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Richard Cantillon Entrepreneur and Economist

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Richard Cantillon Entrepreneur and Economist

Antoin E. Murphy

CLARENDON PRESS · OXFORD 1986

Great Clarendon Street, Oxford OX2 6DP Oxford University Press is a department of the University of Oxford It furthers the University's objective of excellence in research, scholarship, and education by publishing worldwide in Oxford New York Auckland Bangkok Buenos Aires Cape Town Chennai Dar es Salaam Delhi Hong Kong Istanbul Karachi Kolkata Kuala Lumpur Madrid Melbourne Mexico City Mumbai Nairobi São Paulo Shanghai Taipei Tokyo Toronto Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries Published in the United States by Oxford University Press Inc., New York © Antoin E. Murphy 1986 The moral rights of the authors have been asserted Database right Oxford University Press (maker) All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, or under terms agreed with the appropriate reprographics rights organization. Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this book in any other binding or cover and you must impose this same condition on any acquirer British Library Cataloguing in Publication Data Murphy, Antoin E. Library of Congress Cataloging in Publication Data Murphy, Antoin E. Richard Cantillon, entrepreneur and economist. Includes index. 1. Cantillon, Richard, d. 1734. 2. Economists— France—Biography. 3. Capitalists and ﬁnanciers— France—Biography. 4. Bankers—France—Biography. I. Title. HB105.C3M87 1986 330′.092′4 [B] 86-17948 ISBN 0-19-828535-3

Foreword Cantillon; Ricardo; Keynes: what did they have in common? There were two quite important things they did have in common. Were there any other ﬁrst-rank economists who had those same things in common? One similarity is that they were all of them practical ﬁnanciers. Each of them knew, from their own experience, how to make (and lose) a fortune on the foreign exchanges. The other is that each of them turned that experience into a theoretical model. Keynes's was a demand-side model; Ricardo's a supply-side model; Cantillon's was both. Both are explicit. So he may reckon as a common ancestor. There is ample material for the study of the relation between Keynes's experience and his theory in the long series of his Collected Works. Enough is known about the adventures of the Bank of England and of the country banks in Ricardo's time, for it to be fairly easy for the modern student to get an idea of what the world in which Ricardo the ﬁnancier operated was like. Cantillon takes us back to a remoter history, to the world of the South Sea Bubble and of the Mississippi scheme of John Law (with whom, we are now to learn, Cantillon was associated). It is a time which for its own sake is well worth study. Consider the people we meet in these pages. Bolingbroke, the ﬁrst English prime minister who made all the mistakes, fell with a bang, yet survived—to be (admittedly unofﬁcially) Leader of the Opposition. Chandos, who ﬁnanced the wars of Marlborough, and appears as a puzzle in the poems of Pope. Cantillon indeed is still more of a puzzle; a ‘strange case’ which may have to have waited more than two centuries to ﬁnd its detective. What follows is his report. SIR JOHN HICKS

Acknowledgements I am greatly indebted to many people for the assistance and encouragement they gave me while I was researching and writing this work. In particular I would like to thank my wife Elizabeth and my children Nathalie-Anne and Alexis, for the strong family support they provided over the last ﬁve years. In terms of academic assistance I wish ﬁrst and foremost to thank Professor Dermot McAleese for his continuous encouragement and interest. His detailed and informed comments on successive chapters of this book were greatly appreciated. Professor Collison Black of Queen's University and Professor David O'Mahony of University College, Cork, deserve special mention. They maintained a sustained interest in this work and provided me with many useful scholarly contacts. Sir John Hicks and the late Lady Ursula Hicks were particularly encouraging at a crucial stage in the development of this work while Terry Ryan and Cormac ÓGráda provided continuous support and encouragement from the genesis of my interest in Cantillon till the completion of this work. I am also indebted to Dr Walter Eltis (Exeter College, Oxford) Dr Dieter Helm (Queen's College, Oxford), Professor Robert Estivals (University of Bordeaux), Professor Jean-Claude Perrot (University of Paris), Dr Gilbert Faccarello (University of Paris), Dr Tony Aspromourgos (University of Sydney), Dr Michel Lutfalla, and Dr Padraig de Brún (Institute for Advanced Studies, Dublin) for their critical evaluation and helpful suggestions on individual chapters that I asked them to consult. Madame Jacqueline Hecht (INED, Paris) was ever ready to provide potential leads for the Cantillon trail. I was privileged to be instructed by Michel Bernstein on the eighteenth-century book trade. My thanks are also due to Mr Michael Burrows for reading an earlier draft of this work, Mr Tim Murphy of National and City Brokers (Dublin) for his assistance in producing three of the charts in the text, and Mrs J. Pritchard for copy-editing the text. The assistance provided by librarians and archivists was vital. I owe particular debts to Madame Jurgens (Archives Nationales), Ms Mary Robertson (Curator of the Huntington Library, San Marino, California), Mr Daniel Huwys (National Library of Wales), Mrs A. Payne (British Library), and Mr Charles Benson (Trinity College). A work of this type could not be undertaken without ﬁnancial assistance. This was provided continuously by Trinity College through

ACKNOWLEDGEMENTS

vii

its Benefaction Fund while grants from the Eoin O'Mahony Bursary and the French Government helped ﬁnance expensive overseas research trips. My thanks to all these institutions. There were many other people ‘off stage’ who had to bear the Cantillon story. Madame Louis Lebailly, Jean and Jacqueline Lejeune, and Charles Ballarin were always willing listeners in France while my mother, brother, sisters, colleagues in Trinity, and friends ensured that this book would be ﬁnished. A special debt of gratitude is due to Caroline Gillespie in the Department of Economics for her efﬁciency and cheerful disposition while typing this text. Finally I wish to thank the Huntington Library, San Marino, California for permission to quote extracts from James Brydges's letters to Richard Cantillon which are to be found in the Stowe Collection. I also wish to thank the National Library of Wales for permission to quote from the Powis correspondence and deeds.

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Contents Note on Dating Tables Charts Abbreviations for Principal Manuscript Sources An Example of Cantillon's Handwriting 1. Introduction 2. Richard Cantillon's Background 3. Cantillon's Early Career 4. Cantillon's Début as a Banker in Paris, 1714–17 5. John Law and Richard Cantillon: The First Mississippi Fortune—Phase One 6. Bernard Cantillon's Expedition to Louisiana, 1719 7. Lady Mary Herbert and Joseph Gage: Two of the Great Speculators of the Age 8. The Mississippi System—Phase Two 9. London and Amsterdam: The Great Crashes in these Cities in 1720 10. The Rich Mississippian and his Wife Mary Anne 11. Debt Collection and its Legal Consequences 12. The Strange Accusations of Christopher Balfe 13. The Writing and Contents of the Essai sur la nature du commerce en général 14. The Demise of Richard Cantillon 15. The Publication of the Essai in 1755 Concluding Note Appendix 1. Lady Mary Herbert's Debts Appendix 2. Richard Cantillon's Drawing Ofﬁce Account at the Bank of England Appendix 3. Alleged Sale of Shares by the Bank of Cantillon and Hughes acting on the Advice of Richard Cantillon, in 1720 Index

x xi xii xiii xv 1 10 24 42 65 88 105 125 157 191 208 237 246 282 299 322 325 326 328 330

Note on Dating During the period covered by this biography England still followed the Julian calendar's old style method of dating while Continental countries had switched to the Gregorian calendar's new style dating. This meant that old style dates were eleven days behind new style dates. Thus, for example, 1 May OS was 12 May NS. As most of Cantillon's life was spent on the European Continent the dating in the text is new style with the following exceptions (1) all correspondence from James Brydges, Duke of Chandos, is in old style; (2) references to the South Sea Bubble are in old style dates; (3) there are a few references where the difference between the two calendars is of sufﬁcient importance to be pointed out.

Tables 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Genealogical Tree of Richard Cantillon (1) Genealogical Tree of Richard Cantillon (2) The Cantillon Genealogy as Outlined in the O'Connell Manuscript Share Issues by the Mississippi Company (in Livres) The Development of Law's System Bernard Cantillon's Expedition to Louisiana, 1719 Transactions Involving Lady Mary Herbert Main Monetary Measures Decreed between 22 February and 11 March Loans by Cantillon and Hughes to Joseph Gage, the Carol Brothers, and the Powis Family in 1720 Reductions in Shares and Banknotes under 21 May Decree Chandos's Losses between August and September 1720 Deposit of Shares by Borrowers with Cantillon and Hughes as Collateral, 1720 Sale of Shares by Cantillon and Hughes, 1720–21 Occupational Status of Population (%) Taxonomy of Monetary Transmission Mechanisms in the Essai Censorship Control Channels for Publications Seeking a Permission Tacite Economic Works Connected with Vincent de Gournay, 1753–58

14 15 16 72 84 96 114 135 145 148 181 228 228 258 266 303 309

Charts 1 2 3

Mississippi Company's Share Price (August 1719–November 1720) Sterling/Livres Exchange Rate (3/1/1720–12/9/1720) Mississippi Share Price Expressed in Sterling (3/1/1720–12/9/1720)

151 153 153

Abbreviations for Principal Sources France AAE Archives des Affaires Étrangères AN

Archives Nationales

AN

MC Archives Nationales, Minutier Centrale

BN

Bibliothèque Nationale

BN

MF Bibliothèque Nationale, Manuscrits Français

BN

NAF Bibliothèque Nationale, Nouvelles Acquisitions Françaises

United Kingdom BL

British Library

HMC Historical Manuscripts Commission's Reports NLW Powis National Library of Wales, Powis correspondence and deeds PRO Public Record Ofﬁce PRO SP Public Record Ofﬁce, State Papers United States Huntington St. Stowe collection in the Huntington Library, San Marino, California Ireland GO

Genealogical Ofﬁce, Dublin Castle

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An Example of Cantillon's Handwriting

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ACKNOWLEDGEMENTS

xvii

A Dutch satirical print of the Stock Market speculation of 1720. (Het Groote tafereel der dwaasheid/The Great Mirror of Folly).

xviii

Hogarth satire of the South Sea Bubble.

ACKNOWLEDGEMENTS

ACKNOWLEDGEMENTS

xix

A Dutch satirical print on John Law and the Stock Market speculation his system generated in Europe. (Het Groote tafereel de dwaasheid/The Great Mirror of Folly).

xx

ACKNOWLEDGEMENTS

Satirical verse and print of John Law stirring the speculative brazier of Mississippi stock. (Het Groote tafereel der dwaasheid/The Great Mirror of Folly).

1 Introduction Every good book, so one is told, should have a beginning, a middle, and an end. This book is somewhat different in that it is difﬁcult to determine its beginning, for we are still unaware of the exact date of birth of its subject, Richard Cantillon. Similarly it has not been possible to unearth the full life story of this enigmatic character, and in keeping with his life-style, his end is shrouded in mystery. Such caveats notwithstanding, it is felt that sufﬁcient new material has been discovered to warrant a biography on the life and times of the eighteenth-century banker and economist Richard Cantillon. Cantillon's one known published work, the Essai sur la nature du commerce en général, published posthumously in 1755, ranks alongside François Quesnay's Tableau économique (1758) and Adam Smith's Wealth of Nations (1776) as one of the three outstanding works on economic theory published in the eighteenth century. Economists have waxed eloquent in their encomiums for the Essai. To Stanley Jevons, who rediscovered Cantillon, so to speak, at the end of the nineteenth century, the Essai was ‘the veritable cradle of political economy’ and ‘the ﬁrst systematic treatise on economics’.1 To Henry Higgs, the editor of the Royal Economic Society's reprint of the Essai in 1921, ‘Cantillon's analysis of the circulation of wealth is on the same level of priority as Harvey's study of the circulation of the blood.’2 Joseph Schumpeter, the doyen of historians of economic thought, stated in his History of Economic Analysis that ‘few sequences in this history of economic analysis are so important for us to see, to understand, and to ﬁx in our minds, as is the sequence: Petty–Cantillon–Quesnay.3 More recently Joseph Spengler wrote that ‘if the multiple origin of political economy is ignored, Cantillon has a very good claim to having been the principal forerunner of both the classical and neo-classical schools’, while Mark Blaug has suggested that the Essai is ‘the most lucid, and at the same time the most original of all statements of economic principles before the Wealth of Nations.’4 Surprisingly, despite his elevated position amongst historians of economic thought, no biography of Cantillon has been written, though there have been some articles on his background and aspects of his banking career.5 This biography aims to change this situation by revealing a wide

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INTRODUCTION

range of new information about Cantillon's career and the environment in which he worked. It is aimed not only at economists and historians but also general readers interested in the eighteenth century, for it shows the background of events and personalities which were inﬂuential in shaping Cantillon's career and economic ideas. This changing background involved events in late seventeenth-century Ireland, in Spain during the War of the Spanish Succession, in Paris, London, and Amsterdam during Europe's ﬁrst major stock market boom of 1719–20, in the French and British courts during the 1720s and 1730s, and ﬁnally in the jungles of the Dutch South American colony of Surinam in 1735. The personalities include the Irish banker Sir Daniel Arthur, the war proﬁteer James Brydges (later Lord Carnarvon and, still later, Duke of Chandos), the politician and writer Lord Bolingbroke, the economist and ﬁnance minister John Law, and two big speculators in French Mississippi shares, Joseph Gage and Lady Mary Herbert. Cantillon was born in Ballyronan in County Kerry sometime between 1680 and 1690. It was a tumultuous decade in Irish political life, with the demarcation lines created by the Williamite victories over the Jacobite forces of James II at the battles of the Boyne and Aughrim surviving to this day. Part of his family emigrated to France in that vast exodus which came to be romantically known as the ﬂight of the wild geese. Ironically, the boats carrying these defeated Catholic Jacobites to France were being passed by boats carrying Huguenots, forced to ﬂee France by Louis XIV's revocation of the Edict of Nantes in 1685. While writers have stressed the gains to Britain and Ireland of the Huguenot immigration, the activities of the Catholic Jacobites have been comparatively neglected. This neglect has in part been caused by a belief that the Jacobite emigration to France involved just the soldiering class. This is a misperception, for it also involved an emigration of the professional and trading classes. These groups reestablished themselves in the Atlantic seaports such as Bordeaux, Nantes, St Malo, Cherbourg, the inland port of Rouen, and of course Paris. Paralleling this type of emigration, some of Cantillon's relatives fought as ofﬁcers in the French army but others, like his father's cousin the Chevalier Richard Cantillon, went into trade and banking. The latter grouping was undoubtedly helped in establishing its business through family connections with Sir Daniel Arthur, the banker for the Irish Jacobites. Despite his Jacobite connections, Sir Daniel was back in London at the start of the eighteenth century, operating as a multinational banker who specialized in passing money across both Catholic and Protestant frontiers.

INTRODUCTION

3

We surmise that Cantillon, who took out French citizenship in 1708, was introduced into banking through the family banking network of the Chevalier Richard Cantillon and Sir Daniel Arthur. He seems to have worked for a time helping to channel ﬁnancial assistance to British prisoners of war in France via Sir Daniel's bank in London and the Chevalier's bank in Paris. This work on behalf of the British Paymaster General and the good ofﬁces of Sir Daniel Arthur probably brought him to the attention of James Brydges, Paymaster General to the forces abroad. Brydges appointed Cantillon as ﬁrst clerk to the deputy Paymaster General to the allied forces in the Iberian Peninsula. Peripatetic by nature, Cantillon travelled to Barcelona and occupied this position between 1711 and 1713, as the War of the Spanish Succession spluttered to an end. Cantillon rapidly impressed James Brydges with his conﬁdent handling of foreign exchange payments, his negotiation of provisioning contracts, and his presentation of skilful balance sheet accounts of the disbursement of funds to both the British and Imperial troops based in Catalonia. By inference, Cantillon also seems to have shown great skill in negotiating private account transactions for Brydges, one of the biggest war proﬁteers of all time. Brydges was estimated to have made over £600,000 during his period as Paymaster General. Offered employment in London by Brydges at the end of the War of the Spanish Succession, Cantillon declined and returned to Paris, where he took over the Chevalier Richard Cantillon's banking business. Using the wide banking network established by his cousin and more importantly by Sir Daniel Arthur, Cantillon quickly rebuilt the banking business, establishing important links with the Irish trading community on the Continent as well as with front rank European bankers such as Andries Pels in Amsterdam and Sir Matthew Decker, another banker-cum-economist, in London. Customers of the bank ranged from the Irish émigrés in Paris to Lord Bolingbroke, in hasty ﬂight from the Whig administration. Cantillon became a good friend of Bolingbroke, who lived at the Irish banker's residence for some time. It is conjectured that Bolingbroke may have had a strong intellectual inﬂuence on Cantillon during his Parisian sojourn. But a far greater inﬂuence on Richard Cantillon's career and intellectual development came from the Scotsman John Law. This relationship between Cantillon and Law is a fascinating one, both at the personal and at the economist level. They were business partners at one stage, although later Law threatened to imprison Cantillon in the Bastille. In economic terms it was a meeting of two of the great writers of early eighteenth-century economic thought. Both were not only

4

INTRODUCTION

distinguished monetary theorists but also large-scale practitioners in such arcane areas as foreign exchange speculation, option dealings, and copper commodity transactions. Law attempted to revolutionize the ancien régime's ﬁnancial structure and for a brief period almost succeeded in carrying through his plans. During Law's term of ofﬁce in France, Cantillon succeeded in making two separate fortunes out of what was known as Law's System or the Mississippi System. The ﬁrst fortune was made on the rising market for Mississippi shares and the other, through exchange rate speculation, when the market was falling. Law is one of the few economists who has had the opportunity to use monetary, ﬁscal, and exchange rate policies in a quasi-despotic manner to achieve his stated objectives. Cantillon, on the other hand, showed that rare skill, amongst economists at least, of being able to combine theory and practice, using his theoretical knowledge as the basis for his investment decisions. Such was his brilliance as a banker and foreign exchange operator that Law, in the summer and autumn of 1720, repeatedly invited Cantillon to join him as his principal adviser and assistant in managing the French economy. Even the French, accustomed to strong Italian inﬂuences in the management of their economy in previous centuries, might have been more than intrigued at the idea of a Scotsman and an Irishman operating in tandem to manage their ﬁnancial affairs. The Cantillon–Law relationship is discussed in the context of the speculative Mississippi System and the South Sea Bubble. There is also an interesting side story relating to their collaborative attempt to establish a settlement in Lousiana through the expedition of a colonizing group, led by Cantillon's younger brother Bernard, to Louisiana in the spring of 1719. Cantillon's banking and foreign exchange activities during the South Sea Bubble and Mississippi System are described in detail, with particular attention devoted to the activities of James Brydges, by then Duke of Chandos, one of the biggest speculators in South Sea stock, and the combination of Joseph Gage and Lady Mary Herbert, two of the largest foreign speculators in the Mississippi System. Cantillon made a fortune out of both the South Sea Bubble and the Mississippi System but this new opulence was to cause many problems. The costs of acquiring it were high owing to the legal suits taken by Joseph Gage and Lady Mary Herbert against him in the courts of both France and Great Britain over the manner in which he made his fortune. They accused Cantillon of theft and usury in both the civil and criminal courts. A sub-plot develops in the story through the activities of Joseph Gage and his agent, one Christopher Balfe, a lame Dublin apothecary with all the attributes of an Alexander Dumas character. This sub-plot leads us to the subterranean prison cells of the Châtelet

INTRODUCTION

5

to learn of conspiracies involving charges of murder, theft, sodomy, and bigamy. The traditional interpretation of Joseph Gage and Lady Mary Herbert being ‘innocents abroad’ duped by a scheming Irish banker is challenged as the sub-plot is unravelled. Aside from the sensational aspects of this legal confrontation between Richard Cantillon and the Gage–Herbert combination, it is believed that some parts of the Essai were shaped as a result of Cantillon's experiences during the South Sea Bubble and Mississippi System. At one level Cantillon, in countering the charges of Gage and Herbert, needed to justify loans he made in 1720, which they categorized as being usurious, and which he contended were foreign exchange transactions. What they deﬁned as usury on the loans he classiﬁed as the costs of foreign exchange. The defence brief submitted by his French attorney Henri Cochin shows some striking parallels with parts of Cantillon's Essai. On a broader level, however, the Essai sur la nature due commerce en général, as its title suggests, represents an attempt to describe the general nature of the economic system, trade or ‘le commerce’ being interpreted as synonyms for what is currently deﬁned as economics. The Essai is divided into three books. Book I outlines Cantillon's model of the real economy. In Book II the monetary system is superimposed on the model of the real economy and the self-equilibrating nature of the combined real/ monetary system explained. In Book III the economy is opened up to take foreign trade and foreign exchange into account. The overall objective of Cantillon, in our opinion, was to create a model of how the economic world worked and then to show that this model would not be capable of accepting the type of macro-economic grafts that John Law applied to it during the high point of the Mississippi System from the summer of 1719 to the summer of 1720. In our analysis of Cantillon's work in Chapter 13 we concentrate on some of his strongest themes, namely (1) the theory of market behaviour and the signiﬁcance of the entrepreneur in the market, (2) the circular ﬂow of income, (3) the theory of money providing the linkage between the real and the monetary economy, (4) the critique of ﬁnancial innovations. To accomplish his objective Cantillon showed how economic society evolved (1) from a centralized command economy to a market economy and (2) from a barter to a monetary economy. The ﬁrst change involved the establishment of the market with the entrepreneur at the centre of activities, while the second, concomitantly occurring with the ﬁrst, resulted in the establishment of a monetary medium of exchange. Fundamental to the new economic system is the activity of the

6

INTRODUCTION

entrepreneur. He is the catalyst to production and exchange. While Cantillon, like many other eighteenth-century writers, was imbued with the doctrines of the natural law philosophers thinking in the context of ‘la voie naturelle’, nevertheless, he understood markets well enough from his career as a trader and banker to know that they did not exist in a vacuum. Markets need entrepreneurs to activate them. Instead of Adam Smith's invocation of the mysterious ‘invisible hand’, a tradition continued in neo-classical economics through the creation of the ﬁctive Walrasian auctioneer, and more recently through the development of the rational expectations homo economicus, Cantillon based his market approach on the speciﬁc activities of the entrepreneur. He recognized that production and exchange involve uncertainty. Producer entrepreneurs and exchange entrepreneurs scout around the markets, they sniff out potentially proﬁtable ventures, they form hunches as to the likely consumer demand, and perforce, they react quickly if such hunches prove incorrect — otherwise they go out of business. The entrepreneur is the highly visible hand that ensures that markets work. The introduction of the entrepreneur into the production and exchange network served to illustrate the circular ﬂow of production income and expenditure for which Cantillon has been so highly praised. He showed how the expenditure of the landlords and the farmers generated income for urban dwellers and so enabled them to purchase agricultural output sent from the country. In this way he furnished the ﬁrst macro-economic picture of the overall working of the economy with the circular process showing the interaction of output, income, and expenditure between rural and urban producers and consumers. One person's expenditure formed another person's income which was derived through the creation of goods or services. It was Cantillon's analysis which inspired Quesnay to encapsulate the process in the ﬁrst formal economic model, the tableau économique (the economic picture) in 1758. Quesnay, like Cantillon, attached primary importance to agriculture and to the expenditure propensities of the landlord. Like Cantillon he showed the interaction between income, output, and expenditure of different socio-economic groupings which he tagged as landlords, farmers, and the ‘sterile’ group. Cantillon and Quesnay differed in terms of their views of the consequences arising from the produit net in agriculture. Quesnay was able to envisage the agricultural surplus producing economic growth. Cantillon believed that any surplus in agricultural production would just increase population. Quesnay was more interested in the dynamic income generating process and the implications it had for ﬁscal policy, that is

INTRODUCTION

7

the possibility of the produit net in agriculture being able to support the full weight of taxation through the imposition of an impôt unique (a single tax). Cantillon had a different concern in analysing the circular ﬂow. He analysed it in order to determine the velocity of circulation of money, the ﬂip side of the coin to what is currently described as the demand for money. The description of the circular ﬂow of income in the Essai was necessary, for Cantillon wished to estimate the quantity of money required to ensure that production and exchange operated smoothly and efﬁciently in the economy. Once he had estimated the demand for money he examined the ways in which the money supply could expand. He identiﬁed a number of different sources of monetary expansion, noting that spending or saving propensities were in part inﬂuenced by the way in which the money supply had been increased. The effects of the increased money supply differed depending on whether (1) the money was spent, lent, or hoarded, (2) the economy was open or closed, (3) the economy was operating at full capacity or not. He highlighted the distinction between traded and non-traded goods to show how, via the cash balance effect, an expansion of the money supply would increase expenditure which would cause a balance of payments deﬁcit. This deﬁcit would cause a reduction in the money supply. He was the ﬁrst to develop the self-adjusting specie ﬂow mechanism. Anticipating David Hume's essay ‘Of the Balance of Trade’, he also proposed a self-adjusting price specie ﬂow mechanism, whereby an increase in the money supply produced a balance of payments deﬁcit via a relative prices effect. The increased money supply was seen to increase expenditure which pushed up prices, thereby making the domestic economy's prices uncompetitive with those prevailing on the international markets. Imports increased and exports fell, causing a balance of payments deﬁcit which in turn caused a reduction in the money supply. Cantillon's use of both a cash balance effect and a relative price effect, to illustrate the way in which excess money balances are worked off in an open economy through balance of payments deﬁcits, is reconciled against the background of the early eighteenth-century economy. Having established this apparent axiom that the money supply could not exceed the demand for money, except in the very short run, he then analysed in a critical manner the type of monetary policies that John Law had used in France to improve the economy's performance. Though never mentioning Law or the Mississippi System, he repeatedly analysed the type of policies that Law had attempted to implement between 1718 and 1720. Policies such as those involving the substitution of paper money for

8

INTRODUCTION

specie, the use of domestic exchange rate changes, the expansion of the money supply, the imposition of exchange control regulations, and the manipulation of the rate of interest by the Central Bank were attacked by Cantillon. Most of Book III of the Essai is, in this interpretation, seen as a thinly veiled critique of Law's System. Cantillon and Law had different visions of the economic universe. Cantillon had a static interpretation of economic processes. He perceived international trade as a zero sum game in which one country could grow only at the expense of another. Even if a country achieved growth, he believed that such growth was only part of the upswing of an economic cycle that was inevitably followed by depression and decay when the downswing appeared. He believed that monetary media of exchange had to be real physical commodities possessing intrinsic value. He was a conservative with a jaundiced eye on the possibility of economic progress and ever fearful about the undesirable consequences arising from ﬁnancial innovation. John Law's optimism was in direct contrast to such conservatism. He believed that growth could be promoted by expansionary monetary policy. He innovated and very nearly succeeded in transforming the ﬁnancial superstructure that had been imposed on the French economy. He found nothing natural about the constraining factors to growth, the shortage of money and the underutilization of the French economy's productive capacity. He favoured intervention and ﬁnancial innovation. While his System may have failed, his vision of the way in which paper money would replace specie was far more perceptive than that of Cantillon. On the other hand, Cantillon greatly advanced economic theory through the Essai. His work on the entrepreneur and the role of markets, on the circular ﬂow of income, and on the specie ﬂow mechanism is of the highest quality. It would be wrong to look for a winner from the implied debate between Cantillon and Law. Both writers helped to advance our understanding of economic theory. Unfortunately, the Essai is all that remains from Cantillon's seemingly proliﬁc pen, apart from some letters reproduced later on. According to Mirabeau, the 480-page Essai was only the one-hundredth part of the works that Cantillon wrote.6 A ﬁre in his house seemingly destroyed these other works. Consistent with his enigmatic life, this ﬁre and Cantillon's demise in it in London on 14 May 1734 presents us with a mystery. Was Cantillon accidentally engulfed in the ﬁre or was he murdered in his bedroom before his assailants set ﬁre to his house? A body in his house in Albemarle Street was burnt to ashes but was it that of the economist, or did he use the ﬁre as a cover to depart from European society? Circumstantial evidence in the form of conﬂicting evidence presented

INTRODUCTION

9

at the trial of his servants accused of his murder, the fact that he himself withdrew a large sum of money from his bank, reputed at £10,000, on the day of his demise, and the existence of a mysterious Chevalier de Louvigny, furtively roaming the jungles of Surinam with a large amount of documentation belonging to Richard Cantillon, six months after the Albemarle Street ﬁre, is presented, evidence which raises doubts about what happened on the night of 14 May 1734 in London. Twenty-one years after Cantillon's demise, almost to the day, the Essai sur la nature du commerce en général was published. The publication background of the Essai is examined in Chapter 15, where it is shown that it was not published by chance but was part of a speciﬁc economics publications programme aimed at changing French attitudes on economic theory and policy. This programme, orchestrated by Vincent de Gournay, attempted to establish a broad range of principles which would be used as the foundation of economic science. Cantillon's career and his Essai covered two of the most notable developments of the ancien régime in France, namely the failure of John Law to introduce a primitive type of ‘Keynesian’ programme aimed at promoting a prosperous economy and the success of the Enlightenment movement. His book, written against the background of Law's System, represented a fundamental part of the ‘économistes’ input to the Enlightenment. That it could be used in such a way, long after its author's demise, was a tribute to its scientiﬁc approach. That it has further stood the test of time and is of increasing interest to modern-day economists is a tribute to its genius.

Notes 1 2 3 4 5 6

Stanley Jevons, ‘Richard Cantillon and the Nationality of Political Economy’, Contemporary Review (January 1881), reprinted in Richard Cantillon, Essai sur la nature du commerce en général, ed. Henry Higgs (Macmillan/Royal Economics Society, 1931), 359–60. Henry Higgs, ‘The Life and Work of Richard Cantillon’, in Cantillon, Essai, 388. Joseph Schumpeter, History of Economic Analysis (London, 1981, 12th printing), 218. Joseph Spengler, ‘Richard Cantillon: First of the Moderns’, Journal of Political Economy, lxii, no. 4, pt. 1 (August 1954), 281; Mark Blaug, Economic Theory in Retrospect (Cambridge, 3rd edn, 1979), 21. Henry Higgs did most to unearth details on Cantillon's career. See Essai, 363–89, and ‘Richard Cantillon’, Economic Journal, i (1891), 262–91. Victor Riquetti, Marquis de Mirabeau, L'Ami des hommes (Avignon, 1756, 12mo edn.), i. 238.

2 Richard Cantillon's Background Richard Cantillon was born in Ballyronan, in the parish of Ballyheigue, North Kerry, towards the end of the seventeenth century. Unfortunately, his date of birth is unavailable as parish records were not kept at this stage in Ireland. We can, however, through a detailed restructuring of his genealogy, show that the date of birth attributed to him, 16 March 1697, is incorrect and that the likelihood is that he was born between 1680 and 1690.1 His date of birth is of some importance in that Hone's biographical account, attributing his birth to the year 1697, has been accepted by subsequent commentators and from it they have concluded that Richard Cantillon was a teenage prodigy in the tough world of early eighteenth-century banking. Correspondence between James Brydges, later known as the Duke of Chandos, and Richard Cantillon shows that Cantillon worked for the British Paymaster General's ofﬁce as early as 1711.2 Cantillon had taken out French nationality in 1708, a development coinciding, we believe, with the attainment of his majority of 21 years.3 His friend and former employer, the Duke of Chandos, writing a letter of introduction on his behalf to the leading Dutch banker Andries Pels in 1716, mentioned that Cantillon was a young man, ‘un jeune homme que je crois aura assez d'industrie’.4 As Chandos was 42 at the time of this letter we assume that ‘young’ to him represented someone at least ten years younger than himself. There are other letters written around this period that mention ‘Richard Cantillon le jeune’ (junior), but this was to distinguish between himself and his older cousin who bore the same name and was known as the Chevalier Richard Cantillon. The Chevalier died in 1717 so that Robert Arbuthnot's comment on ‘young Cantillon’ in 1719 was probably a reference to his age, indicating that he was in his late twenties, or early thirties by our reckoning.5 Furthermore Richard Hayes, an Irish historian, gave Cantillon's birth as 1680, though, unfortunately, he did not cite the source on which he based this view.6 We are fairly conﬁdent in localizing Cantillon's birth between 1680 and 1690. Apart from providing a probable age proﬁle, the reconstruction of Cantillon's genealogical background is a complicated and fascinating exercise. It is complicated in that the family handed down the Christian

RICHARD CANTILLON'S BACKGROUND

11

names Richard and Thomas from one generation to the next. A Richard Cantillon's eldest son would be named Thomas and his eldest son in turn would be called Richard. In 1717 there were at least three Richard Cantillons in existence, the Chevalier Richard Cantillon, the economist Richard Cantillon, and the economist's nephew Richard Cantillon. If the economist's father, also bearing the same name, was still alive he would have added to the confusion over the name. Furthermore, on the death of his cousin the chevalier in August 1717 the economist dropped the title ‘le jeune’ from his banking nomenclature only to transfer it three years later to his 3-year-old nephew of the same name. Despite these complications the work is fascinating, revealing not only Cantillon's Irish roots and his connections with a type of Kerry ‘maﬁa’ in eighteenth-century Paris but also the type of traps the unwary historian and genealogist may fall into in assembling a family tree that reaches back over a number of centuries. Genealogy in the hands of some people has produced creative works of ﬁction of more than plausible authenticity. This type of ﬁctive genealogy has both negative and positive features, the ﬁrst combining to cover up ‘petit peuple’ antecedents while on the positive side bloodlines stretching through blue blood aristocratic soldiering stock — ofﬁcer class, of course — are created. The objective of such exercises was normally to gain recognition at court and status in society. Such ‘creative’ genealogy was a thriving business in the seventeenth and eighteenth centuries when wars, with their attendent displacements of populations and enforced emigration, moved part of the ruling classes from one European country to another. After such movements the hierarchical order had to be re-created and entrées to the court and its circle of inﬂuence sought. The French, a nation born with a bureaucratic stamp in its mouth, required papers attesting to the nobility of its newly arrived Jacobite exiles. But while genealogical fabrications were part of everyday life in the seventeenth and eighteenth centuries one would have thought that such activity would be rarer in the nineteenth century, the period when a certain Antoine Sylvain de Cantillon, colonel in the third regiment of hussars, started investigating his family tree. Colonel Cantillon went to great trouble in assembling his genealogical background, even writing to the ofﬁcial genealogist Sir William Betham at Dublin Castle in 1838. He asked Betham for information on the Cantillon family. He also wrote to the French War Ofﬁce requesting details of the military careers of Captains James and Thomas Cantillon. As a result of his research he claimed the title of Baron of Ballyheigue and arranged for the publication of the Notice historique, généalogique et biographique de la famille de Cantillon.7 This

12

RICHARD CANTILLON'S BACKGROUND

work purported to show Antoine Sylvain de Cantillon, then Baron de Ballyheigue, as a grandson of Captain Thomas Cantillon, an ofﬁcer who had distinguished himself at the battle of Lauffelt, and a great grandson of Captain James Cantillon, a hero at the battle of Malplaquet in 1709. To all appearances the ‘Baron’ had a most distinguished lineage with military blood coursing through his veins. Guy Antonetti has recently shown that the pot-pourri presented in the Notice historique is a complete fabrication designed to link Colonel Antoine Sylvain de Cantillon to people other than his real relatives. Antonetti discovered that the colonel's grandfather was Antoine Seraphin Cantillon, a master tailor, rather than Captain Thomas Cantillon, and his great grandfather was Valentine Cantillon, a legal ofﬁcial, rather than Captain James Cantillon!8 Unfortunately it was the Notice historique and some work carried out by Sir William Betham at the colonel's request that formed the basis of subsequent studies on Richard Cantillon's background.9 Joseph Hone in his biographical work on Richard Cantillon placed great emphasis on Betham's tentative genealogy. This work by Betham is in the Genealogical Ofﬁce in Dublin. The ﬁrst part of it is based on contemporary seventeenth-century documents while the second half is taken from a manuscript by the Athlone herald-in-arms, James Terry, now held by the British Library. Unlike Hone we were able to locate this manuscript which allegedly gave the date of birth of Richard Cantillon as 16 March 1697. The relevant extract is to be found in Terry's description of the great Kerry family, the Fitzmaurices: ‘Richard Cantilon son to Philip Cantilon Gent and of Francis Pierce daughter to Garet Pierce of Danaghamore being the grandson of Richard Cantilon of Ballyheigh (?ys) 16 March 1697.’10 However, this reference to a Richard Cantillon is not to the economist but to his second cousin the Chevalier Richard Cantillon. What does the March 1697 date refer to? Obviously it does not indicate the date of birth of the Chevalier, by this time a well-established Irish emigrant in Paris, who had taken out French nationality as early as 1681.11 In our view it was not a date of birth that Terry was referring to but the particular time at which he was assembling the Fitzmaurice pedigree and showing the links between that family and the chevalier. But while we can criticize the existing work on Cantillon's background, what can we offer to replace it? Using contemporary documents we have assembled an alternative, and we believe accurate, account of Cantillon's ancestry. In 1724 Cantillon himself requested William Hawkins, the Ulster king-at-arms in Dublin, to compile a genealogy on his family. Cantillon, then a wealthy man, conscious of his roots, whose wife had just borne him a son, may have felt it desirable

RICHARD CANTILLON'S BACKGROUND

13

to have such a genealogy compiled. It is noticeable that he avoided using the services of James Terry, possibly to avoid being connected with the Jacobites, when requesting this genealogical work. Terry, in a ﬁt of pique, wrote to him from Versailles in 1724: ‘I am sorry you sent to Mr. Hawkins for Ireland for your genealogy since you were sensible that I came over with the late deceased King, and then brought with me his records of that Kingdom. . . ’.12 Terry's rival in Dublin, Hawkins, took some ﬁve years to assemble and deliver Cantillon's genealogy.13 This genealogy, which traces the family back to the Norman invasion of Ireland in the thirteenth century, is reproduced in Table 1 for just ﬁve generations of the family. Sir W. Betham, on examining Hawkins's work a century later, was extremely critical of it, asserting that ‘this pedigree or at least the early part of it is a stupid fabrication’ [our emphasis]. We accept this assessment of the early part of the genealogy which would have been dependent on the local oral tradition in Kerry, handed down from one generation to the next, a system prone to error the further back in time one went. However, its accuracy on Cantillon's parents, grandparents, and great grandparents is conﬁrmed by another contemporary account, which we refer to as the O'Connell manuscript.14 Combining the later parts of Cantillon's genealogy by Hawkins with the O'Connell manuscript, a genealogical account of Cantillon's family is presented in Table 2. This table was further cross-checked with contemporary seventeenthcentury documents where possible. The Cantillon story that emerges is as follows. The family left Normandy to accompany William the Conqueror in his invasion of Britain. A century later, part of the family went invading again, this time accompanying Henry II's invasion of Ireland. Granted land in the southern province of Munster, they settled mainly in Kerry and Limerick, becoming local lords of the manor. The name Cantillon is supposedly derived from the French chant-de-loup (the cry of the wolf), which became corrupted to Cantilupe to Cantoval to Contouloon to Cantillon and Condon. Catholic gentlemen farmers, they rallied to the Stuart cause in the seventeenth century and were rewarded with the conﬁscation of their ancestral lands. The planters of the twelfth century became the dispossessed of the seventeenth century. The Book of Survey and Distribution shows that in the parish of Ballyheigue, barony of Clanmaurice, a number of Cantillons, ‘papist landowners’, forfeited their lands to Cromwellian planters in the 1650s. The names mentioned are Richard and Ellen Cantillon of Ballyheigue forfeiting 639 acres and Thomas Cantillon of Ballyraniny and Tenereigh forfeiting 787 acres. These people were Richard Cantillon's great grandparents (Richard

14

RICHARD CANTILLON'S BACKGROUND

Table 1. Genealogical Tree of Richard Cantillon (1)

RICHARD CANTILLON'S BACKGROUND

15

Table 2. Genealogical Tree of Richard Cantillon (2)

and Ellen) and grandfather Thomas, known as ‘the Cantillon’. Hart's Irish Landed Gentry list of forfeiting proprietors lists Ellen Cantillon, Richard Cantillon (deceased), Thomas McShane Cantillon, and Thomas Cantillon, alias Cantillon, Ballyronane—the latter location being the birthplace of the economist.15 What happened to the family after the Cromwellian forfeiture of their estates in the 1650s? We believe that they returned to farm some of their lands in the barony of Clanmaurice as tenant farmers in the 1670s. In 1681 we ﬁnd a Richard Cantillon subscribing money towards the construction of a chapel in the parish of Killury, Ratoo, and Ballyheigue.16 This, we believe, was Richard Cantillon's father. The economist's father married a kinswoman, Bridget Cantillon of Kilgobbin in Adare, County Limerick. This marriage conﬂicted with the Catholic Church's rules on consanguinity, and a special dispensation had to be arranged for the couple.17 Bridget Cantillon was well connected, for her mother was Jane Arthur, a sister of the enormously successful Jacobite banker Sir Daniel Arthur — a banking connection which had obvious implications for her son's subsequent career. Sir Daniel's career is discussed in Chapter 3. Richard and Bridget Cantillon had three sons, Thomas, Richard, and Bernard. Thomas, the eldest, stayed on in Ireland and leased lands in the Ballyheigue area in 1703.18 Prior to this he had been a captain in

16

RICHARD CANTILLON'S BACKGROUND

Table 3. The Cantillon Genealogy as Outlined in the O'Connell Manuscript

RICHARD CANTILLON'S BACKGROUND

17

the army, presumably ﬁghting on the Jacobite side. He died in 1736 and is buried in the churchyard at Ballyheigue where a granite tombstone was erected in his memory by his wife.19 With the older brother working on the land, the younger brothers Richard and Bernard left Ireland for France. Both were to travel extensively, with Richard criss-crossing Europe in his travels and Bernard becoming one of the ﬁrst Irish emigrants to North America when he led an expedition to Louisiana in 1719. But, before removing the Cantillon brothers from the pasturelands of the barony of Clanmaurice, can we make any tentative conjectures about their early upbringing, assuming part of it was in Ireland? Ballyronan, to the south of the Shannon estuary, is a small townland near Ballyheigue in north-west Kerry. It is here, according to his declaration to the French authorities, that Richard Cantillon was born. It is germane to observe that Cantillon was born into a family which had been feudal landlords in Clanmaurice for over ﬁve centuries. When the Cromwellians conﬁscated their lands in the 1650s they took close to 1,500 acres from the Cantillon family. The evidence suggests that the family came back and farmed part of their former holdings as tenant farmers but, notwithstanding this change in status, they were still regarded as the old lords of the manor. A lament on their expulsion from Rathmorrell Castle suggests that they had been good landlords.20 Despite the fact that he never mentions Ireland in the Essai, we feel that Cantillon's background comes through in this work, allowing us to interpret the Essai on two levels. The ﬁrst approach distinguishes between the real economy discussed in Book I (the Essai is divided into three books) and the monetary economy in Books II and III. This is the approach of the economic theorist, and one that will be examined in Chapter 13. But we may also interpret the Essai as distinguishing between the old feudal landlord world that Cantillon was born into (Book I) and the new banking world he was forced to adopt when he emigrated (Books II and III). The feudal landlord is, in the Essai, the only independent person in the state. ‘There are none but the prince and the proprietors of land who live independent; all other classes and inhabitants are hired or are entrepreneurs.’21 It is this group's method of living that determines both the level and the composition of national income: ‘everything in a state depends on the fancy, methods, and fashions of life of the proprietors of land.’22 Again, ‘if we examine the means by which an inhabitant is supported it will always appear, in returning back to the fountain head, that these means arise from the land of the proprietor.’23 On a subconscious level we can see Cantillon explaining

18

RICHARD CANTILLON'S BACKGROUND

the system on which his family's power had been based for centuries. They had been feudal landlords with all the accoutrements of authority and duties that such a position entailed, authority over their tenants and duties to their prince when required for war: ‘a nobleman with his retinue and his horses is useful to the state in time of war.’24 On 27 July 1689 a Richard Cantillon was among a number of Kerrymen appointed by James II as commissioners for the Militia of Array.25 Was this our Richard's father meeting the request of his monarch, James II, to bear arms on behalf of the Stuart cause? In Chapter 11, Book I of the Essai Cantillon wrote that the landlord's title was based on force: ‘the most ancient titles are founded on violence and conquest’. Cantillon seemed to accept this force majeure argument. After all, it had been by force of arms that his family had been granted their lands in Kerry. The Cromwellians and Williamites had taken the family's land in the same way that the Normans had dispossessed the native Irish. But, dispossessed of these lands, Cantillon yearned to purchase land when he had made his fortune. Writing from England in 1721 he expressed such a desire: ‘There is an air of freedom and property in this island that would tempt me very much to stay here for good if I could enjoy lands in it’26 [my emphasis]. However, he needed to make a fortune to acquire land. From an early age we ﬁnd Cantillon driven by this urge to make such a fortune, for by 1712 we infer that he had already discussed this objective with James Brydges, who replied: ‘ . . . you may be assured the desire of making your fortune shall be as much in my thoughts and at my heart as those of my own’ [my emphasis].27 But to make his fortune Cantillon had to move from the old world of the feudal landlord to the new world of banking. In this, as will be shown, he was phenomenally successful. Books II and III of the Essai deal with this world of money and banking. Cantillon shows the way in which this world operated and hints, at times, on the way money might be made in it. The Essai shows the world Cantillon came from and that which he adopted. While he came from a dispossed landlord family that farmed in the quiet pastoral climes of Clanmaurice, it would be wrong to suppose that Cantillon's Kerry environment was totally isolated from the rest of the world. It certainly appeared so from Britain, representing as it did the most western part of the British Isles and a long and arduous journey from Dublin. But Kerry's links, while weak with Britain were stronger with the Continent. Kerry, like other parts of Ireland, exported beef and butter to the Continent in return for brandy, wine, and salt. Being more isolated from British inﬂuence, the scope for smuggling these items was much greater. Boats slid into the bays of Kerry, exchanged their merchandise, and disappeared quickly back to

RICHARD CANTILLON'S BACKGROUND

19

the Continent. Family trade networks were established on the Continent and a brisk two-way exchange carried out during the eighteenth century. The boats travelling from Ireland carried not only commodities but also emigrants and in some cases summer migrant workers: When they have sown their Summer corn in the Spring many families will take vagary of going into Spain and there spend the Summer in begging and wander up and down the places on the north side of that kingdom; not returning home till their corn be ﬁt to reap and then they come and winter here.28 .But, besides being peripatetic, the Kerry people, much to Sir William Petty's surprise, were educated enough to speak Latin. Petty noted that the upper classes could speak both French and Latin but that ‘Latin is very frequent among the poorest Irish, and chieﬂy in Kerry, most remote from Dublin’.29 Petty, part of the new landlord class that had dispossessed families such as the Cantillons, was a more than shrewd commentator on Ireland. A man of great energy and enthusiasm, he diversiﬁed from his early career of physician and professor of anatomy at Oxford (he also held a chair of music there) to supervise a major geographic survey of Ireland, the Down Survey, and also attempted to develop a small industrial estate on his lands near Killarney.30 His economic writings were innovative and incisive, greatly inﬂuencing Cantillon at a later stage. In The Political Anatomy of Ireland he analysed the Irish psyche and customs, as well as the economic state of the country. His comments are still of interest today. To the perennial accusation of foreigners that the Irish seemed lazy, Petty found explanations in the pastoral way of life, the religious beliefs of the population, and the repressive nature of British legislation on economic activity: Their lazing seems to me to proceed rather from want of employment and encouragement to work than from the natural abundance of ﬂegm in their bowels and blood; for what need they to work, who can content themselves with potatoes, whereof the labour of one man can feed forty; and with milk, whereof one cow will, in Summer time, give meat and drink enough for three men, when they can everywhere gather cockles, oysters, mussels, crabs etc with boats, nets, angles, or the art of ﬁshing; and can build a house in three days. And why should they desire to fare better, though with more labour, when they are taught, that this way of living is more like the patriarchs of old, and the saints of later times, by whose prayers and merits they are to be relieved, and whose examples they are therefore to follow? And why should they breed more cattle, since ’tis penal to import them into England? Why should they raise more commodities, since there are not merchants sufﬁciently stocked to take them of them, nor provided with other more pleasing foreign commodities, to give in exchange for them? And how should merchants have

20

RICHARD CANTILLON'S BACKGROUND

stock, since trade is prohibited and fettered by the statutes of England? And why should men endeavour to get estates, where the legislative power is not agreed upon; and where tricks and words destroy natural rights and property.31 Petty's account shows that Ireland was no place for a budding entrepreneurial talent at the end of the seventeenth century. The choice facing Cantillon if he stayed at home was not too inspiring: a mixture of tenant farming, smuggling, and even wrecking. The latter activity was practised in the Ballyheigue area. Lanterns were attached to the tails of grazing cattle to simulate the bobbing lights of vessels at sea and lure unsuspecting ships onto the rocks of Tralee Bay. It may have been such activities that caused the Golden Lion, a Danish ship, to be grounded in the Bay in 1728. This ship carried a cargo of silver which was rescued and temporarily deposited in the keep of a former Cantillon castle in Ballyheigue. The silver was stolen by a group which included one of Cantillon's relatives.32 We add one further note on the characteristics of Kerrymen at this period, their propensity to seek legal redress for any injuries that they suffered: Those that are loath to be called the inferior sort are generally very litigious among one another and they will go to law about the least triﬂe; and this is the reason (or perhaps the consequence) of this county's abounding more than ordinary with men (as they term it) towards the law.33 Cantillon, as later events will show, was to spend a vast amount of his time, energy, and money taking and defending lawsuits in the courts of both Great Britain and France. To end this chapter mention must be made of the ethereal burial practices of the Cantillons according to local folklore. Around the area of Tralee Bay overlooked by Ballyheigue there is an island visible at low tide which, according to Kerry oral tradition, is the ancient burial ground of the Cantillons: This island was situated at no great distance from the shore, and at a remote period was overﬂowed in one of the encroachments which the Atlantic has made on that part of the coast of Kerry. The ﬁshermen declare they have seen the ruined walls of an old chapel beneath them in the water as they sailed over the clear green sea on a sunny afternoon. However, this may be, it is well known that the Cantillons were like most other Irish families, strongly attached to their ancient burial-place, and this attachment led to the custom, when any of the family died, of carrying the corpse to the seaside, where the cofﬁn was left on the shore, within reach of the tide. In the morning it had disappeared, being, as was traditionally believed, conveyed away by the ancestors of the deceased to their family tomb.34

RICHARD CANTILLON'S BACKGROUND

21

While such a story, taken from Croker's Fairy Legends, might seem largely irrelevant to the biography of an economist such as Richard Cantillon, it bears remembering when we come to discuss the mysterious demise of Cantillon, along with the enigmatic spiriting away of documents relating to him from his residence in Albemarle Street in London to the Dutch South American colony of Surinam. Cantillon moved in mysterious ways all through his life, ever mindful to cover his tracks and maintain a low proﬁle in the society in which he mixed. As we attempt to elaborate the complex mosaic of his life and ﬁnancial activities, we will ﬁnd the adjective ‘enigmatic’ coming up with regularity. Having made a fortune out of France's ﬁrst major stock exchange boom in 1719–20, Cantillon was described by the French tax inspectors as an ‘inconnu’. It is to be hoped that the ensuing chapters will help to make this cosmopolitan but secretive Kerryman a little more connu.

