistance to various manufacturing enterprises, advocated the undertaking of needful public works, and exerted himself so actively in all directions that commerce, which had appeared to be on the verge of extinction, took on new life.

LAW’S SUCCESS AROUSES COMPETITION.

Law was accomplishing even more than he had promised, and his success, while it confirmed his standing before the Regent, aroused the envy of certain other persons, the most powerful of whom was d’Argenson, head of the Council of Finance. He incited the brothers Paris to enter into competition with the famous Scotchman. The brothers Paris conceived the establishment of a company with a capital of 100,000,000 livres, divided into 100,000 shares of 1000 livres each, payable in State bills; it was to take over the lease of all the general taxes, its main object being, like that of Law’s company, to increase the value of State paper. They agreed to pay annually to the State 48,000,000 livres, and hoped to realize 100,000,000 from the revenue collections. Their security to the State was to consist of the 100,000,000 livres of paper making up their capital stock. A six years’ lease of the taxes was made to the company in the name of Aymard Lambert, valet of one of the brothers Paris. This scheme was known as the “Anti-System.”

THE ROYAL BANK SUPERSEDES THE GENERAL BANK.

Law had at this time a large number of projects on foot. He had won a signal victory over Parliament, which had strenuously opposed his proposition that the bills of his bank be received as money at all public treasuries. He next set to work to clear the field of the “Anti-System.” On December 4, 1718, a proclamation of the King converted the General Bank into the Royal Bank. This proclamation declares that the services rendered by the General Bank in quickening the circulation of money and reducing interest rates had led the King to make a re-examination of Law’s original proposition, which was (as we have noted above) the establishment of a bank to be conducted in the name and by the authority of the King; that in order to effect the change, all the shares of the General Bank had been bought up and the King had thus become sole proprietor of the institution, which had just become the Royal Bank. The bank retained its 6,000,000 livres of original capital, but it was no longer proposed to redeem its bills in coins of the weight and fineness prevailing on the day of their issue; holders of the bills could at their option demand payment in “ecus de banque” or in livres tournois. This arrangement was not altogether clear and it raised a question as to the future success of the bank. One privilege which was granted to the Royal Bank and which, unfortunately, is now secured to the Bank of France, proved to be an injury rather than a benefit—the complete exemption from garnishment of all funds held by it in accounts current, except when the depositor became a bankrupt. The transformation of the General Bank into the Royal Bank was an unfortunate change, because the former had a real capital, while the latter furnished no guaranty to those dealing with it except the responsibility of a government not over-scrupulous. Besides, the new institution was to be governed upon the principle of a State bank, and such establishments, with few exceptions, have always been a failure.

LAW’S COMPAGNIE D’OCCIDENT.

Meanwhile, Law had determined to establish under the title of the “Compagnie d’Occident” a vast enterprise having in view the colonization of Louisiana—not merely the State which now bears that name, but the whole immense valley of the Mississippi. Colonization, however, was a mere pretext, the real object being a transmutation of the State debt. To the Compagnie d’Occident was granted, for a period of twenty-five years, beginning with January 1, 1718, the right to manage for its own profit all the French colonies in North America, together with a monopoly of all their commerce, and sovereign power over them, the sole condition being that the company should render faith and homage to the King of France. The capital was fixed at 100,000,000 livres, divided into shares of 500 livres each, payable in State bills, then at a discount of seventy per cent. Law, therefore, had no effective capital for his Compagnie d’Occident; but he was little disturbed by this fact, claiming that he would have ample funds if the State paid regularly its four per cent. interest as it had agreed.

The capital, however, was readily subscribed, because it was payable in depreciated paper, but the “Anti-System” did its utmost to injure the shares of the Compagnie d’Occident, and forced them down fifty per cent. Law determined to support them by buying at par all the shares on the market, paying thirty or forty livres on account, and stipulating for delivery of the shares in six months. This bold device was successful, and the stock was soon selling at par.

LAW’S COMPAGNIE DES INDES.

This was a mere prelude to vaster schemes. There was in existence, at the time, a Guinea company controlling the trade of the eastern coast of Africa (the remnants of an India company established by Colbert), and the rudiments of a company having a monopoly of the Chinese trade. Law combined all these to form his famous “Compagnie des Indes,” deriving his authority from a Royal edict registered on June 17, 1719, of which the following are the most important provisions:

“Since our accession to the throne, we have been sedulous to devise some means of repairing the damage which long wars had brought upon the State, and to procure for our subjects the prosperity and happiness they deserve. It gives us pleasure to see that the circulation of money has become very active and that commerce is reviving, but the end we have in view includes far greater gains. The Compagnie d’Occident, though but recently organized, has already established so high a credit that we have been led to examine the standing of the older companies, and we have been pained to discover that, in spite of the assistance they have received from the liberality of the late King, our honored sovereign and great-grandfather, they have never become self-sustaining. The Compagnie des Indes Orientales, established by virtue of the edict of August, 1664, instead of devoting to the extension of commerce the fifty years’ exclusive privilege conferred upon it, and the frequent donations of money and vessels received from the late King, has contracted large debts at home and in India, has totally abandoned its shipping business, and has determined to transfer its monopoly to individuals, the consideration being ten per cent. of the proceeds of sales in France, five per cent. of all seizures, and the retention by the company of the fifty livres per ton on exports and seventy-five livres per ton on imports which had been granted to it as a gratuity. We are convinced that this failure has been due rather to mismanagement than to the unremunerative nature of the business, and that the company might have made its commerce highly remunerative, both to its shareholders and to the kingdom. The enterprise was established in the first place upon insufficient capital, and a portion even of this the directors paid out in unearned dividends and bonuses.

“The company borrowed money at excessive rates of interest, even as high as ten per cent., and that, too, when there was no profit in it, but simply to replenish its original capital; at other times it borrowed on bottomry bonds at five per cent. per month, so that all the profits of its commerce, and more, were swallowed up in the burdens thus placed upon it. Yet, notwithstanding this unskillful management, the late King, in furtherance of the protection he had already granted to the company, and in the hope that it would at least be able to pay its debts, by his proclamation of September 29, 1714, continued its privileges for a period of ten years, dating from April 1, 1715. But the company has fallen so far short of meeting his reasonable expectations that the inhabitants of India have frequently complained to us of its failure to pay them either interest or principal, and of the fact that during the last sixteen years it has not sent a single vessel to Surat. This branch of our commerce, then, which has been moribund for a number of years, must perish altogether if some adequate provision be not made for it. The individuals who have bought the company’s rights cannot pay it the ten per cent. agreed upon and still compete with foreigners engaged in that branch of commerce; besides, a fear of being held for the company’s debts restrains them from sending their vessels to Surat, the principal city of Mongolia, and the port from which are shipped raw cotton and cotton thread, and the drugs and spices of India and Arabia. The result is that our subjects are compelled to purchase abroad practically all of the Indian products they need, either for their own consumption or for carrying on their commerce with the Guinea coasts and Senegal; that these products cost at least three times as much as they ought, and that we are in all ways deprived of the advantages which would result from a domestic trade in them.

“With regard to the China company, a close corporation which was established by decree of our Council of November 28, 1712, and by letters patent issued in consequence on February 19, 1713, and which has hitherto held part of the concession originally granted the Compagnie des Indes, we are informed that it has made no use of the exclusive privilege conferred upon it, and that its special branch of commerce is in a worse state of confusion and neglect, if possible, than that of the Compagnie des Indes. We should be wanting alike in our duty to ourselves and to our subjects if we were to allow such a state of disorder longer to continue in one of the most important branches of the national commerce; and we hold it due to the well-being of our State that we re-establish and expand the French-India trade and preserve the good name of the State by paying to those peoples the debts contracted by the company. Toward this end, we have decided to annul the privileges conferred upon the India and China companies and to transfer them to the Compagnie d’Occident. The fact that this company has been in existence for some time and is already under our protection, the excellence of its management, the high credit it has established, the fact that the consolidation of these various companies will put it in possession of ample means, all of these considerations lead us to believe that we could not place the commerce of India and China in better hands. Moreover, as the Western and Senegal companies have already been combined, this consolidation will bring under a single company a commerce extending to the four quarters of the globe. The company will have under its control all the instruments necessary for the various branches of this commerce. It will bring into the kingdom an abundance of necessary, useful, and convenient articles, the surplus it will export to foreign countries; it will foster our shipping interests and will develop a body of seamen, pilots, and officers. The whole management being moved by the same spirit, there will result that union of force and economy of outlay on which success in any commercial undertaking depends.”

Thirteen articles annexed to this proclamation constitute the charter of the Compagnie des Indes. It had the sole privilege of trading, to the exclusion of all other French individuals or companies, from the Cape of Good Hope throughout all the seas of Eastern India, the islands of Madagascar, Bourbon, and France, the coasts of Sofala, the Red Sea, Persia, Mongolia, Siam, China, and Japan; from the straits of Magellan and Le Maire throughout all the southern seas. At a valuation to be determined by appraisement within a week after the registering of the edict, the new company came into full proprietorship of all the lands, islands, forts, dwelling-houses, store-houses, goods and chattels, real estate, claims, sources of revenue, ships, barks, munitions of war, provisions, negroes, cattle, articles of merchandise, and all other property and rights which the Compagnie des Indes Orientales and the Compagnie de la Chine had acquired, conquered, or purchased, whether in France or in the Indies and China. The new company was to assume all the valid debts of the old companies and to pay to them such balance as should appear upon the liquidation. It succeeded to all the gratuities of the companies it replaced; it had the privilege of importing all kinds of merchandise, even including such as were otherwise prohibited, on condition that it should place them in a bonded warehouse and re-export them. The privileges granted to the Compagnie des Indes amounted, in fact, to a monopoly of the whole foreign commerce of France.

The Compagnie d’Occident had sold all of its shares for State bills, having no actual and realizable value, and the utmost that could be hoped for from them was the regular payment of the four per cent. interest they bore.

It was imperative that the Compagnie des Indes should have more valuable resources; accordingly, Article IV of the edict incorporating that company fixed its capital at 25,000,000 livres, divided into shares of 500 livres each, to be had only in exchange for actual cash, and only on payment to the cashier of the Compagnie d’Occident of 550 livres for each share. The new shares were to be numbered consecutively after those of the Compagnie d’Occident already in existence, and were to confer upon their holders the same rights and privileges. The old shareholders were given a preference in the subscription for the new shares in the proportion of one of the latter for four of the former. The new shares were to be paid for in five per cent. installments, payable monthly for twenty months. The Parliament distrusted these schemes, which it did not understand, and it refused to register the edict; but its resistance was overcome and everything was arranged as Law had conceived and planned. The preference reserved to the old shares, called by the public “Mothers,” caused them to appreciate rapidly until they had mounted to 130 per cent. The new shares, known as “Daughters,” acquired a proportional premium, and not only was the subscription fully covered, but the shares became the subjects of the wildest speculation, which forced their price ever higher and higher. The company thus formed professedly as a simple trading and carrying corporation, soon deviated widely from its avowed purposes. On July 25, 1719, it purchased for 50,000,000 livres the management of the Mint and the issue of coin for a period of nine years. By a decree of the Council of State rendered on August 27, 1719, the farm of the revenues, which had been granted to Aymard Lambert, ostensible agent of the brothers Paris, was taken from them and given to the Compagnie des Indes until the year 1770. The latter also agreed to loan to the King 1200 million livres (an amount soon afterward raised to 1500 millions) to be used in paying the State debt. It obtained a lease of the salt taxes of Alsace and Franche Comté, and the tobacco monopoly; it undertook to pay the debts of the State for a commission of three per cent. and to collect all taxes paid directly to the Treasury, recompensing the receiving officers for their loss.

The profits expected to accrue from the management of the Mint carried the shares to 1000 livres, a premium of 100 per cent. In order to pay the 50,000,000 livres due for the Mint concession, Law put out another issue of shares known upon the market as “Granddaughters.” They were issued to those who were already stockholders in the proportion of one new to five old shares; they were sold at a premium of 100 per cent.—that is to say, for 1000 livres each—payable in bills of the bank. The shares were very soon quoted at 200 per cent. above par, and the State obligations, which Law was about to meet, rose to par. To raise the 1500 million livres promised to the Government, Law made a new issue of shares at a premium of 1000 per cent., so that the 150,000,000 of nominal capital produced 1,500,000,000 of funds; a supplementary issue of 24,000 shares, of 500 livres each, made on October 4, 1719, brought in 120,000,000 livres more. Taking account of all these issues, M. André Cochut* presents the following table:

M. André Cochut thus estimates the probable profits upon this enormous capital:

This amount divided among the 624,000 shares would have given, losses aside, a dividend of 130 livres per share, or 26 per cent. on the nominal capital; but the average price of the shares had been 2720 livres, reducing the dividend rate to 4.75 per cent., and as the actual holders of the stock had taken it at a price of at least 5000 livres per share, their income upon the actual investment could not be greater than 2.6 per cent. The public appeared to regard the Scotchman as one endowed with magic power, and it did not stop to make this simple calculation. The crowd packed itself against the wickets in the rue Vivienne where the Compagnie des Indes had its offices, and fought for shares. After the stock was issued, the excitement was transferred to the rue Quincampoix, which became the scene of the most extraordinary transactions. Not only was the street crowded with Parisians, but multitudes came from the provinces as well, and finally the very stage-coach tickets became objects of speculation.

As the shares were sold for bills of the Royal Bank, the latter soon rose to a premium of ten per cent., and no one was any longer willing to accept gold or silver. Never before had such a wave of folly swept over France. Everybody was getting rich by speculation. Domestic servants and poor women gained enormous fortunes in a single day; and courtiers, deeply involved by the expenses of their residence at the Court of Louis XIV., won large sums and paid off their debts. Money gained by such easy means produced at least one beneficial result. Commerce and industry, and especially those industries engaged in the production of luxuries, increased with great rapidity; and, singularly enough, speculation in stocks effected a fusion among certain social classes that had previously dwelt apart; there were numerous marriages between poor girls of noble birth and low-born men suddenly enriched.

Before describing the disasters that finally overtook him, justice demands that we render homage to the generous intentions of Law. Inspired by the “Dime Royale” of Vauban, he conceived the idea of abolishing the expense and vexatiousness of the maltôte and establishing a degree of personal liberty which should encourage commerce by lightening the burdens of the people. He wished to substitute a single tax for the complicated system then in force. This was an economic fallacy, but it was one by which even a highly trained intellect might have been deceived. He caused the Compagnie des Indes to return the sums that had been paid for tax exemption. Paying an indemnity to the incumbents, he abolished a multitude of useless offices which had been created in time of need and sold for ready money, and which were a burden upon commerce. He secured a reduction of many taxes and the complete abolition of duties upon a large number of articles. We should add that he supplied necessary funds at low rates of interest to reputable manufacturers and merchants; that he obtained the release of many prisoners for debt; that he secured a reformation of many of the most crying abuses of the Chamber of Justice, and that he set aside a twenty-eighth part of the postal revenues toward the salaries of the professors at the University of Paris.

THE CULMINATION AND DECLINE OF LAW’S SCHEMES.

The enthusiasm continued from June, 1719, to February, 1720. By this latter date, the rise had carried the market value of the capital of the Compagnie des Indes to between 11,000,000,000 and 12,000,000,000 of livres. The profits of all the trade of France would hardly have sufficed to return a reasonable income on so large a capital. Cautious holders saw that it was time to realize their profits, and sales began. The Royal Bank was playing a very modest part in relation to the business of the Compagnie des Indes; its duty was simply to furnish the bills required by stock-dealers, and it had no serious guaranty back of the paper it issued. The depreciation of the shares of the company aroused the fears of bill-holders, and they demanded a redemption of their notes. Law’s economic ability being inferior to his genius as a financier, he suggested to the Regent the most unwise measures for compelling people to prefer the paper of the bank to coin. The only result of these measures was to drive specie into hiding, and the ruin of Law’s enterprises, or of the “System,” as they were collectively called, was assured. The Regent, however, upheld his protégé and made him Comptroller-General of the Finances. From that moment, Law’s whole existence was one continual battle against the depreciation of the shares in his companies. One of the objects of the Compagnie des Indes was the colonization of the Mississippi Valley. As his first colonists, Law sent out prostitutes and thieves from the Paris prisons, having first married them together. Then he seized upon the vagabonds of the kingdom and sent them to Louisiana, fondly supposing that a desirable colonial population could be made up of such elements, reinforced as they were afterward with invalids and professional beggars. Notwithstanding the friendless condition of the classes thus transported, the barbarity with which they were treated was universally condemned, and open riots followed later, when the company’s recruiters undertook to carry off artisans and even young boys and girls of the middle classes. As nearly all of the women sent out to Louisiana soon died, some of the men married native women and established families in the colony. While neither Law nor the Government ever made known the truth as to the result of the colonization scheme they had attempted to carry out in this remarkable fashion, the facts were finally exposed, and that was the end of the undertaking.

Beginning with the month of March, the bills of the Royal Bank, though they were regularly redeemed, lost thirty, forty, and fifty per cent. of their value, and in some cases were even refused altogether. Law debased the currency, forbade any individual to have in his possession more than 500 livres of gold or silver, either coin or bullion, and finally, on March 11th, an order was issued abolishing the use of coin altogether on and after May 1, 1720.

THE KING COMES TO LAW’S RESCUE.

Recourse was had once more to paid informers, to secret accusations, to domiciliary visits, in short, to all the worst practices of the so-called Chamber of Justice. The bank secured some help, but its credit was entirely gone. Dealing in stocks was held answerable for all these evils, and was forbidden; but the prohibition could not be made effective, because there was no way for preventing secret dealings. Finally, on May 21st, an edict was issued in these terms:

We have thought it well to reproduce this preamble in spite of its length, because it shows to how great an extent Law was disturbed by the depreciation of the shares of the Compagnie des Indes and the discredit into which the paper of the bank had fallen.

MEASURES TO STAY THE COLLAPSE.

The measures decreed by that edict consisted in a reduction of the value of shares of the Compagnie des Indes to 8000 livres on the day of its publication, 7500 on July 1st, and so on down to 5000 livres on December 1st, and in an adjustment of the value of the bank bills, in the same manner. The bills, however, were to be received at their face value until the end of the year in payment of taxes and in the purchase of life annuities. Bills of exchange and other commercial debts were to be paid in bank bills at their actual value on the due dates.

Immediately upon the promulgation of this unfortunate decree, prices of all commodities began to rise so rapidly as to create serious alarm. The uppermost thought in every man’s mind was to save some remnants of his fortune. Public clamor against the decree of the 21st was so great that it was revoked on the 27th, and Law was compelled to resign his office of Superintendent of Finance. Still the Regent did not desert him. He furnished a bodyguard to protect him against the rage of the populace and continued to follow his advice. Meanwhile, the people besieged the offices of the Royal Bank, demanding cash for their bills. The bank resorted to the most barefaced subterfuges to escape prompt payment. It redeemed large bills with small; and, in redeeming the small bills with specie, it counted out the money very slowly, and paid in coins of a less denomination than ten livres. The rue Vivienne was constantly filled with a struggling mass of men, and every day some were killed and others wounded. Finally, the public patience was exhausted and stones were thrown at the windows of the bank; then the soldiers fired upon the crowd and several were killed; the people placed the corpses upon litters and paraded the streets of Paris, crying aloud for vengeance. The crowd met Law in his carriage, recognized him, heaped insults upon him, and tore his carriage to pieces.

Provisions continued to grow dearer as the bills of the bank depreciated, and when the exasperation of the public had reached its height, new financial measures, such as canceling of bank bills, creation of life annuities, and the like, followed one another with great rapidity. Finally, on October 10, 1720, a decree was issued giving to holders of the yet outstanding bills an option to invest them in two per cent. perpetual rentes, in four per cent. life annuities, or in shares of a new India company. According to data furnished by this decree, the bank had issued between January 5, 1719, and May 1, 1720—

According to the same authority, the face value of the bills destroyed had aggregated 707,327,460 livres, but the itemized statement does not agree with this total; assuming, however, that the total was correct, the bills remaining in circulation amounted to 1,989,072,540 livres, to which should be added a subsequent issue of 50,000,000 livres. The Bank of France had been in existence seventy years before it had in circulation bills to this amount. When it had been decided that the bills of the Royal Bank were soon to go out of circulation, merchants refused to accept them except at a discount of seventy-five or eighty per cent.; the Government interfered and many persons were condemned as forestallers; but violent measures are no cure for public destitution.

LAW’S FLIGHT AND END.

Law, being held accountable for all these misfortunes, found his liberty, and even his life, in danger, and determined to flee the country. He took refuge in Brussels, where he was well received; thence he went into Italy, taking up his abode in Venice, and seeking his livelihood at the gaming-table. He died, poor, in 1729, leaving only a few pictures and a ring worth 10,000 crowns, which he had been in the habit of pawning whenever luck at play went against him. Looking at him from this distance of time, we can see that Law had no systematic theory of finance. He was a man fertile in expedients, who often advocated wise methods, but always spoiled them in the execution. There can be no question of his honesty and good faith; the best evidence of these is the condition of comparative poverty in which he lived and died after leaving France. But his influence was to the last degree disastrous, and was thoroughly demoralizing to all classes of society. A certain Count Hoorn, of illustrious birth, robbed and murdered an unfortunate courtier named Lacroix, and expiated his crime upon the wheel; murders became far more numerous in Paris; people had acquired a habit of winning money without work; desires born of stock-jobbing did not die with it, and many turned to theft and to murder as a source of income. The very name of bank became so unpopular that seventy-nine years later it required all the authority of General Bonaparte, then First Consul, to make the name acceptable as the title of a credit establishment.

LIQUIDATION OF THE “SYSTEM.”

The people of Paris, always inclined to raillery, had a song which sums up with reasonable accuracy the history of Law’s enterprises, and may be thus roughly rendered:

• Beelzebub begat Law,
• Law begat the Mississippi scheme;
• The Mississippi scheme begat the “System”;
• The “System” begat paper;
• Paper begat the bank;
• The bank begat the bill;
• The bill begat the share;
• The share begat agiotage;
• Agiotage begat the share-registry;
• The registry begat the settlement;
• Settlement begat the balance-sheet;
• The balance-sheet begat zero;
• And zero has no procreative power.

The liquidation of such a conglomeration of affairs presented considerable difficulties. The “System” was condemned in its entirety; the tax farmers resumed the collection of the revenues; the tolls and town dues which Law had abolished were reimposed, notwithstanding that these reforms, as well as his abolition of useless offices, had proved very beneficial to the commerce of the country.

THE “BROTHERS PARIS” GATHER UP THE WRECK.

The brothers Paris, though without official authority, were the prime movers in all matters connected with the settlement, and all their suggestions were made in the most malignant spirit. Though the Compagnie des Indes had simply obeyed the orders of the Government, its shareholders were made liable for all its undertakings and even for the bills it had issued. Thus the whole population of France was involved, except those who were absolutely destitute, because every family held some of the company’s shares, acquired either in the way of speculation or in exchange for the Government’s own bills. The brothers Paris superintended a general revision of the State’s obligations, and all of them except the rentes were scaled down in proportions varying between one-sixth and nineteen-twentieths of their face value. The revision was rapidly carried on and was completed in June, 1722, but the liquidation was not finished until September, 1728. The funds to which the process of revision was applied amounted to 3,122,236,436 livres, and this was reduced to about 1,700,000,000 livres. This sum, converted into perpetual two per cent. rentes and four per cent. life annuities, made an interest charge of about 31,000,000 livres on the former, and about 16,000,000 on the latter; in all, a charge of 47,000,000 livres on the revenues. Fifty-six thousand shares of the Compagnie des Indes were left intact, and by a decree of March 22, 1723, the company was reorganized as a private corporation, with a monopoly of various commercial enterprises. After undergoing several other reorganizations, in the course of the eighteenth century, it was finally abolished altogether in 1793. Before that time several of its ships, insured in English companies, had been wrecked, but the insurance, amounting to about 400,000 francs, was not paid until after the fall of Napoleon. When payment was made, the money, at the request of certain persons interested in the old Compagnie des Indes, was turned over to the Bank of France. There it remained for a number of years, together with the books and papers of the company. Finally, the Bank made an effort to get rid of the money and the archives. The Tribunal of the Seine appointed a liquidator; he succeeded in finding some families having interests in the old Compagnie des Indes, but some money yet remained, the title to which was not established, and this was turned over to the deposit and consignment office to await an owner. As to the Royal Bank, it disappeared and left no trace.