Notes 1 2

3 4 5 6 7 8 9

Joseph Hone, ‘Richard Cantillon, Economist—Biographical Note’, Economic Journal, liv (April 1944), 96–100. Correspondence of James Brydges in the Stowe MSS, Huntington Library, California. Brydges's correspondence covers nearly ﬁfty years and forty thousand letters. It includes some ninety letters from Brydges to Richard Cantillon written between 19 February 1712 and 21 July 1722. As such it provides some invaluable materials on Cantillon's early career, his début as a banker in Paris, and his operations during the Mississippi and South Sea traumas. For an account of this collection see ‘The Letters and Accounts of James Brydges 1705–13’ by E. L. Harvey in the Huntington Library Bulletin, ii (1931). AN 0152, fo. 202, ‘Naturalité pour Richard Cantillon natif de Ballironane dans le Comté de Kerry en Irlande. A Versailles au mois d'Avril 1708.’ Huntington Library St. 57, xiv. Letter from James Brydges to the great Dutch banker Andries Pels recommending Cantillon to him. The letter was written on 2 May 1716. HMC Bath, iii (1908), 468. Richard Hayes, ‘Biographical Dictionary of Irishmen in France’, Studies (June 1942), 242. Notice historique, généalogique et biographique de la famille de Cantillon, extraite de la Revue historique de la noblesse, de M. d'Hauterive, par le Chevalier O'S., gentilhomme irlandais (Paris, 1844). Guy Antonetti, ‘Autour de Cantillon’, Mémoires de la société pour l'histoire du droit, 29e Fascicule (Dijon, 1968–9). Betham's work is to be found in Genealogical Ofﬁce, Dublin Castle, MS 216, 11.

22

RICHARD CANTILLON'S BACKGROUND

10 BL Harley MS 4036, fo. 298. I am indebted to Mrs A. Payne, Assistant Keeper in the British Library, for helping to locate this reference. 11 AN 0125, fo. 210, ‘Lettre de naturalité en faveur de Richard Cantlon, Irlandois, faisant profession de la R[eligion] C[atholique] A[postolique] et R[omaine] à Versailles au mois de May 1681’. 12 BN Dossier Bleu 3889. Higgs (Essai) quotes this document on p. 365 but spells Hawkins incorrectly as Hocking, a mistake which probably stopped him investigating Hawkins's genealogical work on Cantillon's family in the Genealogical Ofﬁce, Dublin Castle. 13 Two documents in the Genealogical Ofﬁce, Dublin represent Hawkins's reply to Richard Cantillon, GO MS 159 contains a genealogical table which is duplicated in the form of a genealogical tree in GO MS 160. MS 159 contains a letter, dated London 3 June 1729, from the well-known eighteenth-century Irish scholar Dermod O'Connor, which includes the following: ‘Pray as soon as you receivd this write all in your hand, and when you ﬁx your seal ofﬁco, get it attested as proper before the Lord Mayor there, and if occasion required in a notary publicke and send it to Mr. Cantilon without delay and you'll oblige. Sir, your most humble servant. Derd. O'Connor.’ This document, without the letter, is duplicated in MS 160 and is signed William Hawkins, Ulster king-at-arms. It seems to be William Hawkins's reply to Cantillon's request in 1724 for details of his genealogy. As noted in the text, Sir William Betham has written notes across both manuscripts expressing reservations about their accuracy. On MS 160 he stated, ‘this pedigree is certainly very incorrect if not a fabrication. I am astonished at its appearance here.’ On MS 159 he is more restrained in stating that ‘this pedigree or at least the early part of it is a stupid fabrication’ [our emphasis]. Betham's reservations seem to be about the early part of the genealogy which traces Cantillon's family back to Raymond le Gros who came over to Ireland with Strongbow in the thirteenth century. It is unlikely that an ofﬁcial genealogist would make mistakes about Cantillon's immediate pedigree. 14 MS P. 12/2A/209, Archives Department, University College, Dublin. We refer in the text to this important manuscript as the O'Connell manuscript as it was found in the O'Connell collection. My thanks to Professor Louis Cullen of Trinity College, Dublin, for helping to locate this document. 15 J. O'Hart, Irish Landed Gentry when Cromwell came (London, 1911), 290. 16 Trinity College, Dublin, Crosbie of Ardfert Papers, MSS 3821/32. 17 O'Connell manuscript, loc. cit. 18 Deed no. 2779 in the Registry of Deeds Ofﬁce, Dublin, shows that a Thomas Cantillon of Rathmorrill had been leasing lands in Ballyhanrigane, near Ballyheigue, from 1703. We believe that this Thomas Cantillon was a brother of Richard Cantillon. In his will, dated 11 April 1734, Richard Cantillon bequeathed ‘unto my brother Thomas Cantillon twenty ﬁve pounds sterling per annum during his natural life and redeemable by four hundred pounds sterling’, see Prob II, 684 in the Public Record Ofﬁce, London.

RICHARD CANTILLON'S BACKGROUND

23

19 My thanks to Mr James Moriarty for showing me the tombstone in Ballyheigue. 20 Dublin, Royal Irish Academy, MS 12, fo. 269, ‘Lines on viewing what once was Rathmorrell Castle’. According to this work, Rathmorrell Castle was the residence of the ‘chieftains of De Cantellon’. 21 Essai, 43. 22 Ibid., 47. 23 Ibid., 45. 24 Ibid., 93. 25 M. A. Hickson, Selections from Old Kerry Records (London, 1874). 26 NLW Powis 10726. Copy of letter from Richard Cantillon to Lady Mary Herbert, 9 January 1721. 27 Huntington St. 57, vi. 245. Chandos to Cantillon, 8 April 1712. 28 Trinity College, Dublin, Molyneux MS 883, ii. 13–14. This view was disputed by a Mr Kennington in the Molyneux MS 883, i. 265. 29 Sir William Petty, The Political Anatomy of Ireland in Sir William Petty's Political Survey of Ireland, 2nd edn. (London, 1719), 79. 30 The English Protestants that Petty imported to farm and mine on his estate encountered considerable problems from the dispossessed native Irish. See Richard Orpen, An Exact Relation of the Persecutions (London, 1689). 31 Petty, op. cit., 96–7. For an account of Irish life at this time see Edward MacLysaght, Irish Life in the Seventeenth Century: after Cromwell (Dublin, 1939). 32 For an account of this robbery see Hickson, op. cit., n. 25 above, and Froude, The English in Ireland (London, 1872–4), 477–98. 33 Trinity College, Dublin, Molyneux Papers MS 883, ii. 13–14. 34 T. Crofton Croker (ed.), Fairy Legends and Traditions of the South of Ireland, (London, 1862, new edn.), 190.

3 Cantillon's Early Career The defeat of the Jacobites at the Battle of the Boyne in 1690, followed by further reverses of the army of James II at the Battle of Aughrim, heralded the demise of the Catholic landlord class. Even prior to the ﬁnal siege of Limerick, which resulted in the Treaty of Limerick between the vanquished Jacobites and the victorious Williamites, this class had seen the writing on the wall and made provisions to export its capital prior to the ofﬁcial cessation of hostilities. The Marquis d'Albyville, ﬁghting a rearguard action with the beleaguered Jacobite forces, wrote from Limerick just before the ﬁnal battle describing the extent of this withdrawal of funds, as well as the size of the growing banking business of Cantillon's relative Sir Daniel Arthur: I believe the King of France would perform a great act of justice in carrying out an inventory of the assets of all those people who have withdrawn from Ireland to France, which could be done through the threat of the death penalty and conﬁscation of their assets; that all those French or Irish merchants and bankers, who have Irish assets under their control, would be obliged to declare them and to employ a third or a half for the defence of their country. One would ﬁnd a considerable amount of wealth, a large amount of it stolen from the King. The Parisian banker, the Chevalier Arthur, will be found to have close to 2 million livres of their wealth in his possession; and others in Nantes and in St. Malo, in Brest and in other French ports. Never has a kingdom been pillaged to such an extent as this one over the last two years; the desolation is beyond description due to the lack of discipline and conduct by the ofﬁcers on the general staff.1 Arthur's deposits from Irish Jacobites amounted to £150,000 in sterling (2 million French livres). This was a huge sum of money, particularly as the Irish money supply has been estimated at between £300,000 and £400,000 in the seventeenth century.2 If d'Albyville's estimate was correct, then the exiles took roughly half of the circulating specie out of the country even before the ﬁnal battle. Commentators analysing the shortage of specie in early eighteenth-century Ireland might consider this hitherto overlooked outﬂow of funds caused by the Jacobite emigration. The size of the outﬂow shows that this emigration involved not only the soldiering class but also tradesmen, merchants, and the professional classes. There has been a tradition of thinking of this emigration in a romantic context, the collective name for these

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25

emigrants, ‘the wild geese’, being suggestive of this attitude. In the eyes of the poets, ‘the wild geese’ roamed the Continent ﬁghting for the glory of their religion and the Jacobite cause. True, it has been estimated that nearly half a million Irish soldiers enlisted in the service of France in the eighteenth century, but that was not the only haemorrhage of Irish blood to the continent.3 The prototype image of the Irish emigrant ‘wild geesing’ it from battle to battle, from war to war, from country to country, like the Good Soldier Schweik, not knowing half the time where he was or who he was ﬁghting, needs to be counterbalanced by the other image of Irish émigrés such as the Arthurs, Cantillons, Harrolds, Loftuses, and Waters who operated multinational banking businesses; while families such as the MacNamaras and Shiels in Nantes, the Quins, Bartons, Lynchs, Dillons in Bordeaux, and later the Hennessys in Cognac established thriving businesses and dynasties in France. France's loss of its Huguenot communities through religious persecution after the revocation of the Edict of Nantes was mitigated to some extent by the inﬂow of Jacobites—chased out of the British Isles on religious grounds—keen to establish themselves as traders on the Continent. Their integration into French trading life is further testiﬁed to by the fact that at one stage in the eighteenth century one ﬁfth of the members of the chamber of commerce of Bordeaux were Irish.4 The success of the nineteenth and twentieth-century Irish emigrants in the United States had an earlier parallel in eighteenth-century France. Richard Cantillon, unlike some of his cousins who opted for a military career, selected trade and banking. We do not know when he left Ireland, the earliest reference to him arising from his successful application for French nationality in 1708.5 We surmise that by this stage he had been in France for a number of years and that his later education had been in the less formal atmosphere of business rather than a university. If he had read his cousin the chevalier's copy of Jacques Savary's Le Parfait Négociant, ﬁrst published in 1675, he would have seen that the contemporary advice to the parents of budding entrepreneurs—Savary, by the way, speciﬁcally uses the term ‘entrepreneur’ in parts of this work—was that ‘it is very dangerous to send them to college’: Experience has taught us that children whose parents send them to college to study Latin, grammar, rhetoric, and philosophy up to the age of seventeen or eighteen years are very seldom ﬁt for trade, and of thirty there would not be four who would go into this profession if they were not forced into it by their relatives.6 Savary further explained why college was unsuitable for potential merchants, remarking that they would mix with the rich nobility who

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had a contemptuous attitude towards trade, that rhetoric and philosophy education turned students away from trade towards law, medicine, and the Church, and ﬁnally that they could fall in with young rakes who would teach them how to idle rather than how to work. Such advice does not seem to have been unique to that age! According to Lady Mary Herbert, daughter of the Duke of Powis, Cantillon ‘never wore shoes until he came to Paris’.7 Whether this was meant as a reference to his impoverished state or a barb at his supposed lack of breeding, or both, is not known. We can glean from the comment that Cantillon was not a rich man when he arrived in Paris. However, he had important banking and trading contacts through his relatives, Sir Daniel Arthur, brother of his maternal grandmother Jane Arthur, and his second cousin the Chevalier Richard Cantillon. The former provided him, we believe, with important introductions to his friends in London, while the latter housed him in Paris and eventually transferred his ailing banking business to him. It has been shown that Sir Daniel Arthur was the chief banker to the Irish Jacobites and that even before the end of hostilities at Limerick they had transferred a considerable sum of money out of the country through his banking operations. Despite his Jacobite connections, which resulted in him being temporarily outlawed and some of his property in Dublin conﬁscated, Sir Daniel was able to establish himself as a banker in London by 1705.8 There was nothing uncommon about such a shift in allegiance, for money as always was mobile and its exchange transcended political frontiers even during the big European wars. Huguenot money was lent to Louis XIV by Protestant bankers based in Amsterdam and Geneva, notwithstanding the impecunious Sun King's persecution of their co-religionists who had remained in France. Similarly, the British government probably did not deem it politic to examine the religious beliefs or political backgrounds of bankers prepared to lend it money and enable it to use their credit facilities on the European continent. Sir Daniel Arthur became increasingly useful to the British government because of the extensive banking network he had developed in France and Spain. Just as the Huguenots had a sophisticated inter-country banking system which enabled funds to be channelled to and from Amsterdam, Geneva, and Paris, so also had Arthur a number of branch ofﬁces that enabled funds to be transferred to and from Madrid, London, and Paris even during the War of the Spanish Succession. His previous Jacobite connections, his links with members of his extended Irish family such as the Chevalier Richard Cantillon in Paris and Francis Arthur in Madrid, as well as his ﬁnancial presence in London placed him in the unique position of being able to

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27

transfer money to hostile countries, something most of his London counterparts would not have been able to accomplish. Money was required by the British administration to provide for prisoners of war in France as well as the British embassy in Paris. In the Iberian Peninsula money was needed to assist the prisoners of war taken there by the Bourbon forces. Through his banking correspondents, the Chevalier Richard Cantillon in Paris and the banking ﬁrm of Arthur and Crean, managed by his relative Francis Arthur, in Madrid, Daniel Arthur became an important banker for the British administration transferring funds to these hostile territories. The Chevalier Richard Cantillon was the second cousin of Richard Cantillon. Considerably older than the economist, he had taken out French nationality in 1681 and was probably knighted by the exiled James II sometime in the 1690s. He traded as a draper (marchand mercier) in the French capital during the last two decades of the seventeenth century. He had been accepted into the drapers’ guild on 3 July 1688.9 The Chevalier's activity as a merchant enabled him to diversify into banking. There were no restrictions on entry into banking in early eighteenth-century France. Merchants frequently became bankers, in the limited sense of the term at that time, as their business expanded and as their links with merchants in other towns and countries became more extensive. Theoretically it was not even necessary to be a merchant to become a banker: ‘it is not necessary to be a merchant in order to carry out a banking business; it is open to all categories of people, even to foreigners’.10 The Chevalier's banking business was helped considerably once Daniel Arthur appointed him as his agent in 1705, so that by 1712 we ﬁnd Antoine Crozat, one of the great ‘ﬁnanciers’ of eighteenth-century France, being furnished by the Chevalier Richard Cantillon with a letter of credit for £40,000 sterling on M. Arthur of London.11 Between 1711 and 1713 the Chevalier acted as the banker for the British Ambassador in Paris, Thomas Prior.12 Prior was later questioned by a secret Parliamentary Committee on his banking transactions with the Chevalier: Being asked of whom I received money in France? I answered of Monsieur Cantillon. Bosc. Was he not a Papist? P. Else, Sir, he could not have been a banker in Paris, which he had been for several years before I knew him. In one word, he was the common banker to whom the English addressed themselves, and I think Clifford of Amsterdam was his correspondent.13 We believe that the Chevalier had earlier been asked to supply funds to the British prisoners of war held in France and that he asked his second cousin, Richard Cantillon, to handle the account for him. The British Paymaster General's department paid £30. 2a.6d. to Cantillon ‘for his

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care and pains in stating the accounts of the prisoners in France from 3 August 1707 to 31 March 1710’.14 It was in providing such services for the Chevalier and indirectly for Sir Daniel Arthur that Richard Cantillon was probably brought to the attention of James Brydges, Paymaster General to the forces abroad. From as early as 1709 Sir Daniel had been providing a banking facility for the Paymaster General to transfer funds to the British prisoners of war in Spain. As the war in the Iberian Peninsula went against the Allies with Stanhope's defeat at Brihuega and the capture of 4,000 British soldiers, and Stahremberg's loss at Villaviciosa in the second half of 1710, it became more difﬁcult for the Allies to move funds to and through Spain. Enemy privateers prevented the Paymaster's representative, William Chetwynd, from transferring money from Genoa to Barcelona. While the troops on both sides and even more so the ravaged native population may have cursed this long-drawn-out war, it had a silver and gold lining for the ﬁnanciers and bankers, as Kamen has observed: Despite pressing economic difﬁculties, the ﬁnanciers in Spain seem to have been vitalised by the war. Certainly the money market in the Peninsula became a thriving one as a result of the efforts of several foreign governments, particularly the French and English, to ﬁnd adequate supplies for their troops in the Peninsula.15 The bank of Arthur and Crean in Madrid had a signiﬁcant increase in business as a result of the war. When Madrid had been occupied by the Allies in the summer of 1710, Sir Francis Arthur had helped cash a number of bills of exchange for the English troops. When a large part of this army was subsequently captured, Sir Francis helped out by providing the English paymaster for the prisoners, a Colonel Neville, with money. Sir Francis wrote to the captured Stanhope in August 1711, expressing concern about the credit that he had advanced both to him and to Neville: I must acquaint you of my impossibility to continue supplying Col. Nevill[e] with more money. I have already engaged all my own and the little credit I had w[ith] my friends in England and Holland, but they begin to fail me, seeing that no manner of care is taken to satisfy your and the Colonel's bills. They and I were promised that all should be paid as soon as the Parlam. had settled the funds, but as yet my correspondents have not recovered any but the ﬁrst £6,000 upon account of about £60,000.16 The size of Francis Arthur's loans to the British troops shows the importance of his banking business. They may also have been the reason for the note in the Treasury minutes in that same month of August 1711: ‘August 29, 1711. Memorandum to discuss [with] Mr.

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29

Bridges on Friday about the bills to be drawn from Daniel Arthur.’17 This note shows that in 1711 Sir Daniel Arthur was in direct contact with James Brydges. With the Arthurs providing extensive credit to Brydges as the Paymaster General, Sir Daniel may have proposed to Brydges that he could usefully employ his young relative Richard Cantillon who had already shown his mettle by furnishing accounts of the British prisoners of war in France. We surmise that such a suggestion may have been made to Brydges but in any event we now know that by at least the end of 1711 Richard Cantillon was operating as clerk to the assistant Paymaster General in Spain, Anthony Hammond, who reported back directly to James Brydges in London.18 The ﬁrst speciﬁc mention of Cantillon's involvement with Brydges is to be found in a letter from the latter to ‘Mr. Cantillon’ on 19 February 1712 (OS), in which the sale of clothing to the foreign troops ﬁghting as allies alongside the British forces in the Iberian Peninsula is discussed. This letter, which marks the start of a long correspondence rich in details as to Cantillon's activities over the next decade, shows James Brydges more concerned with his unofﬁcial private market transactions than with his ofﬁcial public functions as Paymaster General.19 Such unofﬁcial activity seems to have been Brydges's main pursuit, for he has been described by his biographers, C. H. Collins Baker and Muriel Baker, as ‘the most successful war proﬁteer in that age’.20 Appointed Paymaster General of the forces abroad in the spring of 1705, Brydges accumulated a fortune reputed at between £600,000 and £700,000 sterling during his eightyear tenure of the paymastership.21 While it was tacitly recognized that ofﬁces of this nature were used for personal enrichment of both the holder and his patrons, the size and scope of Brydges's ﬁnancial operations caused politicians, poets, and the public to ponder on the role of such an ofﬁce. Quite simply, Brydges made one of the largest proﬁteering fortunes of all time out of an ofﬁcial position and then succeeded in presenting satisfactory accounts on his paymastership to the various commissions and inquiries investigating his conduct. To make such a fortune required great ability and skill. It required even greater skill and dexterity in ‘creative’ accounting to conceal his unofﬁcial activities while Paymaster to the forces abroad. Having made his fortune and concealed his manner of so doing, Brydges continued to curry favour at the court, rising to the Earldom of Carnarvon in 1714. Five years later he was created Duke of Chandos. Brydges continuously strengthened his position at court with offers of presents, usually expensive rings, and loans to the powerful ladies around the throne, such as the Duchess of Marlborough and Lady Abigail Masham who, in turn, had the ear of Queen Anne, and

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Mesdames Kielmansegg and Schulenberg who had access to more than George I's hearing. As one of the wealthiest men in England, Brydges was in a prime position to inﬂuence the politics of the day. But having retired from the paymastership, an enforced retirement due to political changes, he contented himself with behind the scenes politicking and time-serving rather than seeking an exposed position in government. On the other hand, he did devote a considerable amount of time and energy to a personal residential construction programme, building houses in London and a magniﬁcent residence at Cannons, an effort which supposedly earned him the title of Timon in Alexander Pope's satiric poem ‘The Use of Riches’. He was also a heavy investor in the big trading concerns such as the East India, Royal African, and South Sea companies. He sat on the board of the ﬁrst two and speculated massively in the shares of all three. By the summer of 1720 he estimated that his net paper proﬁt in shares amounted to over £800,000, dealings which show him as one of the biggest, if not the biggest, speculator in the South Sea Bubble. Brydges when he operated did so in large sums!22 Brydges's relationship with Richard Cantillon is of considerable signiﬁcance, for the Englishman acted as a type of ﬁnancial patron to his young Irish protégé during Cantillon's formative years. It was Brydges who rapidly promoted Cantillon as he recognized his blossoming talent for negotiating provisioning contracts and presenting accounts of the receipt and disbursement of funds to the army in the various European war theatres. Later on it was Brydges who introduced Cantillon to his inﬂuential banking friends. During the War of the Spanish Succession Brydges was involved in considerable ﬁnancial dealings, as the Calendar of Treasury Books shows, with the Dutch banker Andries Pels and with London bankers such as Milner, Lambert, and Sir Matthew Decker. Considerable sums of money were needed to ﬁnance Marlborough's campaigns in Flanders and these bankers provided the channels for money to be transferred from London to the troops and provisioning agents in the ﬁeld. Milner, Lambert, and Decker offered competitive tenders for transferring funds overseas — though no doubt Brydges always expected his cut in these exchange rate operations. As a result of his dealings with these bankers Brydges was a particularly good source of introduction to the world of banking for Cantillon. Later on we will see that he wrote to both Andries Pels and Sir Matthew Decker asking them to extend lines of credit to Cantillon when the latter decided to set himself up as a banker. But besides his promotional and ﬁnancial assistance Brydges

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31

probably had an important inﬂuence on the formation of Cantillon's attitude to the acquisition of wealth. It must be remembered here that the prevailing moral attitude of early eighteenth-century Britain and France amongst the ruling class seemed to accept a degree of what twentieth-century observers would categorize as graft and corruption in public ofﬁce. While the lower classes were condemned to death or long terms of imprisonment for minor offences such as petty theft and poaching, the ruling class had created a system which enabled it to ‘appropriate’ systematically huge sums of money from the public purse. Venality, the sale and purchase of public ofﬁces, was rampant. Administrative positions were bought, either openly or covertly, and it was recognized that the incumbent ofﬁce-holder had to generate a return on the initial investment used to acquire his ofﬁce or position. In France the system provided sufﬁcient incentives for the private sector's ‘invisible hand’ to gravitate naturally towards the public purse. There public ﬁnance was a private-sector industry. As J. F. Bosher has noted, ‘Several hundred venal accountants . . . held practically all government funds and behaved more like private businessmen than public ofﬁcials.’23 In Britain, private ﬁngers in the public till were tolerated as long as the size of the private ‘take’ was discreet and the party in power kept control. Public scandals only arose if the ‘take’ was considered excessive or there was a change in the political party in power. The army was run on rough free market principles. Army regiments were traded on the market, seldom being sold for less than four or ﬁve hundred pounds. Colonels owned their regiments, captains purchased their commissions. Proﬁtmaking on such investments was regarded as normal. According to Scouller, while the actual trading of commissions ‘was not a corrupt practice, the opportunities for bribery laid the system open to criticism’.24 To boost the income from their investment colonels produced artiﬁcially high muster-rolls and so were able to draw pay for phantom soldiers. They could also demand a ‘commission’ for contracts involving such matters as clothing. On this issue Scouller informs us: ‘There was nothing, at any rate, to prevent commanding ofﬁcers or agents, with the pressure they could bring on clothiers, from making their own arrangements to receive at least some of the money from the tailors once they had drawn it.’25 This kind of graft was not solely conﬁned to the commanding ofﬁcers of regiments or their agents but went right through to the top of the command structure involving even the Commander in Chief of the Allies, the Duke of Marlborough. In 1711 the scandal of the day involved an allegation by Sir Solomon de Medina, the main bread contractor to the Allies during the war, that he had paid the Duke of

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Marlborough £63,000 in commissions between 1702 and 1711. In his defence, Marlborough maintained that he had used this ‘slush’ fund for the secret service, but he used the same secret service argument to justify his appropriation of £280,000 from the pay of foreign troops under his control.26 Marlborough, one feels, was being disingenuous in arguing that Medina's ‘commission’ payments to him were being used solely for the secret service. No doubt some of the bricks of the costly Blenheim were paid for through Medina's bread ovens. Thus, what would be judged by the twentieth century as corrupt and improper practices were endemic to the system in the eighteenth century. The purchase and sale of regiments, the provision for numerous outside contracts for animals, forage, food, clothing, and so on as well as lax accounting controls provided multiple opportunities for graft and corruption right through the army and the Paymaster General's ofﬁce. Brydges's behaviour was not exceptional at the time; what was exceptional was the size of his take. While Marlborough was to be disgraced publicly by the Tories in 1711 for the £63,000 ‘commission’ from Medina, his friend Brydges allegedly made ten times this amount and escaped public censure despite scrutiny of his accounts by a variety of inspectors and commissions. Unfortunately, there is not much published information on the way in which Brydges made his fortune. His biographers, Baker and Baker, concentrated their biographical study on Brydges as the constructor of Cannons rather than on his career as a war proﬁteer.27 They do, however, give some information as to Brydges's attitude to his ofﬁce and the methods he used during the War of the Spanish Succession. In a letter to his brother-in-law Theophilus Leigh in December 1710, Brydges wrote that by retaining his position as Paymaster General till the end of the war he would wind up ‘of a bottom that cannot fail of bringing one a vast fortune’.28 The methods used to acquire this fortune included banking, foreign exchange dealing, provisioning of the troops, and the acquisition and use of inside information. Brydges was a type of banker in that he controlled large sums of money to be used for the payment and provisioning of the troops stationed overseas. The sums involved were considerable, as the Treasury books show:29 Paid to James Brydges for the Forces Abroad: 1709 1710 1711 1712 1713

£3.1 million £3.7 million £3.2 million £2.3 million £758,000.

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33

In the interim between the receipt of such money and its eventual disbursement overseas he could use such funds on his own account. The money destined for the army ﬁghting in continental Europe had to be transferred via bills of exchange through the use of banking intermediaries. These operations provided plenty of scope for him to graft part of the proceeds to his own private account with the connivance of bankers and foreign exchange dealers, with the money taken in this way being ofﬁcially swallowed up under the heading of foreign exchange transaction costs. Provisioning contracts for food, clothing, armaments, and so on as will be shown, provided endless opportunities for racketeering. Ofﬁcial contract prices for provisions could be inﬂated easily to include the Paymaster General's private account margin. One of Brydges's confederates in such operations was Dr Charles Davenant, one of the best writers on economic issues at the turn of the eighteenth century.30 Finally, Brydges was always on the look-out for inside information on the state of peace negotiations with France. He constantly questioned Cadogan, the Duke of Marlborough's quartermaster, as to when peace would be declared, hoping to use such accurate advance information for his own beneﬁt on the ﬁnancial and commodity markets. James Brydges's correspondence with Richard Cantillon runs to ninety letters, a small but important part of his correspondence of forty thousand letters housed in the Stowe Collection at the Huntington Library, San Marino, California. This correspondence took place between 1712 and 1722. In it we can locate two stages in which there was a natural coincidence of wants between Brydges and Cantillon and a third stage which involved a reversal in their roles. During stage one, 1712–13, Brydges required a good agent-cum-accountant who was reliable and could be sworn to secrecy. Cantillon, impoverished but keen to make a fortune, needed an employer who recognized his mercantile skills and his accounting talent. In stage two, 1714–19, the relationship progressed from that of employer–employee to one of friendship, with Brydges continuing to rely on Cantillon's secrecy and his ability to account for receipts and expenditures by the Paymaster General's ofﬁce in Spain and Portugal during 1711–12. Additionally, with Cantillon then based in Paris, Brydges increasingly pressed for information relating to the French ﬁnances. Cantillon needed a ﬁnancial patron ready to invest money in his ﬂedgeling bank and, equally important, willing to introduce him to other European bankers. In stage three, 1720–2, the relationship changed with the former borrower, Cantillon, becoming Brydges's creditor. This role reversal and the ﬁnancial implications that it entailed soured their

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relationship and eventually caused its breakdown. The evolving relationship between Brydges and Cantillon will ﬁgure prominently in the ensuing chapters. For the moment we conﬁne our discussion of it to their joint activities during the War of the Spanish Succession.

Richard Cantillon's Activities on Behalf of James Brydges in Spain, 1711–13 The earliest time at which we can locate Richard Cantillon in the Iberian Peninsula during the War of the Spanish Succession is December 1711. Cantillon, as his subsequent career was to show, was most adept at being in the right place at the right time, and his presence in Catalonia at this juncture of the war was no exception to this practice. With his recent acquisition of French nationality it may seem as if Cantillon was tempting fate by joining up with the English and their allies against the Bourbons in Spain. But in reality hostilities between France and England had ceased during 1711 as secret peace negotiations to end the war were pursued seriously by British and French diplomats. The War of the Spanish Succession was caused by Louis XIV's and Leopold I of Austria's competing claims to the crown of Spain, arising from the death of Charles II in November 1700. Louis's grandson, Philip of Anjou, had been made Charles II's sole heir in the latter's will, but Philip's claim to the throne, supported by the Castilians, was disputed. The Austrians countered by proclaiming Leopold's second son, Archduke Charles, supported by the Catalans, as King Charles III. One of the root causes for the war, which engulfed the European continent for more than twelve years, was a fear on the part of some countries that the balance of power would have been greatly upset by the vesting of the vast territories controlled by Spain, most of Italy, the Spanish Netherlands, and the Spanish Americas, under the Bourbon inﬂuence. The Grand Alliance comprising Britain, Holland, and the Austrian Empire was formed to counter Philip's claims to the Spanish throne. A long and costly war was waged over the continent with battle fronts opening in Flanders, Germany, Italy, and the Iberian Peninsula. The Allies, under the brilliant leadership of the Duke of Marlborough, had practically forced Louis XIV into a humiliating submission by 1709, but disunity in their camp and a Pyrrhic Allied victory at Malplaquet gave the French the opportunity to get their second wind. In the summer of 1710 the Allies, led by Field Marshal Stahremberg with the English contingent under the command of Stanhope, won two important victories at Almenara and Saragossa, just missing the

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capture of Philip V in the process. They occupied Madrid temporarily, but news that Louis XIV had decided to send back to Spain French troops, who had been withdrawn from the Peninsula by the summer of 1710, made them abandon Madrid to return to their protected enclave in Catalonia. The French army led by Vendôme cut Stanhope off at Briheuga, defeated him, and captured 4,000 British troops along with Stanhope on 9 December 1710. Vendôme then quickly defeated Stahremberg's forces at Villaviciosa, leaving the Spanish part of the Peninsula, with the exception of Catalonia and the fortress at Gibraltar, under Bourbon control again.32 In the meantime the Tory Ministry, committed to ending the war, had come to power in August 1710. The defeats at Brihuega and Villaviciosa helped expedite the peace negotiations. A further impetus to the British bilateral discussions with France arose as a result of the sudden death of the Emperor Joseph I in April 1711. The emperor died childless, so his brother Charles III, the Grand Alliance's choice for the Spanish monarchy, then became Emperor Charles VI. Charles's accession to the Austrian Empire destroyed the principle of ‘no peace without Spain’, for the European balance of power would have been greatly disturbed by the addition of Spain and its vast American territories to the empire which already embraced Austria, Bohemia, Hungary, Silesia, and the captured territories in the Spanish Netherlands and Italy. Under these changed circumstances the English were content to allow Philip V to remain on the Spanish throne providing that he renounced any reversionary claim that he had to the French throne, that their key Mediterranean captures from the Spanish would remain in their possession, and that certain trading agreements relating to the Asiento (the rights to the transatlantic transportation of slaves) and trade were negotiated. The mercurial Henry St John, later Viscount Bolingbroke, took increasing charges of the negotiations with the French and on his own initiative issued ‘restraining orders’ instructing the English army not to engage the French in battle. Thus at the time that we locate Richard Cantillon in Catalonia the danger of the English force engaging once again with the Bourbon troops had greatly diminished. For the moment Catalonia was a place to trade rather than ﬁght in. Richard Cantillon had been appointed ﬁrst clerk to Brydges's friend, Anthony Hammond, the acting paymaster in Spain. The functions of the acting paymaster were varied in that he provided not only payment to the troops but also ﬁnanced the purchase of food, clothing, horses, military equipment, and so on.32 The Brydges–Cantillon correspondence shows that Cantillon performed three functions for the

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Paymaster General. These involved (1) making payments on behalf of the Paymaster's ofﬁce, payments that obliged him to act in a quasi-banking role; (2) keeping detailed accounts of the receipt and disbursement of funds; (3) facilitating Brydges's extra curricular ‘private market’ operations. Cantillon was quickly involved in banking operations. In June 1712 Brydges presented a memorial to the Treasury ‘relating to Mr Cantillon's letter concerning the proﬁt arising upon the recoinage of the 800,000 pieces of eight borrowed by her Majesty out of two Genoese ships.’33 This extract from the letter shows that Cantillon, even by this stage of his career, had developed a clear style in both his writing and thought: Extract of Mr Chantillon's letter dated at Barcelona the 26th May 1712. As to the recoinage of the pieces of eight I would not write to you about it, till I know something positive on that head, and all I can say at present is, that if Mr Hammond had not consigned them to the mint, he must have been obliged to pay them to the troops, on the foot of the current money here, or else have sold them; and I dare afﬁrm, that if he had taken this last method, he would never have got 10 per cent proﬁt by them, not to say, that he could never have sold half in this town at any rate; for supposing he had found merchants to take 100,000, as that would have been pretty near sufﬁcient to answer the advance for buying corn in Barbary and Turkey, I believe it would have been difﬁcult to ﬁnd anybody that would have taken the remainder, unless to export them, and sell them in some other country.34 Whatever the fate of the Genoese pieces of eight, money remained scarce in the Allied enclave in Catalonia as may be seen from a letter from Brydges to Cantillon in August 1712: I hope the remittances promised and expected have before this time reached you and brought you out of all your difﬁculties which I am sensible must have been very great. You will have another remittance go over along with the Duke of Argyll for subsisting the forces kept at Portmahon [Minorca] to Xmas. I must desire Mr Hammond will avoid as much as can be drawing bills for large sums, especially since there is no occasion of it by the provision, which has been lately made and by the agreement this day entered into at the Treasury for the payment of £10,000 in each of the three months of October, November and December, which we judge will be sufﬁcient to clear up all the services to Xmas next.35 Transferring money from Genoa to Barcelona continued to be difﬁcult, and with the soldiers being irregularly paid they were becoming fractious. Cantillon had not only to pay the troops but also to keep detailed accounts of receipts and expenditure for the Paymaster General's

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37

ofﬁce. In this domain Cantillon excelled, and within six months of starting his correspondence with Brydges he was proposing changes in the standard balance sheet presentation, changes which Brydges was happy to accept: ‘I approve the method that you will take in future to make two types of accounts, because that will tend to put in better order the general [accounts] that we will be obliged from time to time to produce for the Treasury.36 Brydges relied increasingly on Cantillon's accounting skills to help present detailed balance sheets of the Paymaster General's receipts and expenditure in the Iberian Peninsula. Brydges's accounts were to be examined by a variety of inspectors and commissions over the following six years and he continually wrote to Cantillon asking him to prepare further statements about the Iberian account. Brydges relied on Cantillon later on to clear up mistakes in Hammond's accounts.37 Cantillon's third function on behalf of Brydges was to handle the Paymaster General's ‘private market’ arrangements. At the time Cantillon started working for Brydges the war in the Iberian Peninsula, to the extent that it involved the English and French, was grinding to a halt. In the latter half of 1712 the English force prepared for a total disengagement and departure to its naval base at Port Mahon in Minorca. But, in the interim, contracts, payments, and subsidies still had to be negotiated with their allies. In these areas Brydges expected to make his customary ‘commissions’. Two transactions that loom large in the Brydges–Cantillon correspondence are illustrative of the way in which Brydges made his proﬁteering fortune. These involved (1) agencies with the Portuguese and Germans and (2) the Vernon cloth contract. Unfortunately, it has not been possible to ascertain the nature of the agencies that Cantillon and Hammond contracted for with the Portuguese and German commanders, Count d'Atalaya and Marshal Stahremberg. We do know the business was of a highly secretive nature as well as being exceptionally proﬁtable. Brydges continually urged Cantillon not to discuss the agency with anyone other than himself and his brother-in-law Charles Walcot. Writing in April, Brydges conﬁded, ‘I need not recommend to you that these are matters which require the strictest secrecy and not to be wrote over to any person whomsoever, either in or out of my ofﬁce’.38 A couple of days later he wrote about the German agency, which he computed would yield four or ﬁve times more than the Portuguese agency.39 In June he once more urged Cantillon to keep the agency business secret from all the world other than Walcot. Furthermore he asked Cantillon to be extremely careful to write directly to him at his ofﬁce or ‘when there is something more conﬁdential under the cover of M. Leaves’.40 The reference is

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signiﬁcant, for John Leaves, then aged about 24, was one of Brydges's deputies and was involved in rackets in the clothing contracts for the army in Portugal.41 By the end of July the agency business had been satisfactorily worked out with Cantillon distinguishing himself in his negotiations with Count d'Atalaya. Brydges rewarded Cantillon with two hundred guineas for his efforts, the money to be deducted from the agency account. The size of this present, the equivalent of over a year's salary for a colonel commanding a regiment on active duty, suggests that the proﬁts from the agency were very lucrative and that Cantillon had brought off a sizeable coup. Brydges rewarded people by results. The size of Cantillon's reward shows that he was involved in very substantial deals on Brydges's account. Cantillon's involvement on Brydges's behalf in the Vernon cloth transaction shows the way in which Brydges came to rely on him. Mr Vernon, a ‘Turkey merchant’ and by implication a business partner with Brydges, sent two consignments of cloth to Spain in 1711–12. The objective behind these consignments was for Brydges's agents, initially a Mr Blyke who was replaced because of his negligence by Cantillon, to sell the cloth to the Imperial troops or the Palatines. Once either group agreed to take the cloth they would be asked to sign receipts which then would be drawn against their accounts in the Paymaster General's ofﬁce in London. Vernon was to be paid by drawing on those funds earmarked for the Allied troops. Brydges's letter of October 1712 shows the way in which he wanted the system to work: ‘I will feel a lot easier if you can persuade the Marshal to take all of Mr. Vernon's cloth and to give a receipt on the arrears which are due to his Imperial Majesty. When he sees that it is not intended to reduce the money that he has requested by his dispatches to pay for this cloth I think it will be easy to persuade him.’42 By this arrangement Brydges could pay his friend Vernon directly in London once Cantillon sent him Stahremberg's signed receipts from Spain. In this way the money never left London and Brydges could immediately take his share of the proﬁts from Vernon. Brydges's direct proﬁt participation in this scheme is to be seen in a letter he wrote to Vernon earlier in September: I have given very full instructions to M. Cantillon about this whole affair and shall be very glad if it comes in his power to execute them. I would willingly have my share of this adventure insured, since it may be done at 4 p.ct. and so will not stand me in above £100 which is not worth while to save on this account. The £1,000 you desire I'll endeavour to get for you in a week or ten days time.43 Ironically, while Brydges was arranging, through Cantillon, to sell

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cloth to the imperial troops, the English soldiers were seemingly extremely badly provided for in the way of clothing.44 All through 1712 Cantillon rose in status as Brydges's conﬁdential agent in Barcelona. In a letter to Major Bland, an ofﬁcial messenger travelling from London to Barcelona, Brydges remarked that if the general to whom his letter was addressed ‘should have had the misfortune to be dead’, the letter was to be communicated to Mr Hammond and in the like case it was to be delivered to Mr Cantillon.45 At the end of November six ships embarked the British troops from Spain to Port Mahon in Minorca. On Brydges's instructions Cantillon was to accompany them along with Anthony Hammond.46 At the end of February 1713, however, Cantillon was still in Barcelona.47 But Brydges wrote to him that the business in Spain was so reduced that Cantillon should come back to London. Brydges went on to offer Cantillon a position in his ofﬁce if he was still the Paymaster General. Otherwise he offered to help him in any way possible.48 Cantillon had built himself into a position of trust with Brydges. He was to be called on over the following years to assist in presenting the accounts of Brydges's ofﬁce during the latter part of the War of the Spanish Succession. But Cantillon, while still availing himself of Brydges's ﬁnancial patronage, decided not to go and work for Brydges in London but to return to Paris and establish his own banking business there. The career of Cantillon the banking entrepreneur was about to start.

Notes 1 2

HMC Finch, ii (1922), 482 (my translation). Some Thoughts on the Bill depending before the House of Lords for prohibiting the Exportation of the Woollen Manufactures of Ireland to Foreign Parts (London, 1698), 5. See L. M. Cullen, ‘The Exchange Business of the Irish Banks in the Eighteenth Century’, Economica (November 1958), 332. 3 C. Petrie, The Jacobite Movement, the First Phase (London, 1948), 103. 4 T. J. Walsh, The Irish Continental College Movement (Dublin, 1965), 106. 5 AN 01 52, fo. 202. 6 Jacques Savary, Le Parfait Négociant (Paris, 1675), 40–1. 7 NLW Powis 2278. Lady Mary Herbert, a bitter opponent of Cantillon, in a letter to her brother Lord Montgomery, 25 June 1745 (OS). 8 Calendar of Treasury Papers 1697–1701, vol. lxii, 25 July 1699, ‘Outlawry of Sir Daniel Arthur’. 9 ANMC lxvi.386, 23 September 1717. ‘Inventaire après décès de Richard Cantillon.’ 10 Savary, Dictionnaire universel de commerce (Paris, 1723), i. 235.

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11 ANMC lxvi. 364. ‘Inventaire de Richard Cantillon.’ 12 See, for example, Calendar of Treasury Books, vol.xxvii, pt. 2 (1955), 391. 20 October 1713, royal sign. for £1,300 to Daniel Arthur in satisfaction of a bill of exchange drawn by Matthew Prior from Paris, 13 Oct. ‘for money by him expended there for our special service’ and payable to Sir Richard Cantillon or order. This type of transaction between Daniel Arthur, the Chevalier Richard Cantillon, and either Matthew Prior or Charles, Duke of Shrewsbury, appears frequently in the Treasury papers and books of 1709–13. In August 1715 the Treasury accounts show that £13,510 was paid to Mr Arthur for the use of Matthew Prior. Ibid., vol.xxix, pt. 2 (1957), 707–8, 27 August 1715. 13 Answer of Matthew Prior before a Secret Parliamentary Committee investigating his activities in 1715. The questions related to his period of ofﬁce in Paris in 1711. See Matthew Prior, The History of our Time . . . (Dublin, 1740), quoted in L. G. Wickham Legg, Matthew Prior (Cambridge, 1921), 234. 14 Calendar of Treasury Books, vol. xxxi, pt. 2 (1957), 265. 12 April 1717. 15 Henry Kamen, The First Peninsula War 1702–13 (London, 1975), 74. 16 Ibid., 73. 17 Calendar of Treasury Books, vol. xxvi, pt. 2, (1961), 92. 29 August 1711. 18 Calendar of Treasury Papers, vol. cxlix, 19 June 1712. 19 Huntington St. 57, vi. 191–2, 19 February 1712. 20 C. H. Collins Baker and Muriel Baker, The Life and Circumstances of James Brydges First Duke of Chandos (Oxford, 1949), p. xi. 21 Ibid., 51. 22 Huntington St. 57, xvii, 28 September 1720. 23 J. F. Bosher, French Finances 1730–1795. From Business to Bureaucracy (Cambridge, 1970), p. xi. 24 R. E. Scouller, The Armies of Queen Anne (Oxford, 1966), 69. 25 Ibid., 155. 26 On the Medina–Marlborough bread contract see G. M. Trevelyan, England under Queen Anne: The Peace and the Protestant Succession (London, 1934), 200–1. 27 Op. cit., n. 20 above, passim. 28 Ibid., 51. 29 Calendar of Treasury Books, vol. xxvii, pt. 1 (1955) year 1713 (London, 1955), pp. xxv–xxvii. 30 ‘Army clothing contracts for the forces in Portugal were one of Brydges’ ‘rackets', if we may use that word. His confederates were his deputy Morrice; Dr. Charles Davenant; and Leaves, another deputy.’ Baker and Baker, op. cit., n. 20 above, 52. 31 For more detailed accounts of the war see Kamen, op. cit., n. 15 above, Trevelyan, op. cit., n. 26 above, and David Francis, The First Peninsular War 1702–13 (London, 1975). 32 R. E. Scouller, The Armies of Queen Anne (Oxford, 1966), 31. 33 Calendar of Treasury Papers, vol. cxlix, 19 June 1712. The Calendar of Treasury Books, vol. xxx, pt. 2 (1957), 327, 5 July 1716, mentions ‘£9,59-7-11 ½ for the proﬁt upon recoining 800,000 dollars lent to her late Majesty by the Genoese in 1711’.

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41

34 35 36 37

PRO T1/149, fo. 19A. Huntington St. 57, vii. 199–200, 8 August 1712. Ibid. See letter from Brydges to Cantillon, Huntington St. 57, xiv. 108–9, 28 June 1716, in which Cantillon was thanked for correcting the mistake in Mr Hammond's account. 38 Huntington St. 57, vi, 245–6, 9 April 1712. 39 Huntington St. 57, vi. 253, 11 April 1712. In this letter Brydges requested Cantillon as follows: Pray fail not to assist him [Mr Hammond] in getting and ﬁxing the agency for the Germans etc in the manner I have wrote him. I am conﬁdent that the Marshall when he considers all circumstances will judge it highly [in] his interest to comply with it and the sooner it can be effected the better. I compute it will come to betwixt 4 and 5 times as much as the Portug[ese] Agency . . . If you can't prevail upon the Marshall to allow the Agency for the whole time the Regiments have been in the Queen's pay and for the whole number of them upon the foot of the Portug. computation you had better let the whole dealing alone with him, and pay him nothing, but let him understand these arrears will be turned over to the King of Spain's debt for him to pay. 40 41 42 43 44 45 46 47 48

Huntington St. 57, vii. 69, 6 June 1712. Baker and Baker, op. cit., n. 20 above, 52. Huntington St. 57, viii. 52, 15 October 1712, translation. Huntington St. 57, viii. 13, 26 September 1712. Letter from James Brydges to Mr Vernon. Scouller op. cit., n. 32 above, 162. ‘In 1712 Argyll, taking over command in Minorca as a bristly new broom, was soon reduced to despair by the complete lack of supplies or clothing of any kind.’ Huntington St. 57, viii. 18, 26 September 1712. Letter from James Brydges to Major Bland. Huntington St. 57, viii. 18, 26 September 1712. Huntington St. 57, ix. 8, 25 February 1713. Huntington St. 57, ix, 24 February 1713.

4 Cantillon's Début as a Banker in Paris, 1714–1717 Richard Cantillon returned from Spain to France in 1714. We surmise that he was in Paris by April 1714, for Brydges, at that time, addressed a letter to Mr Cantillon junior, rather than Mr Cantillon which was his normal practice.1 The use of the term junior was to distinguish between Richard Cantillon and his elder cousin the Chevalier, who bore the same name and was a prominent banker in Paris. Cantillon was still in the process of winding up the accounts for Brydges's period as Paymaster General in 1711–12. The British commissary of provisions had written to Cantillon inquiring about aspects of the accounts that were being investigated by the auditors. Brydges approved of Cantillon's reply to the commissary.2 However, Cantillon now wanted to act on his own account, having already turned down the possibility of securing employment in London through Brydges's inﬂuence. In August 1714, then living with his cousin the Chevalier at the sign of the Cheval Noir, rue St. Honoré, in the parish of St-Germain l'Auxerrois, he rented a carriage, two horses, and a coachman at a rental of 360 livres (£20 sterling) per month.3 The rental paid suggests that Cantillon's income and wealth had improved. Just as the multinational banker of today can move quickly using the panoply of his trade, chauffeur-driven limousines, helicopters, executive jets, so also Cantillon had to rely on the eighteenth-century mode of travel, horses and carriage, in his case fast horses to move him quickly around Paris and from one European centre to another. To impress the courtiers the contract further stipulated that he would be provided with ‘les chevaux d'extraordinaire’ whenever visiting the court at Versailles. These horses and their equipage were to be charged for at the same rent while in use. The Chevalier Richard Cantillon was a hospitable gentleman not only to his relatives but also to his fellow countrymen. Earlier he had provided lodgings for Count Daniel O'Mahony, a fellow Kerryman, and his family when the Count was involved in France's military campaigns during the War of the Spanish Succession.4 Fighting alongside his great friend the Duke of Berwick, the Count had been killed in action in Spain. The Chevalier acted as an executor for his

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estates. One of the Count's children was his 13-year-old daughter Mary Anne O'Mahony. Eight years later she married Richard Cantillon. No doubt the Chevalier introduced Mary Anne, an emerging beauty of her age, to Cantillon. Ofﬁcers from the Irish regiments in the service of France banked with him as may be clearly seen by examining his accounts. Names such as Bagenal, Butler, Creagh, Dempsey, Dillon, Dorrington, Enniskillen, Fitzgerald, Fitzmaurice, Fogarty, Geraldin, Gough, Kenny, Lee, MacDermot, MacNamara, Murphy, Nagle, Smith, Rutledge appeared regularly amongst the Chevalier's banking clients.5 But the Chevalier also acted as a banker to the Stuart court in exile at StGermain-en-Laye. The services he rendered the Stuarts were probably instrumental in his obtaining a knighthood.6 The Chevalier's bank issued, endorsed, and discounted bills of exchange; it purchased annuities and government debt for its clients; and it managed the collection of interest on such debt when its clients were absent from Paris. The Chevalier also acted for the clergy, even attempting to run a lottery for the Irish nuns at Ypres, an operation which he totally mismanaged. We have seen that the Chevalier also acted as a wholesale draper. His younger cousin followed him into banking and was also admitted to the drapers' guild.7 In September 1714 the Chevalier gave Richard Cantillon power of attorney to act for him when he was absent from his bank.8 This provided Richard Cantillon with his ﬁrst entrée into the world of Parisian banking. But banking in Paris at this time was a difﬁcult business. While the Treaties of Utrecht, signed in March and April 1713, had brought peace to the European continent, the debts incurred by the War of the Spanish Succession weighed heavily on both the British and French ﬁnancial systems. These debts, as will be shown later, created substantial ﬁnancial instability, an instability which provoked the climate for innovatory monetary policies during the South Sea and Mississippi System episodes. In France in particular the debts accumulated by Louis XIV's extravagant expenditure and bellicosity had virtually bankrupted the state. Banking in France in such an environment would prove to be a hazardous occupation for a newcomer, but at the same time the economic state of the nation was so bad that it also created the need for alternative approaches to ﬁnancial policy, approaches that culminated in the construction of John Law's Mississippi System from which Cantillon was to beneﬁt so greatly at a later stage. From Cantillon's viewpoint the economic instability created by the War of the Spanish Succession was to prove a boon rather than a disaster. But in order to move into a position to beneﬁt from the ﬁnancial innovations that characterized John Law's period in

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ofﬁce in France, Richard Cantillon had ﬁrst of all to establish himself as a banker in Paris. Political developments in England were to help him in this respect. On 1 August 1714 the death of Queen Anne was announced. The last Stuart to rule Great Britain had died but the Protestant succession was maintained intact by the coronation of George, Elector of Brunswick Lunenburg, as George I. The arrival of the Whig-backed Hanoverian dynasty heralded the demise of the Tory Henry St John, Lord Bolingbroke, and his party. The Whigs were to reign supreme for the next forty years. Through the autumn and winter Bolingbroke made a number of unsuccessful attempts to ingratiate himself with the new monarch, but in the early months of 1715 his position became more precarious as he was tainted with allegations of Jacobite sympathies and of not promoting Britain's commercial interests in the recent Treaties of Utrecht which he had masterminded. In February 1715 his friend James Brydges, recently promoted to the earldom of Carnarvon by George I, warned him that the Whigs were out for his blood.9 It is interesting to speculate on the involvement of James Brydges, who will be referred to henceforth — until his elevation to Duke of Chandos in April 1719 — as Lord Carnarvon, in Bolingbroke's subsequent ﬂight from England. Was he acting solely out of friendship for Bolingbroke? Or had his Whig friends, and here let us remember that Carnarvon was a political man for all seasons, persuaded him to overdramatize the political repercussions so as to panic Bolingbroke into rushing to exile in France, a departure that proved his guilt to the Whig rank and ﬁle and reduced further his diminishing reputation in the eyes of his Tory followers? Whatever the reason Carnarvon was overalarmist with regard to the alleged plots being hatched against Bolingbroke and his former fellow minister, Robert Harley, Earl of Oxford. Writing to Cantillon in June, Lord Carnarvon contended that: ‘He [Bolingbroke] will soon see however by the fate of Mylord Oxford and some others that it is happy for him he chose rather to leave England than to stand a trial, which in all probability could not but have cost him dear.’10 This was bad advice for, according to H. T. Dickinson, the most recent biographer of Bolingbroke: Bolingbroke's ﬂight was an enormous blunder. Once again he had revealed a tendency to lose his nerve, to panic in a crisis. To do him justice he was by nature very highly strung and there had been considerable political gossip, in February and March 1715, that the Whig ministers had found enough information among the papers they had seized to hang one or two of the late

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ministry. Nevertheless it was a fatal mistake. Oxford was in as much potential danger but stayed to face the storm.11 Bolingbroke ﬂed to France on the night of Sunday 27 March. The evidence shows that he had been planning his departure from at least 10 March, the day on which Carnarvon made out a bill of exchange for £20,000, payable after ten days, to Lord Bolingbroke. The bill of exchange was addressed to Richard Cantillon junior.12 Bolingbroke had borrowed the £20,000 from Lord Carnarvon, using his estates as collateral security.13 Carnarvon's recourse to Cantillon to discount this large bill of exchange shows the extent to which he trusted Cantillon in matters requiring the utmost secrecy. Assuming that it was friendship which motivated this loan then Carnarvon would not have wished it to be known that he was ﬁnancing the man who was regarded as a traitor by the Whig party. Shortly after his arrival in Paris Bolingbroke appeared at Cantillon's bank in the rue de l'Arbre Sec with Carnarvon's bill of exchange. This meeting heralded the start of a long relationship between Cantillon and Bolingbroke which transcended the immediate ﬁnancial negotiation which had brought Bolingbroke to Cantillon's bank. While references to Cantillon in Bolingbroke's correspondence are ﬂeeting, we are now in a position to substantiate Fréron's observation that they were friends.14 The friendship started when Cantillon, unable to negotiate such a large bill of exchange because ‘Parisian banking operations were in such a great disorder’, lent money to Bolingbroke and wrote to Carnarvon to send him £20,000 in Bank of England notes so that he could arrange to pay Bolingbroke the full amount.15 The difﬁculties of banking in Paris at this time are illustrated by the fact that it took Cantillon up to the month of July to arrange for payment in full of the £20,000.16 Writing on 21 July Carnarvon thanked Cantillon for all his assistance. ‘It has given me a signal instance of the friendship in the care you took of Mylord Bolingbroke's concern and I esteem it too considerable to be ever forgot.’17 Shortly after Bolingbroke's departure to France, in April 1715, a Parliamentary committee had commenced proceedings to impeach him. These proceedings may have been instrumental in driving Bolingbroke to the Pretender James III, whose supporters were busy scheming an invasion of Britain. The Jacobites once again showed their traditional weaknesses in misjudging public opinion in Britain as well as showing a chronic inability to cope with the logistics of mounting a properly organized invasion. The invasion aborted and Bolingbroke

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was made a scapegoat, being dismissed from his position of Secretary of State to the Pretender in March 1716. Bolingbroke, mercurial as ever, attempted, after this ill-fated liaison with the Jacobites, to renege on them and return to England, as a letter from Carnarvon to Cantillon shows (19 March 1716): It is every hour reported in town that he [Bolingbroke] intends to come over and merit the repeal of his attainder by a discovery of all the secrets he has been let into relating to the affairs of the Pretender. I confess, though I should heartily rejoice that his Majesty had a full account made him of all these transactions, that he might thereby know his friends from his enemies and be the better able to defeat the designs of the latter, yet I own I should be better pleased if the information came from other hands than those of L[ord B[olingbroke] for I think it too unpleasant for one of his ﬁgure to take upon him.18 ‘Supergrasses’ were seemingly welcomed at this time, provided that they did not come from the ruling aristocracy! Perhaps Carnarvon feared that Bolingbroke's ‘confessions’ might go back even further in time and spotlight some of the former Paymaster General's accounting improprieties. It is quite clear from this letter and an earlier one of 14 March that Carnarvon was not prepared to communicate directly with Bolingbroke because of the latter's attainted status. Cantillon had to act as an intermediary between Carnarvon and Bolingbroke.19 Cantillon continued to provide Carnarvon with details on Bolingbroke's activities in Paris, and in May 1716 he was thanked for ‘the best reasons and accounts of Ld B[olingbroke] I have met with’.20 Again it is difﬁcult to discern whether Carnarvon was solicitous about Bolingbroke's schemes and movements. Carnarvon does seem to have been genuinely happy that Cantillon had extended his friendship to Bolingbroke further by inviting him to live with him. ‘I am very much pleased he [Bolingbroke] is under so good a roof as yours and as you have an account open with me you'll do me an acceptable kindness to make his stay with you perfectly easy to him.’21 Bolingbroke seems to have used Cantillon's house at the rue de l'Arbre Sec as his Parisian base over the next couple of years. Writing to his old friend Jonathan Swift in October 1716, Bolingbroke gave Cantillon's bank as his postal address, while later on in October 1718 he requested the Abbé Alary to send a packet of old books to the address of Mr Cantillon. The day after this request he wrote again to Alary to say that ‘a clerk of Mr. Cantillon will bring you this letter. Have the goodness to hand him the parcel.’22 This friendship between Cantillon and Bolingbroke continued in the 1720s. Cantillon's legal adversary Lady Mary Herbert at one stage in the late 1720s felt conﬁdent she was about to learn a great deal about

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Cantillon's activities from Bolingbroke's secretary John Brinsden.23 Finally it may be noted that Cantillon and Bolingbroke were adjoining neighbours in the plush residences of Albemarle Street in 1734 when Cantillon's house and seemingly his body were burnt to ashes. According to the Abbé Prévost, Bolingbroke spent the next day sifting through the ashes in an attempt to unravel the fate of his friend.24 Further collateral evidence of the relationship between Cantillon and Bolingbroke may be adduced from their joint relationship with the intriguing Olive Trant, daughter of Sir Patrick Trant, a prominent follower of the Jacobite cause. Born in the Dingle Peninsula in County Kerry, Olive Trant accompanied her sisters to Paris in the early 1680s. After the Jacobite defeat in Ireland, the Trant estates, comprising 23,744 acres in Kerry, were conﬁscated, and Sir Patrick attainted. Olive, or Olivia, was educated along with her sisters Henrietta and Frances by the Blue Nuns in Paris.25 She seems to have quickly forgotten the lessons the good nuns no doubt taught her as she committed herself wholeheartedly to the activities of the courts at Versailles and St-Germain. Writing to Sir William Windham in 1717, Bolingbroke described the activities of the Jacobite court-in-exile at St-Germain: Those who could write and read had letters to show, and those who had not arrived at this pitch of erudition, had their secrets to whisper. No sex was excluded from the ministry. Fanny Oglethorpe, whom you have seen in England kept her corner in it and Olive Trant was the great wheel of our machine.26 James III used a different metaphor, referring to Olive Trant as ‘the young nymph’.27 James III was not the only person to be attracted by the charms of Olive Trant, for Richard Cantillon seemingly had an intimate relationship with his Kerry kinswoman, who later married Frédéric-Jules de la Tour, Comte d'Auvergne. Grimm, in the euphemistic terminology of the eighteenth century, remarked: ‘it is claimed that he [Cantillon] was on very good terms with the Princess of Auvergne’.28 Cantillon and Bolingbroke most probably spent many an evening sharing the joys of Parisian life and drinking some of the ﬁne clarets, burgundies, and champagne that Cantillon bought and sold in his secondary line of business as a wine dealer. Bolingbroke was frequently criticized for his over-indulgence with alcohol, while the Earl of Egmont, referring back to the days when he knew Cantillon in Paris, described him as a ‘much debauched man’.29 But rather than stress this respect of their relationship it is more important to conjecture about the circle of friends that Bolingbroke

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may have introduced to Cantillon and even more signiﬁcantly the intellectual rapport that probably developed between the two men. While Cantillon's lack of nobility would have precluded him from membership of the Club de l'Entresol, Bolingbroke was in a position to introduce Cantillon to friends such as the Abbé Alary, Boulainvilliers, Levesque de Pouilly, Montesquieu, and Voltaire. In France, Bolingbroke mixed in inﬂuential circles and courted the intelligentsia of the time. We know that later on in the 1720s Cantillon and his wife were good friends of Montesquieu, though we are not in a position to determine exactly when this friendship started. Cantillon also probably met Voltaire through their mutual friendship with Nicolas Thiériot, one of Voltaire's cherished friends.30 Cantillon seems to have been at home with the literati and intellectuals of the day and in later chapters his encounters with people such as Montesquieu, Jean Baptiste Rousseau, Isaac Newton, and John Law will be discussed. For the moment let us attempt to estimate Bolingbroke's intellectual inﬂuence on Cantillon. Here there is an immediate paradox to be resolved in that Bolingbroke was a vigorous opponent of the new ﬁnancial capitalism that was developing in Europe at this time. Cantillon, on the other hand, was a young banker operating in this new evolving system. He was about to exploit it and make a considerable fortune from some sophisticated ‘raids’ on stocks and currencies. But, while Cantillon was prepared to exploit the system to the full, this did not imply that he agreed with the innovatory attempts that were made to change the ﬁnancial structure through the South Sea and Mississippi companies. Cantillon was a conservative in his approach to monetary policy and national debt management. Cantillon's innate conservatism may have been deepened by his link with Bolingbroke. The latter was the opponent of the new ﬁnancial class. As Kramnick in his masterly work, Bolingbroke and his Circle, points out, the Tory statesman ‘built his career upon the discontent of the gentry. An assault upon its alleged source, the new ﬁnancial order, is involved in all his writings.’31 Attempting to exploit the discontent of the landed gentry Bolingbroke presented, on the one hand, an idealized form of society summarized by Kramnick as one embodying a strong Aristotelian inﬂuence: At the center of Bolingbroke's imagery, as in Aristotle's notion of politics, is the household or family unit with the independent master at its head, and in a ﬁxed subordinate position beneath him, dependent servants. For both Aristotle and Bolingbroke independence was equated with the possession of real property and dependence with its absence. For this reason money men were the natural servants of the landed political masters.32

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This ranking of values in terms of the independence of the landowner and the dependence of the other inhabitants of the state is a theme which Cantillon enunciated in Book I of the Essai. The title of Chapter 12 states this theme directly. ‘All classes and individuals in a state subsist or are enriched at the expense of the landlord.’ The ﬁrst line of this chapter stresses the independence of the landed class. ‘There are none but the Prince and the proprietors of land who live independent; all other classes and inhabitants are hired or are entrepreneurs.’33 Bolingbroke did not only present this idealized form of political and economic society, he also attempted to show the extent to which it was under threat from the new ﬁnancial capitalism. To him the central problem posed arose from the growing national debt along with its attendant institutions such as the three great trading companies, the Bank of England, the East India Company, and the South Sea Company. These companies were the major holders of the national debt. The rising level of stock exchange activity in the shares of these companies as well as in government securities was producing a new ﬁnancial class of bankers, brokers, jobbers, and so on quite distinct from the landed gentry. This class, characterized by its materialistic concern with money and ‘luxury’ expenditure, did not, in Bolingbroke's eyes, generate real wealth and was sucking income away from the gentry as the government taxed the landed class to pay the increasing interest payments on the national debt. The power of the landed class was being eroded by the rise of the ﬁnancial class. Books II and III of Cantillon's Essai represented a thinly veiled attack on the culmination of these early eighteenthcentury ﬁnancial innovations with the national debt, namely the South Sea Bubble and the Mississippi System. Again there are close parallels to be drawn here between Cantillon's approach to these issues and that of Bolingbroke. But before we investigate Cantillon's ﬁrst-hand experience with the South Sea and Mississippi companies we need to examine the circumstances in which they developed between 1715 and 1720. The genesis of Cantillon's banking career serves to show the climate in which ﬁnancial innovation came to have increasing importance. For the moment the discussion of the Bolingbroke–Cantillon relationship has served to show that Lord Carnarvon's use of Cantillon as the Parisian banker for Bolingbroke would have helped to establish Cantillon in the banking world in Paris. Cantillon in return furnished Carnarvon with information not only on Bolingbroke's activities but also on the French ﬁnances. We now know from the Carnarvon/Cantillon correspondence that Cantillon had started writing on economic issues at the time when he

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had come into contact with Bolingbroke. At the end of May 1718 Carnarvon acknowledged the receipt of a letter informing him of some of Cantillon's ideas on commerce and luxury: The scheme of your Commerce will be very acceptable to me and tho' I am persuaded we lose [almost in all parts] by our trade, yet I cannot attribute it altogether to our luxury that the balance turns against us, nor am I of opinion that this either increases amongst of, or decreases with you by the accounts I have from other hands of the way of life in France.34 By inference it appears that Cantillon believed, at this stage in his career, that balance of payments deﬁcits arose as a result of excessive expenditure on ‘luxury’ goods. In early June Cantillon's ideas on this issue had crystallized into ‘Observations on the Trade and Luxury of both Nations’. Unfortunately, we have been unable to ﬁnd this document though Carnarvon's reply, along with Cantillon's title, suggest that the dominant themes in it concerned the adverse repercussions of luxury expenditure and the rising national debt on economic activity: I received the favour of yours of the 6th instance and return you many thanks for it and for your Observations on the Trade and Luxury of both Nations. I doubt you are too right in your judgement of the condition of Britain, and it is certain, if we cannot fall upon some method of extricating ourselves from the difﬁculties we lie under and paying off our debts (which on the contrary every year increase upon us) we must be undone . . .35 No doubt Richard Cantillon discussed with his sometime house guest, Lord Bolingbroke, their mutual concern with the problems of luxury expenditure and the rising national debt in both Great Britain and France. Cantillon, later on in 1718, furnished Carnarvon with very detailed breakdowns of the French government's income, expenditure, and debt. But before he had the time to write such documents he had to solve some problems associated with the Chevalier Richard Cantillon's banking business. Banking with the Chevalier turned out to be difﬁcult. Cantillon's management and accounting skills were needed immediately to stave off the collapse of the Chevalier's bank in the summer of 1715. In the middle of June Cantillon wrote to Brydges about the problems the Chevalier (Sir Richard) was encountering. Carnarvon replied: I am under great concern for the misfortune I understand by yours of the 17th N.S. is befallen Sr Richard, and am however much obliged to you for the care you express you'll take to prevent Mylord Bolingbroke or my suffering by this disaster. Indeed as it is of great concern to us I shall not be easy till I hear this affair passes and that all our grounds for our apprehending any danger are removed.36

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A month later the Chevalier's bankruptcy was discussed in Jacobite circles: ‘Mr Chantillon's breaking spoils the King's measures’.37 But the announcement of this bankruptcy was premature. In letters of 20, 24, and 27 June Richard Cantillon reassured Lord Carnarvon that the danger was over. Carnarvon wrote back: I am heartily glad that Sr Richard has escaped the danger he apprehended but by which I understand it never was but an imaginary one and that too entirely owing to his own unnecessary fears and distrust of himself. A man in business can hardly take a surer course to destroy his own credit, than by discovering to the world an ill opinion in himself of his own circumstances. However, it has given me a signal instance of the friendship in the care you took of Mylord Bolingbroke's concern and I esteem it too considerable to be ever forgot. Your carriage in this has been of same towards me as I have found it in everything else wherein I have entrusted you, and my endeavours shall be to make you on all occasions those returns that may show I have a just sense of it.38 Cantillon learned a lesson from the Chevalier's near bankruptcy. The time had come to set up as a banker himself. The Chevalier was in liquidity difﬁculties as were many other bankers in Paris. Cantillon needed to ﬁnd someone willing to advance him the necessary capital and contacts to establish his own bank. He decided to utilize some of the goodwill that he had built up with Lord Carnarvon. In August he wrote to Carnarvon asking him to recommend him to the London banker Matthew Decker and the Amsterdam banking house of Andries Pels and Son.39 Matthew Decker was a prominent London banker who managed Carnarvon's sizeable bank account. He is better known today as a writer on economic issues, having written Serious Considerations on the Several High Duties which the Nation in general, as well as Trade in particular, labour under, etc., with a Proposal for raising the Public Supplies by One Single Tax, by a well wisher of the good people of Great Britain (London, 1743), and An Essay on the Causes of the Decline of the Foreign Trade, Consequently of the Value of Lands in Britain and on the Means to restore Both (London, 1744). This latter work was referred to ﬁve times by Adam Smith in the Wealth of Nations. Thus we ﬁnd that through Carnarvon's inﬂuence Cantillon was introduced to Matthew Decker and most probably to Dr Charles Davenant, two of the leading economic writers in early eighteenth-century Britain. Cantillon was starting to move in exalted company. Carnarvon spoke to Decker on Cantillon's behalf: According to your request in your letter I have spoken with Mr. Decker and he has promised to honour your bills to the amount which you desire, and has further promised me, when business comes to be transacted again between France and England (of which at present there is a stop from the decay of credit

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in your parts) he'll correspond frequently with you and employ you in his affairs. I will write by next post to Mr. Pels upon the same subject and assure you I shall at all times with pleasure lay hold of any opportunity to do good to one who I think deserves so well and shall esteem myself fortunate if I can be instrumental in contributing to your rise in the world into which you took your ﬁrst step from my ofﬁce.40 Carnarvon's letter shows that in September 1715 the French economy was in such difﬁculties that normal banking facilities with Britain had broken down. Carnarvon's introduction of Cantillon to Matthew Decker would have been of considerable assistance, but, although he had promised to write in similar fashion to Andries Pels and son in Amsterdam, he refrained temporarily from so doing. Carnarvon when granting a favour had a habit of requesting a favour in return.41 At the start of 1716 Cantillon signed a contract with a London ‘banker’ John Hughes. Unfortunately, the notarial record of this document is missing but this contract initiated a relationship between the two men which lasted for seven years till Hughes's death in 1723. We believe that Hughes was appointed to act as a type of London correspondent for Cantillon's bank.42 Later on in 1720 Cantillon brought Hughes over from London to manage the bank in Paris. Cantillon continued his preparations to assume control of the Chevalier's bank and on 17 February 1716 the Chevalier signed a contract transferring his banking business to his cousin in return for an annuity worth 3,000 livres per year. The precise nature of the transfer of this business was later to prove a contentious issue. The legal document relating to the transaction stated that the Chevalier had transferred his banking business and its goodwill to his cousin Richard Cantillon junior, ‘banker in Paris living in the rue des Bourdonnois in St. Germain l'Auxerrois’.43 The consideration paid for the chevalier's bank, an annuity worth 3,000 livres per year—less than Richard Cantillon was paying for the annual rental of his horses, carriage, and coachman—indicates that the Chevalier's banking business had fallen on hard times and that the Chevalier had little more than the goodwill of his business to sell to Richard Cantillon. Intriguingly, notwithstanding the wording of the contract and the listing of the bank in the Almanach royal under the title Richard Cantillon et Junior, rue de l'Arbre Sec for the years 1716 and 1717, Richard Cantillon escaped involvement in the Chevalier's bankruptcy in April 1717. Robert Arbuthnot, British representative for the South Sea Company in Rouen, believed that Richard Cantillon should have been held accountable for the Chevalier's debts. Writing to his friend

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Matthew Prior, a creditor of the Chevalier's bank for the sum of 5,219 livres, Arbuthnot remarked the following: He [Richard Cantillon] slipt his neck out of the noose and baulked his uncle's creditors by suppressing every paper that proved a society betwixt his uncle and him (or his cousin). There was a Scotsman that had some proof by letters of the society, and young Cantillon agreed with him to deposit the money in Mr. Gordon's hands in Paris, and that the Scotsman should pursue him at the Consul's as his uncle's associate or partner, and that Cantillon should by concert gain his process, and so he be paid; this was accordingly done. If you had a bill or lettre missive writ and signed by young Cantillon (Cantillon et Compie.) he would be obliged to pay all, but otherways you have nothing for it but what we can get of the old man's effects, which will be very little and the young man's honour and conscience, which, I fear, is yet less; however, apply to my Lord Duke of Chandos.44 Despite Arbuthnot's caustic comments Cantillon did in fact pay all the creditors of the Chevalier the remaining amount outstanding—three-quarters of their assets—in 1720.45 Whether this was motivated by a guilty conscience or whether it was a philanthropic gesture to the memory of his lately deceased cousin we do not know. In fairness to Cantillon it must be recognized that at the meeting of the Chevalier's creditors in April 1717 he was not held responsible for his cousin's debts. This meeting seems to have been quite amicable for the creditors declared that they realized that he was in part a victim of the difﬁculties of the times. Some of his losses amounting to 160,000 livres over the previous two years had been caused by the bankruptcies of his debtors. The creditors also realized that further losses had been caused by the enforced reduction in his holdings of Government securities caused by the Visa.46 The creditors recognized that the Chevalier had been pushed into bankruptcy not solely by his own actions: ‘le dérangement de ses affaires ne provient uniquement que des pertes qu'il a faites’.47 The examination of the Chevalier's accounts shows that in April 1717 his assets were 134,900 livres (£9,368 sterling) while his liabilities amounted to nearly double at 262,700 livres (£18,243). The winding up of the Chevalier's affairs was a lengthy process—liquidators' time horizons do not seem to have changed over the centuries. Eventually in August 1719 a payment was made to the creditors but by this stage the assets had fallen to 80,000 livres while the liabilities of the Chevalier had increased to 331,000. The creditors were offered a payment of 25 per cent of their assets. Within a year Cantillon, as we have seen, reimbursed the other 75 per cent, some 250,000 livres, for which the Chevalier's assets had been found wanting.48 An analysis of the losses suffered by the Chevalier as a banker is revealing in that it shows the extent to which bankers' fortunes were

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inﬂuenced by the prevailing state of public ﬁnances. Admittedly the Chevalier had been near bankruptcy in 1715, but having obtained a reprieve, his bank could not withstand the twin shocks caused by the declaration of a Visa in December 1715 and a ‘Chamber of Justice’ (Chambre de Justice) in March 1716. The Chevalier's losses were as follows: Losses on the notes of the Caisse d'Emprunts Losses on the reduction in Hôtel de Ville contracts Eight doubtful creditors Losses on nine bankruptcies Losses on cargo or ships Losses on the negotiation of bills of exchange TOTAL

LIVRES 52,000

£STERLING 3,601

40,000

2,770

47,300 26,600 24,000 22,400

3,254 1,842 1,662 1,551

212,300

14,680

The losses arising from the ﬁrst two items were in part due to the Visa while the Chamber of Justice was probably the cause of some of the losses under items 3 and 4. The Visa and the Chamber of Justice had been introduced as measures to improve the ﬁnancial position of the state and to penalize the ﬁnancier class. On the death of Louis XIV the state's indebtedness amounted to 3.5 billion livres (£233 million sterling). Assuming that the population of France was 22 million people this implied a debt per person of 159 livres (£10.6 sterling).49 A wide range of revenue sources had been taxed or ‘farmed’ but the state was still unable to meet its obligations to its debtors. The state was technically bankrupt. Some of its debt had to be cancelled, other parts of it had to be reduced and renegotiated. Having masterminded a palace coup d'état which resulted in effective power being vested under his control, Philip, Duke of Orléans, ruled as Regent of France from 1715 to 1723 during the minority of Louis XV, the great grandson of Louis XIV. Popular history has tended to concentrate on the gastronomic tendencies and sexual proclivities of the Regent and his circle. The result of such writing has been to make the Regency synonymous with an age of excess, a type of eighteenth-century ‘gay twenties’ period. But such labelling is only part of the story. The Regent was very much a Jekyll and Hyde personality. During the daytime from eight in the morning till six in the evening he

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was a hard-working administrator attempting to push through a variety of ambitious reforms. It will be contended later on that the Regent, working in tandem with John Law, attempted to break the power of the ﬁnancier class and change the ﬁnancial structure of the French economy. He was a radical reforming minister. But once he downed his quill and went to dinner he was transformed from minister of state to libertine ready for a night of debauched activity on the town. Eventually his system could not take the strain of both lives and he died a relatively young man of 49 in the arms of a mistress in 1723. We will concentrate on his daytime activities, and, in particular, his attempts at ﬁnancial reform. There were three distinct stages in the Duke of Orléans's reign over ﬁnancial policy: (1) 1715–17, the period in which the enforced reduction of the state's debts was linked with an attack on the ﬁnancier class; (2) 1717–20, the attempt to replace the old ﬁnancial structure with Law's alternative system; (3) 1721–3, the return to the old approach on the collapse of Law's System. Under the Regent's new administration, Nicholas Desmaretz, Controller-General of ﬁnances (Contrôleur-Général des Finances) 1708–15, was sacked and replaced by the Duke of Noailles who was made president of the council of ﬁnances (Conseil des Finances). Noailles was entrusted with the task of reducing the state's debts. He reduced the interest rate on all the long-term government debt, the bulk of which was held in Hôtel de Ville contracts, to 4 per cent. Most of the long-term borrowing of the Crown was done through the intermediation of city governments, particularly the Hôtel de Ville in Paris. Investors lent money to the municipality in return for a ﬁxed interest bond. The city then lent this money on to the government in return for which the Crown assigned speciﬁc tax revenues to it to pay the interest on the city's bonds.50 With the reduction in the interest rate on Hôtel de Ville contracts, bond-holders suffered losses. In the Chevalier's case we have shown that he lost 40,000 livres on this interest rate reduction. The ﬂoating debt, that is debt which was not directly linked to a tax revenue source and payable, in theory at least, in the immediate short run, was drastically restructured. It was made up of a variety of short-term obligations and notes including billets de monnaie, billets de la Caisse de Legendre, billets des emprunts, billets des receveurs et des fermiers généraux. It was subject to a Visa whereby 597 million livres of the old ﬂoating debt was reduced to 198 million livres, an operation which wiped out 400 million livres or two-thirds of the ﬂoating debt. The old debt was reduced and converted into a new uniform debt known as billets d'état. Not wishing to miss the opportunity to raise some new funds the government issued some 52 million livres of billets

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d'état on its own account, thereby raising the total amount outstanding to 250 million livres. The precise manner in which the old heterogeneous collection of ﬂoating debt was converted into new billets d'état depended on the type of debt being converted, whether its holder had been the original purchaser, whether he had purchased it with cash, and so on. In the case of the Chevalier's notes on the Loan Chamber (billets de la Caisse des Emprunts) these were converted ‘without loss or with reductions of up to four-ﬁfths of their nominal value, depending on whether they had been paid for with specie or, wholly or partially, in billets de monnaie, and according to whether they were presented by their original owner or had passed through a number of hands in which case it was conjectured that the last holder had acquired them at a very low price.’51 The Chevalier lost 52,000 livres on the notes of the Loan Chamber when they were subjected to the Visa.52 The complexity of the Visa's operations was frequently simpliﬁed by arbitrary decisions on the part of the inspectors carrying it out, with the principles of equity being frequently forsaken owing to the size of the bribe or favour offered by the holder of old ﬂoating debt. Lüthy suggests that the huge growth in the wealth of the Pâris brothers, the chief administrators of the Visa, may be traced to this period 1715–16 when they supervised the Visa.53 In all the Chevalier lost 92,000 livres through the Visa's operations. These losses destroyed his bank's reserves and left him open to bankruptcy. But worse was to come. The Earl of Carnarvon's letter to Richard Cantillon in September 1715 shows that normal banking links between Britain and France had already broken down before Noailles's sweeping reduction in the value of government debt. The petite bourgeoisie was baying for blood, that of the ﬁnanciers and provisioners who had enriched themselves in war proﬁteering and lending to the Crown at extortionate interest rates. It felt that it was being excessively taxed to meet the Crown's obligations to the ﬁnanciers. This anti-ﬁnancier stance met with a sympathetic hearing from the Regent's administration. The ﬁnanciers had supported the old regime and the Regent was keen to keep them under control. The attack on the ﬁnanciers which started with the sacking of Desmaretz and the implementation of the Visa moved up a gear with the establishment of the ‘Chamber of Justice’ (Chambre de Justice) on 14 March 1716. The Chamber of Justice was an extraordinary commission established to judge and punish ﬁnanciers and proﬁteers deemed to have made their wealth in a dishonest manner at the expense of the Crown. It was not a new phenomenon — there had been four

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Chambers of Justice in the seventeenth century in 1601, 1607, 1625, and 1661. They fulﬁlled a dual role, providing a blood-letting (Richelieu described the Chamber of 1625 as a ‘saignée’) and at the same time holding out hope of raising badly needed revenue for the Crown. Under the 1716–17 Chamber of Justice 8,000 people were investigated with just over half, 4,410, taxed a total of 220 million livres. In some less fortunate cases people found guilty were sent to the galleys, imprisoned, or locked in stocks and pilloried. Unlike some of the earlier Chambers of Justice, no one was executed. Antoine Crozat, one of the biggest ﬁnanciers of the time, was taxed 6.6 million livres, a levy which was to have considerable repercussions in the development of the Mississippi Company. But, as was the case in previous Chambers of Justice, the scope for evasion of the tax was great. A secondary unofﬁcial market in exemptions and special dispensations arose between the favoured members of the Regent's new administration who could plead for clemency and leniency and the ‘gens de ﬁnance’ ready to purchase such favours. Accordingly, the rich ﬁnanciers for the most part escaped or were treated favourably while the unprotected and less wealthy class were dealt with harshly. This inequitable treatment caused popular opinion, initially greatly in favour of the Chamber, to turn against it. Of the 220 millions in taxes levied by the Chamber only 95 millions was actually paid, much of it in depreciated paper. Noailles estimated, in April 1717, that the effective amount of money collected through the activities of the Chamber of Justice was only 51 million livres.54 But this forced contribution to the Crown's ﬁnances was more than offset by the stagnation in trade and ﬁnancial activity that it engendered. Financial witch-hunts of this type forced money abroad and underground. For obvious reasons the monied class did not wish to be seen as ostentatious spenders. Credit tightened up further and bankruptcies increased. The damage caused by the Chamber of Justice to the circulation of money was belatedly recognized in the edict of March 1717 that terminated its activities: ‘It is not possible to punish such a large number of offenders without causing a type of general disturbance in the State . . . stopping the ﬂow of business and suspending the circulation of money.’55 Thus the Chevalier's banking business had been attacked on two fronts by the activities of the Crown. The Visa had forcibly reduced part of the reserves of the bank and the Chamber of Justice had caused a deterioration in business conﬁdence and forced people to hoard money. The shortage of credit had created a wave of bankruptcies, a number of which affected the Chevalier. In April 1717 his business went into liquidation. Four months later he died.56 Notwithstanding the Chevalier's bankruptcy and death Richard

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Cantillon seems to have managed, in the public eye at least, to differentiate his own banking business from that of the Chevalier. Earlier in 1716 he had been busy consolidating his links with other European bankers. The Earl of Carnarvon had already introduced him to the London banker Matthew Decker. In May 1716 Carnarvon introduced Cantillon in a letter to the Amsterdam banker Andries Pels as ‘a young man who, in my view, will show himself to be industrious’, and asked him to increase Cantillon's line of credit to £2,000, guaranteeing to meet this obligation by a payment through Matthew Decker whenever Pels required funds.57 Pels, as was to be expected, replied afﬁrmatively to this request and Carnarvon promised to ‘write to the same effect to Mr. Senserff to give you credit for £2,000 and I question not but he'll comply with my desire.’58 Earlier in March Brydges had informed Cantillon that he was willing to invest between £4,000 and £5,000 in Cantillon's bank for the latter to invest where he wished: I will not advise or direct you in what manner to employ it but trust wholly to your prudence and industry, desiring you once a year to send me over an account. Whatever the proﬁt amounts to above 10 per cent I will allow you two thirds of for your care and trouble and the proﬁt accruing to me you'll lay out and still add to the principal. I wish you good success and doubt not but your management will be so as to encourage me to send a larger sum over to you.59 Carnarvon must have had a high opinion of Cantillon to offer him such a loan and to expect that he would be able to generate a rate of return on it considerably above 10 per cent. As it turned out, Cantillon only used £2,000 of the proposed sum but by the end of the year Carnarvon was so satisﬁed with his stewardship of this money and the assistance Cantillon had given him with some of the Paymaster's accounts that he proposed taking only 4 per cent interest on the money that he had lent Cantillon: I ﬁnd by yours of the 2nd [January] instant you have brought the account to a balance between us, but you have made it an higher interest than I intended to take. However, since it is so settled, and that all accounts by that method are adjusted I desire for the future you'll compute the interest only at 4 per cent which is all I'll take for the £2,000.60 By the end of 1717 Carnarvon was so happy with Cantillon's activities on his behalf that he waived the interest due on the £2,000: ‘I make you a present of it for a New Year's gift’.61 With Carnarvon's assistance and contacts Richard Cantillon weathered the crisis of the Chevalier's banking failure and succeeded in establishing himself as a banker in Paris. Leaving aside the Chevalier's

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bankruptcy this was no small achievement as he had set up business as a banker at a time when the impoverished state of the French ﬁnances had made it difﬁcult for well-established banks to stay in business. Cantillon using the Chevalier's and the Arthurs' banking network had built up a wide range of contacts among Irish traders in important ports such as Nantes and Bordeaux. In July 1716 he was acting as a banker in transactions involving the leading Irish merchants in Nantes, Thomas and Daniel MacNamara.62 Similarly Cantillon established strong contacts with Bordeaux, but here we ﬁnd him diversifying his activities into wine dealing. His correspondence with Carnarvon shows that he dealt extensively in wines with a fellow Irishman, the Bordeaux wine merchant Thomas Walsh.63 Another fellow countryman, Sarsﬁeld, based at Rouen, also traded in wines with Cantillon.64 Cantillon seems to have had excellent taste in his selection of wines, for in June 1716 Carnarvon congratulated him on the champagne he had sent him, ‘which proves to be the best which has come into England this year.’65 He continued to trade as a wine dealer throughout his life, being described in the London newspapers on his demise in 1734 as a French wine dealer. An interesting aspect of his wine dealings, as also of his early career as a banker, was the extent to which he linked up with fellow Irish merchants trading on the Continent. As suggested in Chapter 2, the activities of these Irish traders has been very much underestimated by historians over-concerned with the ‘ﬁghting Irish’ image on the continent.66 Like his relative, Sir Daniel Arthur, Richard Cantillon also developed a taste for art. Arthur by the time of his death had built up a ﬁne collection of old masters.67 In the summer of 1716 Cantillon was involved in negotiations between the Arthurs and Carnarvon to sell a painting by Andrea del Sarto to Carnarvon. The following year Cantillon recommended some other paintings to Carnarvon to which the latter replied: I should be very glad if it could be found out what was the price of each of these pictures you mentioned will be, viz. the two of Paul Veronese, the Venus of Annibal Caraccio, and the Backanall of Julio Romano. They are the greatest masters, and of the two last I have nothing except one small piece of the latter.68 Cantillon maintained his contacts with the world of art and had the portrait of his wife Mary Anne painted by the great French portrait artist Largillière in the 1720s. Well established as a banker and merchant in Paris in 1718, Richard Cantillon, as ever alert to new opportunities, shifted his attention to the activities of a Scotsman in Paris, one John Law. Law was a shooting

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star in the French ﬁrmament. John Law was to have a profound effect on Cantillon's economic theories as well as his material situation.