A considerable burden had already been laid upon those who were called the newly enriched. They were once more heavily assessed, the demand this time being in the form of a per capita levy; and this they avoided, as far as possible, by marrying impecunious daughters of the nobility, and securing from the King, by virtue of this alliance, entire or partial immunity from the new assessment. The general poverty was more severe at this time than it had been at the death of Louis XIV., and the period has left in the memory of the French people a lasting impression of dread.

AN IMPARTIAL ESTIMATE OF LAW.

Yet, again it may be repeated, all was not bad in the work of Law. One historian of his “System,” M. André Cochut, whom we have already had occasion to quote, sums up his estimate of the man and his schemes in these words: “Was the transit of the Scotch adventurer a benefit or an injury to France? To this question we can return no positive and unqualified answer. A movement so complex, an upheaval so thorough, and phenomena so extraordinary, produce upon us the most contradictory impressions. Our opinions vary with our point of view. If some individuals were crushed beneath the wreck, it is incontestable that the thorough agitation of productive wealth tended toward the enrichment of the people. Nearly all debtors, and especially mortgage-burdened owners of the soil, were enabled to pay off their debts. Many ancient estates were preserved from impending ruin and many new buildings were erected. Farming lands received permanent improvements; industry, unduly stimulated, built new factories; and a precedent in maritime ventures was established by the Compagnie des Indes. How is it that results so beneficial came out of such a woful calamity? The explanation is that Law’s conception, in spite of inherent faults, which rendered its success impossible, in spite of his own blind rashness and serious shortcomings, which made his fall so sudden and so violent, stamped its author, nevertheless, as a man of remarkable inventive genius, and as having a distinct perception of the three most prolific, and previously most neglected, of all the elements of national grandeur—maritime commerce, credit, and the spirit of association.”

In all candor, history must award to the men of those times their due share of blame for the calamitous failure of Law’s schemes. His main purposes, temperately pursued, would have greatly promoted the wealth and power of France. But their remarkably prompt success was responded to by a craze of speculation, in which Law seems to have taken little part, but which whelmed in ruin enterprises largely legitimate and highly profitable. For that, Law’s contemporaries, certainly as much as himself, if not more, must be held responsible. This is not the first instance in which the bold and beneficent plans of men of genius have been defeated through the excesses of speculations for which the schemes were not properly responsible.

CHAPTER III.

THE DISCOUNT BANK—LA CAISSE D’ESCOMPTE.

THE failure of Law’s “System” left such a lasting impression upon the public mind that the creation of any new bank of issue was impossible in France for many years. These establishments, having no other earnest of success save the confidence of the people from whom they borrow by means of the bills they issue, cannot thrive in a country where the very name of bank arouses the most intense aversion. Yet the Bank of England, the Scottish banks, the Bank of Amsterdam, and a host of others make manifest the benefits a country may derive from an establishment which confines itself strictly to the banking business and is properly conducted.

“A man of genius,” says Mirabeau, “struck with the astonishing absurdity that Paris alone among the great cities of Europe had no discount bank, proposed to the Government in 1766 that he be allowed to establish such an institution, and he had no difficulty in proving that its necessary results would be an enlargement of commerce, an increase of industry, a quickening and expansion of monetary circulation. He was kept a suppliant for ten full years, and then his project was adopted in a mutilated shape; his plans were contracted to the narrowest limits, and the thing finally set in motion was a very small model of a very large machine. Even then, it was necessary to brave the clamors and persecutions of capitalists, who imagined they saw in the widely diffused relief promised by a discount bank a ruinous competition with that sold by themselves.”

The Discount Bank (La Caisse d’Escompte), to which reference is here made, was established on January 1, 1767. Its capital was fixed at 60,000,000 livres, divided into 60,000 shares of 1000 livres each, of which only 40,000 were offered to the public, the other 20,000 being reserved to the King. It was to discount commercial paper and State securities at four per cent. in time of peace, and in time of war at five per cent.; with a supplementary commission of two per cent.; it was to have also a monopoly of the coinage. This enterprise never developed into full activity; but, after a precarious existence of two years, it was abolished on March 21, 1769, by order of the Council. A second bank of the same kind was proposed during the Ministry of the Abbé Terray, but the attempt was abandoned.

AUTHORIZATION OF A BANK OF ISSUE—THE DISCOUNT BANK UNDER TURGOT’S MINISTRY.

In 1776, under the Ministry of Turgot and inspired by that illustrious economist, a Scotchman named Clonard, and Penchaud, a Genevan, drew up a plan of a bank of issue, which was incorporated under the name of the Discount Bank by a decree of the Council of March 24, 1776. The business of the bank consisted in discounting, at a rate which could in no case exceed four per cent. per annum, bills of exchange and such other commercial paper as the directors should choose to accept; in dealing in gold and silver; in gratuitously receiving and paying out public funds and deposits of individuals. The corporation was forbidden to borrow at interest or to contract any debt not payable on demand; it was expressly forbidden to engage in any commercial enterprise or maritime undertaking, or to enter into any contract of insurance. Its capital of 15,000,000 livres was divided into 5000 shares of 3000 livres each. Five million livres were to serve for its current needs and 10,000,000 to be turned over to the Treasury on June 1, 1776, to constitute a guaranty for all the undertakings of the bank. “His Majesty,” to quote from the regulations as set forth in the charter, “will be urged to accept the 10,000,000 livres as a loan and to give in exchange therefor receipts issued by the Warden of the Royal Treasury to the amount of 13,000,000 livres, payable in thirteen years, to cover principal and interest of the aforesaid sum of 10,000,000 livres; which Treasury receipts shall be redeemed in twenty-six equal installments of 500,000 livres each. And as security for these payments his Majesty will be requested to set apart the income from the postal leases and to direct the Warden of the Royal Treasury to deliver to the cashier of the Discount Bank in payment of the 500,000 livres of Treasury receipts to be redeemed each half-year, a draft on the holder of the said postal leases. The 13,000,000 livres forming the total of the Treasury receipts above mentioned, or such part of them as may remain after the payment of installments from time to time, shall be specifically pledged as security for all the operations of the bank, and that portion of the receipts not redeemed shall not be sold, alienated, assigned, or pledged.”

That part of the plan which proposed thus to tie up two-thirds of the capital was never carried into effect. A decree of the Council under date of September 22, 1776, announced that the shareholders had decided that it was better to have a capital of only 12,000,000 livres, all of it to be devoted to the business of discounting paper and dealing in gold and silver, and that in accordance with this decision the King had agreed to forego the loan of 10,000,000 livres and had authorized the issue of a capital of 12,000,000 livres, in 4000 shares of 3000 livres each. This change was a very important one, because it left the Discount Bank in full control of its capital, which in case of need could be used to repair the losses of its discount business; whereas in possession of the King, it would have been of no use to the bank either for the transaction of its business or as an offset against losses.

REGULATIONS OF THE BANK.

The by-laws of the bank, approved by a decision of the Council of State promulgated on March 7, 1779, fix the number of directors at thirteen, two of whom are to go out of office at the end of each year and to be ineligible during the two following years; each of them must be the owner of at least twenty-five shares, inalienable during his term of office; and the directors serve without pay. The bank was not expressly authorized to issue bills payable to bearer on demand, but this power followed as a necessary implication from that section of the law which forbade it to contract any debts not payable on demand. Aside from this, the bank enjoyed no special privilege or monopoly, and the circulation of its bills was a purely optional matter; anyone could accept or refuse them at pleasure.

THE BANK IN DIFFICULTIES.

This establishment, answering to a real need of the community, led a quiet existence for some years, gradually expanding and enjoying a fair degree of prosperity; but in 1783 it encountered serious difficulties. At this time, d’Ormesson, Comptroller-General of Finance, borrowed of it 6,000,000 livres, increasing its circulation by that amount. The fact of the loan was at first kept secret, but when it was inadvertently made known the public took alarm, demanded the redemption of their bills, and withdrew their deposits, so that the bank was soon unable to fulfill its engagements. The Government interfered by a decree of the Council of State under date of September 27, 1783, in these words:

Shortly after this, De Calonne, who had succeeded to the Ministry, borrowed 24,000,000 livres in the form of a lottery loan and repaid to the bank the 6,000,000 livres due from the State; at the same time, an official report was issued showing that the bills in circulation aggregated 42,000,000 livres, and that the assets of the bank exceeded its liabilities by 14,140,473 livres.

RECOVERY OF CONFIDENCE AND INCREASE OF CAPITAL.

Acceptance of the bills had previously been made optional again by a decree of December 10, 1783, and confidence soon returned. In view of these facts, the regulations of the bank were amended, and the capital was increased to 15,000,000 livres by the creation of 1000 new shares of 3000 livres each, sold upon their issuance at a premium of 500 livres. In addition to the amount thus secured, the bank had a reserve of 2,500,000 livres, consisting of undistributed profits. The by-laws were altered and the proportion of hard cash on hand to circulation was fixed at twenty-five per cent. as a minimum. Paper accepted for discount was made payable within ninety days, at most, and discount rates are fixed at four per cent. for paper due within thirty days, and at 4½ per cent. for paper running from thirty-one to ninety days. All paper offered for discount was required to bear two good signatures. Two permanent directors were to be chosen by the stockholders to act as managers. Certain precautions provided by the by-laws show that the conditions of a rational distribution of credit facilities were not thoroughly understood by the founders of the institution; but they had at least a very clear conception of the necessity of maintaining a just proportion between resources and liabilities. Thus the amount of credit to be extended in the way of discounts was fixed weekly by the Administrative Council, and once fixed could not be exceeded; but whenever it came to the knowledge of the managers that the cash on hand was less than one-third of the circulation, they were required to curtail their discount operations, and to discontinue them altogether when the cash was reduced to one-fourth of the circulation. Permanent loans and all investments in any permanent form were absolutely forbidden. The capital being the normal security for the bank’s undertakings, it was forbidden to loan upon its own shares, because such loans would in effect amount to a diminution of the capital. Most of these regulations were wise and salutary. The bills of the bank were in denominations of 1000, 600, 300, and 200 livres.

The public very easily forgot the difficulties that had beset the Discount Bank; and, unfortunately, the Government forgot them also. The institution was wisely managed and its shares advanced rapidly in price. In 1784, certain speculators persuaded the public that increased dividends were to be paid, and sold a large number of shares at a premium. At the stockholders’ meeting of January 16, 1785, those who had bought at a premium proposed the declaration of a dividend, based, not upon the profits actually realized and collected, but upon those which were prospective and uncertain, and their proposition was carried. But the more prudent shareholders obtained from the Council of State an order under date of January 16, 1785, commanding that the dividend for the last six months of 1784 should consist only of the profits actually collected up to December 31st, and that from the total of profits carried on the books upon that day there should be deducted as not earned and not available for dividends those arising from the discount of all paper held by the bank at that time; these profits would not be due or payable till after December 31st, and they were to be reckoned as part of the income of the following half-year. In this difference with the stockholders the Government was clearly right; but those who had purchased shares at a premium took advantage of its ignorance to secure the adoption of an unjust measure, and a decree was issued on January 24, 1785, declaring null and void all sales made at a premium; thus, at the expense of the sellers, releasing the buyers from a losing speculation.

THE PROSPERITY OF THE BANK CAUSES ITS RUIN.

In spite of this incident, the affairs of the bank continued to prosper, and this prosperity proved its ruin. Its success was in such violent contrast with the wretched failure of the Government finances as to suggest to the Minister of Finance the advisability of seeking aid from a bank which was growing rich in the midst of the general decay. At a special meeting of the stockholders, held on February 5, 1787, a plan was outlined for furnishing greater facilities to trade and greater security to the public by making the bank useful to all classes of citizens, by providing for a circulation of its bills in the provinces, by dispersing its shares more widely, and by perfecting the details of its management. The basis of the plan was an increase of the capital to 100,000,000 livres, of which the State should hold 80,000,000 as security for the bank’s circulation. The stockholders fell into the trap, and drew up a petition to the King requesting such a change in the regulations of the bank as would produce the results outlined above. A decree of the Council, dated February 18, 1787, enacted into law the stockholders’ proposals. The Discount Bank was authorized to issue 20,000 new shares, of which 10,000 were offered to the old shareholders, in the proportion of two of the new shares to one of the old ones, at 3400 livres each; the remaining 10,000 shares were sold in the open market at 3600 livres each. The salutary rule limiting discounts to paper not having over 90 days to run was changed so as to allow discounts of paper due at any time within 180 days; the rates were 4 per cent. up to 60 days, 4½ per cent. for 61 to 120 days, and 5 per cent. for 121 to 180 days. The question of setting aside a reserve fund was left to the discretion of the directors, whose number was increased to eighteen. The privilege of issuing bills payable on demand was granted for fifty years. The bank was to pay 70,000,000 livres to the Treasury and receive interest upon it at the rate of five per cent.; the interest being made a charge upon the total revenues of the State, and specifically upon those arising from farms of the general revenues.

Under pretext of furnishing to the public a sufficient guaranty for the circulating notes, amounting to 98,000,000 livres, these provisions placed substantially the whole capital of the Discount Bank in the hands of the Government, thus offering as security to its note-holders and depositors nothing but a credit already seriously impaired. Naturally, the first effect of the scheme was to involve the bank from the beginning in the ruin of the public finances. In the month of August, 1787, there broke forth suddenly a panic, caused mainly by the distrust engendered by this arrangement. Holders of the bills demanded their redemption, and 33,000,000 livres were paid out. Then, unfortunately, the Government felt called upon to interfere, and it drew up a decree making the notes a legal tender. The administrative council of the bank, which had not even been consulted, vigorously opposed the issuance of this decree; it was in position to pay all the outstanding bills from the proceeds of its loans as they fell due, and it demanded a return of the 70,000,000 livres deposited with the State, to meet current demands. The Government so far yielded to the just demands of the bank as to forego the promulgation of the decree suspending specie payments. It also turned over to the bank from its various collection bureaus all the money it could spare, but it did not return the 70,000,000 livres, because the whole of that sum had been used up long before.

Inasmuch as the note redemptions had never ceased, the bank soon regained the confidence of the public, but it did not retain it long. We have now reached the period at which, to use Taine’s phrase, “spontaneous anarchy broke forth.” The desperate condition of public finance bred new distrust of the bank’s solvency; another panic began among its bill-holders in August, 1788, and its cash reserve was reduced from 50,000,000 livres to 25,000,000. The Government had recourse once more, and again without consulting the managers of the bank, to the legal-tender expedient. A decree of the Council, bearing date of August 18th, was posted at the entrances of the building authorizing redemption of the bills in discounted commercial paper. The Discount Bank then had 19,000,000 livres in specie, which was sufficient for its needs, but the twofold object of the Government in making its notes a legal tender was to prevent its demanding a repayment of its 70,000,000 livres and to deprive it of any excuse for curtailing its discount operations. The situation of the Treasury constantly grew worse. Necker, recalled to the Ministry, frankly made known the situation of affairs to the directors of the Discount Bank, and declared to them that the public service would be brought to a standstill unless he could raise a loan of 15,000,000 livres. The exigency left no room for discussion, and the loan was made in bills guaranteed by Treasury bonds and the personal pledge of the King. This loan was frequently renewed. At the stockholders’ meeting of January 8, 1789, it was decided that the bank should make a further advance to the King of 25,000,000 livres. One of the first matters to which the National Assembly turned its attention was the condition of the Discount Bank. Mirabeau made a violent attack upon it in a pamphlet distributed among his colleagues in the Assembly on September 21, 1789. The bank found an advocate in Lavoisier, who contented himself with simply setting forth the actual condition of its assets and liabilities.

NECKER PROPOSES TO MAKE THE DISCOUNT BANK A NATIONAL BANK.

On November 16th following, Necker proposed to transform it into a national bank and to fix the limit of its issues at 240,000,000 livres. He thus supported his proposal:

Necker’s plan was to convert the Discount Bank into a national bank; to confer upon that institution a monopoly for a longer or shorter period; to place it under the management of men chosen by the shareholders and subject to the supervision of commissioners appointed by the National Assembly; and to authorize it to issue 240,000,000 livres in bills guaranteed by the State. The capital was to be increased by 50,000,000 livres and would then amount to 150,000,000; a loan of 170,000,000 livres was to be made to the State at four per cent. interest. This scheme was opposed by Mirabeau, and defended by Dupont de Nemours. In order that it might be in a position to decide between these opposite opinions, the National Assembly called for a report upon the matter, and this was made by the Duc du Châtelet on December 4th. The report sets forth the facts to which we have already called attention and declares that having once begun to advance money to the State, the bank could not refuse to make further loans except at the risk of causing a panic, which would ruin the State and destroy the value of the guaranty on which the bank relied. There was the less ground upon which to criticise its conduct, because it had not neglected the interests of commerce, even when it was doing most to aid the State. The report then shows the condition of the bank’s affairs as of November 22, 1789; which, briefly, was as follows:

Thus it appears that the assets exceeded the liabilities by 31,177,711 livres. Its available capital was intact, but the 70,000,000 livres turned over to the State as security were in a very precarious situation.

The Duc du Châtelet adds to his report the following statements:

Upon the reception of this report, Talleyrand, Bishop of Autun, delivered a remarkable address in which the proper business of a bank of issue and the limitations with which it should be surrounded are set forth with the greatest clearness. The theories advanced by Talleyrand are so sound that they have now become universally accepted, but at that time they were practically unknown, and comparatively few persons were capable even of understanding them. Talleyrand proposed that the project of a national bank be abandoned, and that the Discount Bank be allowed to continue in business and be gradually brought back to the principles upon which it was founded. Its loans to the State were to be returned at the rate of ten per cent. per annum.

PLAN ADOPTED BY THE NATIONAL ASSEMBLY.

After a violent discussion, the National Assembly adopted a plan the basis of which was that the Discount Bank should advance 80,000,000 livres of its bills to the Government and that the Government should sell church lands to the extent of 400,000,000 livres in order to provide for all its debts to the bank. From the moment this decision became effective the doom of the Discount Bank was sealed. Decrees of December 19 and 21, 1789, provided for the issuance of “assignats” (a form of paper money issued against the lands of the clergy), and made them legal tender. The amount which the bank had advanced to the Treasury in the form of its own notes was repaid in these assignats, but this did not prevent the State from afterward borrowing of it 70,000,000 in three loans. The institution barely managed to keep itself alive in the midst of a general stagnation of business and the increasing anarchy in political affairs.

THE COMMITTEE OF PUBLIC SAFETY EXTINGUISHES THE BANK.

On June 13, 1793, when the French people had become a prey to unreasoning madness, a decree of the Committee of Public Safety directed a member of the Convention, clothed for this purpose with the most absolute powers, to seek out such frauds as might have been committed by the Discount Bank in its dealings with the public treasury. This, says Laffon Ladébat, was the odious prelude to its extinction; the custom then was first to brand with disgrace the thing to be destroyed. Finally, on August 4, 1793, the Convention voted the suppression of the Discount Bank, and ordered it to pay on demand the 19,000,000 livres held by it in accounts current; to pay, in several installments, 905 livres tournois in assignats upon each of its 29,000 shares, and the balance, if any, in State rentes. Thus the Discount Bank was destined to extinction amidst the throes of a popular uprising, as many another useful institution has perished; for demagogism has an instinctive hatred of all credit institutions, understanding none of them, and seeing in them all nothing but instruments of speculation and fraud. And yet the Discount Bank, while it was guilty of weakness in its dealings with the State, was never false to its true mission, and was managed with scrupulous honesty. The following is a statement of the accounts of the Discount Bank at the close of each year, in millions and hundreds of thousands of livres:

LA CAISSE DES COMPTES COURANTS.

When the revolutionary madness had abated, a need of credit institutions made itself felt once more. On the 11th Messidor, Year IV (June 29, 1796), Augustin Monneron, a merchant who had grown rich in the colonial trade, founded a share bank under the name of the “Caisse des Comptes Courants” (Bank of Accounts Current), to discount commercial paper, receive deposits, and issue bills. This bank suffered a very serious loss through the defalcation of Monneron. As soon as the theft became known, the company declared its dissolution, and then reorganized on the same day. Its existence was always precarious; it discounted hardly any paper except that of its shareholders; and it would have no interest for us except for the fact that it has been called, but erroneously, the original of the Bank of France. The truth is, that the Bank of France could very well have begun its business in competition with the Caisse des Comptes Courants, but a fear of unsettling the money markets by dividing up their resources moved the managers of the Bank to direct their best efforts toward a consolidation of the two institutions, whose rivalry might have been a source of danger. The advantages of consolidation were realized by the shareholders of the Caisse des Comptes Courants, and they voted for it. At the time of the consolidation, the Caisse des Comptes Courants had, either outstanding or held in reserve, bills aggregating 20,780,327.20 francs, the bills being expressed in terms of livres tournois. These constituted the circulation of the Bank until it could make arrangements to put out an issue of its own. The Bank established its offices in the building of the Caisse des Comptes Courants, and took over all of its employees.

CHAPTER IV.

ASSIGNATS—THE BASIS OF THEIR ISSUE.

WHILE assignats have no immediate connection with questions of banking, they have played such a conspicuous part in the national economy of France, and their history is so full of instruction for any government that may be tempted to tamper with its monetary affairs, that it is impossible to omit all mention of them from a work intended to throw light upon problems of banking and credit.

In 1789, the clergy of France were in possession of immense estates granted to them as gratuities by princes, or demised to them by the faithful. The properties were devoted to the maintenance of religion and to institutions of charity and instruction. The National Assembly, on motion of Talleyrand, then Bishop of Autun, decided that it was the business of the State to attend to all those public duties to which the possessions of the clergy were devoted, and to employ the priests on salary, and that thereafter all ecclesiastical property should be placed at the disposal of the nation. It was, however, a very difficult matter to determine the best manner of realizing upon such an enormous mass of property. Evidently, to put it all on sale at once would be to destroy its market value. The venerable President of the Assembly, Bailly, destined to so sad an end, proposed, in behalf of the city of Paris, that the property be turned over to the municipalities, which should purchase it as a whole and then sell it from time to time in small lots. The municipalities would undertake to pay at fixed dates, and the creditors of the State could be paid with the communal bonds. This was the first suggestion of assignats. The National Assembly, very deeply impressed with the scarcity of money, ordered the sale of 400,000,000 francs’ worth of ecclesiastical and crown property, and in September (17-21), 1789, determined upon the formation of a special Treasury Department, under the auspices of which assignats were issued, bearing interest at five per cent.

The assignats were accepted in preference to other forms of money in the sale of the properties, and they were to be redeemed with the product of the sales and other extraordinary income at the rate of 120,000,000 francs in 1791, 100,000,000 francs in 1792, 80,000,000 francs in 1793 and 1794, and the remainder in 1795. On April 15, 1790, the interest rate was reduced to three per cent.; the assignats were made a legal tender between individuals, and all public departments were directed to accept them as the equivalent of specie. Interest was reckoned by the day, and, at the end of the year, the holder of the assignat could collect the whole of the interest at the special Treasury Department. As security for their payment, the assignats were made a lien upon all national property and the income derived from it. Up to this point, the assignat appears as a species of mortgage obligation such as are common in all countries, but very soon it became a regular form of paper money, the interest being suppressed and the paper made non-convertible.

OVER-ISSUES—THEN DEPRECIATION.

The first issue had been well received by the public; a second soon followed, and it, in turn, was succeeded by so many others that in a report to the Convention, made on February 3, 1793, Cambon places the total issue at 3,067,000,000 francs, of which 682,000,000 francs had been canceled, leaving 2,385,000,000 francs then outstanding.