Notes 1 2 3 4

5 6

7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Huntington St. 57, x, 111, 24 April 1714. Ibid. ANMC i. 258, 11 August 1714 ‘Bail de Carosse’. Contract between P. Le Gros, renter of carriages, and Richard Cantillon. ANMC xxvi. 245, 3 April 1710 and xxvi. 266, 8 August 1712. These notarial études include the wills of Daniel O'Mahony. In them, written at a two-year interval, Daniel O'Mahony indicates that he was living at the Chevalier Richard Cantillon's house ‘étant à présent en cette ville logé en la maison du Sieur Cantillon, rue des Mauvaises Paroles, paroisse de St. Germain l'Auxerrois’. ANMC lxvi. 364, 23 September 1717. Inventaire of the Chevalier Richard Cantillon. HMC Stuart, iv (1910), 562. Reference by Queen Mary of Modena to Sir Richard Cantillon. The references in the Stuart papers suggest that the elder Richard Cantillon had been knighted by James II. The records of the Irish College in Paris also designate him as a knight of the realm, albeit the realm in exile. See Liam Swords, ‘History of the Irish College, Paris 1578–1800’ in Archivium Hibernicum (Maynooth, 1980), 117, 118, 125, 311, 388, 647, 652, 668, 669. BN Fo. Fm. 2838. ‘Mémoire pour Jean et Remy Carol’. ANMC lxvi. 356, 15 July 1715. ‘Procuration’. H. T. Dickinson, Bolingbroke (London, 1970), 134. Huntington, St. 57, xii. 46, 20 June 1715. Dickinson, op. cit., 135. ANMC lxvi. 368, 21 March 1719. ‘Déclaration’. Dickinson, op. cit., 135. M. Fréron, L'Année littéraire, 1755, v (Amsterdam, 1755), 67. There are frequent references by Carnarvon in his correspondence with Cantillon to ‘our friend’ when referring to Bolingbroke. ANMC lxvi. 368, 21 March 1719. ‘Déclaration’. Huntington St. 57, xii. 46, 20 June 1715. Also St. 57, xii. 65–6, 21 July 1715. Huntington St. 57, xii. 65–6, 21 July 1715. Huntington St. 57, xii. 315, 19 March 1716. Huntington St. 57, xii. 307, 14 March 1716. Huntington St. 57, xiv. 41–3, 2 May 1716. Huntington St. 57, xiv. 128, 27 July 1716. P. H. Grimoard, Lettres historiques, politiques et particulières de Henri St. John, Lord Viscount Bolingbroke, depuis 1710 jusqu'en 1736 (Paris, 1808), ii. 452, 455. BL MSS 28238, fo. 189. ‘Mr Grimsden [Brinsden] heretofore employed by

HIS DEBUT AS A BANKER IN PARIS, 1714-17

24 25

26 27 28 29 30 31 32 33 34 35 36 37 38 39

40 41

61

Lord Bolingbroke can give us great lights in relation to our suit with Cantillon.’ A letter from Lady Mary Herbert in the late 1720s in relation to her legal suit with Cantillon. Abbé Prévost, Le Pour et contre, xlviii (Paris, 1734), 51–2. Catholic Register Society, viii ‘The Blue Nuns of Paris’, 32, 60, 425. The Blue Nuns' register for 1683 states, ‘This year 1683 the two Misses Trants and Miss Kook came for education’, p. 32. As there were three sisters we do not know if Olive was at the Blue Nuns school as early as 1683. In our view Olive was most probably born around 1680. She married Frédéric-Jules de la Tour, Comte d'Auvergne on 17 January 1720. Her father-in-law was Godefroy-Maurice de la Tour, Duc de Bouillon, d'Albret, et de Château Thierry, a good friend of the Regent, Philip, Duke of Orléans. See Père Anselme, Histoire de la maison royale de France (Paris, 1726–33), iv. 542. Cantillon acted as her banker, see ANMC lxvi. 382, 12 August 1721. ‘Déclaration’. Bolingbroke, A Letter to Sir William Windham in 1717, by the Right Hon. Lord Bolingbroke (Dublin, 1753). HMC Stuart, vii. (1923) 636. Olive, by our reckoning, was not all that ‘young’, being in her mid-thirties at this time. Perhaps James III was being ironic. Grimm, Diderot, Raynal, et al., Correspondance littéraire, philosophique et critique (Paris, 1878). Comment of Grimm on 1 August 1755. HMC Egmont, ii. (1923), 102. This possible link is discussed in Chapter 10. Isaac Kramnick, Bolingbroke and his Circle (Harvard and London, 1968), 63. Ibid., 80. Essai, 43. Rather than translate ‘entrepreneur’ as ‘undertaker’ the original French word is left in. Huntington St. 57, xv. 238–9, 29 May 1718. Huntington St. 57, xv. 265, 1 July 1718. Huntington St. 57, xii. 60, 11 July 1715. HMC Stuart, iii (1907), 406. Huntington St. 57, xii. 65–6, 21 July 1715. Sir Matthew Decker (1679–1749) was born in Amsterdam. He came to London in 1702 and seems to have been Carnarvon's main London banker. He was a director of the East India Company and an MP for Bishops Castle. Whilst his main economic writings were published in the 1740s it is interesting to speculate on Cantillon and himself discussing the leading economic issues when they met in the company of James Brydges, Earl of Carnarvon. Andries Pels was perhaps the most inﬂuential Dutch banker of his age. Cantillon used him extensively during the stock market booms of 1719–20. Huntington St. 57, xii. 103–4, 2 September 1715. Cantillon's ability to run a bank in these difﬁcult times in Paris is evidenced by Carnarvon's decision to raise Cantillon's credit limit with Pels to £2,000

62

42

43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62

HIS DEBUT AS A BANKER IN PARIS, 1714-17

in May. See Huntington St. 57, xiv. 41, 2 May 1716. Less than three weeks later he wrote to Cantillon saying that Pels was willing ‘to enlarge your credit . . . I'll write to the same effect to Mr Senserf a banker at Rotterdam to give you credit for £2,000.’ See Huntington St. 57, xiv. 55, 20 May 1716. ANMC xlviii. Unfortunately, this notarial étude is missing. As the notaire Ballin acted for John Law, the missing documents may have been spirited away in part of the general disappearance of documents relating to John Law. The register for the notarial études does indicate that on 16 January 1716 Richard Cantillon junior and John Hughes drew up a contract to establish a bank. Further proof of this comes in a letter from Carnarvon. ‘What you desire of me in relation to Mr Hughes you may be assured I'll do.’ Huntington St. 57, xiv. 375–6, 17 March 1717. ANMC lxvi. 358, 17 February 1716. ‘Création de pension’. HMC Bath, iii (1908) 469. Letter from Robert Arbuthnot to Matthew Prior on 18 September 1719. By the time this letter was written Carnarvon had been made Duke of Chandos. BN Fo. Fm. 2740. ‘Mémoire pour Richard Cantillon contre Jean et Remy Carol’. G. Antonetti, ‘Autour de Cantillon’, in Mémoires de la sociéte pour l'histoire du droit, 29e Fascicule 1968–9 (Dijon, 1969), 9. Ibid., 9. Ibid., 11. For an account of some of the economic problems encountered at this time and the environment in which John Law's System emerged see Herbert Lüthy, La Banque protestante en France (Paris, 1959), i. 275–428. On the methods of raising ﬁnance for the monarchy see J. F. Bosher, French Finances 1770–1795: From Business to Bureaucracy (Cambridge, 1970), Chapter 1. Lüthy, op. cit., 281 (my translation). This conclusion is derived from an analysis of Antonetti's listing of the Chevalier's losses. See Antonetti, op. cit., n. 46 above, 11. Lüthy, op. cit., n. 49 above, 281. Emile Levasseur, Recherches historiques sur le système de Law (Paris, 1854), 357–8. Marcel Marion, Dictionnaire des institutions de la France aux XVII et XVIII siècles (Paris, 1923, republished 1979), 80. The Chevalier died on 5 August 1717. Antonetti, op. cit., n. 46 above 12. Huntington St. 57, xiv. 41. Letter from Carnarvon to Andries Pels, 2 May 1716. Huntington St. 57, xii. 300–1, 4 March 1716. Huntington St. 57, xiv. 126–9, July 1716. Huntington St. 57, xiv. 313, 6 January 1717. Huntington St. 57, xiii. 88–9, 25 December 1717. Nantes, Archives de la Loire-Inférieure, Étude II (Notaire, Villaine), 2016, 9 August and 4 September 1714 and Étude II, 2018, 21 August 1716. These documents relate to bills of exchange that had been protested. They involve

HIS DEBUT AS A BANKER IN PARIS, 1714-17

63

the MacNamara brothers, who were very substantial traders in Nantes, and the Cantillon bank in Paris. The triangular business relationship between Daniel Arthur, the Chevalier Richard Cantillon, and Irish merchants in Nantes is borne out by documents relating to August and September 1714. 63 Huntington St. 57, xi. 59, 21 October 1714. 64 Huntington St. 57, xi. 163, 11 December 1715. Carnarvon's comment on the wine shipped by Sarsﬁeld shows his taste for French wines, as well as the age-old problem of pilfering of cargo: I have received the Hermitage Mr Sarsﬁeld sent me from Rouen. It came very safe and well, but nine bottles were wanting of the parcel said to be contained in one of the hampers. Pray return him my thanks. It is a very good wine, but not so high ﬂavoured as Hermitage used to be. Perhaps it may proceed from its being just put into the cellars which was but this day and it is not unlikely, but that after it has had time to settle, it will recover very much. 65 Huntington St. 57, xiv. 126, 28 June 1716. 66 Professor Louis Cullen is currently redressing this lacuna in our knowledge of the Irish traders on the continent. See for example L. M. Cullen, ‘The Irish Merchant Communities of Bordeaux, La Rochelle and Cognac’ in L. M. Cullen and P. Butel (eds.), Négoce et industrie en France et en Irlande au dix-huitième et dix-neuvième siècles (Paris, 1980). 67 Sir Daniel Arthur had been a more than keen art collector. In 1729 the Earl of Egmont observed that a Mr Bagnall had, through his marriage to Sir Daniel Arthur's widow, obtained a ﬁne collection of old masters: I would not omit that this morning Mr Bagnall shewed me a great number of very ﬁne original paintings, which he got by marriage with the Lady Arthur, wife of Sir Daniel Arthur, a rich Irish merchant who died in Spain. There is a very large piece of Vandyke for which he asks 400l., it is Diana and Endymion. There are two large pieces of Rubens, one, the Legend of St. Martin cutting off a piece of his cloak to relieve the beggar, there are several ﬁgures in it as big as life. There is also a very ﬁne landscape, large, of the same master: a landscape by Artois, the ﬁgures by Teniers. Six or seven pictures of this last master, four of which match and represent the different parts of the day, several pieces of Monglio, a famous painter in Spain, little known here, together with his own picture. He was fond of painting cupids. Beatrix Constanza, Duch[ess] of Loraine, a full length by Vandyke, and some other portraits of his, a ﬁne preserve piece of Castle and birds by Savary and divers of the Brugels, some pieces of Italian masters, as Mich. Angelo, Caravaggio, Tintoret, Paul Bassan Veronese, and a head by Titian, with several others of masters we neither of us know. See HMC Egmont, iii (1923), 344. The paintings in the above quotation, worth millions today, were sold by

64

HIS DEBUT AS A BANKER IN PARIS, 1714-17

Bagnall to George II. They now form part of the Royal collection at Windsor Castle. Ironically, a collection acquired through a proﬁtable Jacobite banking business helped to form the nucleus of the Hanoverian collection of paintings. 68 Huntington St. 57, xv. 20, 28 August 1717.

5 John Law and Richard Cantillon: The First Mississippi Fortune — Phase One The relationship between John Law and Richard Cantillon is intriguing at both the personal and the theoretical levels. At the personal level the mood between the two varied from friendship and involvement in Mississippi-related transactions to distrust and hostility with Law threatening to imprison Cantillon in the Bastille. Later still Law's attitude changed once again when he offered Cantillon the position of being deputy to him in managing the French ﬁnances. Had Cantillon accepted the position the French would have had a Scotsman and an Irishman determining their ﬁscal and monetary policies! At a theoretical level John Law ﬁrmly believed in the need for government intervention in the economy. He attempted to revolutionize the ancien régime's ﬁnancial structure by using monetary, ﬁscal, and exchange-rate policies in a quasidespotic manner to achieve his objective of increasing the level of economic activity in France. Cantillon, on the other hand, was extremely wary about the role of government intervention in the economy. His theoretical stance was quite different from that of Law. He used his theoretical knowledge and banking experience to identify the weaknesses of Law's System and in the process made two fortunes out of the Mississippi System. Before dealing with the complex interrelationship between Law and Cantillon it is necessary to explain the monetary environment in which they operated, an environment popularized in the public eye through images of bubbles, speculative mania, and irrational behaviour during what amounted to the ﬁrst major stock market boom in Europe in 1718–20. This boom involved what were popularly known as the Mississippi System and the South Sea Bubble. The popular image of these stock market booms needs to be counterbalanced by the alternative view that interprets the Mississippi System and the South Sea Company as serious attempts at ﬁnancial innovation, as efforts to free policy from the suffocating constraints imposed on it by the management of the war-induced national debt. These ﬁnancial innovations failed, not because the idea behind them was fundamentally ﬂawed, but because their projectors, along with their political backers, were over adventurous and too many ‘invisible hands’ found their way into the public purse.

66

THE FIRST MISSISSIPPI FORTUNE

Between 1718 and 1720 the fortunes of the South Sea Company in Britain and the Mississippi Company in France were very much interlinked. The names of both companies tend to conjure up adventurous and exotic trading images, with the South Sea Company established ostensibly to develop trade in the Paciﬁc and to exploit the mineral wealth of South America, while the Mississippi Company was established initially to develop the agricultural and mineral potential of the newly appropriated French colony of Louisiana. But while the initial intentions of their founders may have been to use these companies to develop colonial trade, their main function in practice turned towards a totally different area, that of management of the national debt. The companies assumed this function through their offer to convert part of the national debt into their stock in return for their respective governments granting them overseas trading privileges. This central concern with debt management, allied with man's natural instinct to borrow his neighbour's seemingly good ideas, meant that both companies served in turn as the model for the other. The Mississippi Company was fashioned initially on the South Sea Company but by 1719 the actions of the former inspired changes in the South Sea Company. A further aspect in common between the two systems is the extent to which they ﬁt the Minsky/ Kindleberger sequence of events that characterize stock market booms and slumps. This sequential schema is useful to synopsize and keep in mind as we analyse the unfolding events of the stock market boom of 1718–20.1 Its outline is as follows: (1) The market rise starts off because of some exogenous shock such as war, the end of a war, a technological or natural resource discovery, or ‘a debt conversion that precipitiously lowers interest rates’. The shock creates new opportunities for proﬁt and a boom is engendered. (2) The boom is nurtured by an expansion of bank credit which expands the money supply. Alternatively the velocity of circulation increases. (3) As increased demand pushes up the price of goods and ﬁnancial assets, new proﬁt opportunities are found and conﬁdence grows in the economy. Multiplier and accelerator effects interact and the economy enters into a ‘boom or euphoric state’. At this point overtrading may take place. (4) Overtrading may involve: (a) Pure speculation, that is over-emphasis on the acquisition of assets for capital gain rather than income return (b) Overestimation of prospective returns by companies

THE FIRST MISSISSIPPI FORTUNE

(5) (6) (7) (8)

67

(c) Excessive gearing involving the imposition of low cash requirements on the acquisition of ﬁnancial assets through buying on margin, by instalment purchases, and so on. When the neophytes, attracted by the prospect of large capital gains for a small outlay, become numerous in the market, the activity assumes a separate abnormal momentum of its own. Insiders recognize the danger signals and move out of securities into money. A ﬁnancial distress period sets in as the neophytes become aware that if there is a rush for liquidity prices will collapse. The race to move out of securities gathers pace. Revulsion against securities develops as banks start calling in loans and selling collateral. Panic sets in as the market collapses and the question arises as to whether the government or Central Bank should come in and act as a lender of last resort in what has been recently described as a ‘lifeboat operation’.

The Establishment of the South Sea and Mississippi Companies Both companies owed their immediate origin to the accumulated debts created during the War of the Spanish Succession which was waged from 1701 to 1703.2 In Britain, even prior to the end of hostilities, there was a sizeable and increasing amount of ﬂoating debt that had arisen from army, navy, victualling, and transportation expenses. This heterogeneous ﬂoating debt was costly to service and because of the shortage of money irregularly discharged. It stood at a heavy discount in the ﬁnancial market and was instrumental in generating a marked lack of conﬁdence in government funds. If the government was to raise further ﬁnance it was recognized that conﬁdence would have to be restored to the market by making suitable arrangements to deal with the ﬂoating debt problem. A scheme was devised and an Act passed in Parliament in 1711 under which £9.5 million of the ﬂoating debt was to be converted into the stock of a newly created company, the South Sea Company. The essential ingredient in the scheme was the reduction of interest payments on government stock taken over by the Company in return for the granting of monopoly trading privileges to the Company. From the government's viewpoint the scheme was attractive in that it helped to reduce the servicing cost of this ﬂoating debt (navy debt, transport debt, army debentures, and so on) from 9 per cent to 6 per cent. From the Company and shareholders' viewpoint it was attractive in that, despite the interest rate loss of 3 per cent per annum, there was the prospect of considerable capital gains on the Company's shares if

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THE FIRST MISSISSIPPI FORTUNE

the trading privilege granted to the Company was properly exploited. The Company was granted the exclusive trade privilege for South America: That this Company shall, from the ﬁrst of August 1711, be vested for ever in the sole trade and trafﬁc, unto and from all the kingdoms, lands, islands, cities, towns, ports, creeks, places in America, on the East Side thereof, from the river of Aranoca [the Orinoco] to the southermost part of the Terra del Fuego; and on the west side thereof, from the said southermost part of the said Terra del Fuego, through the South Seas, to the northermost part of America . . .3 The interest payments due by the government to the South Sea Company were secured on the duties of wines, vinegar, tobacco, East India goods, wrought silks, whale ﬁns, and sundry other duties. The income on these duties had already been appropriated for some years but in the meantime the ‘deﬁciency of this yearly fund was to be made good by the Treasurer of the Navy.’4 There was nothing new in companies acquiring trading privileges by lending money to the government. In 1694 the Bank of England had been founded through the loan of £1.2 million to the government at an interest rate of 8 per cent plus the granting of certain banking privileges to the Bank. In 1698 the East India Company had lent £2 million to the Government, again at an interest rate of 8 per cent plus the granting of overseas trading privileges. Between 1702 and 1713 the Bank and East India Company lent the government another £1.6 million. But these loans were insufﬁcient, given the cost of ﬁnancing the war effort against the French, and, as we have seen, by 1711 the Government was ﬁnding it difﬁcult to stabilize its ﬁnancial position. South Sea stock was issued at a par of 100 against the par value of the various debts incorporated. But these government debts had been at a sizeable discount, estimated by Scott as 32 per cent against the par value of the stock. Thus £100 of South Sea stock in market terms was worth £68. As a result of the South Sea issue, the government stocks involved in the conversion operation rose and the ﬁrst quotations of the South Sea Company were between 73 and 76. South Sea did not reach its par price of 100 till May 1715. The Company's capitalization of £10 million constituted an element of danger because ‘The directors could borrow very large amounts on the security of the government or working capital of the undertaking, as distinguished from its share capital . . . it had a very large surplus of credit which the directors might be tempted to employ in other directions.’5 The directors of the South Sea Company did not succumb to such temptation during the ﬁrst eight years of its relatively quiet and uncontroversial existence. Even in February 1719 when the directors

THE FIRST MISSISSIPPI FORTUNE

69

proposed the conversion of the 1710 Lottery Loan into South Sea stock the amount involved was a reasonably modest £1.7 million. We turn our attention from the South Sea Company and move to France to examine the activities of the cosmopolitan projector John Law. The end of the seventeenth and the start of the eighteenth centuries was a ﬂourishing period for projectors who had ambitious ideas and proposals for new ways of promoting commercial activity. Already Law's compatriot William Patterson had been instrumental in founding the Bank of England, while Dr Hugh Chamberlen's project for a land bank had almost been introduced. John Law, the son of an Edinburgh goldsmith—in those days the goldsmith's activities interlinked with those of banking—had also made a proposal for a land bank to the Scottish Parliament, published in his book Money and trade considered (1705). This proposal was turned down but Law, undaunted by this rejection, toured the continent attempting to persuade various monarchs to adopt his monetary proposals. He was unsuccessful till after Louis XIV's death. Then he gained access to the French Regent, Philip, Duke of Orléans. With the Duke of Orléans's assistance Law was able to establish the General Bank in 1716. Law's toe was inside the French door and within four years he was involved in a massively ambitious experiment in dirigiste macro-economics. From the macro-economic viewpoint there were four important phases in the development of Law's System: (1) The establishment of a commercial bank which later became a quasi-Central Bank with the main function of issuing banknotes to replace specie as the new medium of exchange. (2) The involvement in debt management operations through the establishment of the Company of the West (Compagnie d'Occident). (3) The combination of monetary policy with debt management operations through the progressive linking of the operations of the bank with those of the Company—the two eventually being merged in 1720. (4) The use of changes in the domestic exchange rate to induce wealth holders to substitute banknotes for specie. At the start of 1716, when he established the General Bank, Law certainly had no complete vision of what he would achieve ﬁve years later. He was not presented with a carte blanche to implement economic policy at his will. His mentor, the Regent, was in no position to give Law such powers at this time for he was still struggling with the Parlement and the court to consolidate his own power base. Little by little, as Law demonstrated the success of his policies, he gained the

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conﬁdence of the Regent and, as the latter won victories over the Parlement and opposing court faction, Law was given more scope to advance his theories. In such an environment he was by necessity an improviser. Opportunities had to be grasped as they presented themselves but in availing himself of these opportunities we can see Law systematically pursuing the macro-economic objective of full employment, through expansionary monetary policy, that he developed as early as 1705 in Money and trade considered. But Law's operations did not have any immediate or sizeable impact on the French economy. It was not until he moved into the area of debt management that his activities started to change the underlying structure of the French ﬁnancial system. This decision has been criticized as being the major error of judgement of the Scottish economist. With hindsight such a view may seem correct when interpreted against the backdrop of the collapse of the System. Law, it has been contended, would have been a brilliant success if he had remained a banker and not entered the area of debt management.6 However, if, instead of looking backwards through time we attempt to view the problem as it arose in France in 1717, we can see why Law was obliged by his own internal logic to cross the Rubicon and interest himself in debt management policy. Notwithstanding his own eulogies on the usefulness of the General Bank, Law must have recognized that its role was, despite the increase in its functions (principally, the payment of taxes through the use of banknotes), extremely limited. There were two problems (1) the undercapitalization of the General Bank and (2) the massive overhang of government debt in the bond market. Law had started off in a modest fashion. The initial capital of the General Bank was to be 6 million livres (£383,000 sterling) subscribed in 1,200 shares of 5,000 each. The effective capital base of the bank was much smaller than this due to the fact that only one quarter of the capital was to be subscribed in specie money and three-quarters in billets d'état (a type of government security). The billets d'état were then at a discount of about 60 per cent so that the effective amount of capital to be subscribed was: Specie Billets d'état (4.5 × 0.4)

1.5 million 1.8 million 3.3 million livres tournois

Thus, at most, the effective capital base of the Bank would have amounted to 3.3 million livres, but even then capital was to be subscribed in four equal instalments. It is believed that only one instalment was actually paid up so that the General Bank started its

THE FIRST MISSISSIPPI FORTUNE

71

operations with 825,000 livres (£52,700). Expanding the money supply to any signiﬁcant extent with such a slender capital base was not possible. At the same time Law probably recognized that the General Bank was having little impact on interest rates because of the huge overhang of accumulated state debt. The banknotes issued by the General Bank were fully backed by specie and the subscription in billets d'état to the capital of the bank was only 1.125 million l.t. in nominal terms. Despite the reduction in the ﬂoating debt produced by the Visa of 1716, Forbonnais estimated that there were some 250 million l.t. of billets d'état in circulation and 215 million l.t. of other ‘papiers royaux’.7 Additionally there were substantial long-term debts in the form of annuities. In order to lower interest rates Law needed another vehicle besides that of the General Bank, and the vehicle he chose was the Company of the West (Compagnie d'Occident) which came into being in the summer of 1717. The initial proposal for the launching of this company came not from Law but from Le Gendre d'Arminy, brother-in-law to the great ﬁnancier Crozat. The latter, who owned the lease of Louisiana trade, wished to surrender it, in payment of the tax levied on him through the Visa, and so pushed, through his front man Le Gendre d'Arminy, for the creation of such a company.8 By the summer of 1717 there was a variety of proposals for the creation of this type of company with a projected capitalization varying from 2.4 million l.t. to 25 million l.t. Law, whose stature had increased pari passu with the growth of the General Bank, was asked for his view. He riposted with a far more grandiose proposal to establish a Company of the West with a capital of 50 million l.t. ‘and perhaps more’, the capital to be subscribed in billets d'état. In August 1717 Law was given permission to ﬂoat the Company of the West on the market. The second phase of the System was launched with, as Table 4 shows, the issue of 200,000 shares at 500 l.t. each. As such the nominal market capitalization was 100 million l.t. However, as the shares could only be purchased with billets d'état, then standing at a discount varying between 68 and 72 per cent, the effective market capitalization was much smaller (30 million l.t. — £1.5 million sterling) and the market cost per share was between 140 and 160 l.t.—an important point when considering the growth in the market valuation of the Company's shares in later years. At this stage the French System was modelled on rather than giving a lead to the South Sea Company. The essential feature of the Company of the West was the granting of a trading privilege to it in exchange for the Company's conversion of depreciated government debt, at a lower interest rate, into Company stock. The Company was given exclusive trading rights to French

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Table 4. Share Issues by the Mississippi Company (In Livres) Date June and Sep- Mères tember 1717

Shares issued 200,000

Nominal price Cost 500 140–160

June 1719

Filles

50,000

500

550

July 1719

Petites Filles

50,000

500

1,000

26 September 1719

100,000

500

5,000

28 September 1719

100,000

500

5,000

2 October 1719 4 October 1719

100,000

500

5,000

Nominal value Terms 100 million Shares bought with billets d'état 25 million Paid in 20 instalments. Had to have 4 old shares for 1 new 50 million Paid in 20 instalments of 50. 4 Mères & 1 Fille for 1 new 50 million Paid in 10 instalments of 500 50 million As above. Meant to be reserved for ofﬁce-holders etc. 50 million As above

24,000 624,000

On 29 November 1719 Dutot calculated the market value of the 624,000 shares of the Mississippi Company at 4,781,750,000 livres tournois (average price per share of 7,663 l.t.).

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Louisiana while the government beneﬁted by the Company's conversion of part of the ﬂoating debt into shares at a lower interest rate. Whereas up to 1719 the Company of the West was modelled, consciously or unconsciously, on the South Sea scheme, Law plotted an independent course from that time onwards. The speculative boom that he generated in France had two signiﬁcant differences from the later South Sea boom in England. In the ﬁrst place Law took over and centralized all the trading companies under the same ﬂag. There were no ‘bubble’ companies competing with the giant centralized holding company that Law created. Perhaps the French temperament is more ready to accept such centralization. In England, on the other hand, the stock market boom produced signiﬁcant increases in the share prices of wellestablished companies such as the Bank of England, the East India, and the Royal African companies. It also created a wide range of new issues in ﬂedgeling companies, some with serious objectives in trade and insurance and others having bizarre raisons d'être such as companies ‘for carrying on an undertaking of great advantage; but nobody to know what it is’ or ‘for a wheel for perpetual motion’. Private enterprise was allowed to ﬂourish in England, at least until August 1720, to a far greater extent than in France. The second difference was that John Law welded and interlinked the paper issuing banking system that he created onto the activities of the Mississippi Company and used newly created banknotes to support the price of Mississippi shares. In England the Bank of England remained outside the control of the South Sea Company though the latter had been involved with an attempted take-over of the Bank. The South Sea Company, as we will see later, could not use newly issued banknotes to push up the price of its stock but instead increased the velocity of circulation of money by lending money to potential purchasers of its stock. It is our view that it was Law's decision to use the Royal Bank to support the price of Mississippi Company shares that was instrumental in causing Richard Cantillon to lose conﬁdence in the System, a little over fourteen months after their initial meeting. By the middle of May 1718 Richard Cantillon wanted to make contact with John Law. He recognized Law's emerging stature as a projector and asked Carnarvon to write to Law on his account. Carnarvon's comment shows that he was happy to acquiesce in Cantillon's request, recognizing that if Law helped Cantillon he would be able to beneﬁt also: The judgement you make of Mr Law's power to serve you is undoubtedly very just and I should think, when he considers the unsteadiness of fortune (especially in France where he had many terrible and late instances of it before his eyes) he should not be unwilling to do such good ofﬁces and enter into

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measures to prevent his own suffering in the like manner. Our prints of this day tell us he has changed his religion and is naturalized in France. I wish time does not convince him that all his precautions of this sort will never make him be looked upon as a real Frenchman. I return you many thanks for the hopes you give me of being able to let me soon have some light into the state of the revenues, what they produced last year, whether they were deﬁcient or that their produce increased, and the several heads of expense the Government is yearly at. If you can come to be intimate with Mr Law he may probably be willing to communicate his thoughts on these points to you.9 Once again this letter shows that Carnarvon always exacted a ‘quid’ for his ‘quo’. He may have been anxious to supply his Whig friends in the government with details of the French ﬁnances and felt that Cantillon's link up with Law would improve Cantillon's reports of what was happening across the Channel. Carnarvon quickly wrote to Law about Cantillon: My friend Mr Cantillon has acquainted me with your obliging disposition towards him, and he is one I wish well to. I could not but take the liberty of troubling you with this (though I have the misfortune to be unknown to you) to return you in his behalf my most humble thanks for the countenance and protection you are pleased to give him and to entreat the continuance of it. He has been so many years under me and executed with such ﬁdelity and capacity the charge I gave him in Spain, that I am fully persuaded you will be entirely satisﬁed in his discharge of any trust you shall think ﬁtting to repose in him. I entreat Sir you will believe, that it will be the highest pleasure to me too to have recommended one of your favour whose address in business may come to be of use to you and whose ﬁdelity is safely to be relied on. You'll pardon I hope this freedom, as it comes from one, who, though a stranger to your person has the greatest esteem for your merits and heartily laments the misfortune of his country that your excellent talents should be displayed to aggrandize a foreign nation when they are capable of being so serviceable to your own.10 Notwithstanding this ﬂattering remark to Law, Chandos was extremely sceptical about his ability to succeed in improving the French ﬁnances. Six weeks later in the middle of August he reiterated this view to Cantillon: I shall be very glad if my letter to Mr Law proves of any service to you. He is certainly very able to make your fortunes vastly large; but as I heartily wish your welfare, I cannot but desire you to consider the situation he is in, and as I think it almost impossible for him under the weight of the Parliament, nobility and almost all the nation, to struggle long against their resentments, I foresee his end will soon be very fatal; and when this happens I wish you do not ﬁnd the arms of the Government long enough to reach any whom they may suspect to have been concerned with them.11

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But Cantillon did not take Carnarvon's advice. Law's fortunes started to prosper. Cantillon must have quickly impressed Law. His background with the Paymaster General's ofﬁce in Spain as well as the frequent reports he drew up for Carnarvon on the state of the French ﬁnances had provided him with vital vocational training in an area which most people ignored. John Law had lightning fast reﬂexes that had been sharply honed by years of formal presentations of his ideas to the monarchs of Europe, as well as the living he made as a successful professional gambler ready to quote odds at the drop of a dice. When Law's System gathered momentum in 1719, few of his contemporaries were able to keep abreast of what was happening as the Mississippi Company expanded, as ﬁnancial and ﬁscal decrees spewed out of Versailles, and as the structure of the General Bank's monetary operations were changed. Cantillon had the ﬁnancial knowledge and acumen to understand Law's operations. By becoming a member of Law's group, by using his inside information, and by utilizing his bank's lines of credit he could make a fortune. He recognized this in August 1718. Just as Carnarvon had introduced Cantillon to British economic writers such as Sir Matthew Decker, so also Law may have introduced Cantillon to his secretary Jean François Melon and one of the cashiers of the Mississippi Company, the somewhat enigmatic Dutot. Melon later distinguished himself with the Essai politique sur le commerce (1734), a work in which he attempted to justify Law's use of domestic exchange rate changes during the system. Dutot, in his Réﬂexions politiques sur les ﬁnances (1738), contested Melon's views on the usefulness of currency debasements as a method of promoting economic prosperity but at the same time defended his former employer John Law. Thus Law had working under him two of the foremost French economic writers of the ﬁrst half of the eighteenth century. Law recognized talent and Cantillon became a member of his inner circle. By November 1718 Law and Cantillon were on such good terms that they formed, along with the Englishman Joseph Gage, a company to establish a settlement in Louisiana.12 Cantillon sent his brother Bernard to Louisiana in command of an expedition to establish this settlement, a development discussed in Chapter 6. By the autumn of 1719, John Law and his two partners in this particular venture, Joseph Gage and Richard Cantillon, were wealthy men.

Cantillon's First Mississippi Fortune Cantillon made the ﬁrst part of his Mississippi fortune speculating in shares and options of the Company during the summer of 1719,

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particularly during July and early August. Carnarvon's correspondence with Cantillon during May and the ﬁrst half of July — he did not correspond during June — gives no hint of anything unusual happening in France.13 In August, however, there was joyous news from Cantillon. He was congratulated on having made his fortune and also on having the good sense to realize his gains and leave France: You could not have sent me a more agreeable piece of news than the account you gave me in your two last of the happy situation of your own affairs. I heartily congratulate you upon it, assuring you no good fortune of my own has given me more true pleasure. I congratulate you no less upon the wise resolution you have taken not to put yourself in fortune's power nor to stand any longer the danger of the uncertain continuance of its favour. I heartily rejoice at your happy retreat from business and wish you a long enjoyment of the satisfaction you have in view for the rest of your days by a quiet retreat from all fatigue.14 Cantillon's substantial ‘killing’ in the Mississippi System was conﬁrmed by Robert Arbuthnot in a letter to Matthew Prior on 28 September 1719. Arbuthnot, who was a purchasing agent for the South Sea Company, was well attuned to what was happening in Paris: ‘Young Cantillon has been one of those happy adventures that have got prodigious fortunes from our new stocks. He is gone over to London with 50,000 1. sterling in his pocket . . . ’.15 Cantillon was not the only Irishman to have made it at this juncture of the System's history. The Irish business ‘maﬁa’ in Paris was doing well according to a postscript to Arbuthnot's letter: ‘Several Irish that used to be projecting in your antechamber are now in gilded Berlins, better mounted than any was in your time.’16 To understand how Cantillon made this reputed fortune of £50,000 during the summer of 1719 and the reasons why, at the same time, he lost conﬁdence in Law's System, we must trace some of the developments in relation to mergers, share issues, and the expansion of the money supply, made by Law between May and the end of July 1719, the date on which Cantillon seems to have conﬁrmed his decision to leave Paris. By May of 1719 Law needed to generate some momentum in the Company of the West whose share price was still at a discount, that is below their nominal issue price of 500 livres per share. The ﬁrst action he took was to merge two other trading companies, the Company of East Indies and the China Company, with the Company of the West. The merged group was named the Company of the Indies (Compagnie des Indes). This operation required ﬁnance, for both the Company of the East Indies and the China Company were heavily in debt. Additionally, fresh funds were required to re-equip existing ships and

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build up a new ﬂeet to exploit the colonial trade which, as a result of the merger, was now almost completely under the control of the Company of the Indies. Another trading company, outside the control of the Company of the Indies, the Company of Africa, was quickly taken over by a decree of 4 June 1719.17 To raise such funds Law proposed issuing ﬁfty thousand shares at 500 livres per share with a premium of 50 livres per share payable immediately. This decree was delivered to the Parlement which refused to ratify it. The Regent then went and took the matter out of the Parlement's hands and had it put into force by a decree of council on 17 June. When the original measures were considered in May the price of the old shares was still not at par. By 17 June it had risen above par and stood at 650.18 This rise in price must have been aided by the issue of 270.7 million livres in banknotes by the Royal Bank through a decree of 10 June. With the shares rising in value there was every incentive for investors to come into the market, particularly as Law, in an effort to increase the attractiveness of shares to the general public, had provided for payment to be made in twenty monthly instalments of 25 livres for each share bought. At the same time, to maintain interest in the market in the existing shares, he stipulated that buyers needed four old shares in order to purchase one new one. The old shares were designated as mères (mothers) and the new shares as ﬁlles (daughters). These developments are outlined in Table 4. In modern parlance Law had made a rights issue giving existing holders of shares the right to subscribe more capital to the Company. These rights could be sold once they had paid the premium and the initial instalment (50 livres plus 25 livres). Indeed, a decree of 27 July suggests that it was only necessary to pay the 50 livres premium and that the ﬁrst payment of subscriptions was deferred till 1 September.19 In this way he maintained interest in the mères, thereby ensuring that holders such as the Regent and his followers made signiﬁcant capital gains, but also provided a cheap way for others to come into the market by buying ﬁlles through monthly instalments, when existing holders of old shares decided to realize some of their capital gains by selling their partly paid ﬁlles. But, above all, Law through the issue of partly paid shares provided leverage for investors to make capital gains that were a multiple of their initial investment. For example, if the shares rose to 1,000 then the holder of a partly paid ﬁlle, assuming he had just paid the 50 livres premium, could make a proﬁt of 450 livres (1,000 − 50 + (25 × 20)) by selling his ﬁlle, a proﬁt nine times his initial investment. This new marketing ploy allied with the expanded money supply

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helped to increase investor interest in the shares of the Company of the Indies and the share price went over 1,000 in the middle of July. Law then embarked on a more ambitious plan which caused an acceleration in the rise in share prices and also caused Richard Cantillon to realize his proﬁts and leave France. On 20 July a decree was issued awarding the proﬁts of the Mint over a nine-year period to the Company. Law estimated that the annual proﬁts from the Mint were at least 6 million livres but, with the ﬁnancial manipulations he was planning, it was probable that he felt he could make double that proﬁt.20 The price of acquiring the rights to the Mint was 50 million livres, payable to the Treasury over a ﬁfteen-month period commencing in October. Five days later on 25 July the Royal Bank's note-issuing power was increased by 240 million livres. The next day at a general meeting of the Company Law raised the dividend payable on shares in 1720 to 12 per cent, that is 60 livres per share of 500 livres, to be made in two half-yearly payments. The following day a new rights issue was ﬂoated by the Company with the objective of raising the 50 million livres needed to pay for the Mint. Law had moved extremely quickly. He had increased the money supply and so oiled the speculative wheels of the stock market, he promised an extremely high dividend to increase the attractiveness of shares, and he was channelling more shares on to the market. The terms of the new rights issue were as attractively marketed as the issue in May. Fifty thousand shares were issued at a price of 1,000 livres per share, with the Company extracting a 500 livres premium on the nominal share price of 500 livres. To subscribe for one of these new shares a purchaser had to possess 4 mères and 1 ﬁlle. The new shares, called petites ﬁlles, were to be paid for in twenty monthly instalments of 50 livres. To encourage subscribers to take up their ‘rights’ the share register was to be left open only for twenty days. But such a directive was not really necessary, for the share price had moved over 1,000 livres and the rush to acquire shares had become more pronounced. Unfortunately, we do not have a proper index for share prices at this stage, but drawing from four sources we ﬁnd the following rise in shares in the last week in July and the ﬁrst two weeks in August:21 25 July 29 July 1 August 9 August 14 August

1,300 1,500 2,250 2,330 2,940

(Piossens) (Piossens) (Dutot) (Giraudeau) (Giraudeau)

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But just as the market took off, Cantillon decided to cash in at least some of his gains and travel to Italy. Why? We know from Grimm that there was a major rift between Cantillon and Law at some stage in the System but we believe that it did not occur at this particular stage.22 We believe that it was Cantillon's distrust of what was happening rather than a breakdown in his relationship with Law that was the crucial factor in his decision to leave France in August 1719. If he had just been involved in a quarrel with Law he would not have recommended his friend the Duke of Chandos to refrain from investing in the Mississippi System. In the last two weeks of July, Law's movements had been rapid in preparing the ground for a new issue of shares. The rights to the Mint had been acquired, the dividend on the Company's shares raised, and the money supply expanded. These developments served to increase the attractiveness of the Company's shares and the availability of credit to purchase its shares. But they also probably increased Cantillon's doubts about the long-term viability of the System. Cantillon showed in the Essai that he had a splendid understanding of the monetary system from both theoretical and practical viewpoints. Law's acquisition of the rights to the Mint and his increasing use of the printing presses at the Royal Bank would have made Cantillon feel that Law was making the monetary system subservient to his more grandiose designs for the Company. The issue of new banknotes by the Royal Bank in 1719 would have raised doubts in Cantillon's mind as to what was happening. Dutot's statistics show how the note issue was expanded:23 1719 5 January 11 February 1 April 22 April 10 June 25 July

Livres 18,000,000 20,000,000 20,940,000 51,000,000 50,000,000 220,660,000

Cantillon, as a banker, would have understood that it was not mere coincidence that the Royal Bank had expanded its note issue by 50 million livres on 10 June, some days before the issue of 50,000 ﬁlles at 550 livres per share, and then by 221 million livres two days before the issue of a further 50,000 shares, the petites ﬁlles at 1,000 livres per share on 27 July. The relationship between the Bank and the Company,

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particularly with the acquisition of the Mint by the latter, was coming too close for comfort. Cantillon wanted to distance himself from Law and the collapse of the System which he felt was imminent. Cantillon had emerged from under, not only Law's shadow, but also Chandos's patronage to become his own man. The Chandos–Cantillon correspondence during August shows the extent to which Cantillon had matured. Chandos in this letter of 3 August remarked that he had almost invested in Mississippi stock and asked Cantillon to enquire of Law if he thought there was much upward movement left in the Mississippi shares: It was by great ill fortune I missed having my share of good luck in your Company. I had once set pen to paper to desire you to have subscribed to the amount of £20,000 sterling for me; an unlucky visit prevented my writing by the post I intended, I forgot to do it by the next and in the interim news came of the stocks being risen too high to hope for any advantage worth running the risk of such a sum. Pray make my compliments acceptable to Mr. Law for his friendship to you on this occasion, which I see plainly my opinion of, as well grounded: viz: that it was sincere, and assure him he may always depend upon all the service it shall ever happen in my power to render him, whenever he thinks me capable of being anyways useful to him. You may ask him at the same time whether he judges the harvest to be over or if there is no room still left to be a gainer in my own affairs by the prudent measures he is putting his court upon. He may be assured the secret should be kept inviolably. I choose this way to pay my respect to him, as thinking he may like it better than to be troubled with letters directly from me . . .24 Chandos had missed out on the ﬁrst big run on Mississippi shares. He was to learn from this experience when it came to speculating in South Sea shares in 1720, as will be shown below. But in August 1719 he was still toying with the idea of moving a substantial sum of money into Mississippi shares, providing Law intimated to him, through Cantillon, that the ‘harvest was not over’. But when Cantillon mentioned Chandos's name to Law he was jumped on. Law wanted nothing to do with Chandos. Law's anger, outlined in Chandos's letter below, explains why he did not reply to the English Duke's letter recommending Cantillon to him. It also suggests that Cantillon, despite the fact that his patron's letter of recommendation to Law had backﬁred, was still able through his own abilities to impress Law. Cantillon was becoming more independent, establishing himself as a man to be respected in his own right. One can sense Cantillon detailing the reasons for Law's anger against Chandos and inferring, gently between the lines, that he had made his fortune through his

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involvement with Law notwithstanding Chandos's bad standing in the Scotsman's books. Chandos's letter of 19 August explains the reasons for Law's animosity: I have received the favour of yours of the 23rd instant and return you many thanks for the trouble you have had on my account with Mr Law. His complaint of my having used him hardly was a great surprise to me, for I never heard of any bills of exchange drawn by him on the Pay-Ofﬁce; I have directed a search to be made as soon as I ﬁnd how the matter passed. I'll trouble you with a letter to him to explain it. You know as well as I the method always observed in the Pay Ofﬁce, which was to lay before the Treasury a list of all the bills drawn with a memorial praying money to discharge them. And as soon as the money was ordered by the Treasury so soon the bills were taken up. I believe it may have happened that several parcels of bills remained unpaid for above the time Mr Law mentions but that was not to be imputed to me, since they never did so, after once the money came into my hands . . . As for his insinuation of my having kept the money which should have paid it, in my hands to make advantage of in the stocks it was a part below my temper. I never did so by any public money, nor had I any occasion of such little ways to improve my fortune by, the proﬁts of my employment being large enough to do it without.25 Chandos obtained no inside information from Law, while Cantillon, on the point of leaving France to go on a tour of Italy, advised him against investing in Mississippi shares. Chandos did not take Cantillon's advice and he invested heavily in French shares though he never disclosed this information to Cantillon. He later blamed Cantillon for keeping him out of Mississippi shares, a development which will be discussed in Chapter 10. Ironically, it was Cantillon's decision to leave France at this critical juncture in the Mississippi System that was to earn him an exaggerated reputation for stock market prevision. This reputation was conferred on Cantillon by lawyers involved in the litigation resulting from his Mississippi-related deals and by the Marquis de Mirabeau. His lawyer, the great jurist Maître Henri Cochin, when he defended Cantillon against the Carol brothers, contended: Unlike many others he was not taken in by the famous System which started to develop in 1719. On the contrary he believed it necessary to take shelter from the storm which he foresaw: this induced him to give up business in which he saw too many dangers. He locked all his papers in a chest, the care of which he entrusted to the English Benedictines, and left for Italy after he had given a power of attorney to one named Loftus with whom he formed a simple ‘commandite’ company on July the 31st 1719.26 We feel that the Marquis de Mirabeau had read Cochin's Mémoire.

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Mirabeau had a copy of Cantillon's Essai for some fourteen years before it was published and prior to writing the following passage: He foresaw the complete course of the famous system of Mr. Law, and compelled by circumstances to take part in it, he quitted the theatre of this astonishing revolution leaving his correspondent with orders in advance as to the different stages of the cycle which this catastrophe would run. This fact is not lightly stated. Its details have come out before one of the leading tribunals of Europe. Men like him knew how to keep clear of the crash of this colossal and frail ediﬁce and to make good pickings from its ruins.27 Mirabeau's comment that these details were made public before one of Europe's leading tribunals, as well as the similarity in some of the prose in the above two quotations, suggest that Mirabeau had read Cochin's defence of Cantillon. Mirabeau, an author with a pronounced tendency to exaggerate, probably added on the story that Cantillon left orders with his correspondents suggesting exactly what to do at each point of Law's System. In his defence Mirabeau could argue that he gained this impression from reading the accounts of lawyers involved in the litigation relating to Cantillon's Mississippi transactions. But Mirabeau, no stranger to the French courts, should have been able to see through lawyers' exaggerations. If Cantillon had these telepathic powers, why did he leave at a time when the stock market boom in Mississippi shares was starting to attract widespread interest? The correct account of Cantillon's stock market behaviour was that he participated in the ﬁrst phase of the boom which saw the shares rising from a low of 140–160 livres per share — the price in terms of discounted billets d'état — to 2,250 on 1 August, the day after he had signed over control of his business to Edmund Loftus. But in taking his holidays in Italy towards the end of August Cantillon missed seeing the shares rise to over 10,000 livres in early 1720! While Cantillon was a very sharp banker who succeeded in making a fortune out of the Mississippi System, his ability to anticipate correctly each twist or turn of Law's System was not omniscient. His error in over-anticipating the crash of Law's System in August 1719 was not the only one he made on the European stock exchanges in this tempestuous period between 1719 and 1720. We will see later that he similarly over-anticipated the demise of the South Sea Bubble and underestimated the collapse of the Dutch stock market boom in the summer and autumn of 1720, while, in the spring of 1720, when he returned to Paris, he adopted a more reﬁned approach to portfolio investment. More importantly we will see that a great part of the second fortune that Cantillon made out of the Mississippi System was derived not from speculation on the stock exchange but on the foreign exchange market. We know, both from his allusions to Classical writers in the Essai

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and Mirabeau's account, that Cantillon had a deep love of ancient civilizations.28 Italy held great attractions for him and he was to return there shortly after his marriage in 1723. After the tumultuous activity in shares on the rue Quincampoix, this visit to Italy must initially have raised great ambitions for Cantillon. He had just made £50,000 and could retire on the proceeds and live in comfort for the rest of his life. He had not cut himself off completely from the world of banking and business for he had left his bank in the seemingly capable hands of Edmund Loftus, a fellow Irish banker. Loftus was to work the capital that Cantillon had left in the bank.29 He was entitled to one third of the proﬁts and Cantillon to two-thirds. Nothing nicer than to have other people working for one's proﬁt, especially when one takes two-thirds of it. Now Cantillon could concentrate on reading the Classical writers such as Livy, examining Italian architecture and civilization, and buying some of the grand masters — this time on his own rather than Chandos's account. But it is difﬁcult for stock market operators to turn themselves away completely from the excitements of the Stock Exchange, a view conﬁrmed by the frequent appearance of the pink pages of the Financial Times on news-stands on the European Riviera. It must have been a constant irritation for Cantillon to read in the weekly newspapers under the ‘news from Paris’ section that Law's System was going from success to success — see Table 5 — and the price of Mississippi shares, with only an occasional jolt, was spiralling upwards. Unlike his modern equivalent who can get into immediate contact from the Riviera with the stock exchanges of London and Paris by telephone, Cantillon, depending on the part of Italy he was in, would have had to wait for between six to ten days for news from his bank as to what was happening. It would have taken the same time to send the bank a message. The sheer physical problems and delays in communicating with Paris, allied with the growing admiration of the world at large for Law's System, must have caused Cantillon to reconsider his early retirement scheme. During Cantillon's semi-retirement in Italy — he did not return to France until the early spring of 1720 — it is appropriate to turn our attention to his brother Bernard's expedition to Louisiana (Chapter 6) and to the activities of certain English-born ‘Mississippians’, namely his millionaire partner in the Louisiana expedition, Joseph Gage, along with Gage's little-known but intriguing amie intime Lady Mary Herbert (Chapter 7). Bernard Cantillon's reports back from the French colony of Louisiana must have given Richard Cantillon an even more jaundiced view of Law's hopes for this territory when he returned in the spring of 1720. Meanwhile, during his absence Lady Mary Herbert and Joseph

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Table 5. The Development of Law's System

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Gage had pyramided paper gain after paper gain. On Cantillon's return to France they were both very rich, on paper, but their failure to realize the weaknesses of Law's System was to provide Cantillon with further opportunities for proﬁt making.

Notes 1

Hyman P. Minsky, ‘Financial instability revisited’, Reappraisal of the Federal Reserve Discount Mechanism, iii (Washington, 1972); Charles Kindleberger, Manias, Panics and Crashes (London, 1978), Chapter 2. 2 For an account of the South Sea Bubble see Adam Anderson, An Historical and Chronological Deduction of the Origin of Commerce (London, 1764), ii, William Robert Scott, The Constitution and Finance of English, Scottish and Irish Joint-stock Companies to 1720 (CUP, 1912; reprint Peter Smith, 1968); P. G. M. Dickson, The Financial Revolution in England (London, 1967). The best accounts of Law's System are in French. See Émile Levasseur, Recherches historiques sur le système de Law (1854, reprint, New York, 1970), Paul Harsin, Crédit public et banque d'état en France du XVIe au XVIIIe siècle (Paris, 1933); Paul Harsin (ed.), John Law Œuvres complètes, 3 vols. (Paris, 1934; reprint Vaduz, 1980); Herbert Lüthy, La Banque protestante en France (Paris, 1959), i, ch. 3. Jacob M. Price, France and the Chesapeake (Michigan, 1973); Earl Hamilton, article on John Law in The International Encyclopedia of the Social Sciences, ix. (1937), 78–82; Edgar Faure, La Banqueroute de Law (Paris, 1977). My account of the South Sea Bubble is largely based on Scott's very ﬁne analysis. 3 Anderson, op. cit., ii. 255. 4 Ibid., 255. 5 Scott, op. cit., iii. 296. 6 See, for example, Courcelle-Seneuil's article in L. Say and J. Chailley, Nouveau Dictionnaire d’économie politique (Paris, 1892), ii. 128. 7 Francois Véron de Forbonnais, Recherches et considérations sur les ﬁnances de France de 1595 jusqu’à l'année 1721 (1758). 8 Price, op. cit. n. 2 above, i. 205–20. 9 Huntington St. 57, xv. 238–40, 29 May 1718. 10 Huntington St. 57, xv. 240, 2 June 1718. Letter from Carnarvon to John Law at Paris. By 2 July 1718 John Law had still not replied to Carnarvon's letter. Cantillon obviously wanted to learn about Law's reply to Carnarvon's letter: I don't wonder at my not hearing from Mr. Law. I am sensible his time is otherwise taken up. Methinks these attacks should make him consider on how precarious a foot his settlement in France is, at least how imprudent it is to suffer all his whole concerns to remain in one country from where he does not know how soon he may be forced to retire if not to ﬂy. (Letter from Carnarvon to Cantillon on 2 July 1718. See Huntington St. 57, xv. 266.)

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11 Huntington St. 57, xv. 299–300, 15 August 1718. 12 ANMC lxvi. 370, 31 July 1719 and 23 August 1719. ‘Procuration Richard Cantillon à Edmund Loftus’. 13 Huntington St. 57, xvi. 144–5, 159–60, 213–14, 238–9. Letters from the Duke of Chandos to Cantillon, 4, 21 May, 9, 13 July. The Earl of Carnarvon had been created Duke of Chandos on 29 April 1719. He will be referred to henceforth as the Duke of Chandos. 14 Huntington St. 57, xvi. 238–9, 3 August 1719. 15 HMC Bath, iii. (1908), 468–9. Letter from Robert Arbuthnot to Matthew Prior dated 28 September 1719. 16 Ibid., 469. 17 The remaining companies, the Company of St. Dominique and the Guinea slave trade, were taken over in 1720. 18 It is difﬁcult to ﬁnd quotations of the Company's share price prior to August 1719. This price is taken from A. McFarland Davis, ‘An Historical Study of Law's System’, Quarterly Journal of Economics, i. (1886/7), 289–318. 19 Barthélemi Marmont du Hautchamp, Histoire du système des ﬁnances, sous la minorité de Louis XV pendant les années 1719 & 1720 (The Hague, 1739), v. 225, art. vi. 20 Levasseur, op. cit., n. 2 above, 112. 21 Piossens, Mémoires de la régence de S.A.R. le duc d'Orléans durant la minorité de Louis XV roi de France (1729), ii., Dutot, Réﬂexions politiques sur les ﬁnances et le commerce (1738; the more complete and better edition was edited by Paul Harsin and published in two volumes in 1935 at Liège); Giraudeau, Bibliothèque de l'Arsenal, Paris, MS 4061. This manuscript is also to be found in the Bibliothèque Mazarine (MS 2820) and the BN (MS 14092). 22 Grimm, Diderot, Raynal, et al., Correspondance littéraire, philosophique et critique (Paris, 1878). Comment of Grimm on 1 August 1755. 23 Dutot, op. cit. (Liège edition). 24 Huntington St. 57, xvi. 239–40, 3 August 1719. 25 Huntington St. 57, xvi. 256–7, 19 August 1719. This dispute over the difﬁculties Law experienced in having bills of exchange drawn by him on the pay-ofﬁce may have arisen when Law worked in the British embassy at Brussels. The Calendar of Treasury Books, vol. xxii (1950), 212–13, 22 April 1708, refers to this: April 22, 1708 2541.11.7 to John Laws who was employed at our service at Brussells from the 8th Sept [1707] when George Stepney [now] deceased, our late Envoy and Plenipotentiary, left that place to 1st Dec 1707 when our present Envoy arrived there: being for an allowance of 20s a day and for extraordinaries in the said service according to a bill thereof hereunto annexed. Law's payment may have been delayed and he blamed it on the Paymaster General of the time.

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26 BN Fo. Fm. 2740. ‘Mémoire pour Richard Cantillon contre Jean et Remy Carol’ (translation). 27 This quotation comes from MSS 780 in the Archives Nationales in Paris. This translation of it is to be found in Higgs (ed.), Essai, 381–2. The comments on Cantillon were written by the Marquis de Mirabeau, author of L'Ami des hommes (1756). 28 Ibid., 382. 29 ANMC lxvi. 370, 31 July 1719 and 23 August 1719. ‘Procuration Richard Cantillon à Edmund Loftus’.

6 Bernard Cantillon's Expedition to Louisiana, 1719 The role of the Louisiana factor in the growth of Law's System is difﬁcult to disentangle. In the French public's view at the time there was at least a perceived strong relationship. The popular name for the Company was not its legal title, the Company of the Indies, but the Mississippi Company. Successful shareholders who made fortunes speculating in the Company's shares were known as Mississippians. Notwithstanding this it is the contention of Edgar Faure, the most recent biographer of Law's System, that John Law was quite moderate in his claims as to the immediate proﬁtability of the Louisiana colony and the propaganda spread about the riches of the new colony was aimed at attracting colonizers rather than shareholders.1 Just after the establishment of the Company of the West, founded with the ostensible objective of developing the colony of Louisiana, there had been excessive pufﬁng of the vast natural wealth and congenial conditions of this largely unexplored new territory in the Nouveau Mercure.2 However, with the diversiﬁcation of the Company's activities into tobacco and tax farms, and the Mint, as well as its take-over of the other large trading companies—those of the East Indies, China, and Africa—the emphasis on Louisiana became somewhat muted, at least to the start of 1720. At the Annual General Meeting of the Company, then renamed the Company of the Indies, Law announced proﬁts of 91 million livres, only 12 million of which would be derived from the activities of the trading companies with most of it to be derived from the East Indies trade. So what of the proﬁts to be derived from Louisiana? Law, at this AGM which was held on 30 December 1719, did go on to mention that further development of the colonial trade, with mineral exploitation ﬁguring prominently, might increase proﬁts by some 25 million livres. However, Faure infers from this and a subsequent report in the Mercure de France in April 1720 that Law was stressing that patience would be needed before the Louisiana colony would yield its promised ﬂow of revenue.3 Faure's overall conclusion seems to be that Law did not systematically use the supposed potential wealth of Louisiana as a strong argument in his detailed calculations aimed at inﬂuencing the

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price of Mississippi shares. If one takes a static interpretation of share price movements, namely, that their current price is dictated by actual rather than potential proﬁtability, then this analysis may hold. However, the very essence of large, speculative stock market booms is the way in which the public's expectation is shifted up a gear by promises of potential proﬁts. Law, we believe, was ever aware of this phenomenon. While Law had presented a realistic assessment of the Company's proﬁtability in December 1719, the System's shareholders were more interested in the potential of a Louisiana El Dorado, yielding a cornucopia of gold and silver wealth, rather than in the way proﬁtability of the overall Company could be increased by more efﬁcient reorganization and management of the tobacco company, the tax farms, the Mint, and so on. Daniel Pulteney, one of the most acute observers of the System, within a few days of the December AGM of the Company described what had happened. Surprisingly, the ﬁrst item of news in Pulteney's letter does not relate to the Company's meeting but to the settlements in Louisiana and the supposed discovery of a mine on no less a property than that owned by John Law! Pulteney's letter to James Craggs on 2 January starts as follows: The India Company have for some time been granting lands in America on both sides of the Mississippi to persons concerned in the stock of that Company. Most of the grants I have heard of are of 3 or 4 leagues square and are from the Lake Superior downwards. Mr Law himself has a square of 16 leagues on the west side of the Mississippi in the country of the Akansa. It is pretended that a silver mine has been found within his grant and that it yields 5 ounces of silver out of every 100 wt of ore.4 Pulteney's account suggests that Law was at the centre of these rumours as he was again in April: ‘on ﬁt alors à la Monnaie de Paris un essay de la mine d‘argent venue du Mississippi, laquelle avait rendu 90 marcs de ﬁn par quintal, ce que celles du Potosi n'avaient jamais excédé.’5 This type of persistent rumour about the mineral wealth of Louisiana and the potential for such rumours to inﬂuence the price of shares comes through in a letter from the captain of a ship bound for Louisiana in 1720: I forgot an essential article which forms the most solid basis for the hopes of the Mississippians: these are the silver mines which have been discovered in the territory of the Illinois. Assays from these mines have been sent to France and it is claimed that twelve pounds of very pure silver are extracted from one hundred pounds of ore, that is to say three pounds more than that extracted from the mines of New Mexico.

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THE EXPEDITION TO LOUISIANA

One could have suspected, with a certain amount of justiﬁcation, that it is from this source that the shares and banknotes have derived their power.6 It was this expectation of gold or silver discoveries which helped to keep the Mississippi Company share price artiﬁcially high in the ﬁrst quarter of 1720. But Richard Cantillon was in a prime position to grasp the extent to which this expectation was unreal through the ﬁrst-hand accounts he would have been receiving from his agent in the ﬁeld, his brother Bernard, who was actually in Louisiana at the time it was being rumoured as France's El Dorado. It is for this reason that Bernard Cantillon's expedition to Louisiana takes on an extra degree of signiﬁcance.

French Louisiana In 1682 René Robert Cavelier La Salle, one of those intrepid French explorers in North America, successfully descended the Mississippi from the region of the Great Lakes and claimed the area he had passed through for France, naming it after his monarch Louis XIV. French Louisiana at this time covered over half of what we know today as the United States (excepting Alaska) incorporating the states of Arkansas, Illinois, Iowa, Louisiana, Minnesota, Mississippi, Missouri, and Wisconsin. La Salle struggled back up the river and arrived in Quebec in November 1683. Expecting to be greeted as a hero because of the magniﬁcent exploration that he had made, he was horriﬁed to ﬁnd that the French authorities there were reluctant to ﬁnance any further missions and even doubted the value of his discoveries.7 Soon, however, Louisiana, situated between the British territories to the east and Spanish territories to the west, assumed a role in France's political strategy. In 1698 Le Moyne d'Iberville was charged with commanding a seaborne expedition to Louisiana. On 3 March 1699 he conﬁrmed La Salle's earlier ﬁnding that the Mississippi ﬂowed into the Gulf of Mexico. There had been considerable doubts about the location of the Mississippi because, while La Salle had calculated that the river ﬂowed into the sea between 27 and 28 degrees latitude, he had not the necessary measuring equipment to determine the longitudinal position at this point. With Iberville's conﬁrmation that the Mississippi's outlet was in the Gulf of Mexico, France had a potentially valuable territory to develop. The Mississippi connected its settlements in Illinois and Canada with fortiﬁed ports that could be constructed along the coastal part of the Gulf. In September 1712 the ﬁnancier Crozat was given a trading

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monopoly over the territory of Louisiana for ﬁfteen years, along with the ownership of mines and mineral rights in the colony. However, Crozat did relatively little to develop the territory and when taxed 6.6 million livres by the Chambre de Justice under the 1716 Visa he conceded his rights to Louisiana as part payment of his tax bill. In Chapter 5 it was shown how John Law's newly formed Company of the West took over Crozat's trading rights to Louisiana in August 1717. The new company was given a monopoly of trade for twenty-ﬁve years in return for which the company guaranteed to send ten thousand white slaves and six thousand black slaves to Louisiana over a ten-year period. In September 1717 the territory of Illinois was joined to the Louisiana territory over which the Company of the West had a trading monopoly. Despite these commercial changes Louisiana was still an unknown territory to the French. La Salle and d'Iberville's expeditions had been mainly exploratory in nature. D'Iberville's expeditions had resulted in a number of forts being built in coastal areas for strategic reasons but, more importantly, his reports produced a growing realization that, with the Mississippi connecting French Canada to the Gulf of Mexico, huge tracts of land were ready for development. Some reports of the wealth of the new territories were wildly exaggerated. No doubt it was John Law who masterminded the glowing account of the new colony that was published in the Nouveau Mercure in September 1717, just weeks after the establishment of the Company of the West. In this report the writer praised the marvellous climate of the colony and the abundance of fresh game. He described the lower regions of the territory as abounding in gold, silver, and copper plus certain green rocks that resembled emeralds.8 Further exaggerated reports on Louisiana were published in the Nouveau Mercure of February 1718.9 Richard Cantillon would have been sufﬁciently hard-headed to recognize that these reports were in the nature of propaganda exercises aimed at attracting interest in the languishing shares of the recently launched Company of the West. But he was also by nature an inquisitive personality ever ready to ﬁnd new interests. He must have been intrigued by the possibilities of Louisiana. The discoverers and explorers of the new territory would have described the sheer size of the country and its great potential for colonization. There were possibilities on numerous fronts ranging from mineral discoveries to farming to tobacco growing. Furthermore, he was, by the autumn of 1718, a member of Law's inner circle and the Scotsman was keen to encourage the colonization of Louisiana. Marcel Giraud's masterly work, Histoire de la Louisiane française, shows that, despite the establishment of the Company of the West,

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there had been little active interest in the colonization of Louisiana by the autumn of 1718.10 There had been some interest from small groups such as the Scourion brothers, the Desmeuves–Delaire grouping, and the Brossard brothers. These groups had arranged to settle in Louisiana but they were badly ﬁnanced. The Scourion brothers had hoped to raise 30,000 livres but only managed to ﬁnd 19,000 livres while the Desmeuves–Delaire group's capital was some 20,000 livres.11 These groups, along with smaller teams of less than ten settlers, were not going to produce any signiﬁcant colonization effort in Louisiana. Unable to attract more French interest in the colony at this stage, Law seems to have turned to the British and Irish émigrés in Paris for assistance. In September 1718 Françoise-Charlotte Oglethorpe and her brother-in-law EugèneMarie de Béthisy, Marquis de Mezières, established a company to develop a concession that they had been granted in Louisiana. Unlike most of the previous concessions that had been granted this one did not involve the principals actually going to the colony. They appointed a certain Louis-Dominique Marié to lead the expedition and manage the new settlement.12 We have already encountered Françoise, or Fanny, Oglethorpe at the centre of intrigue in Jacobite circles, according to Bolingbroke, along with Cantillon's friend Olive Trant. The Mezières–Oglethorpe group took some time to organize and equip its colonizing team and it was only in February 1719 that their manager signed up the ﬁrst recruit to go to Louisiana.13 In the interim, on 19 November 1718 John Law established a company along with Richard Cantillon and the Englishman Joseph Gage ‘to dispatch and establish a colony in the Mississippi’.14 Joseph Gage, the third man in this triumvirate, was one of the biggest Mississippians. His activities will be discussed in Chapter 6. Sufﬁce it to record at the moment that, by 2 October 1719, the British Ambassador in Paris, the Earl of Stair, recorded that ‘Gage made a million sterling’.15 Cantillon was mixing with the Mississippi high-ﬂyers and was obviously seen as a man of merit and substance. Proof of Cantillon's new wealth and importance may be inferred from his renting of the hôtel de Bellangreville in the rue de la Monnaie for a yearly rent of 3,200 livres on 3 September.16 Cantillon was expanding his business and needed a large ‘hôtel particulière’ in the most prestigious ﬁnancial street, the rue de la Monnaie. The Cantillon–Gage–Law decision to establish a company to colonize a tract of land in Louisiana in November 1718 is of considerable signiﬁcance on a number of counts. First of all it conﬁrms that Cantillon was linked with John Law in Mississippi-related projects at an early stage of the System and that he was well connected with other prominent Mississippians such as Joseph Gage. Secondly, it

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shows that Law was involved in a privately ﬁnanced venture to Louisiana far earlier than has hitherto been thought.17 His association with Cantillon and Gage shows that he was directly interested from as far back as November 1718. However, notwithstanding this decision to link up with Cantillon and Gage, Law seems to have adopted a low proﬁle in relation to this project, content to act as a sleeping partner. John Law at this stage of the System's history was not the omnipotent ﬁgure that emerged in the latter half of 1719 and the ﬁrst half of 1720. As managing director of the Company of the West he could hand out concessions of lands to favourites, but he may have deemed it politic not to be seen in the early stages as acting on his own account. Better to test the waters ﬁrst by this arrangement with Cantillon and Gage. Gage would be a ﬁnancial backer and Cantillon with his management skills could equip an expedition, send it to Louisiana, and report back to Law on the logistics and ﬁnance involved, as well as producing an objective account of the potential of the lower regions of the Mississippi basin. Cantillon's previous experience as an accountant and provisioning agent for the British Paymaster General during the War of the Spanish Succession provided him with ideal credentials for organizing this colonization venture. A third signiﬁcant aspect of Law's involvement with Cantillon and Gage is that it shows how little enthusiasm the French could muster for the Mississippi project and how Law used foreigners to generate momentum and interest in his North American venture. It was not till the summer of 1719, when Law's ﬁnancial strategies produced sizeable jumps in the price of Mississippi shares, that the French took a serious interest in colonization projects for Louisiana.18 Fifteen days after their decision to establish the Cantillon–Gage–Law Louisiana company, Richard Cantillon was granted a concession of land in Louisiana. The concession was probably for a tract of land of 16 square kilometres (4 square leagues), the traditional size of the concession up to then.19 Unlike earlier expeditions, the capital provided for the new company matched the sizeable costs involved in such a colonization venture. The capital for the company seems to have been 50,000 livres (£2,080 stg.) with Joseph Gage taking up a two-ﬁfths interest in it costing him 20,000 livres.20 This capital was far greater than that provided for the earlier Scourion and Demeuves–Delaire ventures, and shows the extent to which the project was approached in a competent and efﬁcient manner by Cantillon. On being granted the concession of land in Louisiana in December, Cantillon went to work immediately organizing the expedition. He appointed his younger brother Bernard to lead the expedition. Just as with his brother Richard, we have little information on Bernard's early

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background. We surmise that he was in his early twenties when appointed by Richard. He must have reﬂected on the irony of his situation for, his family having been chased off their ancestral lands by the Cromwellian and later the Williamite planters, here he was embarking as a colonizer to Louisiana. Bernard was sent to the western French town of La Rochelle, the main port dealing with transatlantic trafﬁc. Bernard Cantillon wrote legibly — his signature bearing a marked resemblance to that of his brother Richard — and was efﬁcient at his business, for he recruited his colonizing team of forty-four people in a relatively short period between 8 February and 20 March 1719.21 There was a premium on time in the assembling of the expeditionary team in that the group had to be housed and fed at the expense of the concession holders during the ﬁrst ﬁve years.22 From a sociological viewpoint it is of interest to analyse the type of people recruited by Bernard Cantillon, as this cosmopolitan group was one of the best organized up to then to travel to Louisiana. Table 6 shows the recruitment date, name, age, origin, trade, method of remuneration, advances made on remuneration, and a literacy factor (based on the simple criterion as to whether there was a signature) of the people recruited by Bernard Cantillon. There were three nationalities on this expedition, English, French, and Irish. There were four Englishmen and these were the ﬁrst members of the group recruited. Two of them, Jonathan Darby and John Darling, were described as clerks (commis) and we can assume that they were Bernard Cantillon's principal managers. We ﬁnd them for example signing for some recruits who could not write their own signature. They were young men aged around twenty and perhaps friends of Bernard Cantillon. They had sufﬁcient information about the Cantillons to sign contracts of employment that did not specify any ﬁxed remuneration for them. Instead their contracts, along with those of ﬁve French members of the group, stipulated that with regard to their salary (gages) they relied on the ‘honesty of Mr Richard Cantillon’.23 The English recruits seem to have been well educated, judging by their clear signatures on their contracts. This is in contrast to the ﬁve Irish members, four men and one woman, only one of whom, Robert Cooke, could write. Unfortunately the trades of the Irish members were not given in their contracts, but as their pay was equivalent to some of the lower-paid manual labourers of the group we can assume that it was their common Irish nationality with Bernard Cantillon rather than any speciﬁc skills that earned them their one-way tickets to Louisiana. The third group, made up of French citizens, ranged from skilled

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tradesmen to a 14-year-old valet from Dunkirk whose contract stipulated that he would only be entitled to the passage, board, and food. The best-paid skilled tradesmen were for the most part drawn from La Rochelle, which shows that Bernard Cantillon was successful in encouraging local people to participate in the expedition, an indication of the conﬁdence of the townspeople in the way in which he was organizing his expedition to Louisiana. The group's age varied between 14 and 38 with the average age, of the thirty-nine who declared their age, coming out at 24. The emphasis was on attracting young and strong recruits who would be capable of coping with the rigours of a long Atlantic boat trip and the various illnesses that might afﬂict them during their stay in America. Recruits had three remuneration options. In the ﬁrst place, as we have seen, they could rely on Richard Cantillon's honesty; in the second place they could be paid in tobacco, normally three hundred pounds of tobacco per year; thirdly, they could be paid in current money of the time. While the Englishmen relied on Cantillon's honesty, the Irishmen, along with ten Frenchmen, asked to be paid in tobacco, a common form of payment for such a venture at that time. Tobacco payments did however become less fashionable for the later expeditions to Louisiana. The remaining eighteen who signed contracts opted for payment in money, with their wages ranging from 600 livres per annum for a skilled carpenter to 40 livres per annum for a valet with some tailoring skills. Carpenters, joiners, blacksmiths, and coopers were the best paid of the tradesmen. Cantillon was later to write in the Essai, The crafts which require the most time in training or most ingenuity and industry must necessarily be the best paid. A skilful cabinet-maker must receive a higher price for his work than an ordinary carpenter, and a good watchmaker more than a farrier. The arts and crafts which are accompanied by risks and dangers like those of founders, mariners, silver miners, etc. ought to be paid in proportion to the risks. When over and above the dangers skill is needed they ought to be paid still more, e.g. pilots, divers, engineers, etc. When capacity and trustworthiness are needed the labour is paid still more highly, as in the case of jewellers, bookkeepers, cashiers and others. By these examples and a hundred others drawn from ordinary experience it is easily seen that the difference of price paid for daily work is based upon natural and obvious reasons.24 Table 6 shows the way in which Richard Cantillon remunerated his employees in practice. In addition to their wages the workers were lodged and fed at Cantillon's expense and a one-way ticket to

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Table 6.Bernard Cantillon's Expedition to Louisiana, 1719 Recruitment Date 8 February

18 February

10 February 1 March 18 February 10 February 22 February 9 March 25 February 9 March 14 February 27 February

14 February

9 March 25 February

Name

Age

Origin

Trade

Income

Jonathan Darby John Darling John Smith John Owen Jean Mathieu Lanosse Jean Courcy Simon Courbier Antoine Grillona Elie Bertin Jean Bidet

20

England

Clerk

20 20 20 26

England England England Toulouse

22 17

Jacques Autrusseau Estienne Bonnet Rene Desnousa Michel Foret Pierre Barbier Jacques Courtableau Marianne Bertin Jacques Jullien Pierre Mongonb Olivier Paronneau Pierre Ruan Pierre Texier Louis Courcelle Jean Connelly Olnne Barrault Jean Rancon Charles Lenne

Signature

Cantillon

Advance (livres) —

Clerk — — Butcher

Cantillon Cantillon Cantillon Cantillon

— — — 50

Yes Yes Yes No

Brittany Limoges

Gardener Mason

Cantillon Cantillon

100 50

No No

21

Toulouse

Farrier

Cantillon

100

Yes

27 —

Ile d'Oleron La Rochelle

Cantillon 600 livres

70 500

No Yes

37

La Rochelle

Cook/Baker Blacksmith/ Carpenter Carpenter

600 livres

300

Yes

36

La Rochelle

Joiner

350 livres

175

Yes

20

Tourainne

Blacksmith

300 livres

100

Yes

— —

La Rochelle La Rochelle

Cooper Carpenter

300 livres 300 livres

150 150

Yes No

18

La Rochelle

100

Yes

23

Ile d'Oleron

Cooper/Car- 200 livres penter Servant 100 livres

50

No

18

La Rochelle

Baker

100 livres

50

Yes

19

Poitou

Reﬁner

80 livres

40

Yes

20

La Rochelle

Farrier

80 livres

40

Yes

22 30 20

Poitou Paris

Mason Gardener —

75 livres 75 livres 60 livres

— — 30

No No Yes

19 20

Quimper Fontenoy

— —

60 livres 60 livres

30 30

No No

30 14

Poitou Dunkirk

Tailor Valet

40 livres F and K

20 —

No Yes

Yes

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THE EXPEDITION TO LOUISIANA

21 February

22 February

23 February

3 March

4 March 20 March 13 March

a b

Robert Cooke David Soulboone Guillaume Leyne Thomas Hussey Jeanne Broone Pierre Crosnier Jean Guilbarta Guillaume Jourdan Jacques Paraint Honoré Rotureau Pierre Sebastien Lartaut Charles DuPain Guillaume LeBoisdeta Guillaume Priviata Christophe Balletonb Simone LeGacb

20

Ireland

—

—

Yes

—

300 pounds of Tobacco ””

20

Ireland

—

No

20

Ireland

—

””

—

No

20

Ireland

—

””

—

No

20

Ireland

—

””

—

No

38

Richelieu

Labourer

””

40

No

24

Poitou

—

””

40

No

38

St. Malo

Gardener

””

—

Yes

30

Poitou

Cattle herder ” ”

—

No

36

Brittany

Miller

””

50

No

23

La Rochelle

Tailor

””

50

Yes

18

Orleans

””

40

Yes

30

Quimper

Valet/Labourer —

””

—

No

34

—

—

100 ”

50

No

—

—

Miner

””

—

—

—

—

Labourer

””

—

—

Recruits who signed contracts with Bernard Cantillon but whose names do not appear on the passenger list of the St. Louis. Passengers on the St. Louis listed as members of Bernard Cantillon's expedition but for whom it was not possible to ﬁnd their contracts in La Rochelle. Source: La Rochelle, Archives de la Charente Maritime, ‘Registres et liasses Desbarres 1717–19, 1718–21’. Marcel Giraud, op. cit., ch. 6 n. 10, discovered these important documents. The above analysis presents a more detailed account of the Cantillon expedition, which was our speciﬁc interest. See also AN F5B57, ‘Passagers embarqués en France-La Rochelle, 1718–1828’. Also Archives des Colonies G1464, ‘Role des personnes embarquées pour la Louisiane . . . le 21 Mars 1719’.

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Louisiana provided. In certain cases the skilled tradesmen stipulated in their contracts that they would not provide ordinary unskilled labouring services.25 Labour demarcation lines have a long lineage! It is surmised that Cantillon may have had three immediate objectives in establishing a colony in Louisiana. In the ﬁrst place it is believed that he wished to establish a type of trading post that would have close links with the adjoining Spanish settlements. He had a number of carpenters, ‘charpentiers des grosses œuvres’, specializing in large building projects. Cantillon may have wanted these to build a type of trading outpost. The Jesuit traveller Fr. Charlevoix mentioned some four years later that there had been attempts to establish some trading outposts to link up with the Spanish around the area where Cantillon had been granted his concession.26 The group included two coopers and a number of gardeners. These trades may provide us with a clue to another objective of the expedition: to grow tobacco. The coopers would have been needed to make barrels for the tobacco and the gardeners to cultivate it. The third objective of the group was to look for minerals. Cantillon included both a miner and a reﬁner in the group, obviously hoping to strike it rich by locating mineral wealth in his concession. The very fact that Bernard Cantillon recruited such a wide group of tradesmen suggests that his brother considered a range of possible outcomes from his Louisiana settlement. But, given the paucity of accurate information on the colony, he was to a great extent operating in the unknown. He was involved in a major risk-taking venture which must have helped to inﬂuence the views that he presented on the entrepreneur in the Essai.27 To Richard Cantillon the entrepreneur was a risk-taker committing himself to purchasing the factors of production at a known price in order to market their output at an unknown, but, it was to be hoped, higher, price in the future. This Louisiana expedition was risk-taking on a substantial basis, for it involved equipping a large team and sending it thousands of miles away from France to an area the productive potential of which was largely unknown. The two hundred and ﬁfty tons St Louis, a ship originally purchased by the Company of the West to bring slaves to Louisiana, left La Rochelle on 21 March 1719 with seventy-six passengers aboard, forty of whom were members of Cantillon's group. The St Louis arrived in Louisiana at the end of June 1719.28 Shortly before the arrival of this ship at the colony, hostilities had broken out with the neighbouring Spanish based at Pensacola. Bernard Cantillon was fortunate in that members of his group were not forced to join the military to campaign

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against Spanish forces or that his material supplies were not commandeered for the war effort. Because of the war with the Spanish most of the new colons had considerable difﬁculty in reaching the new French base at La Nouvelle Orléans, named in 1717 after France's regent, Philip, Duke of Orléans — Fr. Charlevoix was later to point out the grammatical incongruity of naming the town after the Regent using the feminine forms of nouveau. Bernard Cantillon would have had little time to consider grammatical niceties but would have wryly considered the comments of the Nouveau Mercure's supposed New Orleans-based correspondent François Duval, who, in the March 1719 edition of that journal, remarked on the agreeable society of New Orleans and the abundance of foodstuffs in the market. Such a report was totally ﬁctitious. More of these puffed reports, as we have seen, appeared in 1720. Fr. Charlevoix later pointed out that the New Orleans that he saw in 1723 bore little resemblance to reports circulating in the Mercure de France in early 1720. Instead of the eight hundred ﬁne houses and ﬁve parishes as outlined by the Mercure, all he found on his arrival was ‘one hundred randomly situated huts, a large wooden store, and two or three houses unworthy of any French village’.29 Charlevoix was perspicacious enough to recognize that New Orleans would become a very rich town and the capital of a large and wealthy colony, but the reality of this Mississippi settlement in 1719 was very different from the picture that some of the supporters of Mississippi shares were presenting through the columns of French journals to an ignorant French public. Bernard Cantillon's group was the only one to reach New Orleans in the month of August 1719. By the standards of the other colonizing groups he had moved extremely fast. It had only taken him three months to equip the expedition and set sail from La Rochelle and then, having arrived at the coast, he succeeded in moving the group to New Orleans within a month. The speed of his movements suggests that Bernard Cantillon was an extremely competent leader. From New Orleans Bernard Cantillon led his group 296 kilometres north (74 leagues) to the concession that his brother had been granted. The settlement was on the Ouachitas or Black River which ﬂows into the Red River. It was variously described as being 8 to 12–15 leagues from the Red River. In the Red River, formerly called the Natchitoches, there is a river named the Ouachitas which one is assured runs between the North West and West through ever stretching prairies. It is some 12 to 15 leagues [48 to 60

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kilometres] from the conﬂuence of the Red River. The concession holders, Messrs. Cantillon and Mirbaise de Villemont, are established there. They are extremely satisﬁed with the territory and have announced that it is capable of sustaining a number of beautiful and proﬁtable plantations and that all of it will belong to France being on 35 and 37 degrees of northern latitude.30 Colonization was no easy matter. The new settlers had to contend with a variety of illnesses, difﬁcult terrain, and attacks from the Indians spurred on by their European rivals, the English and Spanish. One contemporary traveller described the illnesses as ‘fevers, scurvy, dysentery, venereal diseases and leg ailments’.31 There was competition between the three European powers for the allegiance of the various Indian tribes. An administrator wrote that, if the colony had no goods and munitions, ‘it is certain that the savages would slit the throats of all the French particularly as the English from Carolina were bribing them to declare themselves against the French’.32 De La Harpe's group, which was recruited at La Rochelle at the same time as that of Cantillon, suffered substantial losses with only seven or eight surviving from the original group of forty. Bernard Cantillon brought sixty men to the colony, according to one source.33 As he left La Rochelle with forty men he may have taken on an extra twenty black slaves at St. Domingue if the St Louis stopped there. Charles Legac, a Louisiana-based director of the Indies Company (the successor of the Company of the West), noted, around March 1721, that Richard Cantillon's settlement on the Red River had about ﬁfty people, split evenly between whites and blacks.34 However, by the census of November 1721 the numbers had seemingly fallen further. Cantillon's concession was one of only eleven deemed sufﬁciently important to include in the census, where the writer observed: ‘It has been heard said that the land is good and that there are about ten whites and twenty negroes working it. Mr Cantillon manages it himself.’35 The decline in numbers at the Cantillon concession did not augur well for the future. Whether Bernard Cantillon's group was reduced because of disease or disillusionment on the part of the settlers we do not know. However, by 1722 Fr. Charlevoix was pessimistic on the fate of the settlements around the junction of the Red and Black Rivers. It was Charlevoix's impression that these settlements were established more for the purpose of trading with the Spaniards than with the objective of farming the land. While the settlement that Bernard Cantillon initially established seems to have declined, the Cantillon investments in Louisiana were not limited to that area. Sometime between his arrival in Louisiana in 1719 and 1721 he acquired a plantation besides New Orleans.36 It was

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located on the left bank of the Mississippi just below what French cartographers described as New Orleans. The census of 1727 shows that this property of Bernard Cantillon was managed by a Mr Dalby, a misprint no doubt for Jonathan Darby who, as has been shown, had been appointed second-in-command to Bernard Cantillon when the expedition left La Rochelle.37 The attribution of the ownership of the plantation to Bernard rather than Richard Cantillon may have been due to the latter's wish to ensure that the New Orleans property was not conﬁscated to meet part of the tax liability of over two million livres levied on him as a Mississippi millionaire in 1721. By transferring the property to the nominal ownership of Bernard he could protect it from such a conﬁscation. In 1723 Bernard Cantillon returned to France from Louisiana. Like Manon Lescaut's lover, the Chevalier des Grieux, he returned probably a sadder but wiser man. The ambitious project of colonizing a region of Louisiana had failed. But the failure was not absolute, for Bernard Cantillon, in reporting back to his brother in France, was in an ideal position to give an accurate and realistic assessment of what was happening in the colony. Such reports would have stressed the inadequate ﬁnancial and material support coming from France and the inability of the colony to generate income for the Mississippi Company over the short run. Obtaining this type of accurate information in the spring of 1720 would have increased Cantillon's scepticism on Law's ability to make a success of the Mississippi Company. The acquisition of accurate information for dealing in stock market shares is frequently a costly business. If Bernard Cantillon's reports to Richard on the prospects of Louisiana's short-term proﬁtability — his reports to the locally based French administration in Louisiana suggest that he was optimistic over the long run — were instrumental in forming or hardening his brother's bearish stance on the Mississippi System in the spring of 1720, then the overall cost of the expedition may have been very worthwhile. Richard Cantillon was in a strong position in the spring of 1720 to discount the exaggerated Mississippi Company-inspired rumours on the fabulous wealth of its Louisiana holdings.

Notes 1 2 3

Edgar Faure, La Banqueroute de Law (Paris, 1977), pp. 191–4. Le Nouveau Mercure (September 1717). Law, writing in the Mercure de France (April 1720), remarked: The colonization of Louisiana will be an immense project. I understand that it takes time to colonize and to derive the returns that may be expected; but if one considers the ﬁrst fruits that we have derived from there in the

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form of tobacco, silks, indigo, silver, its propitious climate, the fertility of its soil and the various possibilities it offers, the pleasant customs of its native population and the number of settlements which rich individuals and companies are making there daily, one may hope to see it in a short time more ﬂourishing than those of our neighbours after many years of effort. (translation). P. Harsin (ed.), John Law, Œuvres complètes, iii. 115–16. 4 PRO SP 78/166, 2 January 1720. Letter from Daniel Pulteney to James Craggs. Pulteney was based in Paris. 5 Quoted from the ‘Journal de la Régence’ in E. Levasseur, Système de Law (1854), p. 155. 6 Valette de Laudon, Journal d'un voyage à la Louisiane fait en 1720, par M. xxx, capitaine de vaisseau du Roi (1768), pp. 257–8. 7 AN Colonies, F36, fo. 103. ‘Lettre du roi au gouverneur du Canada’. 10 April 1684. 8 Le Nouveau Mercure (September 1717). 9 Le Nouveau Mercure (February 1718), 107–10. 10 Marcel Giraud, Histoire de la Louisiane française, iii. (1966): The companies that were formed in the ﬁrst months of the Company of the West's existence were modest creations whose ﬁnancial backing was determined by the circumstances of a time when the circulation of money was still tight, a time when the country had not entered into its speculative and fortune making phase. (p. 155; translation.) Giraud discusses a number of small groups which were awarded concessions at the end of 1717 and the start of 1718 but, as the text shows, they were badly ﬁnanced. Unfortunately, there is not adequate documentation on the Pâris–Duverney ﬁnanced group, but even here it managed only to send twenty-nine settlers (p. 155). 11 12 13 14

Ibid., pp. 156–61. Ibid., pp. 175–7. Ibid., p. 176. The ﬁrst reference found to this company is in the power of attorney that Richard Cantillon gave to Edmund Loftus on 31 July 1719 when he had made the decision to leave France: Likewise the said Mr Cantillon gives authority to the said Mr Loftus to sign the articles of association of a projected company between Mr Law, director of the Company of the West, Mr Joseph Edward Gage, an English gentleman, and the said constituent, Mr Richard Cantillon. These articles conform to the same conditions drawn up and expressed in the private contract for the company agreed on 19 November 1718 between the said Law, Gage, and Cantillon. This company project was presented to the said attorney to carry out all that was necessary to establish the said company. ANMC lxvi. 370, ‘Procuration’, 23 August 1719 (translation). On 23 February 1719 Joseph Gage paid Richard Cantillon 20,000 livres for

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a two-ﬁfths shareholding in this enterprise, a payment which Cantillon duly acknowledged: ‘I acknowledge that Mr Gage paid me in cash 20,000 livres for the two-ﬁfths interest which he took in the jointly developed enterprise to establish a settlement in the Mississippi, according to the company project already set up and signed by us in Paris on 23 February 1719’ (ANMC xliv. 276, 21 October 1722, ‘Dépost d'ecrit’, (translation).