Perverted from their original nature of mortgage bonds, and issued with extravagant frequency, the notes depreciated day by day. The Revolution, accustomed to violent methods, thought to sustain its paper money by forcible means. On April 11, 1793, in spite of the opposition of the Girondins, the Convention provided a penalty of six years’ imprisonment for all sellers of coin—for all persons, that is to say—who should exchange a given amount of gold or silver for a nominally greater amount of assignats. They were liable to the same penalty who should sell their goods at one price in assignats and at another in coin. “These measures,” says Thiers (“Histoire de la Révolution”), “did not prevent the difference between the values of the two forms of money from increasing with great rapidity. In June, 1793, a specie franc was worth three francs in assignats, and in August one silver franc was worth six francs in assignats.” In such a state of affairs, merchants refused to sell their goods at former prices; they locked them up and refused them to buyers. Of course, this depreciation of the assignats would have been a matter of no consequence if everybody, taking them at their current value, had accepted them and paid them out at the same rate; but capitalists living upon their income, and State creditors in receipt either of yearly interest or the salary of an office, were compelled to accept the paper at its nominal value. All debtors made haste to settle the claims against them, and creditors, forced to receive a fictitious form of money, got only a fourth, or a fifth, or a sixth part of what was due them. Finally, the working-people, unable to combine and force up their wages as assignats went down, found that they were not getting money enough to buy the actual necessaries of life. Capitalists were discontented and moody, and the common people, ignorant of the fact that all their troubles arose from a defective monetary system, rose against the merchants, calling them engrossers and demanding that they be sent to the guillotine.

“THE MAXIMUM.”

The Convention, finding itself overwhelmed with petitions, adopted the ridiculous measure known as the “Maximum.” On May 3, 1793, it issued a decree requiring every merchant or producer of grain or flour to declare how much he had on hand. All were forbidden to sell except in the public markets, and the administrative officers were authorized to see that the required amount was offered in each market. In order to fix the maximum price of grain, the directories of the various districts were required to send to the departmental directories the prices of grain from January 1 to May 17, 1793, and the average of the prices between these dates was to be the maximum at which sales could be made; this was to be decreased by one-tenth each month from June 1st to September 1st. As the maximum was not the same in different markets, and as those in which it was highest would naturally attract grain from the others, the Convention, on September 4, 1793, adopted for the whole of France a single maximum of fourteen livres per quintal of wheat. The adoption of a wheat maximum involved the necessity of fixing a maximum for all other articles of merchandise, and for wages. In spite of the fearful penalties denounced against all who should trade in disregard of the Maximum, the law seems never to have been fully executed. But its effects were none the less disastrous. Farmers sold their products stealthily to those who were willing to pay in specie; the amount of grain, flour, and provisions brought to market decreased day by day; shopkeepers were bankrupted and went out of business; manufacturing establishments closed down, and Cambon said—with some degree of exaggeration, however—“I regard the ‘Maximum’ law as the sole source of our misfortunes.”

By the beginning of 1794, the issues of assignats had aggregated nearly 8,000,000,000 francs, of which 2,464,000,000 francs had come back into the Treasury and been destroyed; nevertheless, the Convention voted an issue of another 1,000,000,000 francs, in denominations varying between 10 sous and 100 francs, making a net total of 5,536,000,000 francs. After the repeal of the law of maximum, and the cessation of the despotic measures to which it had given rise, prices, left to seek their proper level, rose to the most extraordinary quotations; the depreciation of paper money showed itself in a tremendous rise in exchange, and assignats became the subjects of the wildest speculation, which caused their value to fluctuate widely from moment to moment.

ATTEMPTS TO RESTORE THE VALUE OF THE NOTES.

The Convention determined to increase the value of the paper money; there was no way to accomplish this except by reducing the quantity, and a number of schemes for making this reduction, each more visionary than the others, had been examined, when a member of the Convention, Bourdon (de l’Oise), though he was a man wholly ignorant of financial affairs, and notable chiefly for his drunkenness, hit upon a very feasible plan of escape from the trouble. He proposed to sell the national property; but instead of offering it at auction, which would have depreciated the paper money still more—for everyone would think himself fortunate to be able to exchange any quantity of worthless assignats for real estate having an actual value—he proposed that the lands be deeded to anyone who should offer for them in assignats three times as much as they were worth in 1790. This plan would inevitably have increased the value of the assignats, for as long as they were exchangeable on demand for a definite quantity of real estate they could not fall to zero. Under this plan, the national lands would have been sold at a very low price; but the Government had been paid in advance, since it had settled all the debts of the State with the paper money. If Burdon’s plan had been carried out in its entirety, all the assignats would have returned to the Treasury, and the national lands, delivered up to industrial uses, would have become productive. The scheme was tried upon a small scale, and the eagerness with which the public put in their bids showed how successful the project was likely to be; but, unfortunately, there were a large number of Deputies who could see nothing in it but a loss, and they declared that the property of the Republic was being squandered. A combination was formed among various members of the Convention and the law was repealed. After having caught a glimpse of a method by which the troubles might have been ended, they abandoned it and fell back again into the appalling misery from which they might so easily have escaped.

However, if no effort was to be made to raise the value of the assignats, it was impossible to maintain the ruinous fiction of nominal value, which was bankrupting all who accepted payment in paper. A scale was finally established in accordance with which the assignat was to be reduced to its actual value. Beginning with the time when there were only 2,000,000,000 francs in circulation, it was decided that the paper should lose one-fourth of its value for each 500,000,000 francs added thereto. The Government did not venture to make this reduction applicable in all transactions, but it was applied in all tax collections; thus there was a return to the financial methods of King John the Good, who debased the coinage but required that all royal revenues be paid in coins of full weight and fineness.

ISSUES UNDER THE DIRECTORY.

The financial disorders were growing more serious. The Directory, successor of the Convention, was guilty of even greater abuses in its dealings with paper money. Between the 5th Brumaire and the 30th Pluviose, Year IV, there were issued more than 20,000,000,000 francs of new assignats. In Nivose, 1795, the issue reached 30,000,000,000 francs, and by February 19, 1796, it had risen to the ridiculous figure of 45,500,000,000 francs, not including the counterfeit assignats made by England on the Island of Jersey and introduced into France through La Vendée and Brittany. Out of this total issue, about 20,000,000,000 francs were in the hands of the public. A law of Nivose, Year IV, set a limit to the emission by providing that the plates should be destroyed whenever the circulation should amount to 40,000,000,000 francs.

THE ASSIGNATS CONVERTED INTO MANDATS.

As a result of various payments to the Treasury, the assignats were reduced to 36,000,000,000 francs, and later to 24,000,000,000 francs, and this latter amount was made convertible into 800,000,000 francs of land warrants (mandats territorians). These land warrants, the total issue of which amounted to 2,400,000,000 francs, were a new kind of paper money, constituting a mortgage and preferred claim against all the lands of the Republic, except national forests of greater extent than 300 arpents (about 275 acres), and buildings and other structures devoted to public use. The mandats were no better esteemed by the public than the assignats had been, and were at a discount of eighty-two per cent. on the day of their issue. Nevertheless, they were better than assignats, because the holder could acquire national property in exchange for them without bidding against other holders. Their issuance, accordingly, was a return to the plan formerly proposed by Bourdon. But the public took no note of the difference; and the new paper depreciated to such an extent that the Directory, to avoid the necessity of practically giving away the national lands, was compelled to order that the warrants be accepted in payments at their value on the day of the contract. By 1796 the warrants had lost ninety-nine per cent. of their value; they were withdrawn from circulation on March 21, 1797, and finally annulled a few months later.

State creditors had been receiving their dues in assignats and other warrants, and their income had now been reduced to zero; but they could still delude themselves with the belief that their capital was intact. In the year VI, the Directory shattered even this source of consolation. Under pretence of adjusting the debt to the State’s resources, they reduced the rentes inscribed in the great book of the public debt by two-thirds, and named the remainder the “Consolidated Third.”

Thus, the issue of State paper money ended in bankruptcy after bringing untold evils upon the State. The memory of the assignats is not yet effaced from the minds of the French people, and “assignats” is the name they give to all irredeemable paper.

CHAPTER V.

THE BANK OF FRANCE.

SECTION I.

ORIGIN OF THE BANK.

FRANCE has had a peculiar experience with banks of issue. On the one hand she has suffered from all that is worst, and on the other has enjoyed all that is very advantageous, in such institutions. The first French bank of issue was a creation of Law’s, and was established to dispose of all the financial embarrassments transmitted by Louis XIV. to his successor. It would undoubtedly have achieved its purpose had its founder possessed a better understanding of the nature of credit and its limitations. The lack of such understanding, and the lack, likewise, of that delicacy of management which is an indispensable requirement when matters of public confidence are at stake, caused Law’s bank—known as the Royal Bank—to go to pieces in circumstances of terrible catastrophe; and in consequence the very name bank came into such disrepute among Frenchmen that it needed the lapse of almost a century and the exercise of all the authority of the First Consul before another institution of like privileges, and styled the Bank of France, could be erected.

The absence of a central credit establishment had made itself severely felt during the closing years of the monarchy. The archives of the Ministry of the States-General show that, in 1788, much clamor had arisen for the introduction of banks on the plan of the Bank of England. But the Revolution supervened, concerns of greater moment absorbed attention, and neither the Constituent Assembly nor the Convention had leisure to take up the details of bank organization. Indeed, by an act of 1793, proposed by Cambon, a bank of issue, known as the “Discount Bank” (Caisse d’Escompte), which had been in existence since 1776, was extinguished. After the evil days of the Revolution, Government banking devices again received consideration.

PLANS FOR THE CREATION OF A GREAT BANK IN 1796.

After the report had been read, Citizen Laffon Ladébat submitted the following letter, which had just been received from the Minister of Finance:

“Paris, 17th Pluviose, Year IV of the Republic, One and Indivisible

“The Minister of Finance to the Citizen Laffon Ladébat, Representative of the People:

“Citizen—

I have read to the Executive Directory your letter of the day before yesterday.

“The Directory has with interest learned of your efforts to promote the organization of the bank. It recognizes how serviceable the proposed institution would be to the interests of the Republic in general and to the public credit in particular. Surely no one’s unmindful of the critical position to which commercial houses formerly holding the highest rank are now reduced, or of the untoward influence of our embarrassed circumstances, rendering the most delicate trade operations uncertain and profitless. No important enterprise can be attempted, even if entered upon courageously, without exposure to numberless vexations and perils. These are truths that cannot escape the observation of anyone with eyes to see. There is but one means of relief from such extraordinary troubles for a nation rich in territory, manufactures, industry, and personal property of every kind. We need harmonious co-operation by all citizens of note for the renewal of trade on a scale of some magnitude. It is essential that they give their credit and their strength a threefold power by aggregating them in an imposing association with a great volume of investments and shares. Your previous letters have informed me that the foundations for such an association have been laid. I desire to encourage you to give it all the scope possible.

“You have very properly suggested that a means for assuring the immediate brilliant success of the institution and placing its transactions on a solid basis, would be the assignment to its care of national property whose value would serve to lend it a great credit. I attach to this letter a statement of the properties that the Government has at its disposal, and that can be negotiated through the bank. This statement, which includes none of the taxes of the Republic and only 30,000,000 livres of forced loan assessments, shows a total of 883,000,000 livres (fiancs). You will not omit to notice, moreover, that it comprises none of the national property whose sale is suspended until the 1st Prairial, and whose value, based on information received from all the departments, was estimated at 2,600,000,000 in my last report to the Executive Directory. The list does not even take into account the Belgian properties. These two observations will suffice to demonstrate to your association what enormous values the Republic has in its possession.

“It would be desirable to have the bank perform a regular service for the Government, reaching monthly 25,000,000 livres in coin or in circulating media equivalent to coin. The bank would be authorized to effect all sales for a commission to be agreed upon, and would reimburse itself out of the products of sales in a measure corresponding to the amounts realized. It is my expectation that the building in the Rue Neuve des Capucines will be vacated in the next ten days. It will be necessary for the management of the bank to consider what arrangement should be effected between itself and the Government for that building. Finally, Citizen, a day may be appointed upon which we can go together to inspect the system of manufacture of the assignats at the printing establishment, with a view to the practical purposes of the bank.

“From the foregoing, Citizen, you will perceive that the Government has a genuine desire to have the bank occupy a broad sphere, since all that I communicate to you is on behalf of the Directory. You should adopt and publish by-laws for the establishment. You are authorized to utilize the particulars of the Directory’s sanction for strengthening the confidence of your shareholders and increasing their number. I trust your answer will inform me of the steps taken at to-night’s meeting. I shall communicate it promptly to the Directory.

“Welfare and fraternity,

“Faypoult.”

After this had been read, the president put to vote the following resolutions prepared by the committee:

The meeting ordered that the plan and the resolutions should be printed, and that at the next meeting all the citizens assembled at the present meeting should be entitled to cast deliberative votes.

Here follow thirty-six signatures.

BONAPARTE’S INITIATION OF A PLAN.

Soon after Bonaparte’s coup d’état of the 18th Brumaire, whereby he became First Consul, he devoted painstaking thought to the financial condition of France, and personally studied the mechanism of banking. He fortified himself with the counsels of the men who had contributed to the projects of 1796. His special adviser was M. Mollien, whom he afterward appointed Minister of the Public Treasury (Ministre du Trésor Public), and whom he retained in that office throughout the entire duration of the Empire. The practical result of these preparations was the compilation of the original constitution of the Bank of France, a most remarkable work. Its preface, edited by Bonaparte’s own hand, is as follows:

These resolutions are the perfection of simplicity. They confer upon the bank in process of formation the title of “Bank of France.” In view of the melancholy reminiscences of the Royal Bank, this was indeed a courageous disregard of violent prejudices; but it was consistent with the practical designs of the whole undertaking, for the name expressed precisely what was contemplated, as no artful substitute could have done.

The scope of operations of the proposed bank was indicated as follows:

All transactions other than in gold or silver were prohibited. With the exception of the provision concerning investments and savings, the original regulations are still in existence, and govern the operations of the Bank at this day. Adopted at a time when personal property, as distinguished from real estate, did not receive formal legal recognition, and when it was impossible to forecast the change in this respect that has since come to pass, the foregoing rules have shown themselves to be marvelously well adapted to new economic conditions; and only a few comparatively unimportant regulations have had to be added to them. The section concerning the issuance of notes (No. 4) merits particular notice. In most legislative acts, restraints more or less ingenious had been prescribed to limit the emission of paper currency. In the organization of the Bank of France, such restraints were left to the intelligence of the management; but an explicit rule was laid down for their governance. The Bank was always to be in condition to honor its obligations, and was always to have at command the means to do so—i. e., the combined amount of its coin reserve and of its negotiable paper as it matured. Experience has demonstrated the prudence of these provisions; and, leaving out of consideration great political crises for which it was not responsible, the Bank of France has invariably been able to redeem its notes on demand and settle its current obligations.

The administrative machinery arranged by the original regulations was very simple. A committee composed of two hundred principal shareholders who had held their shares for at least six months was to select fifteen administrators, called “Regents,” for a term of five years, and three inspectors, or comptrollers, called “Censors,” for a term of three years. Each year one-fifth part of the regents was to be renewed, and one-third part of the censors. Both regents and censors were eligible for re-election. At first, the regents chose from their own body a “central committee,” which was intrusted with the general management of the Bank’s affairs. This practice underwent modification later.

The capital of the new bank was fixed at 30,000,000 francs, divided into 30,000 shares, with a face value of 1000 francs each. Shares were offered for subscription at the beginning of the year 1800, but they were not sought with much eagerness by the public. Bonaparte, in order to set an example, individually took 100 shares, and caused the members of his family and the personages attached to him to subscribe for stock. Nor did he stop there. The receivers-general of the public taxes were required to convert one-half the amount of their official surety into shares of the Bank of France, and to pay the other half into the Bank on deposit. “This was probably the first time,” says Mollien, “that it occurred to a government whose treasury was exhausted to give money to a discount bank for the exploitation of its lucrative concession, instead of requiring the shareholders to pay a consideration for their privilege.” The word “privilege,” employed by Mollien, does not appear in the original regulations, but certainly is implied by their spirit; and before long it was apparent that the monopoly of issuing notes would become both a privilege and a duty of the Bank of France.

ADVANCES TOWARD NOTE MONOPOLY.

One of the first acts of the Bank was the absorption of an institution known as the “Caisse des Comptes Courants” (Bank of Open Accounts), which issued notes payable to bearer and made loans—principally to depositors. But some other note-emitting banks of slight importance were permitted to continue. The Bank of France was favored by circumstances at the beginning of its career. It profited by the hopes of peace inspired by the treaty of Amiens, and seemed to be in a position to tranquilly expand its business. But symptoms of a coming rupture between France and England were presently manifest. The renewal of hostilities would necessarily be unfortunate for the commerce of France. At the same time, the expedition was undertaken for the recovery of San Domingo. The bankers, and through them ultimately the Bank of France, had supplied the funds for the very important armaments which were destined for that colony, and which, if war should be resumed, would become prey to the English navy. The First Consul, thoroughly acquainted with the condition of affairs, expressed his disquietude to Mollien. “He asked me,” says Mollien, “whether the drafts drawn on the Bank would be paid in the event that the vessels sent out should be shipwrecked, and whether, on the other hand, if they should be protested, some calamity would not thereby befall the Bank. He also spoke apprehensively about the two side establishments, the Caisse d’Escompte de Commerce (Commercial Discount Bank) and the Comptoir Commercial (Bureau of Trade), which operated a joint discount office in Paris, and inquired whether, in case they should experience a shakeup, the Bank of France would not be in danger of overthrow from the countershock. This led him to ask, further, whether, according to normal principles of banking, the rivalry of several discount establishments in the capital might not involve peril for the banks individually as well as for the Government. ‘Moreover,’ pursued the First Consul, ‘I do not like this competition of the three banks in the making of paper money. If, for example, these three institutions, whose paper is accepted by all merchants and likewise in the Government offices should suddenly suspend payments, great embarrassment might result in every department of the public service, widespread confusion throughout the country, and, which would be the prime misfortune, a scandalous state of things in the foreign trade. Have you not told me that, in order to preserve credit, it is a general prerequisite that artificial money, like that of the Bank of France, shall issue from only one source? I adopt that idea. A single bank can be more easily watched than several concerns—both by the Government and the public. With a view to emergencies, I cannot see any virtue in competition of this kind.’ ”

The regent of the Bank, upon being consulted, manifested willingness to accept the monopoly offered them by the Government, at least for the city of Paris. The views of the First Consul were duly formulated by Prétet, Councillor of State, and submitted to the legislative body, which approved the Government project for a monopoly to the Bank of France. By a law promulgated the 24th Germinal of the year XI (April 14, 1803), the independent establishments in the capital that had bank notes in circulation were required to withdraw them and forbidden to put forth new ones; although, outside of Paris, banks of issue were permitted to operate independently of the Bank of France. The Government, in increasing the importance of the Bank of France, deemed it wise to give the Bank a broader basis, and prescribed that the capital should be raised from 30,000,000 francs to 45,000,000 francs. The shareholders were allowed a dividend of but six per cent. The surplus profits were to be devoted to the reserve and to purchasing five per cent. consols, the interest of which was to go to the shareholders pro rata. The other sections of the act confirmed the original regulations, but instituted two important innovations. First, a “discount council” was created, to be composed of twelve merchants selected by the censors; their function being to pass upon the commercial paper presented for discount. Second, it was specified that seven of the fifteen regents and all of the three censors should be chosen from among merchants and manufacturers, thus doing away with the undesirable circumstance of exclusive control by the professional financial class. In order to attract funds on open account, it was stipulated that no stoppage of payment should be allowed on deposits. This rather bizarre proviso, which is still in force, has at times been a cause of embarrassment alike to the Bank and the public. The period of the concession was made fifteen years, to expire September 24, 1818.

THE CRISIS OF 1805—LAW OF APRIL 22, 1806.

The Bank had already, in 1802, undergone a serious crisis. In 1805, it was to have a tempestuous experience of a far different kind. The preparations made at Boulogne by Bonaparte, who had then become Emperor, for the expedition against England, had absorbed very large sums. Meantime, the rate of interest was not uniform throughout France. Considerable and absolutely certain profits were realizable by making discounts in Paris at six per cent. and placing the proceeds of capital in the provinces at a much higher percentage. This gave rise to discomfort for the Bank, which was expected to bestow aid in all cases of need. The Bank might have mastered the difficulties of the situation with comparative ease had not its management been at loggerheads with the Minister of the Public Treasury, at that time the Count of Barbé-Marbois. The receivers-general of the public taxes were accustomed to give bills at the beginning of the year, falling due month by month, representing the estimated aggregates of the taxes they were to collect. These bills, secured by the sureties of the receivers-general, were turned into the Treasury, and from there were sent to the Bank for discount. But instead of reimbursing the Bank for the matured bills, which would have renewed the coin and bank notes taken away from its vaults, Barbé-Marbois replaced them with other bills maturing later; so that the Bank kept on paying out money without receiving any back. Consequently, on September 24, 1805, it found itself in debt to the amount of 61,000,000 francs in notes and 7,000,000 francs for open accounts—both items of liabilities payable on sight, with only 782,000 francs in specie to discharge these obligations. The conditions were so grave that the Bank, for the moment, considered whether it ought not to discontinue its service. Throngs of note-holders crowded at the wickets, and the irritation and defiance displayed by the mob were heightened by the clumsy measures of the management. The Bank had no more coin, but it had a solid basis of commercial paper and Government bonds, besides good credit. It utilized this credit to buy up specie wherever it could be procured, noteworthy in Spain, and received some from the Treasury. By a policy of discrimination, exchanging notes only for those who stood in real need of coin, it succeeded in re-establishing business, and was able to resume open payments on January 26, 1806.

In this crisis, the two parties concerned were both in the wrong; on the one hand the Bank, which had not understood how to properly regulate its discounting business and its circulation; and on the other the State, which had compelled the Bank to abuse its privilege of issuing currency whilst repudiating its own share of the responsibility, and ascribing to the detective organization of the Bank errors that lay at the Government’s own door. It was the Emperor’s opinion that the evil had come about largely because the Government lacked sufficient control over the Bank. He decided to reinforce that control, and to place at the head of the institution a manager vested with power to make its administrative machine run smoothly and without structural weakness. April 22, 1806, an act was passed installing in charge of the Bank a representative of the State with the title of Governor, who was to have two colleagues styled Under-Governors. These three new officials took the place of the original Central Committee, and were clothed with very comprehensive authority. The governor was given full executive power, with the right of veto against the Regents’ Council, no decision of which could be valid without his signature; he was to have the sole right to appoint and dismiss the employees of the Bank, and he was to represent the Bank in all its concerns and in its relations with the State. Another clause provided that three of the regents should be selected from among the receivers-general, as State functionaries. The Bank bowed to the will of the Emperor, but for a long time regarded the office of governor with distaste, and repeatedly attempted, though always unsuccessfully, to have it abolished.

This Act of April 22, 1806, also augmented the capital of the Bank from forty-five to ninety millions; gave larger recompense to shareholders by providing that in addition to the six per cent. legal dividend, they should receive two-thirds of the surplus annual profits (the other third going into the reserve); and, finally, the law extended the grant to September 24, 1843. All the clauses of the original regulations and of the Act of the 24th Germinal, Year XI, which did not conflict with these new arrangements, were retained without alteration.

PROVINCIAL BRANCHES CREATED.

After this troublous period, whose causes and results we have briefly considered, followed a time of calm, during which the Bank fixed definitely its status in the country. It established three branches—in Lille, Rouen, and Lyons—and rendered numerous services to the Treasury by making large advances on the obligations of the receivers-general. In 1810, notwithstanding the highly satisfactory political situation of France, and the pledge of peace seemingly vouchsafed by the marriage of Napoleon to an archduchess of Austria, the aspects of commerce were far from brilliant. The Continental blockade was so burdensome to trade that Napoleon had to institute expedients for relief by a system of licenses, and by going to the aid of certain embarrassed houses with the funds of the extraordinary Government demesnes. Such improvised methods, besides being inefficient, could not last long. By the end of 1810, France was in the throes of the crisis. The Bank had discounted 840,000,000 francs of paper, 800,000,000 of which was commercial paper. At the same time, the bank-note circulation had increased and the collections had decreased. The Bank, unwilling to raise the discount rate, refused all paper having longer than seventy days to run. Soon afterward, confidence returned, and as demands decreased the Bank rescinded the restrictions. During this stress the Emperor had been impressed by the services which the Bank was able to render. He resolved to require its management to cultivate their concession on a larger scale, and requested them to establish offices generally in the large business and manufacturing towns, his ultimate design being to bring about through such a system a reduction of the discount rate, which he desired should be uniformly adjusted at four per cent. The Bank showed a disposition to accept and even to claim the privilege of starting branches in localities which promised advantageous results, but exhibited a lively repugnance against operations in cities where conditions were likely to prove unfavorable. It took refuge behind the Act of the 24th Germinal of the year XI, providing for the creation of independent local banks. This reluctance of the Bank was well justified. At that early period, it lacked both experience and means to direct a considerable number of branches, having conducted only the three already mentioned; and these three, moreover, had been run at a loss. Tired of controversy, Napoleon authorized the foundation of several local banks, which played a modest though useful and honorable part.

ATTEMPTED REFORMS.

The last years of the Empire, signalized by terrible military disasters, rolled by amid public ruin. The Bank once more found it impossible to redeem its currency when presented, but its credit had enlarged and, relatively, its troubles hardly attracted notice, public attention being engrossed by the colossal political events.

After the fall of Napoleon the management of the Bank sought to have amendments made in certain legal provisions which they regarded as unjust and oppressive. Its grievances were threefold; touching, first, the exacting Government supervision; second, the excessive capital and reserve; and third, the compulsory maintenance of branch offices. Demands were made for the abolishment of the office of governor, for authority to reduce the capital to 67,900,000 francs (to which amount it had already been tentatively brought by buying up 22,100 shares), for permission to distribute amongst the shareholders a part of the reserve, and lastly for discontinuance of the branch offices at Lille, Rouen, and Lyons. The Government declined to do away with the governor’s office, but tolerated the reduction of the capital, approved the desired distribution of a portion of the reserve, and consented to the terminating of the branches.

SERVICES OF THE BANK TO THE STATE.

Although the Bank of France, as a creation of the Empire, naturally invited some suspicion from the Government of the Restoration, Louis XVIII. made several calls upon it and obtained important services. Liquidation of the obligations of the Imperial régime had occasioned a heavy public debt. As questions were raised concerning the solvency of the French Government, and the probable regularity of interest payments, the Minister of Finance, Count Corvetto, assigned to the Bank responsibility for the bonded indebtedness. He abandoned to it the revenues from the registry tax, the stamp duty, the “door tax,” the lottery, and the public domains, to enable it to make the interest payments; and also granted to it a bond issue of four millions income, of which the Bank might sell part or the whole, should the other resources prove inadequate. The Bank, on its part, was to pay the interest coupons on presentation, and make advances if necessary. This arrangement reassured the bondholders as to the security of their income, and contributed in a powerful manner to restore public credit. The Bank continued to discharge this function for the State from 1817 to 1827. During the early career of the Restoration, the Bank had to pass through a dangerous crisis (1818), produced by excessive speculations in the numerous Government loans. But it weathered the storm with ease, and was scarcely affected by the crisis of 1825.

REVOLUTION OF 1830—THE DISCOUNT BUREAU.

The year 1830 opened under favorable auspices. Then came the revolution that was to put an end to the Bourbon rule. This was followed by profound business complications. In view of the absolute impossibility of collecting on bills of exchange, maturities had to be extended for ten days in Paris. The Bank displayed complete devotion to the public welfare in this critical position. It extended every facility and convenience to debtors in distress, and took the first steps toward a formal programme for the relief of trade. The Government, as a means of manifesting its solicitude in a practical way, set apart 30,000,000 francs for the purpose of advances to houses in difficulties. Some loans were made direct. To the Bank, however, belongs the credit of inaugurating a device immeasurably more efficacious than this State aid. It has been pointed out that the Bank of France, according to its regulations, was debarred from discounting any paper except that maturing within three months and bearing at least three signatures. During the emergency of 1830, there was in circulation much commercial paper at longer dates and bearing only two signatures, which, consequently, could not legally pass through the Bank. The management conceived the idea of establishing, under the name of a Discount Bureau, a temporary concern which, utilizing funds to be paid in by the State out of the thirty millions voted for the relief of commerce, should discount paper that could not be accepted by the Bank of France. The Bureau was to retain all such paper until it came within the three months limit, and then indorse it so as to supply the required third signature, whereupon the Bank would accept it. Thanks to this plan, in a period of less than one year, 450 firms, giving employment to more than 80,000 workmen, were helped decisively and placed in a condition to continue in business. The Bureau was instituted only as a provisional affair, and finished its career on the 30th of September, 1832.

ESTABLISHMENT OF BRANCH BANKS.

The valuable services performed by the Bank in this memorable crisis earned for it a true popularity. Having now acquired experience in using its credit, the Bank began to recognize the advantage of enlarging its sphere, so as to become in reality the Bank of France instead of a mere bank of Paris. There were in existence several Department banks of issue, whose notes had little circulation outside their immediate territory, but which enjoyed an honorable reputation and did serviceable work, restricted, but real. Their example was encouraging to the Bank of France in its new project; so, in 1836, permission was applied for and obtained to start a branch at Reims. As the venture proved satisfactory, other branches were introduced in rapid succession. At the beginning of 1840, five were in operation. Thus was inaugurated the first step toward the absolute bank-note monopoly which prevails to-day.

EXTENSION OF THE BANK’S PRIVILEGE.

The law of April 22, 1806, had indicated September 24, 1843, as the date of expiration of the concession. Since the end of 1839, the Government had been petitioned for a renewal of the charter. The great majority manifested a favorable disposition respecting the proposal to give the institution a monopoly of note-issuing. The famous Rossi was commissioned to prepare the report on the subject to the Chamber of Peers; and he demonstrated the advantages of the contemplated monopoly in an essay whose cogency of argument has never been surpassed. He said:

On June 30, 1840, an act sanctioned by Thiers, as President of the Ministerial Council, was adopted, granting to the Bank the privilege of continuing to issue its notes until December 31, 1867, but with the condition that either the grantor or the grantee could withdraw from the agreement in 1855. The capital was officially fixed at 67,900,000 francs, and could not be increased or decreased except by legislative consent. Subordinate offices were not to be established or abolished without special decree by the Executive. All former legal provisions and regulations were retained in their integrity.

THE CRISIS OF 1847.

After these changes, nothing of special interest transpired in the course of the Bank until 1846, when there was a failure of crops in France and the neighboring countries. Grain had to be imported from Russia at a high price, and gold payment was demanded for it. The Bank of France had been supplying large sums for railroad construction, and its cash was at a low ebb, while its note circulation had expanded. To procure coin, it borrowed from Baring Brothers, of London, 25,000,000 francs, by lombarding its bonds, and bought with this amount bullion and coin at the Bank of England. Even these resources soon began to disappear, when, just at the opportune time, a most fortunate proposal was received. The Russian Government had accumulated a very considerable metallic reserve to guarantee its paper money. As this reserve yielded no interest, and in practice was not needed for the redemption of the credit-rouble, it was deemed desirable to put part of the fund into the form of an investment bearing interest. Consequently, by a ukase of March 21 and April 12, 1847, it was decreed that 30,000,000 roubles should be applied to the purchase of foreign government bonds of the highest order. Russia, necessarily, could not make a negotiation of such magnitude on the open market without occasioning an artificial advance in prices, and, consequently, she made overtures to the Bank of France, offering to buy the consols in its vaults to the amount of fifty millions. The Bank saw in this proffer a means of establishing an exchange on Russia that was non-existent, and accepted eagerly. Thanks to this lucky circumstance, the trouble, which had looked very ominous for a time, was dissipated without much difficulty.

THE REVOLUTION OF 1848, AND MORE BANK MONOPOLY.

The Bank had hardly got well out of these embarrassments when it was confronted by a new crisis, both political and financial. The Revolution of 1848, which burst forth in a manner wholly unforeseen, excited profound alarm. Holders of the Bank’s bills were seized with fear, and hastened to present them for payment. Simultaneously, demands for discounts became more and more pressing. It was manifest that the Bank could not endure this double strain, and would be obliged to come to a standstill unless the Government should make its notes legal tender. Accordingly, by a Provisional Government decree of March 24, 1848, the Bank of France and the Departmental banks were released from obligation to pay coin for their notes, and individuals and public officials were required to receive them as legal money. The currency of the Bank was not to exceed 350,000,000 francs, and that of the Departmental banks, 102,000,000 francs. The forced circulation thus accorded to the notes of the various banks of issue gave rise to grave complications. The Government was condemned on the score that it would be impossible to compel the acceptance of the paper of local banks outside their own sections of the country, and consequently that uniformity in the paper currency of the nation had become a necessity. An agreement was entered into on the part of the Government, the Bank of France, and the local banks, whereby the local banks were to consolidate with the Bank of France. The Bank of France took over the assets and liabilities of nine institutions, which were transformed into subordinate offices and designated as branches, on the plan of the branch establishments already existing. It gave to the share-owners of the local banks shares of its own stock equal in number to those that they surrendered. The capital of the Bank thus grew in consequence to 91,250,000 francs, divided into 91,250 shares of 1000 francs each. Since May 2, 1848, there has been only this one bank of issue in France, holding a complete monopoly. In the prevailing commercial distress the Government remembered the experience of 1830, and proceeded to open branch guaranty establishments in the cities where the Bank had branches, in order that paper might become discountable by providing the third signature. Several of those concerns, although designed only for temporary purposes, remain in existence to this day. Despite the troubles of the period and unjustified attacks, the Bank did valuable work, on a large scale, alike for the Government and for trade. It was instrumental in bringing out of their hiding-places large quantities of coin which had been secreted during the Revolution, and on August 6, 1850, it resumed the cashing of its notes over the counter.

SECTION II.

THE BANK UNDER THE SECOND EMPIRE.

CRISIS OF 1857—RENEWAL OF THE BANK’S CONCESSION.

THE Second Empire succeeded the Republic. In consideration of the help that had been obtained from the Bank, the Imperial Government waived the right conferred by the Act of June 30, 1840, to terminate the concession in 1855, and went so far as to pay off the State’s indebtedness to the Bank. The first years of the Empire were marked by vast development in the way of public enterprises. Immense sums were raised for the construction of railway, then in its infancy, for Government loans, and for the prosecution of the Crimean War, and the Bank supplied a goodly share of the money thus absorbed. The dwindling of its cash soon caused disquietude. Repeating its former mistakes, the Bank bought a great deal of gold and silver at high premiums. The coin thus expensively acquired was frequently withdrawn to-morrow by the seller of to-day, and so merely passed rapidly through the Bank. The Bank did not yet comprehend, or rather had not the courage to employ the only effective agency for the defence of its reserve—namely, an increase of the discount rate. Consequently it carried alone the burden of embarrassments that were not of its making. It resolved to ask the Government, by way of compensation, for a renewal of the concession ten years in advance of the date of its expiration. The request was well received by the Government, which characteristically found in this application a convenient opportunity to contract for a loan. The extension proposal was submitted to the Legislature and agreed to without serious discussion. It became law on June 9, 1857. This measure conferred real boons on the Bank. First, it was given an assured existence of thirty years, in addition to the ten years it still had to run. Second, it was granted the right to charge in excess of the six per cent. rate in its operations, if the circumstances should make such a course necessary. The Bank’s failure previously to apply that remedy had left it no other alternative in critical circumstances than the refusal of loans with somewhat remote periods of maturity, which was an intolerable inconvenience to the mercantile public. On the other hand, these advantages were purchased rather dearly. The Bank’s capital was doubled, amounting to 182,500,000 francs (at which figure it stands to-day). The price for new shares (preference subscription rights being reserved to existing shareholders) was made 1100 francs—1000 francs principal and 100 francs premium, the premium to go into the reserve. The subscription yielded 101,375,000 francs, of which 100,000,000 francs were handed over to the State for three per cent. consols, disposed of to the Bank at seventy-five, although consols of the same issue then sold in the open market at seventy-one. All profits accruing from increases of the discount rate above six per cent. were to be deducted from the surplusage intended for division amongst shareholders, and to be added to the reserve fund. The Government claimed the right to require the Bank to establish at least one branch for each Department, dating from June 30, 1867. Finally, the Treasury obtained a loan of sixty millions on terms which will be recited in another chapter. By the workings of the new rule concerning the discount rate, the Bank was able to furnish great assistance to business establishments during the terrible cataclysm of 1857, and exercised a powerful influence for the abatement of that panic.

THE BANK HELPS RAILROAD BUILDING.

In 1858 the Bank afforded valuable service to the country, adding much to the general resources and prosperity, although the facts are little known.

The railways had made heavy drains upon the hoardings of the people for original construction purposes and for the completion of their system. The public was not very well instructed about the merits of the three per cent. bonds, and subscribed for them but meagerly and at low prices. To prevent sacrifices of value on bonds which the railway companies were obliged, by the immediate need of money for continuing work, to offer at any price, the Bank guaranteed the current expenses of the companies, and undertook to negotiate the bonds on its own responsibility. By its co-operation in the matter, the Bank of France (whose prudence was understood by everybody) was instrumental in inspiring confidence among capitalists and inducing them to take the railway bonds with greater alacrity. From 1858 to 1861, the Bank sold 3,419,919 lots at figures estimated to aggregate 1,028,900,000 francs above what the railway companies could have obtained independently.

THE BANK’S TRIALS IN 1860-1864.

The Bank again had to pass through times of trial in 1860 and 1864. The annoyances of the latter year were brought about by the American Civil War and the disorganization of the cotton market. On the authority of the Act of 1857, the Bank did not hesitate to give the discount rate a wide range, according to circumstances. This caused great discontent among borrowers. The press started a controversy on the subject, alleging that the Bank, if not chargeable with deliberately bringing about financial crises for its own profit, at least made itself a party to them by its incapacity. A singular theory, which still is advanced from time to time, found considerable advocacy. It was argued that the Bank could, if willing to do so, give credit gratuitously, or almost so; that improvising its own money by manufacturing notes which have no intrinsic value, it could grant credit at one-half, one-quarter, or one-eighth per cent., or even less, and still do a magnificent business. The discussion went so far that the management of the Bank demanded a Government inquiry in relation to the credit question. The opinions of all classes were consulted in this investigation. The representatives of the Bank found no trouble in demonstrating that it had nothing to do with the causes of such disasters; that they always resulted from perfectly well indicated economic conditions; that it was not the province of a credit institution to seek to prevent them—which was beyond every power—but to help abate them and ameliorate their severe consequences as much as possible, and that the theory of gratuitous, or almost gratuitous, credit was Utopian. Another thing conclusively shown was, that the bank did not exercise, and could not safely exercise, any option of issuing paper currency except with strict regard to its coin funds; and that any attempt to arbitrarily put forth notes inconvertible into metal would plunge the nation into the pit of paper money whose depreciation knows no limit. These arguments made an impression upon the enlightened portion of the public; and the inquiry not only ended in full justice to the Bank but also proved permanently useful in spreading throughout France sound principles respecting credit. The entire movement thus counteracted was really, in its fundamentals, an assault on the Bank of France.

In 1860, when Savoy was annexed to the French Empire, there existed an institution styled the Bank of Savoy, which had the right to issue notes payable to bearer in all the cities of the State of Sardinia. The agreement of August 23, 1860, between France and Italy, included the following stipulation: “The bank established at Annecy shall continue to enjoy in Savoy those rights and privileges which have been conceded to it, on condition that it fulfills all the obligations that have been imposed upon it.” On the basis of this understanding, the Bank of Savoy, on September 6, 1860, addressed to the Emperor a petition asking for formal sanction of the rights acquired under Sardinian rule, and adding that the position of the bank had become strengthened in view of the superior importance of France as compared with Piedmont. The matter remained in abeyance. In reality, the Bank of Savoy desired consolidation with the Bank of France, on terms similar to those which had been conceded to the Departmental banks, and it hoped to bring the Bank of France to a favorable attitude by the threat of opposition. The undertaking failed, and in 1863 the Bank of Savoy resolved to increase its capital from four to forty millions. Immediately the Government Commissioner protested against the vote of the Assembly. Solution of the difficulty became urgent, and, finally, the Bank of France decided to buy up the institution for four millions. In place of the Bank of Savoy, two branches of the Bank of France were created—at Annecy and Chambéry. The last years of the Empire were particularly calm from the economic point of view, and the history of the Bank offers nothing specially noteworthy in that period. Its sphere was constantly enlarging, and now a solidity and a might were to be revealed of which the Bank itself was not conscious.

THE BANK AND THE FRANCO-GERMAN WAR.

The Franco-Prussian War broke out with suddenness on July 15, 1870. From the beginning of hostilities, coin was in great demand, partly for the requirements of the army and partly for Treasury replenishment. The discount rate, which stood at two and a half, rose in rapid stages to six per cent. Rumors were bruited about that the money-changers and bankers were shipping gold to Prussia. The populace was incensed by these reports, and compelled the Government to put a stop, by police measures, to all exportations of the precious metals. The financial journalists demanded a forced bank-note currency, to prevent the outflow of gold. These extravagances operated to check the circulation of money of every kind and to precipitate the calamity. Unfortunately, the forced currency of the journalists became reality. As a consequence of the German army’s invasion of French territory, collections on commercial paper in the occupied districts became impossible. By an Act of August 11, 1870, the time in which unpaid notes were to go to protest was extended thirty days. As this measure was not capable of merely partial application, its provisions were extended to cover the whole of France. As the Bank could no longer rely upon collections on commercial paper held to secure the redemption of its currency, it came under the régime of forced currency, which it had not asked for, but which was indispensable alike for commerce and the State. The law of August 12, 1870, discharged the Bank from the obligation to redeem its notes, and ordered that they should be accepted by citizens and in the public offices as legal tender. The maximum paper issued was fixed at 1,800,000,000 francs. Two days later this limit was raised to 2,400,000,000 francs. The German army pursued its victorious march on Paris, which was to sustain a siege. A portion of the Government of the National Defence left the capital, in order to place itself in position for keeping in communication with the country at large. The Bank deputized one of its under-governors, M. Cuvier, to manage the branches and to conduct the necessary intercourse with the Government. This latter function, it was apparent, would become extremely delicate and onerous. Before the closing up of Paris, the Bank had granted to the Treasury, independently of the permanent loan of sixty millions, a first loan of fifty millions, a second of seventy-five millions, and a third of forty millions for the savings-bank service.

The delegation of the Government of the National Defence, harassed by the most critical circumstances, needed financial help. It applied to M. Cuvier, who responded with memorable firmness: “I do not misconceive your terrible situation. I know that you require money. But consider that to-day the Bank is the only and the last resource; if you exhaust it there will be nothing left. Notwithstanding our misfortunes, the signature of the Bank of France is still honored abroad. Make use of it. Undoubtedly you will have to pay exorbitantly, but that is preferable to the ruin of the Bank.” These counsels, so full of good sense, were listened to by Gambetta with scant patience; but they appealed to the other members of the Government. The result was that a loan known as the Morgan loan was contracted in London (October 24, 1870), for 250,000,000 francs, which yielded a net amount of 204,000,000 francs. The Morgan loan was soon consumed, and the calls upon the Bank became increasingly urgent. They were accompanied, moreover, with the most violent threats. The Bank defended every foot of ground, granting only the most unavoidable demands. Yet, when the armistice was concluded, the State owed the Bank four hundred and seventy-five millions. Then it was realized how characterized by foresight and profound patriotism M. Cuvier’s resistance had been. All the resources of France had been paralyzed. Taxes were forthcoming from only half the country. The public needs were distressing. Yet the Bank had satisfied all, placing at the disposal of the nation fifteen hundred and thirty millions, without failing for one moment in its special duty to succor and sustain trade. It emerged, with credit intact, from the most formidable test that any institution of its kind had ever been forced to endure. The resolution displayed by M. Cuvier in his dealings with the Government of the National Defence was well matched by the vigor with which his colleague, the Marquis de Ploeüc, maintained his position against the Commune in Paris.

THE BANK AND THE COMMUNE.

On March 18, 1871, the Bank was left isolated and without any means of protection amidst the most desperate insurrection of history. It had in its vaults in bonds and cash, more than three milliards (3,000,000,000) belonging to the public. Everything was to be feared from an unrestrainable mob, given over to the worst passions. The Marquis de Ploeüc took a bold stand in this emergency. The attachés of the Bank, who had been organized in accordance with military discipline during the siege of Paris, kept guard night and day, with absolute devotion, over the institution and the wealth confided to its honor. It is just to mention that relations of some satisfactoriness between the Bank and the Commune were singularly facilitated by the course of one Citizen Beslay, whom the Commune had placed at the Bank as its representative. This Beslay, an erratic and visionary individual, but an honest man, foresaw the fearful consequences of a pillage of the Bank, and opposed himself energetically to all the attempts that the Commune made to introduce its men into the establishment. The Communistic Government, which was without resources, extracted from the Bank several millions, and used the money to provide for its pressing wants. It comprehended that if the Bank should be emptied there would be no funds obtainable to feed the insurrectionary hordes, which would thereupon hold its leaders responsible for their distress. Accordingly, the Bank was spared. The withdrawals made by the Commune aggregate, in round numbers, only seventeen millions.

The period whose history we have briefly traced was the culminating stage of the career of the Bank of France. Never before, in any country, had there been afforded a like example of an institution exercising such power, inspiring such implicit confidence, contributing so decisively to the recovery of a people that seemed crushed, performing more than its duty with impressive grandeur and simplicity. “The Bank,” said M. Thiers, in a memorable speech, “has saved the country because it is not a State bank.” This remark was eminently true. In that supreme struggle a State bank would not have been able to resist the exactions of the Government, and its credit would have become confused with the credit of the State. When the Bank of France issued notes secured by Treasury obligations, it added its own guaranty to that of the State, and the paper circulated consequently at par. If the Bank and the Government had been one and the same, the Bank’s signature would have been no reinforcement of the State’s, and the paper intended to have been taken on trust would have been valued at just what the State’s credit was worth. The experience gained by the Bank of France in 1870 and 1871 is conclusive demonstration of the absolute necessity of assigning the responsibility for issuing paper money to independent institutions, subject to such conditions of supervision and regulation as should incontestably be administered by the Government. This experience has not been without important practical results. On the occasion of the latest renewal of the concession of the German Imperial Bank, it was especially invoked by the German Government. The French may rightly take pride in that signal display of appreciation by their former foes for their chief financial institution.

CALM AND RECUPERATION—THEN SPECULATION AND CRISIS.

After the Bank had recovered from the awful shock, it entered upon another era of calm, during which it reorganized its cash reserve and made preparations to put an end to the forced currency—preparations that were brought to final success on January 1, 1878. Meantime, the Bank completed its network of branches by introducing sub-offices in all Departments not already provided. This tranquil era lasted until 1882.

In consequence of the great accumulations of capital during that period of relative quiet, speculation became rife. It was at first particularly directed toward the values of insurance companies; but in that narrow market exhaustion was soon reached and another field had to be sought. Innumerable credit societies were founded. The most conspicuous was the Union Générale, which made ultra-religious pretensions and found most willing clients among the Catholics. Managed with extreme boldness, it established branches everywhere, and quickly became the central attraction of the market. All values rose with astounding rapidity, and France was brought back to the memories of Law’s bank. The first symptoms of the collapse manifested themselves toward the end of 1881. In the beginning of January, 1882, the unchanged market showed signs of reaction, and the highly feverish conditions became plainly apparent. Nevertheless, the public retained its illusions until February. On the first day of that month the directors of the Union Générale were arrested, and on the next the institution failed. Panic took the place of confidence, everything depreciated, the majority of the banks were shaken, and the animation of the previous years was replaced by absolute torpor. The Bank of France, faithful to its traditions, came to the rescue of the cities where ruin was imminent. In Paris, it advanced eighty millions, and in Lyons one hundred millions, enabling the business public to meet their obligations.

THE BANK AND THE COPPER “CORNER.”