15 16 17

18

While Cantillon's lawyer Thomas Molagne later suggested that the Mississippi project between Cantillon and Gage was not carried out, ‘ce project ayant été fait sans l'execution’ (ANMC lxxxii. 346, 6 March 1755, fo. 21), we believe this is more a reference to the fact that Cantillon seems to have taken over Gage's interest in the company in July 1719. See ANMC cvii. 532, 13 May 1766, ‘Inventaire de Joseph Gage’. Gage's earlier payment of 20,000 livres to Cantillon took place at the period when Bernard Cantillon needed money to recruit people and equip the expedition. PRO, SP 78/165, 2 October 1719. Stair to James Stanhope. ANMC lxvi. 367, 3 September 1718, ‘Bail, Marie-Anne Picammelot à Richard Cantillon’. Giraud, op. cit., n. 10 above, p. 181 dates Law's ﬁrst direct involvement in a Louisiana concession at 5 July 1719. With the System attracting a great deal more attention Law probably felt that by publicly investing in a Louisiana concession he would attract his followers to pursue the same approach. His reasoning was correct here, as from the summer of 1719 far greater interest was shown by the nobility and the men of money in the Louisiana concessions. Giraud, op. cit., n. 10 above, pp. 181–220. The evolution of the colonization which started with Richard Cantillon's enterprise took shape with the expansion of the marquis de Mezière's company and the participation of Law in the colonization movement, ﬁnishing in the ﬁnal analysis with the establishment of ten companies, organized in principle to be more effective, under the direction of inﬂuential nobles or rich individuals (p. 201, translation).

19 Giraud, op. cit., n. 10 above, p. 177. He dates the grant of the concession to Richard Cantillon as 5 December 1718. On the size of the concessions see pp. 165–6. 20 ANMC xliv. 276, 21 October 1722, ‘Dépost d’écrit’. See n. 14. 21 La Rochelle, Archives de la Charente Maritime. ‘Registres et liasses Desbarres, 1717–19’. 22 Giraud, op. cit., n. 10 above, p. 167. 23 The ‘Registres Debarres, 1717–19’ show that nine members of the expedition were prepared to rely on Richard Cantillon's ‘honesty’ which shows that he had a good reputation amongst the colonizing group. 24 Essai, pp. 21–3. 25 Such was the case, for example, of Étienne Bonnet, whose contract

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26 27 28

29 30 31 32 33

34 35

36 37

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stipulated that he would work at ‘all other reasonable tasks which he was ordered to do with the exception of tilling the soil’. See ‘Registres Debarres, 1717–19’. P. de Charlevoix, Journal historique d'un voyage fait par ordre du roi dans l'Amérique septentrionale (Paris, 1744), vi. 199–202. Giraud, op. cit., n. 10 above, p. 334, also seems to hint at Cantillon's desire to trade with the Spanish: ‘The group of the banker Richard Cantillon . . . with the idea of drawing nearer to the Spanish’. Essai, pp. 49–51, 150–2. There are two passenger lists describing the personnel of the Cantillon group on board the St Louis. See AN F5B 57, ‘Passagers embarqués en France-La Rochelle, 1718–1828’; also Archives des Colonies G1 464, ‘Role des personnes embarquées pour la Louisiane . . . le 21 Mars 1719’. A number of the passengers were unwilling exiles euphemistically described as ‘gens envoyés par ordre de la Cour’. P. de Charlevoix, op. cit., n. 26 above, pp. 192–3. Paris, Archives des Affaires Étrangères, Mém. et Doc., Amérique, i. 129. This document was written by Charles Legac, the director of the Company of the Indies, in Louisiana, around March 1721. (translation). Ibid., fo. 116. Ibid., fo. 109. BN MF 14613, fo. 338. This document written by M. Penicaut incorrectly reports Cantillon as arriving in Île Dauphine during the month of February. Cantillon is described as a ‘gentilhomme Irlandois’. Penicaut worked in Louisiana for twenty-two years as a ship-builder. He came back to Paris in 1721 blind and seems to have dictated this report in 1723. Paris, Archives des Affaires Étrangères, Mém. et Doc., Amérique, i. fo. 109, ‘The Ouachitas, a tributary of the Red River, where the settlement of Richard Cantillon was located with about 50 people, as many whites as blacks’. BN NAF 9300. ‘Recensement des habitants et concessionaires de la Nouvelle Orléans et lieux circonvoisons’ (translation). In folio 267 Cantillon's settlement is mentioned. This census, carried out in January 1722, lists the population of New Orleans and its surrounding areas as 1,249 inhabitants comprising 293 men, 140 women, 96 children, 155 French servants, 514 negro slaves, and 51 ‘esclaves sauvages’. The Indian ‘sauvages’ came last in the human hierarchy. Charlevoix was more gentle in his description of them, referring to them as ‘les naturels. See Giraud, op. cit., n. 10 above, iv. 240–1. Here Giraud reproduces a map made in 1721 (Archives de la Guerre, 7 c. 213) which shows the settlement of Mr Cantillon between those of Mr Coustillas and Mr Bannes. I am indebted to Professor Giraud for pointing out the reference to this census of July 1727 which is located in the Archives des Colonies G1 464.

7 Lady Mary Herbert and Joseph Gage: Two of the Great Speculators of the Age While Bernard Cantillon was struggling to establish his settlement in Louisiana on his eventual arrival in August 1719, John Law's Mississippi System was going from strength to strength. Massive fortunes were being made in the shares of the Company. Pyot, a clerk at the British embassy in Paris, described the frenetic scene in the rue Quincampoix in early September 1719: The rue de Quinquempoix, which is their Exchange Alley, is crowded from early in the morning to late at night with princes and princesses, dukes and peers and duchesses etc, in a word all that is great in France. They sell estates and pawn jewels to purchase Mississippi.1 A week later he reported ‘all the news of this town is of stock jobbing. The French heads seem turned to nothing else at present.’2 The British Ambassador, Lord Stair, observed and commented on the same phenomenon: ‘Everybody in this town is so much taken up with Mississippi that they seem to mind nothing else. Mr Law tells them that their ﬁrst returns from the East Indies will bring them ﬁfty millions proﬁt.’3 John Law's popularity rose pari passu with the price of Mississippi shares. ‘Le tout Paris’ wanted to see him and more importantly listen to his advice. Contemporary accounts abound with the strategems that nobility and commoners alike used to gain access to Law. The Regent's mother, the Princess Palatine, recounted how the ladies of the court refused to give Law the time even to go to the toilet. Law is reported to have told them: ‘Mesdames, je vous demande mille pardons, mais si vous ne me laissez pas aller, il faut que je crve car j'ai un tel besoin de pisser, qu'il m'est impossible d'y tenir davantage.’ The ladies are reported to have replied: ‘ “Eh bien! monsier, pissez, pourvu que vous nous écoutiez”. Il le ﬁt tandis qu'elles restaient autour de lui.’4 Crowds were ﬂocking to Paris to speculate on Law's seemingly wondrous creation. They added to the demand for shares and pushed prices up further. Thomas Crawford, the British envoy to France, wrote back to his superiors in London: ‘The reason of the sudden rise of the stock here is the great number of people come from the Provinces

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who arrived all at once in the rue Quincampoix on Saturday last — miracles are revived. I wish religion may stand its ground.’5 But for the moment the new religion was the Mississippi Company. Alongside the French provincials who came to Paris there was also an inﬂux of foreigners ranging from Dutch bankers to British nobles. But even prior to these foreigners arriving in Paris there was a group of British and Irish investors who associated with Law and who had already made very substantial capital gains out of the Mississippi System. We have seen that some of the Irish were by the autumn of 1719 driving around Paris in ‘gilded Berlins’. In this chapter we concentrate on the activities of two British investors, Joseph Edward Gage and Lady Mary Herbert, most probably the two biggest British-born speculators in the Mississippi System. It is necessary to discuss the personalities and investment activities of these two ﬁgures before taking up the story of Cantillon's reinvolvement with the Mississippi System in the spring of 1720. There are a number of reasons for this diversion. Joseph Gage and Lady Mary Herbert adopted the opposite view to that of Cantillon with respect to Law's exchange rate policies in the ﬁrst half of 1720. In an effort to pyramid their gains they borrowed extensively from Cantillon and his bank and then invested in the foreign exchange market. These loans were to rest heavily on Cantillon for the rest of his life through the lengthy criminal and civil litigation that they precipitated. The loans are of wider interest to historians in that they formed part of a very signiﬁcant but little-chronicled phase of Law's System involving exchange rate speculation. Hitherto the impression has been created that in the spring of 1720 foreigners sold off their Mississippi shares and repatriated their funds, thereby causing the System to weaken. This is only a partial picture. There was in fact a two-way ﬂow of funds, with Law's British followers borrowing funds outside France and using them to take up positions in the French currency. The loans Cantillon and his bank made to Joseph Gage and Lady Mary Herbert are of speciﬁc interest to the Cantillon story in that Henry Higgs and Anita Fage, two of the main commentators on Cantillon's career, have created the impression that Cantillon was involved in some very sharp practices in relation to the loans he made. Borrowers from Cantillon and his bank such as Joseph Gage, Lady Mary Herbert, her father William Herbert second Duke of Powis, her brother Lord Montgomery, her aunt Lady Anne Carrington, and the Irish brothers John and Remy Carol are presented as innocents abroad who were duped by the cunning and dishonesty of Cantillon. Higgs, who concluded, ‘when all has been said, it must be admitted that Cantillon's strategy was unscrupulous’, relied on the evidence presented

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in court against Cantillon by Joseph Gage and Powis family, led by Lady Mary Herbert.6 Fage, in the same way, relied excessively on the case presented by the Carol brothers against Cantillon without examining the background of the accusers.7 The Higgs–Fage view needs to be challenged, not because we believe that Cantillon was totally innocent of the charges laid against him, but because his accusers were involved in the same speculative circle and, as subsequent events showed, were prepared to go to far greater lengths in order to win their case. Their accusations must be judged in the context of their own actions, their inability to repay money that they borrowed, and their attempts to defraud other bankers of money that they owed. Furthermore, rather than viewing the litigation, pursued in the French and English courts, as emanating from a wide variety of disgruntled clients of Cantillon and his bank, it should be seen as originating from a common source, the combination of Lady Mary Herbert and Joseph Gage. These issues are discussed in detail in Chapter 11.

Joseph Gage and Lady Mary Herbert Joseph Gage, as was shown in Chapter 6, was involved with John Law and Richard Cantillon in November 1718, in the establishment of a company to develop a settlement in Louisiana. In less than a year he had made such a large fortune in the Mississippi System that he was referred to in British diplomatic dispatches as ‘Croesus’. His proﬁts were estimated at £1 million sterling, a huge sum of money at that time.8 This ﬁgure mentioned by the British ambassador in Paris, Lord Stair, was probably an exaggeration, for Daniel Pulteney, also working with the British embassy in Paris, and someone more skilled in ﬁnancial matters than Stair, stated a month later that Gage reckoned he was worth 50,000 l.t. a year: ‘Mr Gage reckons himself already worth 50,000 l.t. a year and says he will not be satisﬁed till he has got 100,000. I wish a good share of these riches would be showered down some Thursday night in Downing Street.’9 Though not a sterling millionaire, Gage was making such a fortune in Mississippi Company shares that he had come to the attention of the British embassy staff in Paris. He as the second son of Joseph Gage of Sherborne Castle in Dorsetshire and a brother of Thomas, who became the ﬁrst Viscount Gage. His mother was Elizabeth Penruddock of Southampton, a wealthy heiress. Little is known about Gage's early career, though it is believed that he was born around 1678. He was described as a slim and relatively small individual of around

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5 feet 2 inches who dressed well. He had a thin and slightly long brown bearded face.10 In the autumn of 1719 Gage seems to have had the intention of liquidating some of his Mississippi wealth and coming to England. Lord Stair, the British ambassador, remarked on Gage's desire to purchase land in England: I send your lordship enclosed a letter from Mr Gage and another to Mylord Chancellor. His brother seems disposed to do very handsomely for him to enable him to support the dignity of a Peer. The younger brother who is like to get considerably above a million sterling by the French stocks seems disposed to bring that money into England if he would be allowed to purchase. He is willing to take the oaths to the government such as have nothing inconsistent with his being a Roman Catholic and that he may have no reproach from the people of his own side he is resolved to consult the Sorbonne about the general question whether Roman Catholics being subjects to a Protestant country are not obliged to take oaths of ﬁdelity to the government of the country.11 Gage's brother Thomas conformed to the Church of England but Joseph remained a Catholic. His reasons for adhering to catholicism may have been more than religious for by this time he was linked with Lady Mary Herbert, eldest daughter of the second Marquis of Powis, William Herbert, one of the staunchest Jacobite supporters and the head of one of Wales's leading Catholic families. This ﬁnancial-cum-amorous liaison between Joseph Gage and Lady Mary Herbert achieved such notoriety that it was satirized by Alexander Pope in the ‘Epistle to Bathurst’, written in 1731 and published in 1733: The Crown of Poland, venal twice an age, To just three millions stinted modest Gage. But nobler scenes Maria's dreams unfold, Hereditary Realms, and worlds of Gold. Congenial souls! whose life one Av'rice joins. And one fate buries in th'Asturian mines.12 The full implication of these lines will become clearer as the story of Lady Mary and Joseph Gage is unfolded. Lady Mary, the Maria in Pope's verse, was a redoubtable personality, represented as Minerva, goddess of wisdom, science, and war, in an allegorical portrait on the ceiling of the library at Powis Castle in Wales. The fate of the Powis family at this stage in history was greatly entwined with that of the Jacobite cause. Lady Mary Herbert's grandfather William, Marquis of Powis, was created Duke of Powis by the exiled James II at St-Germain on 12 January 1689. This was in recognition of his loyalty to the Jacobite cause and his assistance in ensuring the escape of the Prince of Wales to France in December 1688.

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The Duke of Powis later accompanied James II on his abortive Irish venture, being rewarded further with the Order of the Garter in 1692 when the defeated Jacobites had returned to France. He died in St-Germain-en-Laye in June 1696.13 The ﬁrst Duke of Powis had six children, ﬁve daughters and one son. We are concerned with the activities of his daughter Anne and his son William, though Lady Lucy, an inﬂuential abbess in Bruges, and Winnifred who married William Maxwell, Earl of Nithsdale, and planned her husband's escape from the Tower of London in February 1716, the day before his execution, were formidable ladies whose activities have been described elsewhere.14 William Herbert's daughter Anne is a somewhat mysterious ﬁgure who features in our narrative as the companion of her niece Lady Mary Herbert during the Mississippi System and later when she accompanied her niece to enforced exile in Spain. She was known as Lady Anne Carrington, though few seem to have known about her marriage to the solicitor Kenneth Mackenzie in 1709.15 The Duke of Powis's only son was likewise called William Herbert. He was born before 1667 and was a page of honour at the coronation of James II in April 1685. For his contribution to the Jacobite cause, both as a colonel of a regiment of foot and a deputy lieutenant of six Welsh counties from 26 February to 23 December 1688, he was imprisoned in the Tower in May 1689. For the next thirty three years he had a difﬁcult existence, being suspected of and jailed for alleged Jacobite leanings. Eventually he was restored to his title of Marquis of Powis in October 1722, though he was known both in France and in England by his Jacobite title, Duke of Powis. The Powis estates had been conﬁscated in 1696 and they were given to a cousin of William III, the Earl of Rochford. The estates were not returned until 1722, though the evidence shows that the family had de facto control over them before 1722. As events will show, the Duke of Powis needed a vast amount of wealth, given the spending propensities of his daughter and his willingness to lend her money. The Duke of Powis, known as Lord Montgomery until 1722, married Mary Preston, daughter of Sir Thomas Preston of Furness in Lancashire. Mary Preston was one of the beauties of her age — there is still a ﬁne portrait of her by Sir Godfrey Kneller in Powis Castle. One source at least contends that she was the illegitimate daughter of James II, which explains Pope's ‘hereditary realms’ allusion in the lines on Lady Mary Herbert and Joseph Gage in the Epistle to Bathurst. Her daughter Lady Mary was born circa 1686 and was the eldest of her six children. Lady Mary's treatment of her father, as will be shown,

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had all the hallmarks of a spoilt domineering eldest child, while her father's indulgence of her expensive speculations could provide psychiatrists with a fascinating case study. She inherited her mother's good looks, and both the Jacobites and the Regent, Philip Duke of Orléans, attempted to have her matched with prominent personalities of the day. In the Jacobite case it was felt that she was a more than suitable match for the Pretender, James III, as the Duke of Mar pointed out to Lord Panmure on St Stephen's Day 1718: I was desired by a gentleman, who would not allow me to tell his name to write to you about Anderson's [that is the king's] marriage, for, seeing, he has met with some disappointment in the match he was about, his friends are very earnest to have him soon married, if not to that lady, to some other. Most of them wish that, if the match he was about do not take effect, he would marry one not of his own religion, but, if he do not incline to this and cannot ﬁnd one of so good quality as the match he was about, that gentleman named one who is now here. Her name is L[ady] M[ary] H[erbert]. She was with her aunt at the place where Anderson resided in 1716, where Anderson saw her. You are very well acquainted with her, and I also am a little acquainted with her. She has generally a very good character and I think her a very discreet and sweet-natured lady and of good understanding and very agreeable. I confess I wish that Anderson would marry one of another religion, but, if he will not, and cannot get a match of such quality as that he was lately about, I really think he could not do better than take the lady proposed by this gentleman. I thought myself obliged to acquaint you with this, and you may inform Anderson if you think ﬁt.16 If the story of Mary Preston being the illegitimate daughter of James II is correct then the marriage of the latter's son would surely have upset the rules on consanguineous marriages even in the restricted circles of eighteenth-century European society. Perhaps it was the discovery of this relationship, on deeper investigation of Lady Mary Herbert's family background, that put off the proposed match with James III.17 The Regent of France, Philip Duke of Orléans, took up the cause where the Jacobites had left off. In November 1719 he wrote to Lady Mary's father suggesting a match between ‘mademoiselle de Powis’ and the Regent's 78-year-old friend, Godefroy-Maurice de la Tour, Duc de Bouillon, d'Albret, et de Château Thierry! This attempted match was later commented on by Horace Walpole: ‘Lady Mary Herbert, sister of the last Marquis of Powis, had made a prodigious fortune in the Mississippi, and refused the Duke of Bouillon, being determined to marry nobody but a Sovereign Prince.’18 Walpole's comments, Pope's satire in The Epistle to Bathurst, and the following letter to the Duke of Powis in 1736 suggest that the

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driving passion in Lady Mary's life was the accumulation of wealth and power (the acquisition of a kingdom). Gage's letter, which shows that they met in 1717 and were still unmarried in 1736, is most revealing: Three years ago I had the honour of writing to your grace about Lady Mary. You then renewed your consent of my happiness in that point, only that you seemed desirious to have some things ﬁrst ended. My Lord whatever has been your grace's, as well as Lady Mary's will and pleasure for this nineteen years past has always been a rule and a law to me and ever shall be so. I believe that I have proved in that time both in pains, and little fortunes which I never spared in all occasions to contribute in everything that could be for her Ladyship's content and honour. And if it was to begin again, and that I had a Kingdom it should be disposed of for her service. But pray give me leave to represent to your grace that years pass very fast away over our heads and that it is full time (with your consent) to have that affair ended. I desire nothing so much as to be allied to your family, and as for settlements none at all if you think proper, or whenever it is most convenient to you. All that I desire is to have it ended at present for if we are to stay till all things are concluded I am afraid many years may pass ﬁrst. That affair my Lord may be done in this place without anybody's knowing of it, and besides that I regard her Ladyship to that degree that I am contented that everything should fall upon me. Therefore my Lord let me beg of you to renew your consent, and orders upon this subject that it may be immediately ended as really in conscience it should be. My happiness depends upon your grace. I hope you wont refuse it me. And you shall ﬁnd that none of your children shall ever be more dutiful, love and regard all that belongs to your grace more than I who am with a great deal of respect.19 Gage's allusion to ‘a kingdom’ may provide the clue as to why they never seem to have married.20 Pope, as we have seen, portrayed Lady Mary Herbert as a highly ambitious lady interested in wealth and power. In the early days of her relationship with Gage the latter, through his share dealings, had amassed a great fortune in Mississippi shares.21 With his wealth Gage seemingly had attempted to purchase the crown of Poland. The Crown of Poland, venal twice an age, To just three millions stinted modest Gage. The venal Polish nobility refused Gage's offer. Undaunted by this setback and no doubt prodded on by Lady Mary's ambition for a kingdom, Gage then seemingly attempted to purchase the island of Sardinia. Unfortunately for Gage, he kept his wealth in shares and he was wiped out by the French stock market crash of 1720.22 However, having tasted of one fortune he attempted to rebuild another and emigrated to Spain (an enforced exile caused by the

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pressing demands of their creditors), where with Lady Mary he mined for silver and gold. One can see Lady Mary by his side conjuring up visions of another El Dorado which awaited them just round the corner. She was always optimistic about making this new fortune, as her letters to her father clearly show.23 She brought out to Spain a number of Welsh, and later German, miners in an attempt to ﬁnd the elusive precious metals which she had searched for so hard. Each letter, accompanied by requests for further money from the Duke, suggested that a substantial fortune was about to be made. After years of such letters one ﬁnds her optimism still unbounded. Writing in May 1743 to her father, she suggested, ‘as I will explain to you when I see you I shall be the richest subject in Europe in less than a year's time’.24 But the mines did not reveal their promised riches and after many years of effort in Spain she seems to have abandoned this project in a penniless state. A lady of fertile imagination, she also tried to interest her family in the possibilities of exporting corn to Portugal, establishing a distillery, and crossing Welsh ponies with Spanish jackasses! While Lady Mary's later career was spent attempting to discover what Cantillon believed was ‘intrinsic’ money, her earlier attempts to make a fortune paradoxically revolved around the paper credit schemes of John Law. An examination of Lady Mary's ﬁnancial activities during 1720 is extremely revealing. It shows a wide range of speculative activities spanning the three ﬁnancial centres of London, Paris, and Amsterdam as well as a mixed range of trading techniques varying from buying and selling shares to options and foreign currencies. The people with whom she dealt are equally revealing; they included William Law, brother and agent of John Law, Lord Londonderry, a son of Thomas ‘Diamond Pitt’, Samuel Edwin, a wealthy trader, Dr Hugh Chamberlen, one of the ﬁrst proponents of a land bank in the 1690s, the Bank of England, and, of course, Cantillon. Lady Mary's connections with William Law and Lord Londonderry allied with her amorous-cum-ﬁnancial attachment to Joseph Gage suggest that she was at the centre of Law's circle in a prime position to obtain what she believed to be inside information on Mississippi-related activities. Unfortunately for her, as events will show, her faith in Law and his ﬁnancial ploys seems to have been unlimited and she piled good money after bad in a hopeless attempt to realize the chimera of unbounded wealth which Law's System initially seemed to hold out for its naïve devotees. The main transactions involving Lady Mary Herbert during 1720

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are listed in Table 7. These transactions put in perspective Lady Mary Herbert's ﬁnancial activities at this time. They show that her dealings, and those of Joseph Gage, with Richard Cantillon were just part of an extensive and complicated web of ﬁnancial transactions woven by this Welsh lady. Each of these transactions is considered in some detail below so that we can construct a proﬁle of the ﬁnancial activities of Cantillon's two main antagonists, Lady Mary Herbert and Joseph Gage. In developing this proﬁle we also obtain a fascinating picture of the activities of two of the largest British speculators in Mississippi stock.

The Transaction With William Law The transaction in January 1720 between Lady Mary Herbert and John Law's brother William shows the gambling instinct of this Welsh lady. Major Skene, acting on commission for William Law, agreed in January 1720 to allow Lady Mary Herbert to sell seventy Mississippi Company shares at 9,250 l.t. per share on condition that she repurchased these shares in the month of June at 11,500 l.t. per share. From the sale of her shares Lady Mary was to receive 647,000 while repurchasing them would cost 805,000 l.t. — a difference of 158,000 l.t.25 This transaction combined elements of a loan and an option agreement. Lady Mary Herbert was contractually obliged to pay 2,257 per share more to repurchase her shares in June. This represented an interest rate of 48.8 per cent on an annual basis. However, the usurious nature of the loan was concealed by the sale and repurchase of the same nominal quantity of shares. Furthermore, as Lady Mary maintained her right to repurchase the shares at an agreed price there was little danger involved provided that the value of the shares continued to rise. Obviously her behaviour was predicated on the assumption of a rising share price, for William Law did not pay her cash for her shares but instead gave her 600 primes, that is options, initially issued at 1,000 l.t., entitling holders to purchase full shares in the Mississippi Company six months later on paying another 10,000 l.t. per share. The only cash Lady Mary received was 17,000 l.t. to meet the balance outstanding. This money was given to her in notes of one thousand livres. The 600 primes were valued at 630,000 l.t. or 1,050 per prime at the time of the transaction. The transfer of primes for old shares in the Mississippi Company shows the extent to which Lady Mary wanted to pyramid her speculative dealings. By selling the old shares Lady Mary gained possession of a greater quantity of options to new shares of the

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Table 7. Transactions Involving Lady Mary Herbert Date (1720)

Transactor

January

William Law

22 January

21 February

11 March

11 April

11 May

1 June

1 June

Nature of Trans- Special Features action

Sale and repurchase of 70 Mississippi shares. Selling price 9,250 l.t. Purchase price 11,500 Lord LondonAgreement by derry Lady Mary and Lord Montgomery to purchase 63 Mississippi shares at 11,500 l.t. on 30 May 1720 Samuel Edwin Loan in French livres to be repaid in sterling in London Samuel Edwin Loan in French livres to be repaid in sterling in London Richard Cantil- Loan in French lon livres to be repaid in sterling in London Richard Cantil- Loan in French lon livres to be repaid in sterling in London Bank of England Loan by the Bank of England to Lady Mary and others Bank of England Loan by the Bank of England to Lady Mary and others

Payment made not in cash but with 600 primes [options]

Accumulated Amount Borrowed: livres tour- Debt in sterling nois (sterling in brackets) 647,000 £26,833a (£21,567)

Rescheduling of loan in July into a sterling loan to be paid in January

£17,325

Rescheduled on 934,430 a number of oc- (£22,063) casions

£68,000

Rescheduled on 231,000 (£5,546) a number of occasions 93 shares as col- (£15,333) lateral required. Loan rescheduled 80 shares as col- (£5,000) lateral required. Loan rescheduled

£23,850

£7,777

£10,000

£7,200

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LADY MARY HERBERT AND JOSEPH GAGE

26 September

September

Dr Hugh Cham- For securing reberlen payment of the loan of £3,000 a bond of £6,000 was entered into William Dundas Money borrowed to purchase Dutch stock

(£3,000)

£5,400 TOTAL

a

Calculated at the January exchange rate of 30 livres to the pound sterling.

£6,000

£172,385

116

LADY MARY HERBERT AND JOSEPH GAGE

Company. Through this arrangement her equity stake in the Company, though not fully paid up, increased to 6.3 million l.t. If the shares continued to rise then her gains would have been far greater than those derived from holding just 70 old shares of the Company. This was the speculative mentality that Law was attempting to foster, and the introduction of primes on to the market gave share prices another impetus in January of 1720. Lady Mary fell into the trap, though her instincts should have warned her against making such a deal with John Law's brother. Why, if the market was expected to rise further, was the Controller-General's brother willing to take the view that the shares would not rise above 11,500 per share by June? Furthermore, to protect his loan William Law insisted on Lady Mary's depositing a further thirty-ﬁve Mississippi Company shares with him as collateral. William Law's prudence in insisting on such collateral was vindicated, for in late February 1720 the share prices started to fall and by June they were worth only half their January value. Just after the famous order of 21 May 1720 which caused a substantial drop in Mississippi Company share prices, Major Skene approached Lady Mary about the repayment of her loan to William Law. Unable to repay the loan, she reached an agreement to reschedule her debt to William Law through a series of phased payments—four payments of 200,000 l.t. in June, August, September, and December. Ironically, in the light of her later allegations against Cantillon, Lady Mary contended that William Law should have used his inside knowledge to foresee the collapse of share prices and should have sold Lady Mary's shares prior to such a collapse: . . . and if I did not tell him [Skene] that if there was any such accident to have happened as that of an arrêt coming out which should make the actions fall under half of their price at once Mr [William] Law should have foreseen it better than I could be supposed to do, that he knew the term of the contract was to have no regard to personal security on my side, and therefore there was an alternative in the contract that if I did not make a further deposit when required he was to sell the whole 150 actions required?26

Lady Mary Herbert and Lord Londonderry Around the same time as Lady Mary did business with William Law she also entered into an arrangement with another member of Law's circle, Lord Londonderry. On 22 January 1720 Lady Mary and her brother Lord Montgomery undertook, on 30 May of that year, to purchase sixty-three shares in the Mississippi Company at the price of 11,000 livres per share. Consistent with her option contract with

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William Law, Lady Mary seems to have been optimistic that the share price of Mississippi stock would continue to rise. 27 The vendor of the sixty-three shares was Thomas Pitt, Earl of Londonderry, one of the big speculators of the age. Born around 1688, Lord Londonderry was the son of ‘Diamond Pitt’. His father Thomas Pitt had acquired this sobriquet through his purchase of a 410-carat diamond from an Indian merchant for £20,000 when he was Governor of Madras. He had the diamond cut in London at a cost of £5,000 and, having failed to sell it to Louis XIV, returned to France in 1717, with his sons Robert and Thomas, and attempted to sell it to the Regent. Initially the Regent is reported as having been reluctant to purchase the diamond but John Law and St-Simon persuaded him to acquire it from Pitt for two million livres or about £135,000 sterling.28 Londonderry inherited his father's ﬂair for speculation, for in the summer of 1719, while dining with John Law, he agreed to one of the largest wagers of the eighteenth century. Law, disdainful, or wishing to be seen as such, of British stocks, sold Londonderry £100,000 of East India stock for £180,000 for delivery by 25 August 1720. As the stock rose during 1720 Law was involved in heavy purchases of the stock. His total loss on this operation has been estimated at $970,000. The strains that Law imposed on his London banker, George Middleton, caused the latter's bankruptcy in December 1720.29 Londonderry's prescience on the value of English Stocks was seemingly paralleled by his belief that the Mississippi share prices would fall or at least not reach 11,000 livres in May 1720. Just as he had been a ‘bull’ with English stocks he became a ‘bear’ of Mississippi stock. Once again his view was the correct one, for Mississippi prices fell during the contract period with Lady Mary Herbert, and she found herself unable to pay when Mr Drummond, acting as Lord Londonderry's agent, attempted to complete the transaction on 30 May with Lady Mary and her brother Lord Montgomery. By this stage the Mississippi shares were valued at half the price which Lady Mary and Lord Montgomery had agreed to pay Lord Londonderry. The Powis offspring were given an extension till 30 July to ﬁnd the necessary funds to buy Londonderry's shares. But even then they were unable to meet the payments and were given a further extension till January on agreeing to pay the money due in sterling rather than in French livres. Michael Kincaid, acting as agent for Lady Mary and her brother, agreed to the conversion of 693,000 livres into a debt of £17,325 sterling, an exchange rate of 16 pence sterling for a French crown. When allowance was made for a dividend due on the stock, the amount outstanding was just over £16,500. Lady Mary's lawyers later explained the nature of this transaction:

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The reason why Lord Londonderry was then so eager to have Mr Kincaid's bargain performed was because he, by that agreement, was to be paid his money at an exchange of 16d English for the French crown of sixty pence when the current rate of exchange between Paris and London was but 4d or 5d English for the French crown of sixty pence whereby he gained near three quarters upon the exchange so that if he been to receive his money according to the then current rate of exchange between four or ﬁve thousand pounds would have paid his whole demand whereas by the agreement he was to have received £16,058 sterling.30 While Lady Mary was not in a position to drive a hard bargain with Lord Londonderry, she still seemed to have, at this late stage of the Mississippi saga, faith in the strength of the French currency. This faith was epitomized in her dealings with Samuel Edwin.

Lady Mary and Samuel Edwin While the transactions with William Law and Lord Londonderry were attempts by Lady Mary to increase her shareholding of Mississippi shares at a price varying between 11,000 and 11,500, her borrowings from Samuel Edwin, and later Cantillon, had the objective of making a proﬁt through foreign exchange manipulations and investment in South Sea stock. Unwilling to dispose of her French shares, though she used them as collateral for some of her loans, Lady Mary borrowed money from Samuel Edwin and Richard Cantillon in February, March, and May of 1720. Samuel Edwin (1671–1722), a wealthy trader of Westminster, Usher of the Court of Receipts and Exchequer, was the son of Sir Humphrey Edwin. Sir Humphrey, a Nonconformist, achieved a degree of notoriety when, as Lord Mayor of London, he went in his robes of state, attended by civic functionaries, to More's meeting-house. The scandal caused by his attendance in ofﬁcial dress at a Nonconformist religious ceremony provoked many pamphlets including Defoe's An Enquiry into the Occasional Conformity of Dissenters in Cases of Preferment; with a Preface to the Lord Mayor occasioned by his carrying the Sword to a Coventicle. Swift caricatured him as Jack in the Tale of a Tub. His son Samuel was less controversial. He wedded into the nobility, marrying Lady Catherine Montague, daughter of the Earl of Manchester, in 1687, the year his father was Lord Mayor of London. He enters our story in February 1720 as a lender of money to Lady Mary Herbert: Edwin desired Lady Mary's agent to offer her from him the loan of 934,436 without any other security than her bills accepted by Lady Mary payable at

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London in two months and a half. Lady Mary accepted the offer and ordered the bills to be drawn. Then Edwin required the exchange should be calculated at 23d per French Crown and not at 19d sterling per French Crown which was then the current exchange which made a difference of £7,567-2-2 to Edwin's advantage. He said it was the premium or interest for the loan of 934,436 livres which was worth but £22,062-18-9. However, Lady Mary gave him bills for £29,853-12-0 which were accepted by Lady Mary payable at London in two months and a half.31 A further loan was transacted on 23 March, when Lady Mary borrowed 231,000 livres against a sterling bill for £7,379 2s. 4d. payable in three months. In his case Edwin argued that it was Lady Mary who came looking for money from him, though the fact that he did not request collateral for the loan at this point indicates the high credit rating of Lady Mary and her brother in Paris in the spring of 1720. The important aspect of these loans made in February and March was that the money was lent in French livres to be repaid in sterling. Under this arrangement the implicit interest rate charged was concealed through a foreign exchange transaction. Thus the usury laws, limiting the interest rate charged on a loan, could be avoided by treating the negotiation as a foreign exchange operation rather than as a loan. As the foreign exchange was subject to ﬂuctuation, traders and bankers could charge higher ‘transaction charges’ to minimize the risk associated with these operations. Lady Mary was intelligent enough to understand the jurisprudence involved in the distinction between a domestic loan and a foreign exchange transaction, but disingenuously spent the rest of her life contending that the Edwin transaction ‘was a loan and not a bargain upon the exchange’. In fact it seems abundantly evident that Lady Mary was only too happy to borrow French livres on the proviso of a repayment in sterling. The reason for this is that by the spring of 1720 foreign exchange operations had become a new outlet for Lady Mary's speculative energies. This involvement in foreign exchange operations seems to have sprung from her belief that Law's monetary manipulations (described in Chapter 8) would cause the French crown to appreciate by the end of 1720 to 50d. sterling: The exchange afterwards about April . . . falling to about 19d per French crown and Lady Mary having neglected to make provision for the payment of the bills, and an edict coming out declaring every French livres should increase monthly in its value so much as was then generally computed would raise the exchange by the months of December and January following to about 50d sterling for every French crown and paper credit should be preserved. Thereupon Lady Mary having a prospect of great gain desired if possible the

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LADY MARY HERBERT AND JOSEPH GAGE

payment of the bills she had before drawn upon valuable consideration to be paid by her to this defendant might be enlarged to the months of December and January next following.32 The loan was rescheduled at an exchange rate of 27d. per French crown payable in December and January following although, as Edwin observed, ‘a French crown at that time would be about 50d whereby Lady Mary would be a gainer of about 23d on every French crown’. That, of course, depended on Law's exchange rate manipulations coming to fruition, and the chances of that happening when the Edwin loan was rescheduled was extremely unlikely. Lady Mary signed ﬁve bills for £34,105 4s’ 10d. with her father and brothers ‘to become jointly and severally bound with her in a bond unto the Samuel Edwin for the better securing to him the payment of the sum of £34,105-4-10’.33 Lady Mary also agreed to give collateral in the shape of 150 and eventually 200 shares in the Mississippi Company. In their bill of complaint William Herbert, Duke of Powis, and his sons William and Edward maintained that both Lady Mary and Samuel Edwin were guilty of deceit and fraud: Mary Herbert and Samuel Edwin to deceive and defraud your orators [the Duke of Powis and his sons William and Edward] and to induce them to become bound in such bond did severally inform your orators that the said Mary Herbert was really and truely indebted to the said Samuel Edwin on the said ﬁve promissory notes in the sum of £35,105-4-10 and your orators being then entirely ignorant of the matters and not doubting but that the said Mary Herbert had had of the said Samuel Edwin money or effects to that value and that thereby she was or would be able to repay the same, by the fair speeches and persuasions of the said Mary Herbert and Samuel Edwin or one of them were persuaded and prevailed upon to and did become jointly and severally bound with the said Mary Herbert as her sureties and not otherwise unto the said Samuel Edwin in one bond or writing obligatory . . . in the penal sum of £68,210-9-8 or in some other penalty conditioned for the payment of the said sum of £34,105-4-10.34 Thus within the space of six months Lady Mary Herbert had increased her liability and, more importantly, that of her father and her brothers from £29,853 to £68,000, all this increased exposure resulting from her inability or unwillingness to repay on time her original borrowing. For a lady who was later to accuse Cantillon of fraud and deceit it is relevant to point out that members of her own family were laying the same accusation against her in May 1721. More important to our account of events certain features of her dealings with Edwin need to be noted, as we will ﬁnd them replicated in her dealings with Cantillon. They were (1) her attempts to extend loans which she was either unable or unwilling to meet when the initial period

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of the loan matured; (2) her use of Mississippi shares as collateral for her borrowings allied with a seeming reluctance to sell her own or her family's shares; (3) her use of members of her family as co-guarantors for her loans; (4) the fact that the initial cost of her loans was expressed not through an interest rate but in terms of two different exchange rates. The Edwin loan was to cause considerable problems for the Duke of Powis's family, as the following letter from Edward Herbert to his father the Duke of Powis shows: I was in hopes that before now the bills Mr Baker drew upon Paris would have returned accepted but to my great surprise not only they are not come back but Mr Baker is in danger of being arrested for other bills your Grace drew on him lately. If he can't appear we shall be undone for nobody can negotiate the bills expected for paying Edwin but him. Surprising to see how lately your Grace comes to any proposal that is ruinous and destructive to your children and at the same time it is not in the power of any one to persuade you to do the least thing for their good. My brother is in goal and wants bread. I am forced to hide and expect soon to be in the same condition as he is in. My sisters are unprovided for. Your tradesmen and just creditors undone for want of being paid and yet your Grace seems insensible nor had regard to anything but Lady Mary. She commands and is obeyed let it be just or not. My sisters demand their portion which is their birthright it is refused them. I demand a provision to be made for me. Instead of that all is sold and given to Lady Mary. Not satisﬁed with that you have hindered me from getting out of the engagements I am under. If anybody can show me such usage in any christian family I will complain no more and am.35 A further letter written about the same time shows the depths of despair of Edward and his brother William, brought about by Lady Mary's ﬁnancial manipulations and the seeming unwillingness of their father, the Duke of Powis, to keep their sister under control: I informed your grace sometime ago of my brother's misfortune of being arrested upon Lady Mary's account only. He is in close conﬁnement because we can't get bail nor security for the liberty of the King's Bench. He desires that by the very next post to have an account of the list and second bargain made with Londonderry. I suppose that ungrateful creature will give herself so much trouble as to send that. Cantillon has laid an other action upon him which is a debt also of Lady M. She might have hindered that had she followed the advice of the counsel when she was last in London who would have had her make my brother a party in the lawsuit my aunt Carrington has with Cantillon. I have had this day notice to take care of myself for that Edwin was resolved to arrest me and seize the estate so that now we are all undone, the eldest son in a common gaol, the daughters unprovided for, the other son ruined and forced either to go to gaol or own away the estate going to be seized. All this for

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LADY MARY HERBERT AND JOSEPH GAGE

Lady M and at the same time your Grace engages yourself that by Edwin being in possession of the estate will hinder the tax for there is a clause in the Act that it shall take place of all debts whatsoever. My brother has no money nor me neither. Be pleased to let us know what is to become of us and what we are to do. All your friends here are of the opinion that you ought to come over immediately and make some computation with your creditors that you may not want bread yourself. Just now I have had a letter from Weston that my sister [word torn] is given over by the doctors. I suppose by this she is dead. It has been proposed to Mr Edwin that if he will stay four months longer to have the 261 actions in my Lady Lytcott's hands given up to his correspondent upon condition he shall not sell them of four months but that Mylady Lytcott and your Grace may have liberty to sell when you please giving the money in part of payment to Edwin's correspondent the estate upon that account not to be seized but I fear he will not accept of it.36 It is not intended to examine in depth the other transactions of Lady Mary that we have been able to track down after May of 1720, which are listed in Table 7. Sufﬁce it to say that in June, along with her father and several others (Broughton Wright, Walter Bagnall, Henry Jernegan), she borrowed £17,500 from the Bank of England,37 while in September she borrowed £3,000, on a bond of £6,000, from the land bank projector and ‘doctor in physick’ Hugh Chamberlen38 and £5,400 from William Dundas to speculate in Dutch stock.39 Needless to add, none of these loans was repaid on time and gave rise to a long list of civil actions by the lenders to recover their money. Aggregating all Lady Mary's debts for 1720 as listed in Table 7, some of which were jointly contracted with her father the Duke of Powis and her brother Lord Montgomery, we arrive at a grand total of £172,385. This sum, even by present-day standards, is a large one, but it was a huge debt in the eighteenth century. Some of it of course involves double counting, with Lady Mary borrowing from one source to repay another, but a later account of the debts accumulated in ‘South Sea and Mississippi’ produced a grand total of £94,938. 12s. 8d.—see Appendix 1. Lady Mary was one of the biggest speculators of the age and her debts to Cantillon (which totalled £43,850), while substantial, must be seen in the context of other large borrowings from Lord Londonderry, William Law, the Bank of England, Dr Hugh Chamberlen, William Dundas, and Samuel Edwin. The Edwin transaction in particular sets the scene for an examination of the Cantillon–Herbert–Gage transactions.

Notes 1

PRO SP 78/165, 6 September 1719, Pyot to Tichell.

LADY MARY HERBERT AND JOSEPH GAGE

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

123

Ibid., of. 160r, 13 September 1719, Pyot to Temple Stanyan (Under Secretary of State, Southern Department 1717–35). Ibid., 17–23 September 1719. Lord Stair to James Craggs (Secretary of State, Southern Department, 16 March 1718–16 February 1721). G. Brunet (ed.), Nouvelles Lettres de Madame la Duchesse d'Orléans (Paris, 1853). Letter dated 29 November 1719, p. 232. PRO SP 78/165, 22 November 1719. Letter from Thomas Crawford (British envoy to France 1715–24, excluding 1721) to Temple Stanyan. Henry Higgs, ‘Richard Cantillon’, Economic Journal, i (1891), 289. Anita Fage, ‘La Vie et l’œuvre de Richard Cantillon’ in Richard Cantillon, Essai sur la nature du commerce en général (Paris, INED, 1952), pp. xxiii–xli. PRO SP 78/165, 27 October 1719. Lord Stair to James Stanhope (Principal Secretary of State, Northern Department, 1718–21). Also SP 78/166, 11 December 1719. Letter from Daniel Pulteney (Board of Trade Commissioner) at Paris. PRO SP 78/166. Pulteney to Craggs, 17/28 November 1719. BN Fol. Fm. 2013. ‘Mémoire pour Georges Mackenzie contre René Duval, Christophe Balfe, etc.’, p. 21. PRO SP 78/165. See n. 8 above. Alexander Pope, ‘Epistle to Bathurst’ in F. W. Bateson (ed.), Poems of Alexander Pope (London, 1951), pp. 100–1. Dictionary of National Biography, entry under William Herbert, pp. 231–2. Powysland Club Collections, ‘Herbertiana’, v. 364–79. BL Add. MSS 28238. Letters of Lady Carrington and others to K. Mackenzie 1718–30. See also Add. MSS 28351, ‘Lady Viscountess Carrington (who was not then publicly known to be married to the said Kenneth Mackenzie)’. HMC Stuart, vii. (1923), 669. See n. 132 in F. W. Bateson (ed.), Poems of Alexander Pope, op. cit., n. 12 above, p. 101. Ibid., n. 131, p. 101. NLW Powis 2153. NLW Powis 2293. In a letter dated 30 March 1744, Lady Anne Carrington wrote, ‘there is no marriage in the case between my niece and Mr G[age]’. Powis 2092 and 2095 show Lady Mary writing to her father to tell him that Gage was interested in marrying a Miss Crimpshire towards the end of 1744. PRO SP 78/165, loc. cit. Dictionary of National Biography, entry under Joseph Gage. NLW Powis 2151. In a letter written on 8 November 1735, Lady Mary, at Seville, informed her father that she was very glad ‘you begin to have a better opinion of our new mine’. Over the next ten years her letters in the Powis correspondence show her to be full of hope with regard to the orebearing potential of the mines. NLW Powis 2110.