It was not until the spring of 1889 that the next notable episode occurred in the history of the Bank. In 1888 a financier had conceived the project of “cornering” the copper market. He had concluded contracts with the principal mines of the world, by which they had engaged to limit their production in consideration of his agreement to buy their total output. This speculation was similar to the one undertaken in relation to cotton, 1836-39, by Biddle, Director of the Bank of the United States, which brought about the destruction of that institution. An old and honorable Paris banking house, the Comptoir d’Escompte, supplied the funds necessary for the operations by discounting copper warrants. The prices of the metal rose swiftly, but the mines that were not interested in the contract, and those that had suspended work on account of unremunerativeness, took advantage of the new state of affairs and threw large quantities of copper on the market. This led to a decline in prices. The Comptoir d’Escompte, deeply involved in the enterprise because of the warrants that it held and the direct advances made, found itself seriously menaced. Its chief, M. Denfort Rocherau, appalled by his responsibilities, killed himself. At once panic seized the numerous depositors of the Comptoir d’Escompte, and they rushed to withdraw their deposits. The assets of the bank were of a solid kind, but they could not be converted into cash, and no one knew their amount. Refusal of payments to depositors would have caused the greatest misfortunes and paralyzed the business of Paris. The Minister of Finance recognized the danger, and called on the Bank of France for aid; whereupon the Bank consented to make an advance of two hundred millions upon the guaranty of the principal banking and credit establishments of Paris. The conditions of this arrangement provided for repayment of deposits and for taking the assets and realizing on them to the best advantage. A precipitate liquidation would have seriously compromised matters. Finally, the Comptoir d’Escompte was put in position to pay all its creditors, and even to return to its shareholders part of their capital.

For the valuable and discreet services thus volunteered and executed by the Bank, due gratitude was publicly manifested. The various Chambers of Commerce voted thanks to the Bank; and the Government, in 1889, seconding the expressions of public appreciation, announced that it would proceed to consider the subject of extending the Bank’s concession, which was to expire on the 31st of December, 1897. After a rather protracted delay, a bill was brought in by the Government continuing the privileges of the Bank to December 31, 1920. For this solitary advantage, the Bank was to pay to the State a rental, or “gratification,” of 1,700,000 francs per annum, which was to be increased in 1898 to 2,500,000 francs; was to place at the Treasury’s disposal, without interest, the sum of 180,000,000 francs; was to perform, free of charge, all that the State might require in the way of handling its funds; was to give its services (likewise without charge) in disposing of all issues of Government consols; and was finally to establish new and additional branches. The Bank accepted all these terms, which were made still more exacting by the commission charged with the duty of reviewing the proposed contract. At last, June 21, 1892, the measure came up for discussion in the Chamber of Deputies. There, it was violently attacked by the Socialist orators, who especially found the specified yearly rental to be inadequate. They demanded the instituting of a State bank, which should vouchsafe credit free, or substantially free.

Amid the plaudits of the majority of the Chamber, M. Bardeau (who had charge of the bill), supported by M. Léon Say, demonstrated that the burdens imposed upon the Bank by the plan under debate represented the maximum of what could be reasonably asked, and went as far toward the Utopia of a gratuitous or almost gratuitous credit as could be tolerated. The general debate lasted until July 6, 1892. On that day it was interrupted, and ever since the measure has remained in abeyance, neither the Chamber nor the Government showing any indication to take it up anew. Meantime, the Bank has not suffered itself to become enfeebled in view of the uncertainties of the morrow, and has pursued the even tenor of its way, developing steadily its service and its strength. Even in the event that a State bank should take its place, it will remain none the less the oldest credit establishment in France, and will continue, with its deposits and its cheques, the work that it has known so well how to perform with its currency during nearly a century, to the great advantage of the country.

SECTION III.

ADMINISTRATIVE ORGANIZATION OF THE BANK.

IN our historical survey of the Bank of France we have made incidental reference to its organization; that feature of the institution, however, demands more detailed treatment.

The Bank is a private institution, whose capital is contributed by shareholders. The capital consists of 182,500 shares, of a par value of 1000 francs each. Taking into account its reserve fund and real estate, each share has an intrinsic value of about 2000 francs. The shares are registered in the names of certain individuals, who acquire proprietary title by transfer on the books of the Bank. Shares may be applied for pupillary investments (i. e., for minors and orphans), for investment in behalf of persons under guardianship, for the benefit of married women under separate dowry arrangements, and may even receive the qualifications of real estate. Dividends are payable semi-annually. The shareholders are formally represented by a body consisting of the two hundred largest owners of shares, all of whom must be French citizens, and be registered in the shareholders’ lists for upwards of six months. This body constitutes a General Assembly, which meets in Paris annually on the last Thursday of January. Each shareholder has only one vote, regardless of the number of shares he possesses. Every person belonging to the General Assembly must appear and vote individually, without proxy privileges. Women are not admitted to these privileges. The Assembly listens to the report of the operations for the year, and selects the regents and censors.

REGENTS AND CENSORS.

There are fifteen regents and three censors. Five regents and all the censors are from the manufacturing and commercial classes, and three of the regents must be chosen from among the officials of the Treasury General Disbursement office. The regents are elected for five years, the censors for three years. Both may be re-elected at the expiration of their terms of office. Each of the regents and censors must own not less than thirty shares, which are non-transferable during their official incumbency. They receive no remuneration, aside from vouchers certifying their attendance, which entitle each of them to twenty-four francs.

GOVERNOR AND SUB-GOVERNORS.

The general direction of all the affairs of the Bank is intrusted to a governor and two assistants called under-governors. The governor and under-governors are appointed by the chief of the State. Before assuming his functions the governor must prove his possession of one hundred shares, and each under-governor must verify in fifty shares. They take their oath of office from the President of the Republic, swearing that they will direct the affairs of the Bank well and faithfully, according to the laws and regulations of the institution. The governor has a yearly salary of 60,000 francs; the under-governors 30,000 francs each. These salaries are paid by the Bank, which also provides residences and their furnishings. The governor and under-governors are prohibited from presenting for discount at the Bank any paper belonging to them or bearing their signatures. No paper can be discounted unless approved by the governor. He also appoints and dismisses the employees; has the sole power to sign drafts in the name of the Bank; signs contracts and correspondence; and appears in behalf of the regents in all matters at law against or for the Bank.

THE GENERAL COUNCIL.

The General Council is composed of the governor, the under-governors, the regents, and the censors, the governor being the presiding officer. The governor, under-governors, and regents have authority to vote on all questions; the censors, acting as comptrollers of the Bank, have only advisory votes. The General Council has regular meetings every Thursday. It receives information respecting all the affairs of the Bank; investigates all departments of the establishment; decides upon agreements and contracts; determines questions concerning the issuance or withdrawal of bank notes; fixes the rate of discount, and annually votes the budget of the Bank and submits the required statement to the shareholders. No action of the General Council can be put into effect unless bearing the governor’s signature. No question can be put to vote unless ten members of the Council having full voting power, together with one censor, are present. All proposed issues of paper money must be with the approval of the censors. The censors have the right to call extraordinary meetings of the General Assembly of the shareholders; but such calls can only take effect when approved by the regents. Other rights and duties of the censors are to make any proposals which they deem useful for the interests of the Bank, to watch over the execution of the laws and regulations, and to give an account of such supervision to the General Assembly.

COMMITTEES.

The fifteen regents and three censors are constituted into seven committees to exercise the details of supervision over the transactions of the Bank, as follows: Discount Committee, Bank-note Committee, Committee on Books and Commercial Paper, Cash Committee, Committee on Relations with the Public Treasury, Committee on Branch Establishments, and Committee on Verification of Bond Deposits. The Discount Committee is changed every fortnight, the Cash Committee each month. All the other committees are reorganized at the end of six months by a process of rotation among the regents. The censors participate in the proceedings of the committees on bank notes and on books and commercial paper.

DISCOUNT COUNCIL.

In order to pass upon the merits of paper presented for discount, there is a Discount Council of twelve members, selected from among the merchants of Paris. They are nominated for a term of three years, by the censors, from a list of thirty-six presented by the regents. These twelve members are, each in his turn, designated to serve in connection with the Discount Committee, wherein they have deliberative votes. Their office is unsalaried, except that each member receives a fee of twenty-four francs for attendance at meetings. No one can be eligible to membership unless he owns ten shares in the Bank, which he cannot sell during his tenure of office.

BRANCH BANKS AND SUBSIDIARY OFFICES.

The Bank, in compliance with the provisions of the Act of June 9, 1857, possesses at least one branch in every Department of France. Besides its branches, the Bank has, on its own initiative, created subsidiary offices in towns where it would prove too costly to operate regular branches. These subsidiary offices serve the same purposes as the branches, whereto they are simply attachments. In certain towns, where the Bank maintains neither branches nor subsidiary establishments, it conducts “collection bureaus,” dependent upon the nearest branches or subsidiary offices. The collection bureaus are intended for the discounting of paper in the town in question, and are open each fifth day. The towns to which such accommodations are furnished are called “attached towns.” When the collection bureau does business for several towns jointly, the latter are styled “associated towns.” The branches are under the immediate direction of the Bank, and may be regarded as duplicates of the Bank in miniature. Their accounts are consolidated with those of the Bank, their budget is fixed by the General Council, and their staff is appointed and subject to removal by the governor. Their transactions are identical with those of the Bank of France. The director of each branch is designated by decree by the President of the Republic, upon the report of the Minister of Finance, from a list of three candidates nominated to the President by the governor of the Bank. Every director must verify in fifteen shares of the Bank, which cannot be transferred while he remains in office. The director carries out the decisions of the General Council, and acts in accordance with instructions received from the governor. He signs the correspondence of the branch and its other instruments, and he appears in court proceedings in the name of the regents at the request of the governor. The director is assisted by an Administrative Council, composed of six members at least and twelve at most, besides three censors. The administrators are nominated by the governor from a list of double the number presented by the regents. The censors are appointed by the regents. The duration of office of administrators and censors is three years, and they may be re-elected. They have no salary, but are paid twelve francs apiece for each attendance. Each administrator and censor must own four shares of the Bank. The director, administrators, and censors form a Council of Administration, in which the director is the presiding officer. This council keeps under supervision all the departments of the branch, proposes the annual budget of expenses, and sees to the execution of the laws and regulations. No paper can be discounted except on the recommendation of the administrators and the approval of the director. The council meets twice a month, and receives reports concerning all the business of the branch. Its doings cannot become of effect unless signed by the director. The administrators form three committees, namely, the Cash Committee, the Committee on Books and Commercial Paper, and the Discount Committee. The Minister of Finance may instruct the Inspectors of the Finances to verify matters in connection with the branches.

The subsidiary offices, which have been established without express statutory provisions, have a most simple organization. Each is directed by a chief of the subsidiary office, assisted by a cash clerk. These agents are appointed by the governor, and are placed under the immediate authority of the director of the branch of which the subsidiary office is a dependency. All paper presented for discount at a subsidiary office is at once forwarded to the corresponding branch, which throws out whatever is to be rejected. Such is the administrative machinery of the Bank of France. It should be added that all cases of violations of the laws and regulations applying to the Bank, and cases of dispute between the Bank management and its staff, are subject to the decision of the Council of State.

STAFF OF THE BANK.

The staff of the Bank, appointed by the governor, consists, so far as the main establishment in Paris is concerned, of four principal chiefs—a secretary-general, comptroller-general, chief cashier and secretary of the General Council; to whose number are added the chief individuals intrusted with the management of the different offices. These various heads of departments have under their authority assistants, besides chief clerks and accountants of four classes, graded according to salary. The Bank also employs a large number of collection messengers, cash messengers, office factotums, guards, porters, and men and women workpeople engaged in the manufacture and handling of the bank notes and the cash and other property on deposit.

In the branches of the Bank the staff embraces a director, cashier, bookkeeper, clerks and messenger, according to the requirements of the service. The branches are under the supervision of inspectors chosen from the staff. The regular staff of both Bank and branches is recruited, principally in a competitive way, from candidates not younger than nineteen nor older than thirty. Those who have successfully stood the examinations are appointed to vacancies according to merit. Each employee is entitled, after thirty years of service, to a pension equivalent to one-half the salary received during the last three years of service, which reverts to his widow or minor children. The pension service is provided for partly by a reserve of two per cent. deducted from salaries, and partly by the liberality of the Bank.

SECTION IV.

OPERATIONS OF THE BANK.

OPEN ACCOUNTS.

THE operations of the Bank have a quality of extreme simplicity. They may be stated under two heads; services obtainable by certain persons only, and services available for the public at large. The Bank receives, on open account, without interest, such sums as may be paid in by individuals and private or public establishments. Certain of these accounts entitle the Bank’s clients to the privilege of discounting paper; others allow nothing more than the depositing of funds and incidental conveniences. The deposits on open account are not subject to “stoppage of payment.” The Bank inquires respecting the solvency and reputation of everyone wishing to open an account. It requires that an application be addressed to the governor, which must be accompanied with the signatures of three known persons, from whom its representatives thereupon seek information. If the inquiry proves satisfactory, the petition is submitted to the General Council, which rejects the application or pronounces the account open. No minimum deposit or minimum balance is exacted. With the opening of the account, privileges are conceded as follows: Funds deposited in the Bank may be drawn upon by drafts or cheques payable in Paris, or at the branches or subsidiary offices. The service of cheques and drafts from place to place is free, if they are intended to transfer money on which the Bank has already charged a commission, and if they are drawn within five days after such profitable transaction by the Bank. Otherwise a commission of .05 per cent. is charged, with a minimum of fifty centimes. The next privileges are to make notes and acceptances payable at the Bank; to pay by cheques or transfers for notes presented by the Bank messengers at maturity; to be credited for transfer vouchers obtained from other accounts or even from third parties having no open accounts; to be credited with advances on stocks, etc.; with dividends on stocks deposited at the Bank, and with dividends on the Bank’s shares, and to have paper collected or discounted. The following is a statement of the open accounts of the Bank in each of a series of years from 1810 to 1894, inclusive:

OPEN DISCOUNT ACCOUNTS.

In addition, the Bank opens current discount accounts, for persons who do not reside in localities having a branch or subsidiary office. These accounts are operated like the regular ones above described, excepting that all transactions are made by correspondence. The holders of open accounts having the privilege of discount may present commercial paper, merchandise warrants, and cheques on cities where the Bank has branches or subsidiary offices, and on “attached towns”; but in the case of “attached towns” only paper maturing on the 5th, 10th, 15th, 20th, or last day of the month is admitted. Notes and warrants must not have more than three months to run; the former must bear three signatures, the latter, two at least. The rate of discount is uniform for all paper and at all places. It is charged for a minimum of five days’ interest for paper drawn on Paris and the branch towns, and eight days’ for paper payable at places other than the place of presentation. The following are the statistics of the Bank’s discount operations for each year of the eighteen enumerated, extending from 1810 to 1894:

The discount rate of the Bank of France has been distinguished from that of all other great banks by its stability and moderateness. The following comparison shows its fluctuations during the past ten years:

Account-holders may deliver to the Bank for collection paper of any description which has no more than five days to run, and have its proceeds placed to their credit after the deduction of a slight commission. For many years the Bank performed this service free, but the business in connection with it developed to such an extent as to be burdensome, and so it was needful to institute a certain collection rate. Since the beginning of the year 1895, it has permitted the opening of deposit accounts, without investigation, by all persons making requests in writing. Such deposit accounts are treated the same as the ordinary open accounts, with the exceptions that they cannot be used for transfers, and that the amounts carried to the credit of depositors become liable to the stoppage-of-payments clause. The rule prohibiting transfers (from one account to another) has for its object to distinguish deposit accounts from open accounts, and to bring the former within the pale of the common law. If the legal provision making open accounts non-seizable should be abrogated, the Bank would have no further reason to retain the restrictions that it has been obliged to adopt.

LOANS AGAINST COLLATERAL SECURITY.

The Bank makes advances upon stocks free of commission. The only formality upon which loans depend is that the applicant’s signature must be certified to by a person of known standing. The properties recognized as legitimate guarantys for advances are determined upon by the General Council; but its determinations must be approved by a decree of the President of the Republic. Advances are allowable only on certain French properties, or such as are of a dependent nature—for example, the Tunis bonds. The rates of advance to deposited security vary according to the character of the bonds. etc., amounting to eighty per cent. for State funds and seventy-five per cent. for Department bonds or for municipal or Chamber of Commerce obligations. Railway bonds and shares are pledgeable for sixty per cent. in cases where they earn income. All the percentages, however, depend upon the current quotations. The minimum loan is 250 francs, and no loans are made for less than a fortnight or longer than three months. At the expiration of three months, the loan can be renewed by simply paying interest, and the process may be repeated indefinitely. The rate for loans is higher than that for discounts, ranging from one-half to one per cent. higher. This is to prevent borrowers from speculating on the difference between the rate of the Bank of France and the exchange reports. The Bank keeps and gratuitously looks after the securities which it holds against loans. It opens special accounts for advances without any formality except written request. When these accounts show a credit in favor of the individuals, they may draw on them by transfer and cheque; they may repay the loans at any time, but a minimum interest of five days is charged on all sums advanced. The provisions as to character of securities acceptable and rates of valuation allowed are the same as in the cases of simple loans. While the Bank undertakes to keep and take charge of stocks gratuitously, accounts that have not previously been profitable to the institution are required to pay for such service.

The statement following shows the yearly amounts of the loans of the Bank, excluding those to the State, for a series of years extending from 1835 to 1894:

MISCELLANEOUS FUNCTIONS OF THE BANK.

In Paris and at several of its branches the Bank gives advances on foreign moneys and on gold and silver bullion at the rate of one per cent. annually. The minimum term of such loans is for thirty-six days, with interest, which is at once deducted from the sum advanced. Loans may be continued beyond that period, but after the thirty-six days interest is due only per diem. The smallest loan given is 10,000 francs. These loans on bullion and money constitute a rather important item in the transactions of the Bank.

The Bank receives on free deposit values of every nature, charging trust fees. Stocks and like instruments are received at the windows of the Bank and all its branches and subsidiary offices, but are retained for safe-keeping only at Paris, Bordeaux, Lille, or Marseilles, these being the only cities that have a system of safes adapted for the purpose. The depositor is given a receipt for each delivery. Deposit receipts are not transferable by indorsement.

The Bank collects the dividends and interest coupons on the instruments on deposit. The accrued income is credited to the account of the owner; it may be paid to him at any branch or subsidiary office, and may even be mailed to him. The Bank also cares for collections of income on foreign bonds deposited at Paris; undertakes to collect bonds called in; makes payments on assessed stocks; exchanges stock certificates, and attends to stamping formalities on securities.

Agreeably to an arrangement with the Russian Government, any holder of Russian public funds may deposit them without charge at the Bank, and the certificates of such deposit will be valid for the value of the stocks represented. This arrangement is designed to neutralize the inconvenience resulting from Russian laws on the subject of lost or stolen negotiable property. The Bank also engages to sell and purchase stocks on ’Change for cash, or on the security of a deposit of stocks, or on a margin.

The Bank receives coin on deposit from any person, and gives a receipt payable on presentation, but not transferable by indorsement, the coin being returnable only to the depositor individually or to the person holding his power of attorney. It also receives in trust diamonds, and accepts in transit packages of the precious metals coming from abroad, which it surrenders to the consignees on bills of lading. At Paris, at the branches, and at the subsidiary offices, bills of exchange to order are signed, which the Bank sells at a commission of five centimes per 100 francs to those who wish to make transfers of accounts to towns having affiliated establishments. Finally, it buys and sells the precious metals. All transactions not authorized by the laws and regulations are prohibited.

SECTION V.

RELATIONS BETWEEN THE BANK AND THE STATE.

OBLIGATIONS TO THE STATE.

THE Bank is required to issue paper money; it is its duty to keep such issues under constant control, and it must see that the privilege is not abused. These general provisions are thoroughly recognized, but the means of safeguarding them vary. So far as the administration of the institution of the Bank of France is concerned, the State contents itself with reserving the right to appoint the governor and under-governors. The governor, by refusing to sign decisions of the General Council, can prevent their taking effect. This is a practical veto power. He cannot make decisions, but can unmake them. The same result could be obtained if the Government should name the censors and confer on them the right of veto, leaving the shareholders, or rather the regents, free to select at pleasure the persons charged with the executive management. The adoption of this alternative plan was urged by the Bank upon the Government from 1814 to 1820. However, the various factors interested in a wise direction of the Bank have been pretty evenly balanced up to the present time; and, although the State’s influence has occasionally appeared to be unduly predominant, neither injury nor abuse has resulted.

THE TREASURY ACCOUNT OF THE BANK.

Aside from the function of control, the State’s relations with the Bank are not different from those of individuals. The Bank carries an open account with the Treasury, which is in nowise distinguishable in form from the ordinary open accounts of merchants. The Treasury pays into the Bank the funds at its disposal and draws against them as required. The Bank, without charge, receives at its branches State funds, and transfers them to such places as the Minister of Finance may indicate. Lately, all these transactions have been performed gratuitously.

Besides its account current, the Treasury, by a contract of the date June 10, 1857, which is a quasi-adjunct of the act renewing the Bank’s charter, reserves to itself a permanent loan of 60,000,000 francs. The mechanism of that particular loan is rather complicated, and we will explain it somewhat in detail. The Treasury has an open credit of 60,000,000 francs, which it can use at its convenience, in whole or in part, and at any times desired. The Bank holds security for the loan in the shape of vouchers. The rate of interest on that loan is based on the rate for commercial paper, but must not be in excess of three per cent. The Treasury, consequently, enjoys the benefit of all reductions of discount below the three per cent. rate. Moreover, the Treasury’s current discount is regulated by the showing of its credit balance, under the arrangement that, if the Treasury’s credit at the Bank exceeds, or is equal to the advances made by the Bank, the Treasury owes no interest; otherwise, it owes interest on the difference. In 1878, the original loan of 60,000,000 francs was increased by 80,000,000 francs, so that the Treasury has a credit of 140,000,000 francs at its disposal, under conditions that will be explained. The amounts drawn from the additional eighty millions are liable to a maximum interest rate of one per cent. per annum. In order to clear up whatever may be obscure in the foregoing, let us suppose that, on a certain date, the loan account shows a debit of 140,000,000 francs and the current account a credit of 220,000,000 francs; in that case, the Treasury would owe no interest. On the other hand, suppose that, on some other date, there is a loan account debit of 140,000,000 francs and a current account credit of 60,000,000 francs, then the Treasury would owe interest, but only at the rate of one per cent. for the difference of 80,000,000 francs, since the original loan of 60,000,000 francs has not been encroached upon at all. If, however, the Treasury’s debit on its loan account should be 140,000,000 francs, and its credit on its current account only 50,000,000 francs, the difference of 90,000,000 francs would be subdivided into two categories for interest purposes, 80,000,000 francs being chargeable with one per cent. interest and 10,000,000 francs (on account of the original item of 60,000,000 francs credit) with the current interest rate of commercial paper, not to exceed three per cent.

It is probable that when the Bank’s concession is renewed the interest on the 140,000,000 francs will be stopped. This will involve but slight sacrifice for the Bank; for, with the system of compensation as adopted, the interest paid by the State, in the aggregate, is quite insignificant.

CONTRACTS BETWEEN THE TREASURY AND BANK.

The Bank is obliged to render to the State all services which may reasonably be demanded of it. These services, running through the entire period of the Bank’s existence, have been innumerable, and nearly all of them have led to special agreements or contracts. In general, such understandings have been in relation to discounts of Treasury vouchers or loans for more or less extended periods. The proposals of the Government are submitted to the General Council, which accepts them with such modifications as are deemed proper. The most important of all the contracts thus entered into was the one of July 3, 1871, establishing the method of reimbursement for the advances allowed during the war and the insurrection of the Commune. The open credits amounted to 1,530,000,000 francs. They were canceled by annual payments of 200,000,000 francs, interest being fixed at one per cent. Up to the present, the Bank has never been subjected to the necessity of sharing profits with the State or paying a royalty for its concession. Former governments have always taken the position that the privilege of issuing notes was not granted to the Bank in its own interest, but for the advantage of commerce and the State, and that ample recompense for the monopoly was afforded by the undivided responsibility of the privileged institution and the valuable services which it is required to render.

TAXATION OF THE BANK.

The Bank is liable to all taxes that are imposed upon ordinary banking institutions or houses; but it pays no others, unless the stamp duty on the note circulation be considered a special tax. That duty is calculated in the following manner: Each year the Bank determines the average daily amount of its productive transactions (discounts, loans, etc.). The share of average circulation corresponding to the productive operations is taxed at the rate of fifty centimes for each 1000 francs; on all above that figure the tax is only twenty centimes per 1000. The yearly payments of taxes by the Bank, from 1860 to 1894, have been as follows:

SECTION VI.

ADMINISTRATION OF THE CASH FUND AND THE CIRCULATION.

BASIS OF NOTE ISSUES.

A BANK of issue, whatever its functions, has for its first duty the regulation of the paper and coin circulations—the maintenance of the two on a footing of perfect equality. The Bank of France maintains such an equality by a very simple process. It issues notes only as equivalents for commercial paper, or loans on securities or on gold or silver. It is careful in accepting the commercial paper offered, which must be hedged about by all kinds of guarantees; so that it has only small losses to apprehend on this account. Consequently, if the Bank should cease to exist, the liquidation of its affairs could be effected within three months at the outside. It would begin by redeeming its notes with the coin in its vaults; then the commercial paper falling due daily would provide for the redemption of notes issued on the strength of such resources, and, finally, at the end of three months, the supply of coin and the supply of commercial paper would be exhausted, so that not a single bank note would remain in circulation. Of course, it will be answered that, while this is the theory, things would work differently in practice—that, for instance, the signers of commercial paper would not pay at maturity. That case has been foreseen, and in order to provide for such an eventuality, the Bank possesses a capital and a reserve. The capital of the Bank is not carried in the business in cash. It consists of consols. This plan has often been criticised; but it is rational enough. The Bank operates by the means of its notes, which constitute a loan, without interest, given to those who accept them. The security offered is the value of what the Bank has received in exchange for the notes; if that security is sound, the bills are good; but if bad, the Bank must suffer the consequences of its lack of discernment and pay its bills out of its private resources—i. e., by drawing at first upon its reserves and then upon its capital. In this order of things, the capital and reserve are to be regarded as a mere guaranty, and it is but natural to place them in the form of consols, which is the mode of procedure used everywhere in the investment of guaranty funds.

MECHANISM OF THE DOUBLE STANDARD.

The capital and the reserves constitute, in a manner, the invisible security for the bank notes; but the visible security is the coin of the Bank in the first place, and the stock of commercial paper in the second place. The hard cash of the Bank comprises the coin paid in against notes, coin collected on commercial paper, and purchases of gold, which purchases are always effected at par, or at less. The Bank’s coin consists of both gold and silver, which are received by the Bank on precisely the same footing, and serve equally well for payments. Silver is preserved on an exact par with gold in French circulation, and four five-franc silver pieces may be exchanged at any time for a twenty-franc gold piece, notwithstanding the considerable decline in the market value of silver bullion. This phenomenon is easily explained. The quantity of silver in existence in France does not increase, because, since 1878, the coining of silver has been suspended entirely. Thus the actual supply of five-franc silver pieces—which M. Foville estimates at the probable maximum of two milliards (2,000,000,000) of francs—cannot increase, but can only be diminished, in consequence of use and loss, and also in view of the contingency that the Latin Union may be dissolved by giving back to Belgium and Italy their silver coins. These two milliards of silver money are really in excess of the country’s needs. What is not required by the people flows back into the Bank, whose balances show an almost uniform amount of twelve hundred to thirteen hundred millions of silver. It is impossible that the country, with such a disbursing institution as the Bank of France at its service, can ever suffer from either an excessive or an insufficient silver circulation. Silver money has its fixed place in the economy of the country, and although its intrinsic value is at the very best only half its conventional value, it certainly would acquire a premium if it should become disproportionately scarce; in other words, one would, in that event, be obliged to give one twenty-france gold piece and some centimes for four five-franc silver coins. It is really impossible to do without the five-franc silver piece, which is the preferred coin of the country-folk; and neither the five-franc gold piece, which is too light, nor the five-franc bank bill, which is too perishable, could supplant it. Thanks to the limitation which has been placed upon the coinage of silver, and to the protection which the Bank thus enjoys against an over-supply, the silver money easily preserves its standard value. The ability to freely use silver at par relieves the Bank from the necessity of raising its discount rate, as the Bank of England does, when a demand for gold is manifested abroad. As it has the option of redeeming its notes and settling its standing accounts in five-franc silver pieces, it simply exacts a premium for the delivery of gold. Persons who desire to make a profit on gold are the only ones who have to pay in such instances; whereas an increase of the discount rate would affect merchants whose transactions are in notes or credits, the same as bullion-dealers who derive advantage from exportation. This practice of the Bank’s, to be sure, has something arbitrary about it, which is rather offensive at first thought. But when it is considered that a high and permanent premium on gold would be equivalent to a depreciation of paper currency, it will be recognized that while the Bank may counteract certain exchange operations by a defensive premium, it could not, without great injury to itself, and even at the risk of its credit, proclaim the inferiority of its own paper in relation to gold. To sum up: This mechanism of the double standard works to perfection, and has successfully stood the test of a long experience, despite all the criticisms of theorists, because in practice it gives rise to no embarrassment or inconvenience.

MAXIMUM OF THE CIRCULATION.

We cannot say so much about the operations of a legislative programme of comparatively recent enactment. When the forced currency was authorized in 1870, the issues were at first limited to eighteen hundred millions, then twenty-four hundred millions, then twenty-eight hundred millions, and, finally, thirty-two hundred millions. Upon the abolition, in 1878, of the forced currency measure, the Government retained the legal limit of 3,200,000,000 francs, which was afterward raised to thirty-five hundred millions, and later to four thousand millions. In times of forced currency a maximum limit of issue, based on the circumstances of the coin on hand and the probable needs of the public, is absolutely indispensable, since the Bank cannot rely upon the indications of plethoric issue afforded by the return of notes and the exit of coin, but obtains its sole information from the depreciation of notes on the exchanges, and when such intelligence is received the mischief has already been done. For this reason, a limitation, within narrow bounds, of the amount of bank notes that can be thrown into circulation, is needful whenever a forced currency prevails. On the other hand, during normal periods, the notes issued in excess return to the Bank, and the circulation regulates itself automatically without legislative intervention. Accordingly, a provision for a maximum issue of three and one-half or four milliards lacks practical significance and serves no definite purpose. And when the Bank finds itself held to such a limit it can no longer issue notes instead of paying gold, and the public, willy-nilly, has to take metal, to its great discontent, as happened several years ago. Projects for limiting circulation have engaged the imaginations of legislators of all countries—projects to ensure artificially what is brought about naturally. The circulation is always at its natural level when the bank which created it is in condition to redeem its notes; in other words, when the liabilities exactable on demand are covered by available assets.

The legal-tender quality of the notes, or obligation of individuals and public officers to accept them in payment as actual money, dates only from 1870. This is a provision that the Bank has more reason to complain of than to regard with satisfaction, since it gives root, in the public mind, to the idea that if a bank note cannot be refused, the Bank, on the other hand, cannot decline to redeem a counterfeit bill. It would be more advantageous to leave everybody at liberty to take or reject the Bank’s paper, as may appear convenient.

The term “old notes” in the preceding table signifies all notes issued and never returned, which, whatever their age and the probability of their having been destroyed, are always considered to be still in existence. In no case are they declared out of circulation. The Bank does not profit from destroyed or lost notes. If the Bank should be compelled to wind up its business, some period of time would be fixed for the withdrawal of its currency from circulation, and those notes which had not been returned at the expiration of that time would be pronounced void and their value accredited to the State. Everybody’s mind is made up in favor of such a course, although as yet no law exists directing any disposition of the old notes, either for the benefit of the State or that of the Bank. The last plan of renewal of the Bank’s charter prescribed that the amount of the notes of old issues which had not been returned should be paid over to the State, and that in case of presentation of these bills they should be redeemed for the account of the State.

PROFITS ON CIRCULATION.

In looking at the imposing aggregates of the coin and circulation of banks of issue, the thought readily occurs to inexperienced minds that the privilege to make bank notes is something akin to the Philosopher’s stone, and there is temptation to repeat the expression of an Italian economist, that the domain of the ideal and miraculous knows no bounds. The reality, however, is much more prosaic. The bank note is not a creation of wealth, but merely a medium for the representation of values previously established; and unfortunate is the country that loses sight of this elementary truth. A bank’s credit bears no relation to its circulation, except in so far as the individual accepting the note has confidence that the institution has something at its disposal, or which will be ready at short notice, wherewith it can give coin for paper. Taking into consideration all the restrictions, legitimate and necessary, although troublesome, which are placed upon banks of issue, the profits accruing from the power to emit paper currency are, in truth, decidedly unimportant. Estimates of these profits have been made in various countries and by various processes. A correct calculation may be arrived at in the following manner: The circulation of a bank of issue is composed of two distinctive parts—(1) that part with which the bank performs its discount operations, makes its loans and advances, and otherwise transacts business that yields a gain; (2) that part which simply serves the purposes of exchange for coin, and consequently affords no profit. The paper money of the first variety may be styled productive circulation, and that of the second variety unproductive circulation. Let us suppose the average circulation to be three and one-half billions, and the average of discounted paper, advances, etc., eight hundred millions. The bank therefore needs eight hundred millions of notes to transact its business, while twenty-seven hundred millions of notes are passed to the public, not for the bank’s advantage, but for the accommodation of those who prefer paper to coin—an exchange proceeding which brings nothing to the bank, but is, on the other hand, burdensome to it. If the bank had only its own interest in view, it would, by this showing, have only eight hundred millions of notes in circulation. If we suppose the right of note-issuance to be withdrawn, the bank could, instead of using notes, do the same amount of business by attracting deposits of funds and paying therefor a consideration, say of ½ per cent.—the rate that for more than fifteen years has been allowed in France on open accounts repayable at demand. Under such a policy the bank would have to pay ½ per cent. of 800,000,000 francs, or 4,000,000 francs. This figure represents the amount that is saved by notes, and is accordingly the gross profit obtained from the right of issue—from which the cost of manufacturing the notes and the stamp tax on the notes must be deducted.

The following table shows the profits of the Bank of France on its circulation during the last five years, reckoned on the basis of the preceding demonstration:

Thus the value of the privilege amounts to comparatively little in France, and it might even be extinguished completely if the private banks, as the tendency runs, should succeed in doing away with interest on open accounts. Moreover, the profits on circulation are only a minor item of the Bank’s gross profits, as the following figures show:

EXPENSES AND DIVIDENDS.

The running expenses of the Bank are very considerable. It has a numerous staff; it pays, aside from the stamp tax on circulation, all the ordinary taxes to which banks are liable, and it is compelled to maintain branches at a loss; so that when the expenses are placed against the profits, the net results for the shareholders come within tolerable bounds.

ACCOUNTS OF THE BANK.

Aside from the annual report of its transactions, the Bank publishes weekly a balance-sheet, of which the following is a specimen:

Most of the items in this statement are perfectly comprehensible, but a few explanatory remarks may not be superfluous. “Coin in hand” is the total amount of gold and silver specie and gold bullion held by the Bank; it has no silver bullion. The silver of the Bank comprises French, Belgian, Italian, Swiss, and Greek five-franc pieces, and the fractional pieces of the same countries, excepting Italy—Italian small coins having been returned.

“Bills receivable, matured yesterday, payable to-day,” are bills that have not been presented on the day of maturity to the parties having to pay them, and which will be either paid or protested on the day of the statement.

“Paris bills receivable” signifies commercial paper held by the Bank on the day of publication of the balance-sheet. As the regulations of the Bank do not forbid the discounting of paper payable abroad, the Bank, in order to provide for such transactions, has a separate department for “bills receivable, foreign,” which, however, is of importance only in exceptional cases.

The term “Treasury vouchers” will be understood by recalling what we have said in Section V on the relations between the Bank and the State concerning advances made by the Bank to the Treasury for discounts of vouchers. When such discounts are effected, the vouchers on hand constitute the item “Treasury vouchers.”

“Bills receivable of the branches” are the commercial paper of the Bank payable at the branches, subsidiary offices, and attached towns.

“Advances on bullion” are the loans allowed by the Bank on gold bullion and foreign moneys, enabling the holders to take advantage of fluctuations in the market. Such transactions are of little consequence.

“Advances on securities” are the aggregate of current loans, either direct or on open account.

“Advances to the State” figure constantly in the balance-sheet as 140,000,000 francs, representing the permanent loans of sixty and eighty millions already alluded to.

“Income bonds of the reserve fund.”—The Bank, by the provisions of the laws of the 24th Germinal, Year XI, and April 22, 1806, had established a very considerable reserve out of its profits. Various subsequent laws have authorized the distribution of a portion of this, and the statutory reserve has been fixed at ten millions. It is unnecessary to point out that all the income bonds of the Bank figure in the statement at their purchase price, which at times is fifty per cent. below their actual value.

The item “Convertible income” represents the amount of the capital of the Bank, 91,250,000 francs before its doubling, to which are added the profits on that capital yielded by the increase of the discount rate above six per cent. and the remainder of account left at the doubling of the capital in 1857—the latter item being 375,000 francs.

“Inconvertible income.”—The 100,000,000 francs carried in the balance-sheet under this head is the amount placed in income bonds in 1857 in consequence of the doubling of the capital. This item is not to be considered among the available assets, because there has never been any legislative act designating the bonds in question as negotiable.

The “Building and furniture of the Bank” and “Real estate of the branches” are estimated in the statement at much less than their real value on account of allowances made in the sinking fund. It is probable that 40,000,000 francs could be realized by their sale.

The “Expenses of the management of the Bank and branches” are the aggregate of general expenses since the beginning of the year.

“Use of the special reserve.”—This is a special item, originated at the end of 1871, to comprise the exceptional profits of the years following the war, these profits being applied to provide for extraordinary charges that may be cumbersome, and to make up for any insufficiency of dividends.

The item “Divers accounts” represents customers’ accounts not otherwise classified.

The “Liabilities” side of the balance-sheet is headed by “Capital of the Bank.” We have already traced the history of the Bank’s capital and its variations, and shown what part it plays. There is no need to recur to this subject.

“Profits added to the capital” are the profits made out of the increase of the discount rate above six per cent. They have been invested in income bonds, which figure among the convertible income bonds.

“Convertible reserves and special reserves” form the counterpart to the income bonds of the assets. They have served for the old reserves and the reserve established at the end of 1871.

The “Permanent reserve of the Bank” represents the value of the Paris building and its furniture, according to an estimate made in 1834.

“Bank notes in circulation.”—This is the largest item in the liabilities. The maximum aggregate of the notes is fixed by law at four milliards (billions).

“Back interest on transferred or deposited securities.”—The Bank collects gratuitously dividends on securities, and retains the proceeds on account of loans or on deposit, crediting the corresponding accounts accordingly.

“Notes to order and demand receipts, payable in Paris or at the branches.”—The Bank, for a previous consideration and commission, issues notes to order in favor of anybody asking for the privilege, and receives cash on deposit. These transactions are represented by the above item.

The “Treasury account” embraces the remittances or payments made to the credit of the Treasury, either by the Treasury direct or by third parties. The sums carried on that account are always at the Treasury’s disposal, and can be withdrawn in Paris at once or in the provinces after notice.

“Open accounts in Paris and the branches”—the credits of account-holders, whereof they can dispose either by transfers or by cheque without previous notice.

“Dividends due” are dividends on shares of the Bank which have not yet been cashed by the owners.

“Discounts and divers interests” in Paris and the branches are profits realized since the beginning, not taking into account the dividends on income bonds belonging to the Bank.

“Bank discounts of the last six months” stand for a portion of the income during the previous half-year from discounted paper maturing in the current half-year, which income belongs to the profits of the current half-year.

The “Divers accounts” are miscellaneous accounts of comparative unimportance.

ECONOMIC IMPORTANCE OF THE BANK’S BALANCE-SHEET.

The conspicuous rôle of the Bank as a medium of credit in France makes its balance-sheet a document of primary significance. Its varying holdings of commercial paper are more or less indicative of the activity of business. But a study of its accounts as a whole admits of widely different conclusions, which have been discussed with clearness by an economic writer, M. Clément Juglar, and for which the special name of economic meteorology might not inappropriately be coined. M. Juglar has demonstrated, by painstaking observations, (1) that discounts reach their maximum during years of crisis, and are at the minimum in years following the terminations of crises, which he styles years of liquidation; (2) that the coin of the Bank is of minimum amount in years of crisis and of maximum in years of settlement. The author of this treatise has added his observations to M. Juglar’s, and has found that the celerity with which deposited funds of open accounts change hands is at the maximum in years of crisis and at the minimum in years of settlement.

A representation by a system of curved lines of the varying statistics of discounts, coin on hand, and open account transactions gives a very interesting exhibit, exactly similar to barometric charts, from which the prevailing conditions of business may be seen and the probabilities of the future may be forecast as the weather is indicated and prophesied by the barometer. These estimates are general, and are applicable to all countries.

CONCLUSION.

While the Bank of France continues to be by far the most important of French financial institutions, it is not the sole arbiter or the sole dispenser of credit in France. Side by side with it and competing with it, always ready to discount paper as credit institutions, are other banks that have grown and attracted large deposits, which they procure on extremely low terms, thanks to the liberty that they enjoy under quite different conditions than those by which the Bank of France is restricted. They offer a formidable opposition to the Bank, demonstrating that the bank cheque is able to contend victoriously against the bank note, at least in normal times. But when periods of trouble supervene and depositors withdraw their money from the ordinary banks, the Bank of France comes to the front, with its inexhaustible resources, to supply all needs. Its operations, commonplace enough in commonplace eras, become energetic and decisive in emergencies of economic and political distress. Then the Bank is the rock to which all the nation clings. The bank note is accepted in France the same as gold, and even as, in some respects, better than gold. Yet this marvelous instrument is not without its faults. The absolute security that the Bank gives to the holders of its notes, and the aid that it lends liberally to other banks and trade in general, have lulled the public into a kind of sleepy routine. Capital is no longer sought, but flows into the savings-banks, which are managed by the State. Capital, thus diverted, not only takes certain risks, but assumes great responsibilities, instead of fertilizing the country for commerce and industry. Certainly, the Bank of France cannot be reproached with having fulfilled its mission too well; but one may, nevertheless, regret that it operates too much to exempt commerce and banking from the struggle for life. This criticism is not addressed to the Bank, but to public spirit. For the rest, it may well be wished that France might preserve forever the old institution that has served her so long and so beneficially.

CHAPTER VI.

BANKS AND BANKERS AFTER THE REVOLUTION.

SECTION I.

THE GREAT DISCOUNT BANKS OF PARIS.

NAPOLEON 1. had little liking for speculation. Under his reign the bankers played only a minor part. After the Ouvrard affair, the Government ceased to ask them for special contributions, and, indeed, no longer applied to them at all. As, moreover, the Imperial Government contracted no loan and made no issue of consols, the influence of the bankers was almost nil. Meantime important houses in Paris, whose existence antedated the Revolution, continued to do a large and prosperous business. Several of these are still at the forefront of French finance.

Conditions underwent a complete change with the return of the Bourbons. The indemnities exacted from France by the Allied Powers, and the reimbursements granted to the émigrés for their confiscated estates, required large issues of consols, which were negotiated through the agency of the bankers. Throughout Europe, the governments entered upon an era of loans, and a vast field of activity was opened up to banking institutions, which was continually enlarged until it became necessary to bring together capital for the creation of railroads.

The relations of bankers to commerce in France consist chiefly of discount operations. Banks discount paper with three signatures, but refuse to discount direct for original parties to such instruments. The third signature is ordinarily a banker’s indorsement. It may properly be said that, at the outset, one of the principal aims of the Bank of France was to act as a counterpoise against the bankers and their stock of discount paper.

With the object of rendering access to the privileges of the Bank of France more practicable for ordinary tradesmen, a temporary establishment was founded in 1830, called the Comptoir d’Escompte (Discount Bureau), mentioned in the chapter on the History of the Bank of France. At the time of the Revolution of 1848, the experience of 1830 was put to advantage, and discount bureaus were set up in many places. These concerns, designed as only temporary offices, became permanent in various instances, and several of them are now important banking institutions. The best known is the one in Paris. A decree of March 8, 1848, authorized the formation of the Comptoir d’Escompte de Paris (Discount Bank of Paris), with a capital of 20,000,000 francs, one-third to be supplied by shareholders, and the other two-thirds by the State and the city of Paris. The profits were to accrue exclusively to the shareholders, the State and the city waiving all gains on their investment. This extraordinary arrangement is accounted for by the exceptional circumstances under which the bank originated. The raising of capital in France during that revolutionary period was necessarily attended by great difficulties, and, in fact, could be successfully brought about, for the purpose in view, only by the co-operative action of the Chamber of Notaries and the charitable societies. The Government emphasized its proceedings by setting apart a fund of 60,000,000 francs “for the interests of small trade,” which it advanced to the different discount bureaus, repayable at the end of three years. On the 18th of March, 1848, the Comptoir d’Escompte de Paris began its career with a paid-in shareholders’ capital of 1,587,021 francs in coin—all that had been subscribed up to that date of the 6,666,500 francs capital required to be found by shareholders. In addition, it received one million from the Treasury as a share of the sixty millions fund. With these feeble resources the Discount Bank undertook to come to the rescue of the trade of Paris. In twelve days, from the 18th to the 31st of March, 30,087 commercial instruments bearing two signatures, presented by more than 5000 persons, and amounting to 13,402,167 francs, were admitted to discount. The soundness of the paper offered was passed upon by a Discount Council, or advisory board, of sixty members, selected from all departments of commerce and industry. On each discount transaction five per cent. was retained by the bank, and its equivalent in shares was credited to the individuals having recourse to the services of the institution. The regulations of the bank were narrowly restricted. Its business was confined to the discounting of paper bearing two signatures. Paris discountable paper was limited to 105 days, and provincial paper to sixty days, except such as was payable in cities where the Bank of France had branches, in which cases ninety days’ maturity was allowed. These restrictions soon underwent change. Storage warehouses were established in France, which issued warrants modeled upon the ones that for a long time had been in vogue in England. The Discount Bank received authority to make loans on such warrants as collateral. Sub-Treasury bureaus were created, which deposited their funds in the Comptoir d’Escompte, accepted collateral from their clients, and caused them to sign notes that in turn were discounted at the bank. These Sub-Treasury bureaus proved to be quite superfluous. They were discontinued, and the Comptoir d’Escompte dealt directly with borrowers.

From the beginning of the institution, on March 18th, until July (1848), its total discounts amounted to ninety-three millions and its collections to sixteen millions. The paper rediscounted at the Bank of France showed a total of fifty-nine millions, and the provincial paper sent for collection twenty-two millions. In the second half of 1848, and during the whole of 1849, the bank continued to develop and to render the most valuable aid to the business community of Paris. It gradually lost its special character as a bureau, and took on more and more the aspect of a true bank. It asked for and readily obtained an extension of its charter for six years, from March 18, 1851. Thus assured, for a certain period, of an active existence, the Comptoir d’Escompte broadened the scope of its operations. In February, 1850, it negotiated the loan of the civil list, designed to liquidate the debts of the old civil list and of the private estate of Louis Philippe. In December of the same year, it put in a bid for two millions of consols, which, however, were not awarded to it. In 1851, it opened a subscription for the capital of the Bank of Algeria, and in the month of August it had charge of the subscription lists for fifty millions to the city of Paris.

Its discount business, meantime, showed as follows:

In 1848-49, 124,000 notes for 98 millions of francs.*

In 1849-50, 237,000 notes for 145 millions of francs.

In 1850-51, 319,000 notes for 215 millions of francs.

In 1851-52, 382,000 notes for 273 millions of francs.

THE COMPTOIR’S CAPITAL DOUBLED AND QUADRUPLED AND ITS REGULATIONS CHANGED.

In 1853, the Comptoir d’Escompte’s transactions had reached such magnitude that the inadequacy of the capital was recognized, and it was accordingly increased to twenty millions. This was apart from the original funds contributed to the capital by the State and the city of Paris, which, it was now arranged, should be gradually repaid, the concession being extended to March 18, 1887. At the same time, the regulations were modified. Aside from discounts and the taking up and collecting of commercial paper, the bank was authorized to make loans on securities and to undertake subscriptions to issues of securities for the accounts of third parties. The business still expanded, and the Discount Bank acquired a genuine character of comprehensive public usefulness.