124 25 26 27 28 29 30

31

32 33 34 35 36 37 38 39

LADY MARY HERBERT AND JOSEPH GAGE

The information on the transaction with William Law is taken from NLW Powis 2389. Ibid. NLW Powis 10698. See also PRO London C/108/45. Dictionary of National Biography, entry under Thomas Pitt, pp. 1233–6. Earl J. Hamilton, ‘John Law of Lauriston: Banker, Gamester, Merchant, Chief?’, American Economic Review, lvii, no. 1–2 (1967), 273–82. NLW Powis 10698. Lady Mary's lawyer's mathematics were faulty. The exchange rate for the conversion of 693,000 livres into £17,325 was 18 pence per crown rather than 16. At the time of the renegotiated contract the exchange rate was 9 pence per crown (80 livres per pound sterling) rather than the 4 or 5 pence mentioned by the lawyer. At that exchange rate, i.e. 9 pence per crown, Lady Mary should only have paid £8,663 to Londonderry rather than the £17,325 that he demanded at an exchange rate of 18 pence per crown. NLW Powis 2372. Again the lawyer's mathematics were incorrect. Translating 934,436 livres into sterling at an exchange rate of 23 pence per crown yielded £29,854, but translating the same sum at an exchange rate of 19 pence sterling yielded £24,657 rather than £22,063. So Edwin's expected proﬁt on this transaction was £5,195 rather than the £7,567 mentioned by the lawyer. NLW Powis 15589. A note, dated 1748, from Lady Mary Herbert to Lord Powis relating to Edwin. NLW Powis 2372. NLW Powis 11080. NLW Powis 996. NLW Powis 1744. NLW Powis 9493, 9495, 9496. NLW Powis 2432 and 15886. NLW Powis 11525.

8 The Mississippi System: Phase Two Richard Cantillon returned to Paris in February 1720. From his viewpoint it was probably to his long-term advantage to be absent from Paris during the frenetic rise in Mississippi shares between September and December 1719, in that, being outside the market, he was able to maintain a more rational and independent view of what was happening. By way of contrast his former business colleague Joseph Gage, a millionaire by the autumn of 1719, remained in the market and continued to pyramid his gains, becoming so enmeshed in the seeming proﬁtability of the System that he could not grasp its underlying weaknesses.1 Gage's inability to realize some of his gains was to cause a drastic change in his fortunes. Based in the rue de la Monnaie, Cantillon quickly made contact with the Duke of Chandos to apologize profusely for the apparently bad advice he had given the Duke to stay out of Mississippi shares. Cantillon had advised the Duke not to purchase the shares when they were priced around 3,500 livres. Now the shares were standing at around 9,500 livres. Chandos, ever on the look-out for sound information, graciously dismissed Cantillon's apology, a graciousness no doubt inﬂuenced by the fact that, notwithstanding Cantillon's adverse comments on the Mississippi shares, he had invested £40,000 in these shares. Chandos never revealed this investment to Cantillon and later on in the year, when the market had turned sour, chastised Cantillon for the poor advice he had given him in August 1719. But for the moment Chandos was in a forgiving mood: I congratulate your safe return to Paris, and am sorry you should have given yourself so much trouble about the affair of the Mississippi. I was perfectly well satisﬁed with the reasons you formerly gave me, for not engaging me in the stock, and though had I come early in, the advantage would have been vastly great, yet considering the appearances of things at that juncture and the very great probability there was of Mr Law's not being able to go through with his Scheme, I must own your declining to concern me in it was founded upon good grounds and ought to be regarded, (as it is by me, notwithstanding the event) as a friendly caution.2 Chandos however, did have an immediate complaint about the way in which Cantillon's banking partner Edmund Loftus had dealt with him:

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As to the other affair viz. the exchange Messrs. Loftus and Co made me pay for the money they drew, I confess I must think they used me very hardly, in taking the same course with me (who was no other than another merchant) in great sums as they do with other gentlemen in small ones, when they accommodate them with money for their occasions, and of times pay no small hazard in doing it. However, I think the sum you have remitted me is more than the difference amounts to. I have desired Sir Matt[hew] Decker on whom the bills were drawn to make up a state of it and whatever the £800 which you have sent me is more than that difference, I will remit it you back again.3 The fact that Cantillon felt it necessary to indemnify Chandos a sum of some £800 gives us the probable reason for his decision to break off his banking partnership with Loftus. Loftus had attempted to overcharge Cantillon's friend to a very substantial extent, a situation Cantillon was not prepared to tolerate. In a letter to his cousin, the London banker Martin Harrold, Cantillon clearly showed his dissatisfaction with the Loftus arrangement: At my going to Italy I wrote to you in favour of Messrs. Loftus and Company to whom I recommended all my affairs and correspondence. I may say I left my house in as good credit and business as any house. But at my return, having had some reason to repent the great conﬁdence I reposed in Mr Loftus, the chief of the company, I have in order to support the business engaged Mr Hughes of London to come over to take upon him the management of my affairs and to engage in partnership with my nephew under the name of Cantillon and Hughes — I gave in my procuration to look after my interest in the commandite of Loftus and Company — whereof the whole capital belongs to me and two thirds of the proﬁt for the time the company has to run. I shall be glad when you have balanced the accounts now depending with Loftus and Company. You run on for the future with Cantillon and Hughes who will be strongly supported in their business. I shall be obliged for the sake of my nephew and my name to put the house upon a good footing. Mr Loftus after settling the accounts depending is to go out of the house . . .4 By March Cantillon had formed this new ‘commandite’ partnership with his London agent John Hughes. By this arrangement, Cantillon put up the capital of the new company and John Hughes agreed to manage its everyday operations: Mr Cantillon agreed with Mr John Hughes for a partnership in the banking business to be carried on in the names of Richard Cantillon the younger (nephew of Mr Cantillon) and Hughes at Paris in France. Mr Cantillon senior was to be commandite of the bank and his name not to appear in it. The bank was to act under the names of Cantillon the younger and Hughes. Mr Cantillon senior was alone to furnish the capital stock which was to consist of 50,000 livres. Hughes was to take on him all the care and trouble necessary for managing and directing the company. Cantillon senior was to receive two

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thirds of the proﬁts and Hughes the other third, Cantillon junior being to have no more than what Cantillon senior pleased to allow him.5 Under the contract establishing the new partnership John Hughes was subject to considerable surveillance by his ‘sleeping partner’ Richard Cantillon. While the earlier contract of partnership between Cantillon and Edmund Loftus did not go into speciﬁc details on the management of the company, we ﬁnd, under the new contract, that Richard Cantillon had the right to recruit and sack employees, that the account books of the company were to be drawn up daily and to be ready for his examination at any time, that he had a right to close down the company at any stage, and that John Hughes was constrained from working for his own private account.6 The detail of this contract suggests that Cantillon had learnt a bitter lesson from his partnership with Edmund Loftus. More importantly, it shows that John Hughes was very much the employee of Richard Cantillon rather than an equal partner in the banking business. According to Savary's Dictionnaire universel de commerce (1723), the basis of the ‘commandite’ arrangement was that one partner subscribed capital and the other his labour. This type of partnership derived its name from the fact that the person who subscribed capital is ‘always the master and in a position, so to speak, to command and to lay down the law relative to his partner’.7 The beneﬁt of this arrangement was that it enabled capital and labour to be meshed together with the provider of capital usually not wishing to run the day-to-day operations of the partnership while his associate, furnishing little or no capital, devoted himself full time to the enterprise. Additionally, the liability of the ‘commandite’ was limited to the share capital that he subscribed.

Law's System — the Apogee Having established satisfactorily this new banking arrangement — though he was later accused of duplicity for using the name of his young nephew to front for his own — Cantillon was ready to return to the Mississippi scene. Once again fate decreed that his path inevitably crossed that of John Law, and once again there was a major division of opinion between the two on the future of the Mississippi System. They had differed before, in August 1719, but Cantillon's belief that the System would collapse had not been vindicated. In fact the opposite had happened for, rather than collapsing, the System had gone from strength to strength with even the English starting to remodel the South Sea Company in line with the Mississippi Company. To those previously accustomed to France's haphazard ﬁscal system, the

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perennial shortage of money, the pressing problem of the national debt, and the inefﬁcient management of the colonial trading companies, Law's System must have presented a startling contrast. In a very brief period Law had produced a wide range of innovatory measures to rationalize a large part of the tax system. His bank, the Royal Bank, had issued one billion livres in banknotes, making money more widely available. The bulk of the national debt had been taken over by the Company and the interest payments on it reduced to 3 per cent and then to 2 per cent. The trading companies, now centralized under one ﬂag, had been reorganized in a more efﬁcient manner and given fresh injections of capital, with of course the Louisiana venture rumoured and gossiped about to an increasing extent. As a tribute to Law's efforts he had been made Controller-General of Finances in December 1719, thereby becoming virtual Prime Minister of France. In many respects there was a unifying beauty about Law's System, for each step that had been taken seemed to ﬁt naturally into place in the grand design represented by the merged Mississippi Company and Royal Bank. Law himself, no man to hide his light under a bushel, contended this in a letter to the Mercure de France in February 1720: ‘One sees here a sequence of ideas which develop one from the other and which, more and more, make one aware of the principle on which they are based.’8 While it may have been easy to assert this in retrospect at the height of the System's success in January–February 1720, the evidence suggests that, once Law succeeded in activating widespread interest in his plans, from the summer of 1719 onwards he pursued a policy approach very much in line with his own theoretical reasoning. This approach needs to be described in greater detail, before discussing the sizeable ﬁssures that developed in the System towards the end of February 1720, particularly as Law has tended to be judged, in the context of the failure of the System, as some type of unprincipled pseudo-alchemist who attempted to implement a fundamentally unsound scheme for reforming the French economy and its ﬁnances. This caricature of Law, epitomized in the satirical prints and contemporary reports of Law after the collapse of the System, is unfair. His writings throughout his life, starting with Money and Trade in 1705, show a passionate concern with promoting economic strategies to deal with the problem of the underutilization of resources that Law saw, ﬁrst of all in Scotland and later in France. Law was concerned about the unemployment and underemployment of the labour force, about the ﬁelds that lay fallow, about capital that was hoarded rather than invested in productive economic activity. The culprit for this underutilization of resources was identiﬁed as the monetary sector.

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Law did not believe that the economic system could be characterized as one in which real economic forces are depicted as dominating the stage and monetary forces are presented just as a thin veil, a type of diaphanous stage curtain that does not affect the workings of the real economic actors. In modern economic terminology, this division between the real economy and the monetary system is known as the classical dichotomy. To him the monetary system was very much interconnected with the real economic system. Money was not a mere counter in which economic activity was assessed. Money and economic activity were inextricably linked and the causa causans for weak economic performance was identiﬁed as the monetary system characterized by excessively high interest rates, unduly reliant on the use of gold and silver as the circulating medium of exchange. High interest rates were, in Law's view, caused by a shortage of money which, in turn, was a function of the inadequacies of the gold/silver metallic money system. He wanted to demonetize gold and silver and replace them with paper credit, anticipating by centuries the system we currently use. By centralizing the control of the money supply under the aegis of the Royal Bank, Law felt that he could use monetary policy to push interest rates to low levels and thereby stimulate economic activity. He wrote about this in the French context as early as 1715: An abundance of money which would lower the interest rate to 2% would, in reducing the ﬁnancing costs of the debts and public ofﬁces etc, relieve the King. It would lighten the burden of the indebted noble landowners. This latter group would be enriched because agricultural goods would be sold at higher prices. It would enrich traders who would then be able to borrow at a lower interest rate and give employment to the people.9 Law's reasoning here can be termed as pre-Keynesian or, more appropriately, Keynes can be termed as post-Lawian! In Chapter 5 it was argued that Law's pursuit of a low interest rate policy necessitated taking action with respect to the massive overhang of public sector debt. It was argued that the initial note issue of the General Bank was too small to have any effect on interest rates. Law's remedial solution to lower interest rates involved the conversion of public sector debt into Company shares. As the price of the Company's shares rose in the market holders of public sector debt, both short term billets d’état and long term rentes, were encouraged to convert them into shares, forsaking the higher interest rates on their public sector securities for the more exciting prospects of large capital gains on the Company's shares. By August 1719, as was shown on Table 4, Law's Company had

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made three share issues. The ﬁrst one, the issue of mères in June and September 1717, had been aimed primarily at funding, that is converting into longer-term debt, the ﬂoating short-term debt represented by billets d’état. By showing how part of the ﬂoating debt problem could be alleviated by this type of conversion operation, Law prepared the ground for the vastly more ambitious scheme that he launched two years later, involving the conversion of the whole of the national debt. But, in between the launching of the mères and this later conversion two further issues of shares were made to ﬁnance some of the take-overs in which the Company involved itself during the summer of 1719. The eventual success of the mères issue—here it must be remembered that while the nominal issue price of the mères was 500 livres, the billets d’état converted into shares stood at a discount of between 140 and 160 livres and the market price for the Company's shares did not reach 500 livres till the summer of 1719—led to the launching of the second issue known as the ﬁlles. This issue made in June 1719 priced the shares at 550 livres and was used to ﬁnance the debts accumulated by the trading companies that had been taken over by the Company as well as to provide funds to acquire a larger trading ﬂeet and the back-up facilities such a system required. The success of the ﬁlles issue enabled Law to launch, at the end of July 1719, the petites ﬁlles issue at 1,000 livres a share. The money raised from this issue was to ﬁnance the acquisition of the Mint privileges. Between this issue and the middle of September, the price of the Company's shares had moved sharply upwards, continuing the trend that had started in the early summer. By 9 August the shares had risen to 2,900 livres. A month later they were over 5,000. With the public clamouring to buy shares, Law felt it was appropriate to turn his attention to debt management once more. He offered to lend the King 1.2 billion livres at an interest rate of 3 per cent in order to convert the State's long-term debts held in rentes as well as the remaining billets d’état. The vehicle for this loan-cum-conversion operation was once more to be the Mississippi Company. The Company made three issues of stock amounting to 300,000 shares at 5,000 livres a share, in all an issue of 1.5 billion livres. The new shares, issued in the autumn of 1719, were to be paid for in ten monthly instalments of 500 livres and so came to be known in the market's shorthand terminology as the cinq-cents. Through these issues, Law moved the System up a number of gears. The ﬁrst three issues of the mères, ﬁlles, and petites ﬁlles, when fully paid up, would have yielded 107.5 million in money and billets d’état. The autumnal cinq-cents issues proposed to raise some fourteen times this amount, 1.5 billion livres (£58 million).

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But of course this amount was never fully raised. Purchasers of the cinq-cents had only to put up 500 livres to acquire their rights to the shares and then repay the rest in nine instalments. Payment by instalment was one of Law's marketing ploys to make the shares more attractive to the general populace. Other marketing techniques used included making the shares bearer securities, thereby providing anonymity of ownership — an important consideration after the shock of the retrospective Visa tax of 1716. At a later stage, low interest loans to purchase shares were provided by the Royal Bank. To activate public interest further, Law introduced a type of option market (primes) in the shares for a short period at the start of 1720. But the main technique used was the small downpayment on shares combined with a long-drawn-out repayment period. Even when the approaching monthly payment dates caused problems for investors, and perhaps more importantly for the price of shares, Law softened the repayment terms by changing them from monthly to quarterly repayments.10 However, the main impetus that he gave to Mississippi shares was through the continuous increase of newly created banknotes that the Bank supplied to the market. Law was a low interest advocate. This policy necessitated abandoning control over the money supply. When priced at 5,000 livres the expected yield on the Company's shares was 4 per cent. But, as Edgar Faure has noted: ‘It is probable that he [Law] never had the intention of either limiting the price of shares to 5,000 nor of allowing the state's creditors to avail of a dividend of 4% double the rate of interest he was intent on establishing.’11 By pushing up the price of Mississippi shares, Law hoped to reduce the cost of converting the state's indebtedness into the Company's shares as the rate of interest was forced downwards. To achieve this objective, Law had to continue to provide liquidity to the stock market through the expansion of the note issue. By the end of 1719 the banknote issue had been expanded to one billion livres. The expansion of the money supply was to shift up a gear in the New Year, and by the middle of May it had reached 2.1 billion livres.12 This expansion in the note issue, as will be shown, was also part of Law's policy to replace France's gold/silver currency with a paper money system. It is difﬁcult to obtain estimates of the specie money supply in France at this time. At the end of February 1720 an order declared that ‘of the specie coined in the Mint there must be above 1.2 billion in specie in the Kingdom’. If we use this estimate, then Law increased the money supply by 175 per cent. But even more than this the Company's share-buying policy had monetized the Mississippi shares, then valued at between 5.4 to 6 billion livres.13 The Company had established a special ofﬁce to buy and sell its shares. Ostensibly this was to bring

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some order to the market and prevent transactors being duped by some of the ‘sharks’ who frequented the rue Quincampoix where the shares were traded. In reality it was to provide ofﬁcial support for the share price to prevent it falling below a certain minimum ﬂoor price. This policy had monetized the Mississippi shares and greatly expanded the liquidity of the economy.

22 February–11 March: Law's Faux Pas Between 22 February and 11 March a number of measures relating to the Mississippi Company were decreed which had fatal consequences for the System. These measures, some of which were contradictory, have been construed by some as showing a fatal indecisiveness on Law's part. However, in a broader context they may be seen as part of Law's overall scheme for demonetizing specie and keeping the interest rate at a low level. It was during this period that Richard Cantillon, back banking temporarily in Paris, made the crucial decisions through which he was able to amass a second Mississippi-related fortune. The decreed changes made under Law's instructions were primarily monetary ones involving prohibitions on the holding of currency, augmentations/diminutions of the domestic exchange rate, and open market operations to support the price of the Company's shares. Before discussing these measures in detail it is appropriate to describe the nature of the domestic exchange rate system.14 While the economies of Europe utilized a bi-metallic system based on gold and silver, the need to have prices expressed in terms of both these metals was obviated by the use of a common money of account. The need to have such a money of account was all the greater, owing to the multiplicity of gold and silver coins of different size, weight, and ﬁneness adopted by different countries but frequently circulating in the same country. The money of account, also referred to as imaginary money, produced a common set of prices through which coins of different metals and of different weight, ﬁneness, and size could be evaluated. In Britain the pound sterling served as a unit of account even though there was no coin corresponding to this, the nearest being the golden guinea worth 21 shillings. In France the unit of account was the livre tournois (l.t.), while the circulating media of exchange were the louis-d'or and the silver écu. Though abstract in the sense that it did not exist as a speciﬁc metallic coin, the livre tournois was real in the sense that contracts and debts were expressed in livres and the monarch could change its value relative to metallic coins. Such arbitrary changes of the exchange rate between the money of account and the metallic media of exchange were known

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as augmentations and diminutions. At times, changes in the bimetallic value between gold and silver necessitated a diminution or an augmentation, but in France, in contrast to England, they were often resorted to in order to boost the revenue of the monarch or to reduce the state's indebtedness. An augmentation of the currency arose when the monarch or government raised the value of metallic coins in terms of the money of account, for example a decree by the French monarch raising the value of the louis-d'or from 36 livres to 48 livres. An augmentation thereby devalued the money of account and conversely revalued the specie. An augmentation was an inﬂationist measure as it increased the nominal value of gold and silver coins, the circulating media of exchange. Prices rose when an augmentation of the currency took place. A diminution of the currency involved lowering the nominal value of metallic coins in terms of the money of account, for example a monarchical decree lowering the value of the louis-d'or from 48 livres to 36 livres. This diminution revalued the money of account and devalued specie in terms of the money of account. A diminution was therefore expected to have a deﬂationary effect as prices tended to fall after a diminution. Augmentations (‘enhancements of the currency’) and diminutions (‘abatement of the currency’) did have real effects on the eighteenth-century economies where they were practised. This was a world characterized by imperfect information and less than perfect price ﬂexibility. Prices were slow to adjust to changes in the domestic exchange rate though the speed of adjustment shot up if the monarch increasingly relied on such adjustments in the domestic money supply. When infrequently practised, smooth readjustment of incomes and prices to the new domestic exchange rate, along the lines which Classical economics would suggest, was difﬁcult because of the sticky nature of the price/income mechanism. Rentiers and wage-earners in general opposed augmentations because their contracts were stipulated in terms of the money of account, so that they received less real money (specie) for their loans and labour services after an augmentation. The slow reaction to a change in the domestic exchange rate resulting from an augmentation favoured debtors who were able to pay off debts with less specie than that which they originally contracted to borrow. In countries where the public sector's indebtedness was high the state was the main beneﬁciary from an augmentation. Ferdinando Galiani, the eighteenth-century Italian monetary theorist, explained how an augmentation produced ‘a proﬁt which the prince and the state derive from the slowness with which the majority of people change their ideas with regard to the value of money and the prices of goods'.15

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It is not our objective to discuss exchange rate changes that were dictated by changes in the Mint ratios, but rather to discuss the way Law used them as part of his monetary policy. In France, domestic exchange rate changes were far more common than in Britain, as successive monarchs resorted to them as a device for either increasing their revenue and/or reducing the national debt. Law used the domestic exchange rate changes produced by diminutions and augmentations not for ﬁscal reasons but to increase the attractiveness of his bank's paper money and to achieve his long-term objective of demonetizing specie. We can see three different stages in his use of domestic exchange rate changes to achieve his monetary objectives: (1) When he launched the ﬁrst paper banknotes of the General Bank, the billets-écus, he guaranteed their value in terms of a speciﬁc quantity of specie. After Demaretz's diminutions there was a belief that an augmentation of the specie would be carried out. Law, by making the banknotes of the General Bank fully redeemable in specie, guaranteed that they would beneﬁt from any such augmentation, thereby ensuring that the banknotes were attractive to the public. (2) But Law was not interested in maintaining in circulation these banknotes fully backed in specie. It served only as a transitory phase in his grand design of creating a paper currency freed from the shackles of gold and silver. By January 1719 the circumstances were propitious for the launch of a new currency variant. The Royal Bank, successor to the General Bank, started replacing the billets-écus with the billets-livres. The expectation at this time was that a diminution of the currency was imminent. It was therefore better for money holders to be in billetslivres, which were denominated in livres tournois which would be worth more after the diminution. The veneer of some type of real asset backing was maintained in that the billets-livres were repayable in silver money but, unlike the billets-écus, the quantity of silver money to be repaid was not speciﬁed. (3) The third phase of Law's operations took place in the period we are discussing, the spring of 1720, and involved an attempt to demonetize the use of specie completely through a phased series of diminutions. These diminutions are discussed below. Having outlined the role of augmentations and diminutions of the currency, it is now time to return to Law's monetary policies. Here we ﬁnd that Law alternated between controlling three variables, the rate of growth of the money supply, the interest rate (through control of the Company's share price) and the exchange rate. Table 8 attempts to

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Table 8. Main Monetary Measures Decreed Between 22 February and 11 March Money Supply Interest Rate (Company's Shares) Exchange Rate

22 February Controlled.

5 March Allowed to expand. Shares monetized. Interest rate to be kept at To be determined by market forces. Share price around 2% by guaranteeing minimum share price not to be supported. at 9,000 l.t. — Augmentation of specie.

11 March — —

Staggered diminution culminating in the demonetization of gold and the reduction in silver from 80 livres a marc to 30 livres a marc.

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summarize these measures which were decreed on three important dates, 22 February, 5 March, and 11 March. On 22 February there was a further general meeting of the shareholders of the Mississippi Company which gave rise to the decree of that date incorporating a number of important measures. In the ﬁrst place the Royal Bank was ofﬁcially merged with the Company. Secondly, the King ceded to the Company his holding of 100,000 Mississippi shares in return for which he was immediately credited with a deposit at the Royal Bank for 300 million livres and a commitment by the Company to pay him 5 million livres a month over a ten-year period — an extra 600 million livres — making a total of 900 million livres. This seemed to value the King's shares at 9,000 livres a share as compared with the market price of 9,545 on 22 February. By this measure Law enabled the King to liquidate his holdings of the Company's shares at a price close to the market high — the high for Mississippi shares had been 10,100 on 8 January. Having catered for the King's shares, Law was in a position to introduce the third and most important measure, namely the abolition of the Company's ofﬁce for the purchase and sale of shares (le bureau d'achat et de vente). This ofﬁce had been extensively used to purchase the Company's shares in order to maintain the share price at a high level. As a result, the printing presses of the Royal Bank worked overtime—estimates of the amount of banknotes created to support the price of the shares up to this time vary between 800 and 1,000 million livres. Thus, paradoxically, while the Royal Bank's operations were being merged with those of the Company, the previous policy of bolstering the share price had been abandoned. In support of this new policy a fourth measure decreed that there was to be no further issue of banknotes without the permission of the Council and the approval of a general meeting of the Company. It seemed as if Law had recognized at last that he had erred in over-expanding the money supply in order to support the Company's shares and that a new policy of retrenchment was required. From then on the Company's shares would no longer be supported artiﬁcially and the money supply no longer expanded. But Law's Pauline conversion did not last long and his retrenchment policy had an extremely short life. The measures of 22 February produced a dramatic decline in Mississippi shares. They fell by 26 per cent within a week, as Giraudeau's series shows:16 22 23 24 27 28 29

February February February February February February

9,545 9,545 9,345 9,120 8,505 7,825

livres livres livres livres livres livres

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Reaction to this sharp fall in the price of shares was swift, with princes, courtiers, and the petite bourgeoisie protesting against the measures which had caused them substantial losses on the market. Law had anticipated part of this movement out of shares and had attempted to prevent the money that came out of the stock market from being converted into specie. He took two measures aimed at stopping the public from moving out of shares through banknotes into specie. On 25 February an augmentation of specie was announced, raising the louis-d’ or from 25 to 30 livres and other coins pari passu. This augmentation was meant to signal to the market that a diminution of specie was imminent. The message to specie holders was clear—move out of specie and into banknotes as specie would be worth less in terms of the money of account once the diminution was announced. This was the carrot offered to specie holders, but Law also felt obliged to use the whip, for two days later he introduced a decree prohibiting the holding of more that 500 livres of specie per person. This decree had the added advantage, as Dutot pointed out, that the Bank could refuse, on legal grounds, to convert more than 500 livres of banknotes into specie.17 People found with more than 500 livres in specie ran the risk of having all their property conﬁscated. This provoked Lord Stair, the British ambassador in Paris, to make his famous comment that ‘there could be no doubt as to Law's catholicism, since he established the Inquisition, after having already proved transubstantiation by changing money to paper’.18 But having made these provisions to lock wealth holders into a choice of either banknotes or Mississippi shares, Law in a sudden volteface on 5 March reversed the 22 February decree which left the shares to ﬁnd their own level on the stock market. This decree of 5 March stipulated the reopening of the Company's ofﬁce for buying and selling shares though it was now renamed the bureau de conversions, giving Lord Stair the possibility of extending his quip on Law's catholicism! This bureau de conversions was open to purchase the shares of the Mississippi Company at a guaranteed price of 9,000 livres per share. Thus the price of shares and, by implication, the interest rate were to be supported. Shares in the Mississippi Company were the only form of quasi-public sector debt by then available to rentiers who previously held long-term debt denominated as securities on the Hôtel de Ville, and so on. As the price of Mississippi shares rose the yield on these shares fell. This yield represented the rate of interest at which they could

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now surrender their public sector debt into Company shares. In guaranteeing a ﬂoor price of 9,000 livres per share, the price at which the King's shares had already been converted, Law once again abandoned any attempt to control the issue of banknotes. Dutot, a cashier at the Bank during the period, later maintained that Law did not favour the reversal of policy as embodied in the 5 March decree. However, Edgar Faure has convincingly shown that Dutot's view was based on a misinterpretation of a document that Law had written.19 Law, notwithstanding his side feint of 22 February, was back to the main objectives of the System, the imposition of a regime of low interest rates and the demonetization of specie. As has been stressed continuously, Law was a low interest advocate, for the implication of maintaining the share price at 9,000 livres was that the interest rate had been brought down to a little over 2 per cent. Furthermore, why worry about the money supply when the shares of the Company had been effectively monetized and more importantly there would be no specie substitute for paper money, either banknotes or Company shares? Consistent with this line we ﬁnd the 5 March decree giving an even stronger hint of what was to come. A further augmentation of the currency had been announced, pushing up the louis-d’ or by a third from 36 livres to 48 livres and the écu from 6 to 8 livres. The intention of this second quick augmentation was quite clear. It presaged a diminution of specie against banknotes at the Bank. Daniel Pulteney summed up the view of Parisian tradesmen in a letter dated 8 March 1720: The raising of money has still worse effects as it concerns greater numbers of people. The tradesmen who have days ago refused to take Bank bills are now unwilling to take money, not knowing but an arrêt tomorrow may make them lose a third of the price they took it at today.20 Three days after Pulteney had written this letter, the tradesmen's views were vindicated when a series of staggered diminutions was announced. But these diminutions were different from those that went before, for the end objective was the demonetization of specie as a medium of exchange. In future, the public was not to have a portfolio choice between banknotes, shares, and specie, if only 500 livres of the latter, but was to be locked into a choice between just banknotes and shares. This decree of 11 March provided for the quick demonetization of gold by 1 May and a longer phased diminution of silver in monthly instalments from 80 livres a marc to 30 livres a marc in December.21 This implied that, in the interim between March and December, the French economy was expected to cope with just a paper money system incorporating elements of a monometallic silver system. The long-term objective was the ‘withering away’ of specie and its replacement by a paper money system.

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Implicitly this policy of demonetization of specie had signiﬁcant implications for foreign exchange transactions. The policy implied a progressive revaluation of the French livre, denominated in banknotes, vis-à-vis foreign currencies denominated in specie. Specie would be worth less in terms of banknotes and banknotes worth more in terms of specie. It was predicted that the exchange rate for the French écu would rise from 13 pence sterling to 50 pence sterling by the end of December. For this prediction to come true it was required, as Cantillon was to explain later, that: (1) Banknotes maintained their value (2) The devaluations of specie relative to banknotes, promised under the 12 March decree, be carried out each month.22

Cantillon's Exchange Rate Strategy Law's interest rate policy conﬂicted with his exchange rate aspirations. It is our view that Richard Cantillon quickly realized this and drew up plans in the spring of 1720 on how to maximize his proﬁts, and those of his restructured bank, operating under the name of Cantillon and Hughes, through exploiting the basic inconsistencies of Law's policies. On his return to Paris in February 1720 he would have been struck by Law's volte-face on the interest rate/ money supply issue during the ﬁfteen-day period between 22 February and 5 March. One week Law was promising not to expand the money supply, while the next week he was promising to control the interest rate. By 12 March he would have recognized the inconsistency of a policy that promised to raise the exchange rate of the French currency at a time when the money supply was over-expanding. Cantillon had the intellectual capacity to understand the basic incompatibility of Law's policy, which on the one hand supported the price of shares, thereby relinquishing control of the money supply, and at the same time suggested that there would be a massive rise in the French exchange rate against sterling and other currencies. Book II of the Essai shows clearly that Cantillon understood that an over-expansion of the money supply in an open economy would cause a balance of payments deﬁcit. In Book III, in a masterly explanation of the nature of foreign exchange operations, he showed how a balance of payments deﬁcit caused a deterioration in a country's exchange rate. Ergo excessive increases in the money supply caused the exchange rate to fall. But Book III contains more than this, for in it there is a continuous undercurrent of criticism levelled against the very policies that Law attempted to pursue in 1720, though neither Law nor the Mississippi System is directly cited.

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The banknote issue, which had expanded to 330 million livres when Cantillon left in August 1719, had increased to over 1 billion by the time of his return. As mentioned above, it expanded to 2.1 billion livres by May 1720.23 In such an expansionary monetary climate a crisis was inevitable. The bubble was about to deﬂate. Cantillon decided that the most favourable ploy to pursue was to take a bearish stance on the French exchange rate. But, while Cantillon was contemplating this bearish stance, there were others who were only too willing to continue to bet on Law successfully implementing his policies. The British insiders of Law's coterie, led by Joseph Gage and Lady Mary Herbert, who had already made huge paper fortunes on the shares of the Mississippi Company, were now being presented with a seemingly new outlet through which they could channel their speculative energies. Having made substantial paper fortunes from the massive rise in share prices these people were only too ready to accept that Law, by his manipulations, would cause the French exchange rate to rise against sterling and the other continental currencies. As Law was felt to have the Midas touch at this stage of the System and more concretely as he was Controller-General of Finances, it was natural for the British followers of Law to take up exchange rate positions. But, rather than realizing the capital gains on their shares, these speculators decided to hold on to their shares, hoping for further capital gains, and borrowed money to speculate on the exchange from people such as Cantillon and Samuel Edwin. The French populace also seemed to support this view, for after the 11 March decree a substantial quantity of specie was converted into banknotes, as Pulteney pointed out on the twenty-second of that month: The people continue to carry their gold and silver to the Bank and to the Mints and the Bank bills are now preferred in all payments to the coin, even at Lille and other places, where they were at a considerable discount; so that Mr Law says he shall now gain the most important point in his System, which was to draw into his Bank all the gold and silver of the Kingdom; to suppress entirely the use of the gold coin, and to allow no more silver than is absolutely necessary for small payments and to support the circulation of the Bank bills.24 Dutot calculated that, between 7 March and 30 March, a total of 45 million livres of specie were converted into banknotes at the Royal Bank. However, this was just the specie received in Paris. Faure estimates that another 50 million livres were converted into banknotes in the provinces between 1 March and 13 April.25 Within a six-week period Law's measures had been successful in converting one-twelfth of the estimated specie money supply into banknotes.

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Thus, with banknotes growing in popularity, gold specie being demonetized, and Law promising that his manipulations would cause the French exchange rate to rise, it was quite natural for his followers to take an optimistic view on his exchange rate strategy. This view was further strengthened by the decree of 19 March forbidding the importation of foreign specie into France: ‘to prevent our neighbours from proﬁting by purchasing our banknotes with weak money and then withdrawing [such sums] in strong money.26 The decree of 19 March was designed to prevent French residents borrowing money outside France, converting their borrowings into silver—then valued at 80 livres a marc—and substituting the silver for banknotes in France. Then, when the value of silver had been reduced to 30 livres a marc in December of 1720, they would be in a position not only to repay their foreign loan in silver but also to make a very considerable capital gain. Fortunately, owing to the litigation in which Cantillon was later involved, it is possible to outline his views on the foreign exchange expectations of Law's followers. Cantillon's English solicitors described what was happening in March 1720: At or about that time many persons became adventurers in the public funds in France which made the price of those funds and particularly French India actions rise very considerably and a general opinion prevailed in France that the price of such actions would rise considerably more, and several arrets having been issued in France for the reduction of the current specie there, which was then very high. The general opinion there also was the French money would in a few months be worth much more in sterling money than it was then worth and that consequently the course of exchange betwixt London and Paris which was then about 13d sterling for a french crown would be in December following 50d sterling. Joseph Edward Gage, Lady Mary Herbert and Lord Montgomery were in the year 1720 at Paris and being possessed of a great quantity of French East India actions and being desirous to deal in the stocks in England and wanting ready money, but not being willing to make sale of their India actions, they applied to Cantillon Senior and the partnership of Cantillon and Hughes for the loan of several great sums of money to be paid them in sterling money in England in a short space of time, upon a security of their bills of exchange and notes payable at a distant day for the several sums which the parties should agree upon to settle the exchange at and on their making a deposit of French India actions for the better securing the payments thereof, which Cantillon Senior and the partnership of Cantillon and Hughes agreed to.27 Cantillon's French lawyers explained the objectives of those borrowers who hoped to beneﬁt from exchange rate changes: By a decree of 12 March the king had stipulated diminutions of the gold and

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silver coinage during the course of the year 1720 whereby specie, which was two-thirds higher in France than abroad, would be reduced to par by the end of the year. Contrary to this development banknotes were to maintain their value. The way to make a fortune for those who wished to proﬁt from the System was to draw capital in specie from abroad because it was valued differently from what it would be valued at in France at the end of 1720. Hence by importing 50,000 écus from England in March 1720 this sum, which was valued only at 150,000 livres, was worth 450,000 livres in Paris and was stipulated to fall to 150,000 livres by the end of the year to regain parity with England where money did not vary in value. It is evident that if the drawer on English funds in March 1720 had kept them in specie to remit the same funds to London at the end of the year then he lost nothing except the exchange costs involved in the transaction. However, if he had converted the specie into banknotes that were not subject to reduction then it is evident that having 450,000 livres at Paris in March 1720 he would have found himself with the same sum at the end of the year. Taking only 150,000 livres in banknotes he would have been able to meet his London borrowing while at the same time retaining 300,000 livres of proﬁt. It is true that for this to work two things were necessary, one that banknotes maintained their value and the other that the stipulated diminutions of specie took place as announced.28 Joseph Gage and the Powis family were not the only borrowers from Cantillon's bank who imagined that there were considerable gains to be made from exchange rate speculation. The Irish banking brothers John and Remy Carol were also of this view: Like many others, John and Remy Carol were greatly taken in by the System. They relied on the immutable state of banknotes and on the stipulated diminutions of specie—hence they sought to borrow current money which would be repaid in foreign countries after the diminutions, trusting that they would be able to meet their liabilities with a third of the money that they had borrowed and converted into banknotes, these liabilities, so to speak, falling in line with the diminutions of the specie.29 The Carols borrowed money denominated in Dutch guilders from Cantillon's bank, but it must be emphasized that the exchange rate speculation was not limited to borrowers who subsequently took Cantillon to court. Notarial documents relating to Cantillon and Hughes's bank show that two prominent City of London men, Henry Furnese, a son of the former Bank of England director Sir Henry Furnese (1658–1712) and a friend of Richard Cantillon, invested £19,838 (800,000 livres) in Mississippi shares between 17 March and 13 April 1720, dealings overshadowed somewhat by those of the MP William Chetwynd. Between 5 February and 24 May Chetwynd, as his declaration for the 1721 Visa shows, invested 2,047,000 livres in French shares. In all, Chetwynd invested £90,868 (3.5 million livres), purchasing 381 shares of the Mississippi Company during 1720. Such

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acquisitions made him one of the largest British purchasers of Mississippi shares.30 The inﬂow of British funds for share speculation and more importantly for exchange rate speculation was considerable. Daniel Pulteney was alert to this new development. In May when discussing the effects of the famous order of the twenty-ﬁrst of that month, an order that precipitated the collapse of the System, Pulteney described the very sizeable British investment in Mississippi shares and banknotes amounting to an estimated £5 million sterling, part of which had been recently attracted by the prospect of exchange rate gains: There is no doubt but Mr Law's chief design in this arret was against the English, who have still most of their Mississippi effects here in actions or in Bank bills, besides very considerable remittances have lately been made from England hither for the beneﬁt of the expected rise in the Exchange; I am assured by some who have taken pains to inform themselves that there are at present English effects to the amount of £5 millions sterling at least.31 [My emphasis.] We have already seen that Lady Mary Herbert borrowed from Samuel Edwin to speculate on the exchange in early March. Within a short space of time both Lady Mary Herbert and Joseph Gage were beneﬁting from Law's exchange rate proposals. The exchange rate of the French écu (three French livres), which was around 13–14 pence sterling in the ﬁrst week of March, rose to 19 pence as a result of the 11 March measures. On 12 March, Joseph Gage borrowed £5,180 from Cantillon and Hughes in return for a bill payable in London one year later. As collateral for this loan, Gage deposited 60 shares of the Mississippi Company with the bank. Cantillon and Hughes's bank made two further loans on 18 and 23 March to Gage. In all, he borrowed £16,433 during this eleven-day period, agreeing to repay £21,389 to the bank on the basis of three bills, two with a maturity of six months and one with a maturity of twelve months. The bills provided were two drawn on Gage's friend Martin Darcy for £14,259 and one on Lady Mary's father the Duke of Powis for £7,129. Gage deposited 140 Mississippi shares with the bank as collateral for his borrowings.32 No doubt spurred on by the seemingly self-fulﬁlling prophecies of Law, Lady Mary Herbert then started to borrow from the bank of Cantillon and Hughes. On 11 April 1720 Lady Mary drew two bills of exchange on her brother Lord Montgomery for £23,851. 17s. 10d., payable the following January. In return for these bills Cantillon's bank lent her £15,333, but also required Lady Mary to lodge 800 primes (options), the equivalent of 93 shares in the Mississippi Company, as collateral with them:

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We will be accountable to Mademoiselle de Powis for 800 primes converted into actions which produced 93 actions of the East India Company and 3,000 livres tournois in money which she put into our hands upon account of the necessary funds for her drafts of this day, one of £18,666-13-4 sterling payable the ﬁrst of January next to our order upon Lord Montgomery, another £5,185-3-8 sterling drawn and payable as the other. Done at Paris the 11th of April 1720. Cantillon and Hughes.33 The next day Lady Mary's father, then Lord Montgomery, followed his daughter's lead, borrowing £5,000 from Cantillon and Hughes. He gave them his promissory note for £7,777 16s. payable to the order of the partners upon 1 January following. He deposited 40 Mississippi shares with the bank as collateral for the loan.34 On 11 May 1720 Lady Mary was back at the bank borrowing a further sum of £13,333 6s. sterling. This time she drew her aunt Anne, Viscountess Carrington, into her ﬁnancial web by obtaining her signature for two promissory notes for £10,000 each, one payable in December and the other in January 1721. These promissory notes were to the order of Lady Mary who endorsed the same to the order of Richard Cantillon Senior. She also handed over 80 Mississippi shares as collateral for the loan.35 Table 9 shows that in the two months between 12 March and 11 May Cantillon's bank lent £53,349 to a group comprising Joseph Gage, Lady Mary Herbert, Lord Montgomery, and the brothers John and Remy Carol. The loans were made in return for bills of exchange and promissory notes amounting to £77,051 that had an average maturity of eight months. On an annual basis, the interest rate charged for these loans amounted to 66 per cent, but Cantillon was to argue later that it was incorrect to consider these transactions as ordinary loans. He contended that he was lending money across national frontiers and that in such circumstances there were exchange rate factors that had to be considered. We will return to this important distinction at a later stage when we assess the defence brief which Cantillon entered to counter the charges of Gage, Lady Mary Herbert, and the Carol brothers that he had lent them money at usurious rates of interest contrary to the laws of France. For the moment it sufﬁces however just to stress the nature of the exchange rate operations which Joseph Gage, the Powis family, and the Carol brothers were involved in with Cantillon. They borrowed from Cantillon and his bank in foreign currencies and then converted their foreign holdings of specie into French banknotes. They hoped that the phased diminution of silver would lower the price of silver relative to banknotes by the time their loans matured. If the

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Table 9. Loans by Cantillon and Hughes to Joseph Gage, the Carol Brothers, and the Powis Family in 1720 Date

Borrowers

Loan

12 March

Joseph Gagea

£16,433

20 March

Jean and Remy Carol Lady Mary Herbert Lord Montgomery Lady Mary Herbert

35,000 ﬂ.

11 April 12 April 11 May

a

£15,333 £5,000 £13,336

Capital to be paid and length of loan £21,389 (one loan for 12 months, two loans for 6 months) 41,000 ﬂ. (8 months) £23,850 (8 months) £7,777 (8 months) £20,000 (£10,000 due in December and the same in January)

Collateral (shares) 140

Supplementary Collateral (shares) 180 (9 June)

20

20 (12 June)

93 40 80

Gage drew two bills on (1) Martin Darcy for £14,259. 14s. 10d. and (2) the Marquis of Powis for £7,129, 12s. 5d. Gage, according to Thomas Molagne (ANMC lxxxii. 346), made his ﬁrst borrowing on 12 March for £6,180 sterling. He made further borrowings on 12 and 18 March.