In 1860, the Government inaugurated a free-trade policy, and as the throwing open of the French markets naturally led to sympathetic treatment of French commerce in foreign markets, the Comptoir instituted agencies in France, in the French colonies, and in other countries. In order to provide for the requirements of this enlarged field, it now doubled its capital by the issuance of 40,000 new shares of 500 francs each, which were offered to the public at 580 francs, making its capital stock 40,000,000 francs. A contract was made with the banks of the French colonies, allowing the latter to draw on the Comptoir so as to procure for themselves remittances on France. Prominent among the foreign agencies was that at Shanghai, created in 1860. Through its instrumentality the collection of the war indemnity which the Chinese Government owed to France was effected. This agency had made itself a powerful promoter of direct relations between France and China. Shortly afterward, the Calcutta, Réunion, Bombay, Hong Kong, and Saïgon agencies were founded.

In 1866, the Comptoir, though operating under a capital of 40,000,000 francs, with ten millions of reserve, again found its means utterly insufficient for its vast business, and the shareholders decided on another doubling of capital, which brought the total up to eighty millions. The new shares were sold at 625 francs. Under the provisions of an act relating to joint-stock companies, promulgated in 1867, credit associations increased in number. To keep abreast of the competition, the Comptoir d’Escompte still further extended its organization, opening agencies at Nantes, Lyons, and Marseilles in France, and abroad at London, Alexandria, and Yokohama. At the same time, several other agencies were seen to be unprofitable experiments and were abandoned.

UNFAVORABLE CONDITIONS AFTER THE WAR OF 1870.

After the Franco-Prussian war of 1870, the institution found itself in a difficult position. The circumstances of its agencies in the Orient had been considerably affected by new conditions, such as the opening of the Suez Canal, rapid steamship service, and the construction of telegraph lines, which gave to England marked advantages. The management of the bank, having to struggle against these quite novel embarrassments, devoted itself to plans for recuperating its strength. The Alexandria agency was discontinued in consequence of the dangers occasioned by the financial disorders of Egypt. From 1873 to 1875, every effort was made to develop strength without attempting to grow. In 1876, the bank received substantial reward for this sagacious course. It was intrusted by the French Government with the duty of consolidating and converting the Egyptian debt. In 1877, it lent its services to the Government of Russia in the negotiation of a loan of three hundred and seventy-five millions. But, whilst the affairs of the central office improved, those of the remote Oriental agencies constantly became more troubled. The Saïgon agency was turned over to an independent bank; the Bank of Indo-China, and the agencies at Hong Kong, Yokohama and Réunion, were dissolved. On the other hand, agencies were opened at San Francisco, Melbourne, and Sydney. Although the Comptoir took an active part in the business movement of 1879-81, it managed to avoid the entanglements of excessive speculation, and was not seriously disturbed by the distressing crisis of 1882.

The Comptoir’s concession ran out in 1887, but had been renewed in its original form for an additional term of twenty years. The management now displayed much activity, seeking opportunities everywhere to counteract the diminishing tendency of its discount transactions. Discount business had become a subject of warm rivalry on the part of all credit associations, and, in consequence of the abundance of capital and the low rates for capital, was growing less and less remunerative.

THE COMPTOIR’S COMMITMENT TO THE SOCIÉTÉ DES MÉTEAUX.

Unfortunately, the Comptoir d’Escompte lent its support to a concern styled the Metals Company (Société des Méteaux), which, at its beginning, was a purely commercial enterprise, but was soon drawn into the whirlpool of speculation. The Metals Company had cornered a large stock of copper and tin; and its first purchases, although within reasonable bounds, had exercised a strengthening influence upon the market. Allured by this success, M. Secretan, the head of the company, set out to achieve a colossal operation, analogous to the famous cotton deal of Mr. Biddle, president of the Bank of the United States, in 1839. He entered into contract with a great number of copper mines to force a general rise in prices by a limitation of production. The chief of the Comptoir d’Escompte, without the knowledge of the administrative council of the institution, was a party to several of these contracts, guaranteeing their execution. When the Administrative Council became aware of this, heavy advances had already been made to the Metals Company on copper which, at forced sale, would have occasioned disastrous losses. Throughout the whole of 1888, copper production increased largely as a result of the energy of mines not in the pool; and as consumers refused to pay the prices demanded by the Metals Company, the stock of the company grew alarmingly. Consequently, the Comptoir was obliged to allow enormous advances. Several combinations intended to facilitate the settlement of the Metals Company’s engagements were without favorable issue, and the liabilities soon reached such proportions that the chief of the bank, M. Denfort Rochereau, crushed under the responsibilities he had assumed, committed suicide. A panic ensued, and a terrific run was made upon the Comptoir d’Escompte. The Government, viewing with much concern the probable effects, upon the Paris market and the Comptoir’s commercial clientage, of a discontinuance of payments by so important a house, caused the governor of the Bank of France, the principal bankers, and the heads of the great credit establishments to meet in conference. The outcome was that the Bank of France agreed to advance 140,000,000 francs to the Comptoir, in consideration of guarantys by numerous banking concerns that they would permit it to settle matters amicably. The French and English courts annulled some of these pledges on the score that they were contrary to the by-laws of the bank, and thereupon the Comptoir’s trustees, who had consented to such breaches of the regulations, had to make good a portion of the losses incurred by their fault, and paid in a total of 25,000,000 francs. The settlement was conducted with prudence and skill, and yielded results that the public had hardly dared to hope for. The entire liabilities were wiped out, the loan of the Bank of France was repaid without having recourse to those who had guaranteed it, and almost the entire capital was ultimately recovered.

THE NATIONAL DISCOUNT BANK OF PARIS TAKES OVER THE COMPTOIR D’ESCOMPTE.

The downfall of the Comptoir d’Escompte de Paris was a real national calamity, for this institution had been very successful in organizing and serving numerous French interests, principally in foreign countries and the far East. Encouraged by the Government, a new financial combination, comprising representatives of the banking, commercial, and manufacturing interests, undertook its reconstruction, under the general advice and supervision of M. Denormandie, former governor of the Bank of France. M. Denormandie, on April 26, 1889, concluded a negotiation with the liquidators of the Comptoir, whereby its charter and goodwill, together with its real estate and other effects, were acquired. To the old shareholders was reserved preferred right of subscription for the new shares; and, besides, they were to enjoy exceptional benefits in the division of the profits. The capital was fixed at 40,000,000 francs, and a call for an immediate subscription of half the amount was made, which had great success. The new company, adopting the name of Comptoir National d’Escompte de Paris (National Discount Bank of Paris), recovered quickly the ground that had been lost. Its business advanced with such rapidity that on November 5, 1889, it became necessary to provide for more capital; which, accordingly, was raised to 80,000,000 francs, by the issue of 80,000 shares of 500 francs each, at 30 francs premium, 250 francs per share being paid up. In 1891, the company absorbed the Banque de Dépôts et Comptes Courant (Deposit and Account Bank), which had an intact capital of 15,000,000 francs and a splendid establishment in the heart of Paris. It called 125 francs per share of the new issue of stock, exchanging the shares of the Banque de Dépôts et Comptes Courant for absolutely non-assessable new shares, which increased the paidup capital to 75,000,000 francs. The National Discount Bank has since that time continued its successful operations, steadily enlarging the working sphere of the old concern. Besides agencies in France, it has opened offices in Chicago and Madagascar. The Comptoir stands to-day in the first rank of French finance.*

THE CRÉDIT FONCIER—MORTGAGE BANKING.

In the early career of the Second Empire the landed proprietors became quite strenuous in urging the construction of a special credit institution as a remedy for the “mortgage leprosy,” as it was then styled. Since 1770, Germany had possessed a system of so-called land credit companies that had performed important services. Acquaintance with German methods had been spread in France by the illustrious economist Walowski. Several plans were formulated between 1835 and 1852, but none was considered practical. Some of these devices went so far as to propose a species of mortgage paper money, which meant practically a renewal of the assignat fiat scrip. A decree of February 28, 1852, laid the foundations of the mortgage banking scheme. It provided for loans repayable in yearly installments, with long maturities, secured by mortgage bonds (which, in turn, were secured by mortgages), bearing interest and negotiable without cost. These mortgage bonds had to be issued in each case by a broker, whose function it was to verify the securities, collect the yearly installments from the borrowers, and pay the interest to the lenders. As soon as the decree became law, a company with a capital of 25,000,000 francs was formed in Paris at the initiative of Walowski, entitled the Banque Foncière de Paris (Mortgage Bank of Paris). Among its promoters were some of the most eminent men in France. Its establishment was authorized by decree of July 3. 1852. Other companies on the same plan were formed in the Departments.

The independent action of these different mortagage banks proved prejudicial to their common welfare. There was much clashing of interests. The Government resolved to bring about a fusion, and to make the Paris Banque Foncière a central agency for all land credit transactions. The consolidation was accomplished on December 10, 1852, and the central bank, extending its scope throughout the whole country, took the name of Crédit Foncier de France (Mortgage Bank of France). It received a subvention of 10,000,000 francs from the State, and its capital was swelled to 60,000,000 francs, half of which had to be forthcoming immediately. The bank engaged to loan, within a brief period, 200,000,000 francs on landed estates, at a rate of five per cent., which was to provide for both interest and sinking fund. These two hundred millions were to be distributed among the Departments pro rata, according to their mortgage debts. In order to raise the required 200,000,000 francs, the company set out to issue a loan, consisting of mortgage bonds of 1000 francs each, “to bearer,” with interest at three per cent. This loan did not realize what was contemplated, and the conditions had to be modified. By a decree of November 21, 1853, the bank’s original rate of five per cent. (including interest and sinking fund) was replaced by a sliding scale calculated on the basis of the consol rate of three per cent. The new plan worked admirably, yet the loans of the Crédit Foncier aggregated only about 50,000,000 francs. Another decree (July 6, 1854) gave rise to a complete reorganization. The direction of the business was assigned to a governor and two under-governors, appointed by the Chief of the State. The administration was vested in an Administrative Council, chosen by the Shareholders’ Assembly, and the control was confided to censors, also selected by the shareholders. It will be noticed that this organization is copied from that of the Bank of France. Having acquired its final constitution, the Crédit Foncier made another effort for resources through the sale of bonds, but it was necessary first to enlist the special favor of the public. The management addressed itself to the general tax collectors, who were authorized to lend their co-operation. Still, the bond sales showed only slow progress. Finally, it was decided to profit by the example of the German companies, and instead of borrowing cash from the public on loans, to pay its own borrowers with mortgage bonds, which were to be taken at par and which the Crédit Foncier also agreed to receive at par in settlement. This method has various advantages, on the principle that issues of bonds and loans granted are always on the same level; but it involves the serious inconvenience of leaving the borrower to speculate on the mortgage bank’s bonds, first when he negotiates them at the time of effecting the loan, and second when he needs them again for settlement. Despite these difficulties, the Crédit Foncier saw the quotations of its mortgage bonds go up rapidly, so that it was induced to discontinue the paper loan system and resume cash loans, for which it issued premium (prize) bonds.

The theory of these bonds is very simple. They are repayable in fifty or sixty years, and bear fifteen francs interest (three per cent.). A certain number of them receive, at each drawing, prizes ranging from 1000 to 100,000 francs. The fascination of the prize tempts the public to pay much more for such bonds than for similar ones having no premium feature. Notwithstanding the necessity of paying prizes, the Crédit Foncier borrows money at cheaper rates than other companies which issue bonds payable strictly at par—for instance, railway companies. The Crédit Foncier is but a broker between proprietors and capitalists, and therefore can issue bonds only for the amount of the loans made. The loans must not exceed half the value of the real estate pledged, upon which a first mortgage is placed in favor of the institution. As special security to the public, the capital of the bank must be equivalent to at least five per cent. of the bonds outstanding. Apart from long loans, the Crédit Foncier grants loans at short maturity—to run not less than ten years. Finally, the company is authorized to make advances at long or short maturity, with or without mortgage, to Department administrations, communities, and agricultural associations, in the shape of prize bonds, and to loan to landed proprietors for drainage and improvement of lands.

In addition, the Crédit Foncier does a regular banking business, discounts commercial paper, makes loans on securities, negotiates issues of securities for third parties, and runs current accounts—to each of which the following tabular statement (in millions and hundred thousands of francs) relates:

The Crédit Foncier, by virtue of the very important volume of its capital and reserves, and of the distribution of its premium bonds (which are the preferred securities of small investors), is intimately connected with the economy of the country; yet at the present day it has to contend against embarrassments that were not foreseen when it abandoned its bond loan system for cash loans. The rate of interest has declined steadily during the last years, and the repayments of loans have in consequence grown to proportions that have upset all calculations. Loans repayable in a term of fifty to sixty years are accordingly paid back in twenty-nine or thirty years. The Crédit Foncier, by its regulations, must diminish the circulation of its bonds in an even ratio with repaid loans. Now, as the regular market price of its bonds is rather above that at which they were issued, and as at special times (in proximity to drawings) special values are added in consequence of the prize feature, the buying up process means decided loss for the bank. Some counteractive efforts have been made in the way of conversions of several series of bonds, but it is necessary to move with much prudence so as not to disturb the public holding the premium bonds. The Crédit Foncier, in view of this situation, has increased its sinking fund reserves at the expense of dividends, which declined for some years, and so occasioned a fall in shares without affecting the solidity of the company or its credit. With these exceptions, the bank has worked in a manner that cannot be regarded with unreserved satisfaction.

By the mortgage loan system a great impetus has been given to the building of cities, and the loans to communities have largely encouraged the prodigality of municipalities. As the capital of the whole of France, drained by the premium bonds, has been thrown into the cities and principally into Paris, it has come to pass that the country population has flocked to the towns. There, during the progress of great public works, they have found high wages; but they have remained notwithstanding the loss of employment. The Crédit Foncier has consequently contributed, more than any other responsible agency, to the growth of the city proletariat, which affords the most favorable soil for the seeds of Socialism. This institution, however, has not been able to realize in any large way the hope that it would cause the rural mortgages to vanish. Its scope hardly reaches the agricultural acres at all, and its influence there is almost nothing. For the purposes of loans to cultivators of the soil the Crédit Foncier formerly conducted a distinct branch, the Crédit Agricole, which completely failed to perform what was expected of it. The following balance-sheet contains some instructive particulars on this point:

CRÉDIT FONCIER DE FRANCE.

Situation au 30 Novembre 1895.

THE CRÉDIT AGRICOLE.

In 1856 the crops failed, and the distress in the rural districts engaged the solicitous attention of the Government. All competent authorities concurred in the opinion that one of the chief causes of inadequate agricultural production was the lack of sufficient capital and credit to enable the farmers to procure the requisite equipment and fertilizing material. The projects conceived were numerous, but none solved the problem. The Government, urged by the people to take some definite steps. addressed itself to the Crédit Foncier, and asked that institution to complete its work of establishing a department having for its especial object the furnishing to agriculture of the credit so much needed. Accordingly, the Crédit Foncier, July 28, 1860, organized the Société de Crédit Agricole (Farmers’ Credit Company), with a capital of 20,000,000 francs, which was increased to 40,000,000 on April 22, 1865. The new concern proposed to procure capital and credit for agricultural and kindred industries, and to assume, with the Government’s sanction, all transactions necessary for affording means for clearing and improving the soil, for stimulating and preserving its productiveness, and for generally developing the farming interests. It was authorized to undertake, or to facilitate by its guaranty, the discounting or negotiation of notes; to open credits or allow loans on collateral or other special securities; to receive deposits, with or without interest; to open current accounts; to make collections, and to issue and place securities corresponding to loans and credits granted. The company discounted and guaranteed paper having at least two signatures, one of the signers being entitled to the privilege of discount. Discounted paper could not run longer than ninety days. In the cases of advances and credits, the company was not permitted to issue either bonds or scrip having longer than five years or less than forty-five days to run. No scrip for less than 100 francs could be given out. The business management of the Crédit Agricole was placed in the hands of the governor and under-governors of the Crédit Foncier, but it had a separate administrative council and censors. In spite of all endeavors, the Crédit Agricole did but little for agriculture. The Government, disappointed in its expectations, conducted an exhaustive investigation in 1866, the result of which, so far as the company was concerned, demonstrated that hardly anything had been accomplished. Some practical reforms were hinted at, but, on account of the Franco-Prussian War, they could not be put into execution. As the Crédit Agricole was unable to find employment for its resources in the field originally prescribed, it went into enterprises quite alien to its mission. Noteworthily, from 1873 to 1876 it made advances to the Egyptian Government amounting to 168,000,000 francs. It had procured this enormous sum by opening credits through the Crédit Foncier and handing over to that company the securities received from the Egyptian Government. When Egypt declared her insolvency, the Crédit Agricole, at its own application, in order to escape bankruptcy, went into liquidation. The Crédit Foncier incidentally suffered seriously. In order to recover, it asked the governor and under-governors for a sum of 16,000,000 francs. The 300 francs per share still due on the stock of the Crédit Agricole was called, and 24,000,000 francs was thereby netted. The share-owners of the Crédit Agricole, by paying a complementary assessment of fifty francs per share, received full-paid stock of the Crédit Foncier. Meantime the financial situation of Egypt had improved, and the settlement of loans, far from leaving a loss, showed a profit for the Crédit Foncier. The marked failure of the Crédit Agricole affords a fresh demonstration of the impracticability of experiments for applying to agriculture the methods of credit employed for commerce.

THE CRÉDIT INDUSTRIEL ET COMMERCIAL.

When France, by the commercial treaties of 1860, abandoned the system of Protection and adopted a more liberal trade policy, the need for a financial machinery to correspond to the new circumstances was much felt. The English joint-stock banks, with whose organization and methods the Continent had never been much acquainted, served as a model to those who desired to furnish France with institutions that she lacked. A decree of date May 7, 1859, authorized the creation of a company designated the Société Générale du Crédit Industriel et Commercial (General Industrial and Commercial Company), to be capitalized at 60,000,000 francs, with 120,000 shares at 500 francs each, one-quarter to be paid in. Eighty thousand shares were issued at par, upon the company’s organization, and the balance of 40,000 were sold at 600 francs in June, 1864. The forms of business included in the company’s transactions were: to discount commercial paper in France and foreign countries; to allow advances on warehouse vouchers, and all kinds of obligations with fixed maturity transferable by indorsement; to make advances on pledges or collateral; to open current accounts; to perform for the account of its clients payments and collections; to issue and accept drafts and bills of exchange; to negotiate securities on the Bourse; to receive deposits of securities from individuals; to undertake issues of public loans, stocks, and all other securities; to make conveyances—in brief, to conduct all the operations of banking houses. The company has had a relatively placid existence. It possesses a substantial clientage, which has always remained faithful to it, and for which it does very numerous services. It conducts ten branch offices in Paris. The following statement affords a record of its operations:

COMPANY FOR THE ENCOURAGEMENT OF TRADE AND INDUSTRY.

Like the Industrial and Commercial Credit Company, the Société Générale pour favoriser le développement du Commerce et de l’Industrie en France (General Company for the Encouragement of Commerce and Industry in France) was originated on the plan of the English joint-stock companies. It obtained its authorization by a decree of May 4, 1864, and its incorporation was effected on the same day. Its purposes are to help companies in existence or to be established which seek to promote manufacturing or commercial enterprises or are connected with public works; to dispose of their stock and bonds; to accept on behalf of shareholders commissions to watch and control them; to take shares in such companies up to half their stock capital; to open credits for companies, merchants, and manufacturers; to discount commercial paper on France and abroad; also to discount vouchers of the Treasury, of public departments and municipalities, having at most six months to run; to undertake collections and other cash services for customers; to make advances on securities; to receive voluntary deposits, and to afford accounts current. The company is not permitted to speculate in public securities on time transactions, but is allowed to make advances on speculative continuations (contangos). The stock capital is 120,000,000 francs, in 240,000 shares of a face value of 500 francs, on which 250 francs have been paid in. The operations of the Société Générale are on a vast scale. It has manifested great activity in fulfilling its aims, and has opened numerous branches in France. There are thirty-eight in Paris alone, and 145 in the provinces. An agency also is maintained in London. The offices are run with a strict regard for economy, and by intelligent management the whole system has attracted a splendid business. The history of the company is one of animated enterprise. Large interests have been taken in a great many undertakings, like Paris Guano, Port of Callao, etc.; which have given rise to numerous lawsuits and tied up a considerable part of the capital. In recent years, the company has given its principal attention to ordinary banking business, for which it is perfectly equipped and which it prosecutes with large success.

THE CRÉDIT LYONNAIS.

The Crédit Lyonnais stands to-day at the head of French financial establishments, both for the magnitude of its capital and the volume of its business. It was inaugurated in Lyons as a limited company on July 6, 1863, and changed into a stock company on April 25, 1872. It discounts commercial paper, issues and indorses bills of exchange, makes advances on listed stocks and other collateral, transacts every kind of cash service for customers by means of current accounts, buys and sells securities for clients, takes charge of subscriptions for public funds and other securities, negotiates loans for governments, Departments, and public and commercial establishments, receives securities on free deposit and takes care of them, engages in real-estate transactions, and does a general banking business in France and abroad. Conducted with remarkable tact and a perfect understanding of the needs of its clientage, the Crédit Lyonnais has grown rapidly. It makes a chief specialty of discounts. In order to keep fully informed about conditions in the various countries from which applications for its services may be received, it has a separate department, under the direction of experts, for the collection and analysis of documents, etc., relating to every country and its business affairs. The records and compilations of this branch of the Crédit Lyonnais are not in any general manner available to the public; but all who have ever had access to its archives, embracing the financial history of the whole world for the past twenty years, have found added reason for admiration of its magnificent equipments. There are twenty-six agencies of the Crédit Lyonnais in Paris and the suburbs, one hundred and sixteen in the Departments, and sixteen abroad. The subjoined statistics will set forth the essential facts of its vast business better than any descriptive account.

CRÉDIT LYONNAIS.

Stock Company—Capital, 200,000,000 francs.

THE BANK OF PARIS AND THE NETHERLANDS.

The establishments hitherto considered are the principal French banking and financial concerns, and represent well the aspects of modern French banking. It remains for us to glance at an institution which is rather different, but which, by its standard and its connections, has an important place in the affairs of France. We refer to the Banque de Paris et des Pays Bas (Bank of Paris and the Netherlands). It began its existence on January 27, 1872, as a result of the consolidation of the Société de la Banque de Paris (Paris Banking Company) and the Société de Crédit et des Dépôts des Pays Bas (The Netherlands Credit and Deposit Company). Its objects are to perform financial, industrial, and commercial transactions, including real-estate business and public works contracts, in France and abroad, for its own account or for third parties. Its capital, which was originally 125,000,000 francs, divided into 125,000 shares of 1000 francs each, with 500 francs paid up, was reduced to 62,500,000 francs of 125,000 shares at 500 francs each, fully paid. The Bank of Paris and the Netherlands receives no deposits for current accounts, and admits comparatively little paper to discount. It operates with its capital and reserves, and exercises its activities specially for the emission of stocks and securities. Besides the central office in Paris, there are branches in Amsterdam, Brussels, and Geneva, where extensive relations are enjoyed and a very faithful clientele is possessed. Alliances are maintained with the principal French and foreign banks, so that the influence of this house may be said to extend throughout the world. Its statistics are not very comprehensive, for only one balance-sheet is issued each year, and the profit and loss account is not itemized in much detail. Information respecting the development of its business is chiefly to be sought in the accounts of its correspondents and in those relating to its securities. Subjoined are the figures of principal interest, stated in millions and hundred thousands of francs:

PRIVATE BANKS.

Aside from the incorporated banking institutions, France has a great number of private banks. In the large cities the bankers have clienteles made up, in general, of merchants and manufacturers pursuing kindred lines of business. For instance, certain houses discount paper specially for the hardware trade, others for the wine and liquor traffic, others for grocers. By this system the banks are able to keep well informed about their customers. The transactions of the private banks are usually very simple, embracing discounts, credits, current accounts (generally entitled to interest), transfers, and collections, advances on securities, and finally Bourse operations.

SECTION II.

THE BOURSE, CLEARING-HOUSE, AND FINANCIAL OPERATIONS AT LARGE.

STOCK Exchange bankers, or rather coulissiers (stock-jobbers), are intermediaries whose functions are to execute time or cash orders on securities which are not handled by licensed brokers. The latter are styled agents de change (exchange agents), and their guild enjoys the monopoly of negotiating “parquet” securities—i. e., those listed and dealt in on the floor of the Bourse. The Bourse bankers do not, however, content themselves with transactions in stocks non-listed in the official bulletins of the Bourse brokers, but frequently encroach upon the prerogatives of the latter; whereby numerous difficulties arise between the brokers and the jobbers. Several plans have been under discussion for doing away with the exchange brokers’ monopoly and substituting a free body of brokers in securities.

CLEARING-HOUSE OF PARIS.

In conclusion of our survey of the financial machinery of France, some words require to be said about an organization that has held forth great hopes, which have hardly been realized, the Chambre de Compensation des Banquiers de Paris (Clearing-House of the Paris Banks). It was created in 1872, as an exact counterpart of the Clearing-House of London. As the English regulations were reproduced without alteration, it is unnecessary to make any explanations. The Bank of France has lent its most cordial support to the Clearing-House, but unfortunately the French public makes but a limited use of cheques, and the clearings reach only a comparatively insignificant total. Practically, clearings are done through the Bank of France, and consist of transfers on the part of account-holders. The following are the statistics of Clearing-House transactions from the beginning, expressed in millions and hundred thousands of francs:

In illustration of the above statement that cheques are but little employed in France, the figures below are interesting. They are taken from an exhibit compiled by the Ministry of Finance, which, regrettably, stops with 1891:

CHANGES IN BANKING METHODS—COMPETITION FOR PAPER.

The French credit and deposit institutions have adopted, in their business, methods resembling those that are in successful operation in the great Parisian stores, like the Louvre and Bon Marché. Trade is attracted by performing cheaply and even gratuitously all kinds of cash and transfer services, and charging light fees only when occasion requires. The active rivalry that characterizes their operations has been advantageous to the public in a certain measure, but it has had the serious consequence of so reducing the rate of interest that there is no longer any elasticity, while margins for profits have disappeared and losses have become hard to support. The ruin of the Comptoir d’Escompte, soon followed by the fall of the Société des Dépôts et Comptes Courants—both of which disasters were largely brought about by the stagnant condition of deposits on demand or short terms—made a profound impression on the minds of managers of credit institutions. They resolved to confine their investments of deposits first to commercial paper which, in case of necessity, could be rediscounted at the Bank of France, and second to advances and to margins which had to be settled within fifteen days, or a month at farthest. Therefore examination of the balance-sheets of the credit companies easily shows that liabilities due are covered by ready assets, and that, from this point of view, the situation is entirely free from menace. But in order to arrive at such security, the financial concerns are constantly prosecuting what has been picturesquely styled a “discount chase.” Everybody likely to have commercial paper for disposal is canvassed by the brokers, who place it not only with the banks but with railway and insurance companies, which always have on hand a goodly supply of bank bills with a view to earning income for their surplus cash. The quantity of discountable paper annually made in France can be calculated with ease. The stamp duties from commercial paper indicate the gross apparent amount on which the tax is assessed. The tax is 5 centimes per 100 francs, or 1/2000 part of the total. But as 5 centimes is the minimum tax, each fraction of 100 francs being counted as a full 100 francs, the figure obtained from this percentage would be too large. An investigation based on the books of the Bank of France demonstrates that ten per cent. should be deducted. The following table gives the aggregate yearly valuation of commercial paper:

The volume of discountable paper has sensibly decreased in recent years. At present, assuming that the making of notes is a constant matter and that the average time to run is forty-five days, the amount outstanding at a given time may be reckoned at about 2,500,000,000 francs. But not all this paper is admissible to discount; and deducting in the ratio of refusals at well-conducted banks, it may be considered that two billions is an approximately correct estimate. Of this two billions of discountable paper, the Bank of France carried during 1894, according to the statement of December 31st, 497,700,000 francs; the Comptoir National d’Escompte 172,000,000 francs; the Crédit Industriel et Commercial, 63,000,000 francs; the Société Générale, 141,300,000 francs, and the Crédit Lyonnais, 585,400,000 francs—showing a total for the five institutions of 1,459,400,000 francs. There remains at most only six hundred millions to divide among other banks and bankers and the railway and insurance companies—not taking into consideration that a good many merchants and manufacturers retain their own commercial paper. The Bank of France receives, generally, more than a third, but less than one-half of the notes drawn, and probably fully half of the really discountable paper; but much of this reaches the Bank only at maturity, so that the profits derived from this source do not always compensate for the cost of handling and collection.

In view of the diminution of the mass of commercial paper and the continual fall in the rate of exchange, the banks will, in all probability, be compelled soon to look for profits in other directions. Up to the present they have dispensed genuine credit almost entirely—credit on the strength of substantial property—and have rarely granted personal credit. But the innovation of personal credit, if practised according to the methods in use in the banks of Scotland, by the process of “cash credit” (as the English term runs) would offer no more serious risks than the discounting of paper. Such a system would admit of solving a problem hitherto considered unsolvable—the problem of credit for farmers and artisans.

AGRICULTURAL AND POPULAR LOANS.

This problem has always been regarded as a rather whimsical one in France. Most of those interesting themselves in it have been guided more by philanthropic and charitable sentiments than by matter-of-fact and economic ideas. The signal failure of the Société de Crédit Agricole, which has already been considered, proved that a great institution cannot make loans to agriculture the fundamental basis of its operations. In reality, there can no more be a special agricultural credit than a special maritime credit or mercantile credit. The one thing in existence is credit, without any specialization—meaning the confidence manifested in the borrower by the lender. The law, under the guise protecting the farmer, has occasioned for him all kinds of drawbacks. It sets aside all his assets as a guaranty for the landlord’s rent for a period of three years (including the running year). It declares that the farmer who buys in order to resell is not a merchant and cannot be pronounced a bankrupt; and it allows him the privilege of declining to be tried before the Tribunals of Commerce, so that his creditors are reduced to the necessity of suing him in interminable and ruinous civil proceedings. The consequence is that, in France, with few exceptions, farmers find it well-nigh impossible to obtain credit. Those who consent to loan to the farmer, taking the perilous risks involved, make him pay a large bonus. Thus, while credit is easily procurable for the merchant, it is ruinous for the farmer. One of the chief grievances of the French rural population is the usury which is the natural product of the murderous so-called protection inflicted by law on agriculture.

Nevertheless, in certain special cases the Bank of France has been able to place its services at the disposal of agriculture. M. Giraud, director of the Nevers branch, originated a novel plan. In the Nièvre the cattle-growers buy lean cattle in the spring, fatten them on their grazing lands, and at the end of nine months sell them to the butchers. M. Giraud concluded that, if the Bank of France should lend these individuals money for the purchase of lean cattle, it would certainly be paid back at the end of the fattening season. In order to make the required advances conform to the regulations of the Bank, the cattle-men were to execute notes with three signatures, which the Bank would discount, allowing two renewals, so that after nine months the advances would be regularly wiped out. The Bank, applying in this instance its rule to accept directly only paper with three first-class signatures, required a banker’s surety in case the signer and first indorser were not persons of strong standing. At the same time, it demanded the production of rent receipts, so as to avoid the danger of being forestalled by the landlord’s lien. Thanks to the co-operation of the Bank of France, the cattle industry has been developed materially. It has been taken hold of successfully in many Departments; and one of the poorest, the Department of Lozère, has experienced a very considerable growth of wealth and prosperity as the fruits of a branch of the Bank of France introduced there on the plan inaugurated by M. Giraud in the Nièvre.

But this contribution by the Bank of France to a solution of the problem of agricultural credit was merely to meet the circumstances of a most exceptional case. Projects for discounts of farmers’ paper in general, for loans on growing crops, etc., are still unmatured.

RAIFFEISEN INSTITUTIONS.

Many people whose views merit consideration have proposed the introduction in France of Schulze-Delitsch banks and Raiffeisen institutions. The latter, which do not require the organization of actual capital, have generally been regarded with preference, and to-day there are a number of Raiffeisen establishments operating in France, although no details as to the amount of business done by them are accessible. They have, as a rule, been instituted by agricultural syndicates (co-operative societies) in conformity with a law of November 5, 1894—which statute, by the way, is perfectly superfluous. That law authorizes all or part of the members of an agricultural syndicate to form an agricultural credit association, having for its exclusive object to facilitate and extend the agricultural business undertaken by the syndicate or those belonging to it. The associations may receive deposits on current account, with or without interest, and they may assume the duty of making collections and payments for the syndicate and its members so far as agricultural matters are concerned. They are permitted to contract necessary loans to establish or increase capital. The capital cannot take the form of shares, but only of such subscriptions as the associated persons choose to make, which subscriptions may be of unequal amount, must be registered, and are transferable only among the members and with their joint consent. The profits that the association is to make on its transactions are stipulated by the regulations; and, after deducting for general expenses and for interest due on loans contracted, at least three-fourths of them is to be applied toward the creation of a reserve fund, which must amount to at least half the capital. The surplus is to be divided pro rata among the members of the syndicate, according to the business done by them. There are no dividends to parcel out. In the event of dissolution, the reserve fund and the excess of assets over liabilities go to the members pro rata according to their subscriptions. The credit associations so established are commercial bodies, but must keep accounts in conformity with the provisions of the Commercial Code. They are exempt from license fees and from the tax on personal property. The individuals intrusted with the administration are personally responsible for violations of the regulations and for breaches of the law. It may be doubted whether the associations started under the act are to be taken very seriously. The French people, with their spirit of equality, find it rather galling to be bossed and to have their affairs discussed by men with whom they are in daily contact. It appears to the Author that the Scotch “cash credit” system, under the auspices of important credit associations, would work much more efficaciously for the interests of both agricultural and popular credit.

POPULAR CREDIT INSTITUTIONS.

“Popular credit” is a term at present no better adapted for favorable acceptation than “agricultural credit.” A pioneer “People’s Credit Association,” founded during the Second Empire by men of consequence, was an absolute failure. A society christened “The Prince Imperial,” for which collections were made, exerted only an insignificant influence. In the early years of the Third Republic, a Caisse Centrale de Crédit Populaire (People’s Central Credit Institution) was attempted by one of the great credit associations, with the patronage of the chief men of the Republican party—Gambetta, Paul Pert, and others; but it had only an ephemeral life and rendered no services. Finally, a so-styled “People’s Credit Society,” started by a venerable friar, Father Ludovic de Besse, recently went into liquidation after suffering heavy losses. Several small mutual loan associations exist, but credit for artisans seems even more remote—if that is possible—than credit for farmers. In France everything still remains to be done along such lines.

CHAPTER VII.

BANKING IN THE FRENCH COLONIES.

SECTION I.

THE BANK OF ALGERIA.

FIFTEEN years after the conquest of Algeria, the need of a bank became felt in that colony. Application was made to the Bank of France. The management deemed it indispensable to interest Algeria in the French institution, but disapproved the idea of a branch pure and simple. By the plan which was accordingly formulated, the Algerian establishment was to be separate, and to have an independent capital of ten millions—two millions to be furnished by the Bank of France and eight millions to be raised by issuing 8000 shares of 1000 francs each. The bank was to have exclusive privilege to put forth notes to bearer payable at sight, under the immediate supervision of the Bank of France, and its operations were to constitute a distinct system of accounts. The Bank of France, however, made haste slowly in the practical work of organizing the Algiers institution. This was due to decided misgivings. The Government, taking cognizance of the reluctance thus displayed, resolved to create a wholly independent bank, to be named the Banque d’Algérie (Bank of Algeria). The law for its foundation was enacted August 4, 1851, and specified a capital of 3,000,000 francs, divided into 6000 shares of 500 francs each. The charter was for twenty years, to expire April 4, 1871. The same measure authorized the Bank to issue notes of 1000, 500, 100, and 50 francs, with the proviso that the note circulation should not be more than three times the amount of coin on hand. The original regulations have been variously modified. A decree of March 30, 1861, increased the capital to 10,000,000 francs, adding 14,000 new shares. The question of renewal of charter came up in 1867. The law of January 15, 1868, extended the duration of the Bank to November 1, 1881, without change of capital.

During the Franco-Prussian War several legislative dispositions were made affecting the circulation of the Bank of Algeria. A statute enacted August 12, 1870, decreed a forced currency for the notes, limiting their amount to 18,000,000 francs. By the law of March 26, 1878, this limit was advanced to 48,000,000 francs, and the use of notes of twenty and five franc denomination was authorized. In 1876, the Bank applied for a further extension of its concession and for the privileges of doubling its capital and making advances on securities. The question of renewing the concession brought up another—whether it would not be expedient to merge the Bank of Algeria into the Bank of France. This was determined in the negative, for the opinion prevailed that such a fusion would add undesirably to the actual and moral responsibilities of the Bank of France, since it would be difficult for the latter to keep the proceedings of the Algerian bank and its twenty-four branches under effective surveillance; and since, on the other hand, the Algerian population would not readily accommodate itself to the rules and practices of the Bank of France. One of the objections urged on the latter score was that the Bank of Algeria had been accustomed to discount paper bearing only two signatures, whereas the Bank of France required three signatures. These considerations dispelled for the time being the whole consolidation idea. But in order that there might be opportunity for full liberty of action in the future, it was deemed wise to fix the same date (December 31, 1897) for the expiration of the two concessions. A law adopted April 3, 1880, again doubled the capital stock, bringing it up from ten to twenty millions. It now consists of 40,000 shares of 500 francs each.

As a result of the successive increases in the value of shares, the surplus was swelled to 11,000,000 francs, of which 1,000,000 was taken to reimburse the State for its loan to the Bank at the outset. The remaining 10,000,000 was applied to the reserve fund.

The notes of the Bank of Algeria are legal tender. The maximum of issue is 75,000,000 francs. The Bank discounts bills of exchange and similar paper to order, including Treasury and other public drafts and warehouse receipts;* makes advances on public securities and Algerian railway bonds upon the same terms as the Bank of France; receives on current account, without interest, sums deposited by individuals, and does cash services for depositors; carries on current account, at interest, funds of large financial institutions and others which are intended for Algerian public works; allowing open credit for such funds in consideration of orders on France; sustains relations with the Bank of France for transactions of collection and discount; takes on free deposit securities, money, and gold and silver bullion, and issues drafts or orders against payments of specie or bank notes at ten days’ sight or fifteen or more days from date. The shareholders are represented by a General Assembly, comprised of owners of at least ten shares. Every shareholder has a vote for each ten shares, with the proviso that no one shall have more than five votes. The General Assembly nominates the administrators to the number of nine, and three censors. The Disbursing Treasurer-General of Algeria is delegated by the Minister of Finance to serve as Government Commissioner in the Administrative Council. The administrators and censors hold office for three years, and perform duty successively in groups of three. They are re-electible. The director of the Bank is named by the Chief of the State on the recommendation of the Minister of Finance, and the assistant-director is appointed by the Minister of Finance.

The administration is complicated. Algeria is a country which exports raw material and imports manufactures. Most of the time the balance of trade is against her, and she has to pay more than she receives. In addition, considerable debts have been contracted to Paris for the building of railways, and exchange is generally unfavorable to Algeria. To supply remittances on France the Treasury sells to the merchants African Treasury orders, and pays its receipts for their account into the Bank of Algeria, which allows interest. This mode of exchange is costly, and the expense is enlarged by the advance account current which the Bank of Algeria carries at the Bank of France in order to maintain a fund for drawing direct on the metropolis. Besides the main office in Algiers, the Bank has branches at Bona, Constantine, Oran, Philippeville and Tlemcen, which promote usefully the commerce and agriculture of the colony. It has tried the experiment of numerous agricultural loans, not all of which have had lucky results. By its co-operation Algerian viticulture has risen to its present importance; but loans allowed somewhat broadly have ultimately had oppressive consequences for the farmers, who have been unable to repay the Bank at the day of reckoning. Thus to-day the Bank owns an enormous acreage, greatly to its embarrassment. The present market price of shares indicates that, granting that the Bank is not seriously crippled and that its capital remains whole, it nevertheless has in a measure lost public confidence.

The Bank of Algeria publishes an annual statement of its transactions. These statements are rather incomplete, and it is vain to search in them for details such as are given by the Bank of France. It issues a monthly balance-sheet, of which the following is a reproduction:

To sum up: The Bank of Algeria has pursued a very liberal policy in its loans, and has contributed energetically to the development of the great French colony; but the methods it has employed are not above criticism. The vast landed property that it owns has absorbed part of its reserves, but, on the other hand, is well administered, and adequately corresponds in value to the figures reported in its statements. Yet the experience of all times, especially illustrated by the recent crisis in Australia, demonstrates the danger of investments in land. Although the condition of the Bank of Algeria excites no alarm, it is infinitely less satisfactory than it would have been if the Bank had kept clear of farm loans, which offer bad security in comparison with obligations on demand, like the bank note. The function of lender on long terms is, indeed, not properly within the sphere of the bank, but belongs rather to establishments that make a special business of engagements at stated maturity. The Bank of Algeria does not stand alone in this matter, however, for some of the French colonial banks have suffered from similar mistakes.

SECTION II.

OTHER COLONIAL BANKS.

AT the time of the abolition of slavery in the French colonies, an income of 6,000,000 francs was provided for the slaveowners. To make their position less painful, a plan was also devised to procure for them advantages of credit which had not existed up to that time. With that object in view, Article 7 of the same act stipulated that one-eighth part of the indemnity for Guadeloupe, Martinique, and Réunion should be applied to establish a loan and discount bank in each of those colonies. The income bonds so set apart were to be deposited in the bank as collateral for the bank notes which it was authorized to issue. Each colonist entitled to indemnity, excepting those whose claims were under 1000 francs, had a right to receive shares of the bank equivalent to the damage suffered. It was not within the original purview to have private capital participate in the organization of the banks in the three colonies. Shortly after the creation of the Banks of Guadeloupe, Martinique, and Réunion, like establishments were founded in Guiana and Senegal. Later, banks were set up in Indo-China and New Caledonia. The Bank of New Caledonia had only a brief career, failing after a few years.

The capitals of the colonial banks at present are as follows, all paid up except that of the Bank of Indo-China:

The capital in each case can be increased or decreased only by shareholders’ assessments approved by the Governor of the colony and sanctioned by decree. The colonial banks have the sole right to issue bank notes in their respective colonies. The duration of the various privileges, excepting that of the Bank of Indo-China, fixed at twenty years, was provisionally extended upon expiration, and then renewed until 1894. Provisional re-extensions were made for 1895 and 1896. The Bank of Indo-China, which was established later than the others, has not yet completed the term of its concession. The colonial banks are conducted as joint-stock companies. Their shares are 500 francs, par value. The shareholders are represented by 100 principal owners of shares that have been registered at least six months on the books. Each member of the Assembly has but one vote. The Assembly considers and, when desirable, approves the statement of transactions for the year, and elects the administrators and censors. The treasurer of the colony is ex-officio one of the administrators. The administrators (trustees) selected by the bank are three in number, and serve for three years, one retiring each year, although re-election is allowed. The censor acts for two years, and likewise may be re-elected. The Assembly nominates an assistant-censor, who may take the place of his chief when the latter is absent or unable to perform his duties. The Minister of the Colonies also appoints a censor.

The Administrative Council deliberates and votes on all questions affecting the bank. The censors keep all departments of the institution under surveillance, and also see that the laws and regulations are executed. The director is appointed by the President of the Republic from a list of three candidates presented by the Banking Inspection Commission for the Colonies upon the recommendation of the Ministers of the Colonies and the Finances. The director acts as president of the Administrative Council, and is responsible for the enforcement of its resolves. No resolve is valid unless signed by the director. No discount or advance transaction can take place without his approval. He directs the offices, appoints the employees, and receipts for and indorses documents. He is not permitted to pursue any private business, and must possess as security twenty shares of the bank. In the event of absence or incapacity his place is filled by a director ad interim appointed by the Privy Council of the colony.

By a decree of November 17, 1852, it was determined, as an indispensably necessary measure for properly controlling the colonial banks so far as their European business was concerned, to create in Paris a “Central Agency of Colonial Banks.” The central agent is selected by the Minister of the Colonies. He represents all these banks in their transactions with Paris, attending to the taking up of notes and to purchases for the banks. He also has charge of the transfer of shares in France, and is the legal representative of the establishments in court proceedings before the tribunals of Paris. The expenses of the agency are borne by the banks pro rata according to their capital. The Minister of the Colonies designates some credit house (at present the Comptoir d’Escompte) to carry current accounts for the colonial banks. The amount of collections of the commercial paper on Europe of the colonial banks is credited to them; also the amount of such paper as has to be negotiated in Europe; the amount of back interest on consols belonging to them or intrusted to them, and all other sums which may be received for their account. On the debit side are charged drafts or orders issued in favor of third parties by the banks on the Paris credit house and paid by them, the dividends of their shares, and all expenses on their account. All collections and payments are subject to the approval of the central agent. The colonial banks, further, are kept under inspection by a commission in connection with the Ministry of the Colonies, composed of nine members—a State Councillor chosen by the Council of State, four persons appointed by the Minister of the Colonies, who must reside in Paris and of whom at least two must be shareholders, two persons named by the Minister of Finance, and two selected by the General Council of the Bank of France. The commission elects its president. All documents sent to the Ministry appertaining to the colonial banks are communicated to it. Its advice is asked concerning all acts of the Government that affect them. It recommends such measures of examination and control as seem expedient. Annually it reports to the Parliament and the President of the Republic upon the results of its administration. These reports are published in the “Journal Officiel,” and in at least one newspaper of each colony.

The agency of the colonial banks is from time to time brought under examination by the Inspectors of Finance, who inspect all the current accounts of the banks, report upon the manner in which the central agent fulfills his duties, and recommend any changes of method that may be called for. The transactions of the colonial banks comprehend discounts of notes to order and home commercial paper provided with the signatures of two solvent persons; negotiations, discounts, and the sale of drafts or orders on the metropolis or abroad; and advances on negotiable securities or on non-negotiable engagements secured variously by warehouse receipts for goods in storage, growing crops, bills of lading, transfers of bonds, or shares of the bank, and deposits of bullion, moneys, or gold and silver of every kind. The most remarkable transactions of the colonial banks—or, at least, some of them—are those on growing crops, which seem to constitute, indeed, the chief purpose of their existence. Any proprietor, farmer, or lessee of a farm, or planter, who wishes to borrow on his growing crop gives notice in writing a month ahead. This notice is entered in the book kept for that purpose by the Registrar. Everyone who is not actual owner of the soil must exhibit the consent of the proprietor, which is inscribed in the register at the same time that the declaration relating to the loan is made. Any creditor holding a mortgage on the buildings or a claim on the crop, or upon the proprietor, may remonstrate against the granting of the loan. The remonstrance is filed with the Registrar, who notes it on the margin of the application. The Registrar is obliged to furnish abstracts of such records to all asking for them. At the end of a month after the would-be borrower’s declaration, the loan may be made by the bank. By virtue of procedure which the bank takes in the same connection, it acquires a lien on the crop and is considered the owner thereof. Its lien takes precedence over the rights of all who have not entered protest. If the debtor neglects to gather his crop in sufficient time, or omits to do anything needful in the premises, the bank, after summoning him, and by a simple order from a justice of the peace, can be authorized to harvest and care for the crop in the stead of such negligent debtor, the bank advancing the required sums for expenses, which it receives back, together with the principal of the capital, out of the crop and its money product.

STATISTICS OF THE COLONIAL BANKS.*

(In Millions and Thousands of Francs).

The Banks of Senegal and Guiana make no loans on crops, as those colonies are not agricultural. These very important transactions in Martinique, Guadeloupe, and Réunion have become dangerous because of the fall in sugar. The Bank of Réunion, particularly, is in a most precarious position, owing to the large loans that have not been repaid.

The advances on goods in storage are of importance only in the Banks of Réunion and Indo-China.