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diminutions were successful then they would convert their banknotes into specie, repay their loans to Cantillon and make a sizeable proﬁt of around 200 per cent on the rest. Cantillon took the opposite view. He believed that it was impossible to keep the interest rate down through overexpanding the money supply and at the same time to revalue banknotes relative to specie. His letter to John Hughes on 21 May/1 June 1720 shows that he understood the relationship between the share price (by implication the interest rate), the money supply, and the exchange rate: If M.L. [Mr. Law] holds on, the shares will be worth more than banknotes; if not I fear the contrary: therefore I would sell the shares at whatever price could be obtained . . . Be careful to note that if the shares stay up the exchange rate will fall. Therefore if you sell you are all right; whereas if you keep the shares you could be in trouble.36 It was Cantillon's view that as long as Law was in power the Controller-General would favour shares at the expense of banknotes and this would have adverse repercussions for the exchange rate. Cantillon's concentration on the exchange rate implications of Law's policies may be illustrated by his comments in a letter he had written to Hughes two days earlier: ‘It is rumoured that banknotes are re-established. Whatever happens I will always have my eye on the Dutch shilling.’37 Just as the modern foreign currency transactor might keep his eye on a ‘hard’ currency such as the Swiss franc, so in 1720 Cantillon's preferred monetary habitat was the ‘hard’ Dutch shilling. According to his banking partner John Hughes, Cantillon more than kept an eye on the Dutch currency, involving his bank in huge remittances to both Amsterdam and London: In or about the months of April, May and June 1720 during which time the stocks in France or England either had been or were then very much upon the rise John Hughes remitted here to England bills of exchange and otherwise to Richard Cantillon the elder and Martin Harrold of London, merchant, several very considerable sums which they or one of them converted to his own or their own use to the amount of £150,000 sterling and Richard Cantillon the elder likewise in this year 1720 did by George Clifford and Andrew Pells and Sons of Amsterdam or some one of them draw on the house wherein Hughes was so concerned bills to the value of a million of guilders.38 Translating the one million guilders into its sterling equivalent of the time, £100,000, we ﬁnd that Cantillon, over a three-month period, remitted £250,000 sterling from Paris to Clifford and Pels in Amsterdam and to his cousin Martin Harrold in London. This was a very substantial sum of money for the time. Thus, from both a

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theoretical and a practical viewpoint, he adopted the opposite stance to Law and his followers who were pinning their hopes on the exchange rate rising. Despite the stringent exchange control regulations that had been introduced in France, Cantillon's bank was in a prime position to evade regulations forbidding the export of specie from France. Cantillon's bank was popular with British investors. With London-based clients, such as William Chetwynd, anxious to send money into France for speculative purposes, Cantillon could instruct his bank to discount their bills quietly into French livres in Paris and retain the sterling proceeds in London or Amsterdam. It may have been these heavy remittances away from France that led to the reported conversation between Law and Cantillon as recounted by Grimm. According to Grimm's sources, Law came to Cantillon and said: ‘If we were in England, we would be able to talk and reach an agreement; but in France, as you know, I can tell you that you will be in the Bastille this evening if you do not give me your word to leave the country in forty eight hours.’39 Cantillon seemingly persuaded Law that he could be of some further assistance to him and placed a considerable quantity of paper on the market which he successfully sold. Then Cantillon, according to Grimm's account, having made several million livres, left France and returned to London. Law was becoming increasingly edgy as to the future of the Mississippi System. His disagreement with Cantillon, always assuming that it took place at this juncture (April 1720), would have been symptomatic of this edginess. Law had begun to recognize that the System, as restructured in March, was fundamentally ﬂawed. The gamble of resorting to phased diminutions of silver to make paper money more acceptable and to build up the Royal Bank's reserves had failed. Law knew this by May 1720. Corrective action was required, but the corrective action taken destabilized the System further, for it attacked the very cement that held this tottering ediﬁce together, namely public conﬁdence. Ironically, Law's corrective measures were introduced at the same time as the South Sea directors were unveiling their ambitious conversion schemes which were to cause the British stock market boom, better known as the South Sea Bubble, of 1720. These conversion schemes were greatly inﬂuenced by the seeming success of the System in France, though interestingly, the bad news from France in the last week of May in no way dampened the spirits of South Sea speculators eager to make fortunes similar to those that their Mississippian confrères were about to lose. The bad news broke in Paris during the Whitsuntide holiday.

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The Decree of 21 May — the Beginning of the End Like a modern-day Central banker, Law decided to use a holiday period, when bankers and politicians were out of town, to announce the bad news. On Tuesday 21 May, part of the Whitsuntide holiday, Law met the Regent and a small group of advisers to decree a set of measures that were to sap investors' conﬁdence in the System. The 21 May decree stipulated the phased reduction of shares and banknotes as set out in Table 10. Table 10. Reductions in Shares and Banknotes Under 21 May Decree40

Prior to decree 21 May 1 July 1 August 1 September 1 October 1 November 1 December

Shares

Banknotes

9,000 8,000 7,500 7,000 6,500 6,000 5,500 5,000

10,000 . . . 100 8,000 . . . 80 7,500 . . . 75 7,000 . . . 70 6,500 . . . 65 6,000 . . . 60 5,500 . . . 55 5,000 . . . 50

Reductions in Silver 11 March Decree 80 65 (1 May) 55 50 45 40 35 30

In March a phased diminution of the silver marc from 80 livres to 30 livres by December 1720 had been decreed. On 21 May, as Table 10 shows, it was decreed that shares and banknotes would also have to be reduced, by 50 per cent in the case of banknotes and by 44 per cent (four-ninths) in the case of shares. The decree of 21 May represented an acknowledgement of the failure of the March measures which guaranteed the price of shares at 9,000 livres a share and at the same time stipulated the phased diminution of specie. This grandiose plan of early March, which aimed to replace specie in all but very small transactions by December 1720, was in May recognized as being over ambitious. At most, what Law could hope for was a mixed shares plus banknotes plus specie system. But for that to work, both banknotes and shares had to be brought back in line with the value of specie. Law explained this in a letter discussing the 21 May decree: ‘It would have been against all reason to suffer the specie to be lowered without lowering the bank bills in proportion, and it must have been impossible to give three marks of silver for one received.’41 But this had been precisely the expectation of Joseph Gage, Lady Mary Herbert, John and Remy Carol, and so on when they borrowed from Cantillon in March. They believed that Law

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was about to achieve wonders with the exchange rate, so that for each unit they borrowed they would make three. Cantillon had immediately recognized the ﬂaw that in May Law belatedly admitted, at least in public: ‘It was necessary to ﬁx a just proportion betwixt the bank bills and the specie, therefore we were forced to deviate from the former proportion, without which, the actions and bank bills must unavoidably have lost their credit.’42 Law recognized that, notwithstanding his policy of prohibiting the holding and use of large sums of specie, and despite his attempts to make gold and silver less attractive relative to banknotes and shares, the policy had been only partially successful. While, as mentioned, the March measures had been of a limited success in attracting specie into the Royal Bank, the coffers were bare once again by 21 May. According to Dutot, the public held 2.1 billion livres in banknotes with another 600 million held by the Bank or about to be printed. Against this, if Buvat's information is correct, the Bank held only 21 million livres in silver, 28 million in gold, and 240 million in commercial bills.43 Despite massive open market support operations to guarantee shares at 9,000 and the consequent jump in the paper money supply, the Royal Bank had little or no specie reserves — a sure sign that the public had not been totally won over to Law's vision of the ideal ﬁnancial system. Law had to accept that this vision of a specie-less society was not working and that at most he could hope to produce one in which banknotes circulated alongside specie. His writing of the time recognizes this: Silver money is a division of the bank bill, or rather the bank bill is synonymous with silver. This very bill is a division and part of an action [share], therefore no change can happen in the silver specie, which must not equally affect the bank bill and the action.44 Somewhat disingenuously, Law then asserted that the decree did not harm anyone. He explained that shareholders would still receive the same forecasted dividend of 200 livres, arguing elsewhere that as it was paid in stronger money (that is 30 livres to the marc instead of 60 livres) the shareholder would in real terms have double (‘a proprement parler il aura le double’). Presumably because the values of other assets, banknotes and specie, were also being reduced, ‘the actioner [share-holder] will be as rich with his share reduced to 5,000 livres, as he was before the arret with 9,000 livres’.45 Indeed, elsewhere he maintained that as the reduction in shares was only four-ninths it was less than the reduction on banknotes (50 per cent) and specie (66 per cent).46 A similar argument was presented to holders of banknotes. They had obtained them by selling their specie for notes at rates ranging from 60

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to 80 livres to the marc. As silver was being reduced from 60 livres to 30 livres, ‘the bank bill is reduced only in the same proportion’.47 But the investing public did not want to accept this approach. Law had hyped it into believing in the near infallibility of his system. Paper money was to be better than specie and the Company's shares were to be guaranteed at the sacrosanct price of 9,000 livres. The 21 May decree cast doubt on this philosophy. The argument had changed, shares and banknotes were now being likened to specie. One could not subject one group of assets to a diminution without subjecting the others to similar diminutions — the reverse of the 11 March approach which suggested that specie could be subject unilaterally to diminutions and to eventual demonetization. Law attempted to argue that logic (where was it on 11 March?) dictated that diminutions in specie had to be accompanied by diminutions in the price of shares and banknotes. However, he had not attempted to prepare the public for this change in policy. A public used to looking at the seemingly absolute value of its shares and banknotes was reluctant to think in relative values. Such was the public reaction against the 21 May decree that the Regent, who had agreed to the measures, demoted Law and had him put under house arrest. Momentarily Law's enemies seemed to triumph and he faced the imminent threat of being incarcerated in the Bastille. Euphoria was now replaced with revulsion against Law and his schemes. On 27 May the Regent revoked the 21 May decree and two days later, on the day of Law's demotion from the ofﬁce of Controller-General of Finances, an augmentation of gold and silver specie was announced together with a revocation of the prohibitions on the holding of gold and silver. The dismantling of the System had started but Law, a man of many lives, was not ﬁnished yet. His ﬁnancial skills were still required. On 2 June he was called back to power, though this time he was not offered the ofﬁce of ControllerGeneral of Finances but the lesser post of Intendant Général du Commerce, while his position as director of the Royal Bank was reafﬁrmed. Though Law was back in power and his opponents temporarily routed, the 21 May decree had broken the public's psychological conﬁdence in the System. Over the remaining ﬁve months of its life, Law struggled to keep the System functioning, but the French public refused to be hypnotized by his ﬁnancial spells. While the 21 May decree marked a decisive turning-point in the System's history, the share price, though falling sharply, did not collapse completely. As Chart 1 shows there was a prolonged decline in the price of Mississippi shares, between May and November, with the following highs and lows:

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June July August September October November

High 6,350 5,403 4,724 5,133 5,167 3,967

Low 4,517 4,450 4,367 4,167 3,200 3,300

Discussing the movement in the price of shares during these months, Edgar Faure comments that the trend conﬁrms the view that conﬁdence was not totally destroyed:

Chart 1: Mississippi Company's Share Price (August 1719–November 1720 Share Prices at the start of each week Source: Derived from Giraudeau's statistics, ‘Variations de tous les effets sur la place de Paris entre Août 1719 et le 31 Mars 1721, par Giraudeau, negociant a Paris, 1724’, Bibliothèque Mazarine MS 2820, Bibliothèque de l'Arsenal, MS 4061.

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If the breaking of conﬁdence had been a simple and irreversible phenomenon both shares and banknotes would have been wiped out in a couple of days. However, one of the remarkable aspects of the System was the slowness and in a certain way the mildness of the depreciation.48 However, there is an explanation for the gradual collapse in the price of Mississippi shares, a phenomenon not mirrored by the collapse of the South Sea scheme where the fall in the price of shares was sharper and more sudden. In France large quantities of specie had been withdrawn from circulation, through Law's measures and hoarding on the part of the more perspicacious members of the public. Most wealth holders in France faced the classic Keynesian twoasset choice, that is money (banknotes) or bonds (shares of the Mississippi Company). The price of shares did not collapse because French investors were locked in to holding either shares or banknotes. At times the price of shares rose because investors felt marginally more conﬁdent about them than about holding banknotes. Pulteney observed this phenomenon during the ﬁrst week of June, a time when the share jumped from 5,320 livres (1 June) to 6,350 (6 June): ‘The actions [shares] of the Company have begun to rise but this seems to be rather owing to a distrust people have about bank bills than to any good opinion of the actions.49 The System's excessive creation of liquidity had quicker effects on the French exchange rate, which dropped from its mid-May rate of 20 pence sterling to 6 pence by September and was then unquoted in London in the ﬁnal three months of the year. The foreign exchange market gives a better picture of the crisis the System created. Chart 2 shows that, with the exception of a brief rise, that is a fall in the number of livres offered for £1 sterling, in the third week of June, the French exchange rate declined continuously from its mid-May high. The real panic caused by the Mississippi System manifested itself most sharply in the foreign exchange market, thereby corroborating Cantillon's identiﬁcation of the Achilles’ heel of the System. Using Giraudeau's share price quotations and Castaing's exchange rate series, we show below the Mississippi share price in livres, the pound sterling/livres exchange rate, and the share price in sterling at the beginning of January, March, May, July and September of 1720: January Mississippi share 9,085 prices (livres) 30.0 Exchange rate pound sterling/ livres Mississippi share £302 price in sterling (1/2)

March 9,000

May 9,018

July 4,895

September 4,367

32.3

39.3

50.7

92.3

£279

£229

£97

£47

THE MISSISSIPPI SYSTEM, PHASE TWO

153

Chart 2:Sterling/Livres Exchange Rate (3/1/1720–12/9/1720)

Chart 3:Mississippi Share Price Expressed in Sterling (3/1/1720–12/9/1720) Chart 3 shows in greater detail the collapse of Mississippi share prices when expressed in sterling. While Chart 1 shows Mississippi shares, expressed in French livres, falling from over 9,000 livres in January to around 4,400 at the start of September, Chart 3 shows that the sterling price of Mississippi shares fell from over £300 in January to under £50 in September.

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Notes 1 2

See PRO SP 78/166, 17 November 1719. Pulteney to Craggs. Huntington St. 57, xvii. 20, 19 February 1720. Chandos to Cantillon. Apropos Chandos's dealings in French stocks it is interesting to note his letter of 7 October 1719 to John Law informing him of Cantillon's error in not investing on his behalf. Mr Drummond was to act for him and Chandos suggested that Law might advise him on the best manner to invest his funds: The advice you were pleased in so obliging a manner to give Mr Cantillon in my behalf (though by his omission of following it, I lost the beneﬁt I should otherwise have reaped) encourages me to ask your friendship and assistance on the like occasion, if any such should offer again. Mr Drummond's affairs calling him over for two or three months to France, I have entrusted him with credit to a considerable amount and given him full power to lay it out in the manner he shall judge most advantageous, except where you are so good to interpose with your directions as to any particular method or fund, in which case he is to observe strictly your commands. And for his better guidance I have desired him if you are pleased to allow him access to apply ﬁrst to you for your opinion upon what he proposed to do.

3 4 5 6 7 8 9 10 11 12 13

(Huntington, Stowe 57, xvi. 317, 7 October 1719. Letter from Chandos to John Law.)Chandos invested heavily in the Mississippi Company but, as was the case with his South Sea shares, he showed a chronic inability to take a proﬁt at the appropriate moment. Huntington St. 57, xvii. 20–1, 19 February 1720. NLW Powis 11194. Stafford, County Record Ofﬁce, D. 641/2/C/3/8, ‘Mr Lake's case’. ANMC lxvi. 375, 19 April 1720. ‘Procuration Richard Cantillon à Jean Hughes.’ See also Stafford D. 641/2/C/3/ 8, loc. cit. Jacques Savary, Dictionnaire universel de commerce (Paris, 1723), ii. 1550–1 (translation). John Law, Œuvres complètes, ed. P. Harsin (Paris, 1934; reprint Vaduz, 1980), iii. 98–9 (translation). This letter appeared in the Mercure de France in February 1720. Ibid., ii. 307, ‘Mémoire sur les banques’. (translation). For a more detailed account of Law's marketing operations see Edgar Faure, La Banqueroute de Law (Paris, 1977). Ibid., p. 232. According to Dutot the authorized note issue by 21 May was 2,696 million l.t. comprising 2,117 million held by the public, 302 million held by the Royal Bank, and 277 million in the process of being printed. Dutot, Réﬂexions politiques sur les ﬁnances et le commerce, ed. Paul Harsin (Liège, 1935), i. 82. PRO SP 78/166, 28 February 1720. Pulteney to Craggs. ‘An arret was published this day declaring that . . . of the specie coined in the Mint there must be above 1,200,000,000 in specie in the Kingdom.’ Apropos the shares it must be remembered that not all were held by the public. As the

THE MISSISSIPPI SYSTEM, PHASE TWO

14 15 16

17 18 19 20 21

22

23 24 25 26

27 28

155

Company bought on the market in a bid to guarantee share prices at 9,000 1.t., the public's holding of banknotes increased and shares diminished. A paper which helped to disentangle this complicated domestic exchange rate problem is Luigi Einaudi, ‘The Theory of Imaginary Money from Charlemagne to the French Revolution’ in Enterprise and Secular Change, eds. F. C. Lane and J. C. Riemersma (London, 1953). Ferdinando Galiani, Della moneta (1750). Quoted in Einaudi, op. cit., p. 259. Paris, Bibliothèque de l'Arsenal, MS 4061. These statistics are based on those compiled by Giraudeau. Faure, op. cit., n. 10 above, discovered these and published copies of Giraudeau's tables in his work. We reworked Giraudeau's tables so as to produce a uniform price series for Mississippi shares during the System. This uniform price series is reproduced in Chart 1. Dutot, op. cit., n. 12 above, i. p. 84. Duclos, Mémoires secrets sur les règnes de Louis XIV et Louis XV (Paris, 1846), as quoted by A. McFarland Davis, ‘An Historical Study of Law's System’, Quarterly Journal of Economics, i. (1886–7), 439. Faure, op. cit., n. 10 above, p. 356. Dutot, op. cit., n. 12 above, i. 88. PRO SP 78/166, Paris, 8 March 1720. Pulteney to Craggs. Dutot gave two reasons for the demonetization/diminution measures of 11 March. ‘The author of the System know very well that this metal [gold] was favoured, that it was easy to hold, that it circulated much less freely than silver and that, once hidden, it became useless to trade. It was for this reason that he suppressed it.’ Thus Law was against the use of gold as a medium of exchange because of the ease with which it could be hoarded. A paragraph later, Dutot gave another reason, somewhat different from the ﬁrst, namely that the specie reserves of the Royal Bank were extremely low. ‘All these operations had no other objective but to attract specie and bullion to the bank, where little remained, and to the mints.’ Both these quotations are translations from Dutot, op. cit. n. 12 above, i. ANMC 1xxxii. 351, 6 March 1755. ‘État général en forme d'inventaire de tous les titres pièces et mémoires au suject des différentes affaires que M. Molagne a conduit pour feu M. de Cantillon et sa succession avec des instructions,’ fo. 27. This ﬁle gives a very detailed account of the litigious issues between Cantillon and his adversaries. Dutot, op. cit., n. 12 above, i. 82. PRO SP 78/166, 22 March 1720. Pulteney to Craggs. Faure, op. cit., n. 10 above, p. 385. Dutot, op. cit., n. 12 above, i. 85. Pulteney also mentioned this in his letter of 22 March (PRO SP 78/166), ‘an arret is published to prohibit under very severe penalties any person except the Company from importing into this Kingdom gold or silver in or otherwise to the end of December next when several directions for bringing the gold and silver here to the same standard as in other places will be completed’. Loc. cit. Stafford, County Record Ofﬁce, ‘Mr Lake's Case’. Loc. cit. ANMC 1xxxvii. 351, fos. 26–7. (translation).

156 29 30 31 32 33 34 35 36

37 38 39 40

41 42 43 44 45 46 47 48 49

THE MISSISSIPPI SYSTEM, PHASE TWO

Fo. Fm. 2740. ‘Mémoire pour Richard Cantillon contre Jean et Remy Carol’, p. 2. (translation). ANMC 1xvi. 385, 14 June 1723. ‘Inventaire de John Hughes.’ PRO SP 78/166, 24 May 1720. Pulteney to Craggs. Stafford, County Record Ofﬁce, D.641/2/C/3/8, ‘Mr Lake's Case’. Gage's dealings are found in a collection of papers, ‘A short state of the case relating to the disputes between Mr Gage, the executors of the late Marquis of Powis, and the representatives of Messieurs Cantillon and Hughes’. NLW Powis 11185. This document gives a detailed account of Lady Mary's dealings with Cantillon. However, as a later chapter will show, care needs to be exercised in accepting at face value Lady Mary's allegations as to the way Cantillon managed the shares she left with him as collateral. Ibid. Ibid. NLW Powis 10880. ‘Pièces pour Messire Joseph Gage contre Richard Cantillon.’ This letter is found in a printed memorandum drawn up by M. Millet, Gage's lawyer. Gage and Lady Mary Herbert obtained some of Cantillon's correspondence from Esther Hughes, the widow of John Hughes, Cantillon's banking associate in Paris. Cantillon wrote this letter on 24 May 1720 (OS) (translation). Ibid. Letter from Cantillon to John Hughes, 19 May 1720 (OS) (translation). ‘Inventaire de John Hughes’ loc. cit. Grimm, Diderot, Raynal et al., Correspondance littéraire, philosophique et critique (Paris, 1878). Letter written by Grimm on 1 August 1755. For the most part Grimm's information on Cantillon's activities was very accurate. Most of the details that he cites can be corroborated elsewhere. We have listed the reductions stipulated for shares and two types of banknotes, those of 10,000 l.t. and 100 l.t. Banknotes of other denominations were subject to similar variations. We have also included the reductions in silver specie as decreed on 11 March. In May, Law argued that as silver was to be reduced from 80 to 30 it was illogical to hold that shares and banknotes should not be reduced also. But if this was the case, why did he not reduce the value of shares and banknotes in March? In retrospective comments on the System he argued that he wanted to make such reductions in March but had been prevented from doing so by vested interest groupings. John Law, The Present State of the French Finances (London, 1720), p. 106. See also John Law, Œuvres complètes, iii. 158. Ibid., p. 105. Dutot, op. cit., n. 12 above, vol. i. 82. Jean Buvat, Journal de la Régence, 1715–23 (Paris, 1865). Law, The present state . . . , p. 106. Ibid. ‘Mémoire justiﬁcatif de Mai 1723’ in Law, Œuvres, iii. 219–20. Law, The present state . . . , op. cit., p. 106. Faure, op. cit., n. 10 above, p. 466 (translation). PRO SP 78/166, 8 June 1720. Pulteney to Craggs.

9 London and Amsterdam: The Great Crashes in These Cities in 1720 The diffusion of stock market fever during the summer of 1720 across national frontiers, from France to Britain to Holland, combined with Cantillon's constant travelling between the ﬁnancial centres of Paris, London, and Amsterdam, makes it difﬁcult to keep abreast of his activities during this period. One moment Cantillon was dealing in options in South Sea shares in London, a week later he was in France examining the effects of the famous decree of 21 May which heralded the collapse of Law's System, two weeks later he was in Amsterdam purchasing copper on behalf of John Law. Later he became interested in acquiring shares in the rising Dutch stock market. All the time he was in contact with John Law in France and the Duke of Chandos in Britain. These contacts are of particular signiﬁcance for, in the case of Law, they show the extent to which the Scotsman admired Cantillon's ﬁnancial acumen as well as the necessity he felt to have Cantillon working by his side. In the case of Chandos, they show the activities and attitudes of one of the biggest, if not the biggest, speculators in the London stock market boom of 1720. In this chapter we attempt to reconstruct some of the major developments in Cantillon's career outside France over the summer and autumn of 1720, a reconstruction that brings us to: (1) London just prior to the meteoric rise in the price of South Sea shares. (2) Amsterdam, and Cantillon's acquisition of copper on behalf of John Law. His own involvement in shares on the rising Dutch market is discussed as well his musing on whether to accept Law's invitation to return to France. (3) Back to London to examine the extent of Chandos' change of fortunes and his need to borrow extensively from Cantillon. (4) Back to Amsterdam to investigate Cantillon's option dealings in South Sea stock in the autumn of 1720.

The Rise and Rise of the South Sea Company in the Summer of 1720 The ever mobile Cantillon, in London in April 1720, quickly turned his attention to the incipient boom in South Sea Company shares. As was

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the case with his ﬁrst Mississippi fortune, Cantillon was swiftly into South Sea shares at the start of the boom and out of the shares almost too quickly. By the middle of May, just as the real boom in the shares was starting, Cantillon was urging caution and advising his clients not to stay in South Sea shares. This suggests that Cantillon made his money in these English shares at the early stage of the boom. Unfortunately, we have been unable to ﬁnd any detailed material on his share buying and selling in London, though Pulteney observed, ‘Monsieur Cantillon who was a banker here and got considerably by the Mississippi, which he improved in the South Sea . . . ’.1 Through his friendship with the Duke of Chandos, Cantillon was in a prime position to obtain inside information as to what was happening in London. Chandos, one of Britain's wealthiest men, was deeply involved in purchasing shares in the big trading companies, not only the South Sea Company, but also the East India Company, the Royal African Company, and the Bank of England. Chandos was on the board of a number of these important companies and more than ready to use his inside knowledge to enrich both himself and his friends. But, while Cantillon was ready to listen to Chandos's privileged sources of information, he made his own decision independently. Right through the South Sea boom Chandos showed a fatal reluctance to realize his paper proﬁts. Cantillon's behaviour was the opposite for he always anticipated the collapse of these stock market booms. In London, a veteran of the Mississippi System, he must have had that feeling of déjà vu about the South Sea Company's proposals which at this stage were very much inﬂuenced by what had happened in France. The massive rise in the price of the Mississippi Company's shares in the second half of 1719 resulted in it giving a lead to the South Sea Company. The Mississippi Company had shown the potential and the proﬁts to be made out of a scheme for transforming the national debt. Its rising share price seemed to provide adequate proof of the success of its policies. The apparent improvement in France's ﬁscal and ﬁnancial situation helped to increase public acceptance of the South Sea's directors' new plan, launched in January 1720. The plan aimed at not merely reducing the national debt, then amounting to £49.9 million, but abolishing it completely over a twenty-ﬁve year period.2 The plan had been teased out in secret negotiations during the previous November. Initially its proponents wanted to convert the whole of the national debt into South Sea stock. But this plan had to be watered down, as it would have involved the virtual takeover of both the Bank of England and the East India Company, both of which had large holdings of government debt amounting to £6.6 million. Fortunately for Britain, as events turned out, the pressure groups in these

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institutions were sufﬁciently powerful to prevent the South Sea Company taking over either the Bank or the East India Company. Unlike Law's System, the South Sea's directors were not to have control over the Bank, a control that might have induced it to follow the French model and resort to over expansion of the money supply. The British were saved at least that fate. The extension of the South Sea Company's activities into bidding to take over the national debt was felt to be of mutual interest to the Government and the Company. For the Government it held out the short term advantage of converting the heterogeneous national debt, comprising redeemable and irredeemable securities, into a consolidated form of debt owing to the South Sea Company on which a lower interest rate was to be paid. Leaving aside the Government debt held by the Bank of England (£3.4 million) and the East India Company (£3.2 million), there was a total of £31.5 million of government debt held by the private sector. This debt was divided between redeemable government securities totalling £16.5 million and irredeemables amounting to £15 million. This irredeemable debt comprised short and long-term annuities, that is commitments by the Government to pay a stipulated amount of interest annually for a speciﬁed number of years. The interest payments on the annuities were high and regarded as an extremely expensive burden to the Exchequer. A 9 per cent interest rate was paid on the short annuities which were not due to expire till 1742, while the long annuities bore an interest rate of 7 per cent and were not due to expire till 1792–1807. These annuities — irredeemables — could not be repurchased or converted into redeemable debt without the express authority of the annuity holders. The South Sea Company proposed a way out of this expensive impasse. It offered to convert redeemable and irredeemable Government debt into South Sea stock. The State in return would owe the South Sea Company a debt equivalent to the converted stock. However, this debt would be uniform, redeemable at the option of the Government, and bear a lower interest rate than that paid on the existing redeemable and irredeemable debt. Under the ﬁrst South Sea Company proposal the Company offered to convert all the debt, apart from that held by the Bank of England and the East India Company, into a stock on which the Government paid 5 per cent interest until 1727 and 4 per cent after that date. Additionally, the Company agreed to make an immediate lump-sum payment of £3 million for the right to convert the national debt in this way. In total it was estimated that the proposal would have saved the Exchequer £542,000 in reduced interest rate costs each year. John Aislabie, the Chancellor of the Exchequer,

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and a powerful supporter of the South Sea Company's proposal, estimated that by putting the annual savings of £542,000 into a sinking fund the national debt could be wiped out over a twenty-ﬁve year period. As such the proposal seemed ingenious for it promised short-term relief in the form of lower interest payments or the long-term prospect of ridding the country of the national debt problem completely. The willingness of the Company to make such a favourable offer, along with the associated belief that it would be capable of inducing Government debt holders to convert their redeemable and irredeemable securities into South Sea Company shares, suggested that its proposal was not a philanthropic gesture. The operation was aimed at increasing the Company's proﬁtability and therefore the proﬁts accruing to its shareholders. But where was such proﬁt to come from? The key to understanding the Company's desire to convert the national debt lay in the fact that while the nominal capital of the Company was increased by the amount of debt exchanged, ‘there was no stipulation as to the price at which the Company's stock, should be rated for the purpose of that exchange’.3 Thus, if £100 of South Sea stock was exchanged for £100 of Government debt, the capital of the Company increased by £100. However, if South Sea shares were priced at £200, then the Company could have converted the £32 million of Government debt by issuing just £16 million of South Sea shares. This would have allowed the Company to issue a further £16 million of its stock on the market. If the shares sold at £200 then it could have raised £32 million of capital for its own purposes. As the price of South Sea shares increased above £100, the potential for a ‘fund of credit’ developed through the emergence of a gap between the issued and issuable capital of the Company. The size of this potential ‘fund of credit’, that is money that could be raised for the Company's own account depended on (1) the amount of Government debt converted into shares of the South Sea Company and (2) the price at which this Government debt was converted into South Sea shares. The greater the amount of Government debt converted into South Sea shares at prices higher than £100, the greater the potential ‘fund of credit’. Assuming that Government debt holders were induced to convert all their debt into South Sea shares, the size of the ‘fund of credit’ depended on the exchange or conversion price of South Sea shares for Government debt. The outstanding Government debt, assuming a 100 per cent conversion operation, to be exchanged for South Sea shares amounted to £32 million. The nominal price of South Sea shares was £100. If all

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the debt was exchanged for South Sea shares at the nominal price of £100 then the Company would have had no fund of credit to utilize. Both the Company, because of the bonus it promised to pay the Government for taking over the debt, and the shareholders, through the lower interest payments to be paid on the converted Government debt, would have lost out in this operation. However, if the debt was exchanged for South Sea stock at £200 then the issuable capital of the Company increased by £16 million, and, assuming all of this was sold at £200 per share, the South Sea Company would have created a ‘fund of credit’ of £32 million to use for its own investment purposes. If the conversion price of South Sea had been £300 then the potential fund of credit would have been £64 million and so on as South Sea rose to £400, £500, and even higher prices. There has been a serious misinterpretation among commentators to the nature of this ‘fund of credit’. It has been incorrectly equated with the proﬁt of the South Sea Company. Scott, for example, wrote: Obviously, if, as in 1719, the stock were at a premium, the quantity of South Sea stock, required to satisfy the holders of government loans, would be less than that which the company was authorized to create. Therefore such surplus stock would constitute the gross proﬁt on the transaction for the company. The proceeds of the sale of that surplus stock at the premium would be the gross cash proﬁt, from which was to be deducted the bonus payable to the State, and any balance remaining would constitute the nett gain.4 Scott went on to add that it was calculated that ‘with South Sea stock at 130, the Company could convert the debt, pay the bonus to the State and retain a considerable proﬁt’. More recently Dickson seems to have concurred with Scott on this issue.5 But the money raised by issues of South Sea shares at prices above £100 was not proﬁt per se. To regard it as such is to fall into the fallacy of believing that money raised through a rights issue of shares by a company is proﬁt. Money raised in such a way is used for investment purposes which the company's directors hope will be proﬁtable. The money raised through the issue of South Sea shares was, in theory at least, to be used to acquire assets which would yield a ﬂow of proﬁts over time. The high price shareholders paid for the Company's shares would only be justiﬁed if the capital assets so acquired by the Company proved to be highly proﬁtable. It was quickly recognized by the merchant community of London and the Corporation of Liverpool that the Company's ‘fund of credit’ would put it in a position to monopolize the acquisition of proﬁtable trading concerns and outlets. During 1720 the South Sea Company issued £10 million of its stock in money subscriptions at issue prices of

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£300, £400, and £1,000. The cash payable to the Company if all the calls had been met would have amounted to £75 million, a huge fund for investment purposes. The London and Liverpool merchants petitioned the House of Commons on 23 March 1720 to restrict the activities of the Company to those trading areas originally granted to it lest it might ‘oppress all private merchants in any branch of trade’.6 At least these merchants recognized the dangers of the South Sea Company acquiring a near monopoly of new funds coming on the market for investment purposes. As the price of South Sea shares rose, the potential for the Company to purchase proﬁtable trading concerns increased, but it should have been recognized that there was not an inﬁnite number of such investment outlets and that the higher the market capitalization of South Sea shares the more the Company would be left with less and less proﬁtable concerns to acquire. Furthermore, investment in its designated colonial trading areas would take time to produce proﬁtable trading. It took time for this realization to sink into the minds of the investing public. In the short term there were of course proﬁts to be made from buying and selling South Sea shares. An eighteenthcentury transactor who realized that the Company's ‘hype’ would push its share price up over the short term could have rationally involved himself in short-term buying and selling of the Company's shares. Notwithstanding the apparent attractiveness of the South Sea Company's initial proposal to the Government, it was not accepted by the House of Commons immediately. The Bank of England had ambitions to undertake the same project and countered with a higher bid promising to pay a £5 million bonus for the right to take over the national debt as well as offering to accept more quickly the interest rate reduction to 4 per cent, on the converted debt. The Whig party was split over the competing proposals. Walpole favoured that of the Bank of England while Aislabie, the Chancellor of the Exchequer, strongly supported the South Sea Company. A Dutch auction ensued in the public view, sustained by massive bribery of inﬂuential ﬁgures in private. Both the Bank and the South Sea Company revised their tenders upwards with the latter winning out with a bid of £7.75 million for the right to convert the national debt. This was the public cost of acquiring Commons approval on 2 April and the House of Lords consent on 7 April. The hidden costs of ensuring this support had been very great, with £1.3 million of bribes being used to buy support for the scheme from members of the cabinet. MPs, inﬂuential peers, and court favourites. Potential supporters of the scheme were granted ﬁctitious holdings of stock at advantageous prices prior to the South Sea

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legislation being passed. The share price had risen sharply in anticipation of the successful passage of this legislation. When it had been approved, the South Sea Company credited the holders of the ﬁctitious shares with sales at the higher market prices. There were many recipients of the company's ‘manna’ including the Chancellor of the Exchequer John Aislabie, Charles Stanhope, John Craggs, the Earl of Sunderland, and other prominent politicians.7 In order to pay its bribes the Company needed cash, a type of ‘slush fund’ was required quickly. Within a week of the House of Lords ratifying the new legislation the Company invited subscriptions for its shares in cash. This must have surprised the more percipient members of the ﬁnancial community, for instead of converting Government debt with its South Sea shares, the raison d’être for the new legislation, the ﬁrst action taken was to look for money from the public. On 14 April the Company offered £2 million of South Sea stock at £300 per share with the objective of raising £6 million. This was the ﬁrst of four money subscriptions made by the Company in 1720. To entice the investing public the shares were attractively marketed. Subscribers were required only to make an initial downpayment of 20 per cent in money (that is £60) or bonds of the East India or Sword Blade companies, with the remaining £240 to be met in eight calls of 10 per cent at two-monthly intervals (that is £30 per call). Thus, for only £60 down, rights to a South Sea share with a market price of £300 plus could be acquired. Two weeks later, holders of annuities were invited to subscribe, that is to register for transfer, their annuities for South Sea shares even though the terms of this transfer were not announced till 19 May. On 29 April, the day following this invitation to annuity holders to register their securities, the Company went back to the market for a second cash subscription through the issue of £1 million of South Sea stock at £400 a share. Again the terms of this issue were marketed to encourage widespread participation by the investing public. A downpayment of 10 per cent (that is £40) with the balance payable at three or four-monthly intervals, must have seemed attractive to many, particularly as South Sea was rising fast on a bull market. Cantillon, as will be shown below, was sceptical about the long-term prospects of subscribers to this issue. In all, it was hoped to raise £10 million through these ﬁrst two money subscriptions, though due to the extended payment scheme the immediate amount subscribed was only a fraction of this sum. The total issued stock was £12.75 million, for with both subscriptions there was an over-issue of stock. This over-issue was ofﬁcially attributed to a communication failure between the issuing clerks involved in registering

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the receipt of subscriptions. In reality the practice allowed the Company's insiders to realize substantial proﬁts through retrospective issues of shares to themselves and their friends. Additionally, the second and third and probably, the ﬁrst subscriptions were ﬁlled from lists put in by the directors of the South Sea Company and members of the Government.8 This gave the directors the considerable power of determining who would be allowed to subscribe initially for the shares. South Sea had been priced at £130 in the ﬁrst week of January 1720. Anticipating Parliament's approval of the Company's proposal, the share price moved sharply upwards from 180 at the start of March to between 330 and 370 during the period 18 April to 19 May. But even this price, which was way above the underlying value of South Sea shares, was to appear cheap as the market developed momentum in the summer of 1720. This market momentum was cleverly manipulated by the inner circle of South Sea directors and managers. They used a variety of tactics to push up the share price, imitating in the process some of the more successful strategies of Law's Mississippi Company. Only small down payments, allied with lengthy payment periods, were required for money subscriptions, thereby encouraging smaller investors into the market as well as enticing rich transactors to adopt highly geared positions in South Sea stock. At the same time the directors restricted the potential supply of shares to the market by delaying till December the issue of South Sea shares to annuitants and holders of redeemable debt who had registered their securities for exchange in late April and early May.9 This action kept a large part of the new issue of South Sea shares off the market. While this action reduced the supply of shares, the South Sea directors also engineered events so as to shift demand for the shares upwards. They were obviously aware of the need to fuel the stock market boom with continuous injections of liquidity into the market. Unlike France, the Company did not have access to the printing presses of the central bank to support the share price. The Bank of England was a rival to the Company and, as later events showed, was not prepared to lend funds to the Company. Instead the Company had to raise funds through money subscriptions and then rechannel this money back to shareholders as loans to enable them to purchase more shares. By raising money in this way and keeping it within the South Sea circuit they increased the velocity of circulation of money. These loans had a secondary effect in reducing the supply of shares further for borrowers were obliged to lodge their existing holdings of South Sea shares with the Company as collateral for their borrowings. Loans of this nature were made on 20 April, 20 May, and 9 June.

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The ﬁrst loan is illustrative of the process. On 20 April the Company agreed to lend £500,000 to shareholders at the rate of £250 for each £100 stock (then valued at £330 per share). A maximum borrowing limit of £5,000 per person was established. This meant that anyone who immediately availed himself of the maximum borrowing of £5,000 would have been in a position to acquire rights to 125 shares when the second money subscription for shares came out on 29 April. Taking highly geared speculative positions like this offered the possibility of large capital gains as the share price pushed up above £400. The supply and demand side policies of the Company, described above, were supplemented by inspired rumours on the improved trading prospects of the Company, increases in the dividend, and the generation of expectations as to further dividend increases. London was starting to witness the South Sea Bubble phenomenon. Edward Harley, writing to his brother Robert Harley, Earl of Oxford, on 21 April, described the mood in town: Mr Knight [presumably Robert Knight, cashier of the South Sea Company] will acquaint you with the present humour of this place, the great doses of opium that are swallowed by the stock-jobbers have intoxicated the whole town, so that what becomes of the peace or trade is very little regarded.10

Cantillon's Opinion of the South Sea Company Cantillon, as he had analysed the French situation, realized that the key to the determination of the share price was the amount of money in circulation and the rapidity with which it circulated. On 29 April in a letter to Lady Mary Herbert, after explaining that he was unable to sell some put options on the South Sea Company for her, he described the prevailing mood in London on the day of the second money subscription when £1.5 million of South Sea was issued at a price of £400: People are madder than ever to run into the stock [the South Sea Company] and don't so much as pretend to go in to remain in the stock but sell out again to proﬁt. I would have long banks stock for your Ladyship but that I conceive you don't value the interest and I think it more advisable to get by the rise of the French exchange than leave money here. The payments of the last subscription here at 400 are to be made in three years and if they can have money enough for circulation I make no doubt but the stock will be kept up for some time, perhaps some years, this though all other stocks will be incorporated in these. I see nor hear no encouragement to concern your Ladyship in anything on this side where there appears but a melancholy prospect for those who shall stay in the last. 11 From this letter it may be seen that Cantillon recognized that the South

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Sea phenomenon was a get-in-get-out type of operation. Investors, in Cantillon's circle at least, were aware that there was a need to buy and sell quickly. If there was enough money in circulation, South Sea might be able to stay up even for some years, but that said, Cantillon felt that there was only a ‘melancholy prospect’ for those who stayed in to the end. He recommended the Bank of England's stock as being safer and more reliable but recognized that this type of purchase was not in keeping with Lady Mary's compulsive need to chase after market high-ﬂyers such as the South Sea Company. It took the Company nearly another month before it started on its plan to incorporate all the government debt under its mantle. In the meantime Cantillon probably continued to buy and sell South Sea but without any enthusiasm over its long-term prospects. On 19 May, the day of the announcement of the new conversion of annuities, he purchased £2,500 capital South Sea at 372 for Lady Mary. The prices of all stock he deemed to be ‘extravagantly high’: It is true Mr Hughes wrote to me that your Ladyship desired I should buy South Sea stock for your ten thousand pounds. By the post before he told me you would have me remit your money. So it has been necessary for me to wait your Ladyship's own directions, this rather because I esteemed every stock here extravagantly high. But now I have your own orders in writing I have bought £2,500 capital South Sea at 372 which cost £9,300 and stock is risen to 375 and 376 I observe.12 That day the annuities conversion scheme was announced. This scheme and the activities of the South Sea Company in rigging the share market produced a boom in shares quoted in Exchange Alley. By 21 May the shares had risen to 400. A week later they hit 500. By 2 June they reached 800. Even at this high price they had not reached their market high. On 24 June they peaked at 1,050. Lady Mary Herbert, if she had time to reﬂect on Cantillon's letter of a month earlier, must have had great satisfaction in thinking that her Irish banker's advice had been ‘extravagantly’ wrong. Her shares in the South Sea had risen from 372 to 1,050 in just thirty-four days. How had Cantillon misinterpreted the market mood so badly? His advice not to purchase South Sea shares in May seemed to be horribly wrong in June, almost as wrong as that of Irving Fisher two centuries later who, two days before Wall Street's ‘Black Thursday’ (24 October 1929), announced to Americans that ‘even in the present high markets, the price of stocks have not yet caught up with real values . . . [nor] yet reﬂected the beneﬁcent effects of Prohibition which had made American workers more productive and dependable’.13 Fisher missed out totally on the gathering forces that were just about to produce the

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biggest crash in Wall Street's history. Had Cantillon misinterpreted the forces that were about to produce the quickest rise in Exchange Alley's history? Unlike Fisher, it may be contended that Cantillon's analysis was fundamentally sound, for the market rise in London was a short-lived phenomenon. His appraisal of South Sea was to be vindicated within a short space of time. But what caused the market to be so much out of line with underlying realities? The announcement of the conversion of annuities had been eagerly awaited. This conversion was the main objective of the Company, and, on 19 May annuity holders learned of the way in which the conversion operation was to take place. Instead of converting the shares at the par of 100 the Company was doing this at a price of 375, thereby creating the possibility of future large issues of shares for its own account. At the same time the scheme was attractive to annuitants in that they were offered thirty-two years purchase for long-term stock and seventeen years purchase for short-term stock, generous terms relative to the prices annuitants had paid for their stock. South Sea's share price was moving over 400, so that there seemed every incentive to convert. As the price of South Sea rose, more government debt could be converted in exchange for smaller quantities of the Company's stock. At a price of 400, double the quantity of stock could be converted than at a price of 200. Each conversion of stock at a higher price increased the potential size of the fund of credit which generated further speculation in the shares. The possibilities of quick capital gains attracted a wide range of new recruits. If you are not in, you cannot win, seemed to be the prevailing attitude. But the dealings in Exchange Alley were not conﬁned solely to South Sea stock as was the case with the Mississippi Company in France. Venture capitalism had been straining at the leash for some time in London. ‘Bubble’ companies had been established even before Parliament's approval of the South Sea Company's proposals. Between September 1719 and the end of September 1720 public subscriptions for shares in 190 companies were opened, according to Scott. As the price of South Sea rose, more companies rushed to the market, with 117 being launched in April and May. Exaggerated prospectuses and small downpayments combined with rising market ‘fever’ to generate huge premiums on the shares of these companies. Alexander Pope, an acute observer of this ﬁnancial frenzy, summarized the mood in London: At length corruption, like a general ﬂood Did deluge all, and avarice creeping on Spread like a low-born mist and hid the sun. Statesmen and patriots plied alike the stocks,

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Peeress and butler share alike the box, And judges jobbed and bishops hit the town, And mighty dukes packed cards for half-a-crown Britain was sunk in lucre's sordid charms.14 The South Sea Company was the market leader. As Cantillon had noted, the sine qua non for the maintenance of a rising market was an expansion in credit. The South Sea directors recognized this and, though unable to expand the money supply, carefully nurtured increases in the velocity of its circulation. The main device was to continue to tap the market for funds via money subscriptions, rapidly relending the money to holders of stock. Simultaneously with the 19 May conversion of annuities the Company had lent more funds to the market. On 17 June, with South Sea moving between 705 and 755, the Company went back to the market looking for cash. An offer for public subscription of ﬁve million South Sea stock at £1,000 a share was made, payable £100 down and the rest in nine half-yearly instalments starting 2 July 1721. Despite the six-year subscription period the attempt to raise £50 million from the public was extremely ambitious. The more immediate objective was to raise £5 million on the ﬁrst call so as to have funds to relend to shareholders. Despite the high price at which the new issue was pitched, the offer was successful, for it gave newcomers the chance to buy South Sea stock by putting down just £100. South Sea, as noted above, continued to rise, reaching its ‘high’ of 1,050 on 24 June. A letter from Edward Harley to Robert Harley the day after South Sea peaked shows the extent to which stock market ‘fever’ had taken over: The demon stock jobbing is the genius of this place. This ﬁlls all hearts, tongues, and thoughts, and nothing is so like Bedlam as the present humour which has seized all parties, Whigs, Tories, Jacobites, Papists, and all sects. No one is satisﬁed with even exorbitant gains, but every one thirsts for more, and all this founded upon the machine of paper credit supported only by imagination . . .15 At £1,050, South Sea was vastly over-valued, but the Company managed to forestall any collapse of the share price over the next ﬁve weeks by recycling funds in the market. On 27 July the directors resolved to lend money from that date until Michaelmas ‘in such a manner as was judged best for the company's interest’.16 On 4 August the second subscription of annuities as well as an offer for redeemable securities was made, as the share price moved between 870 and 900. However, despite the money raised on 17 June, a further money

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subscription was deemed necessary on 24 August, when £1.25 million stock was issued at 1,000. With this issue the Company had four money subscriptions outstanding on which calls were regularly to be made. But the Company was not alone, for the whole constellation of attendant ‘bubbles’ had been created on similar principles to the South Sea Company, that is small down payments allied with monthly, quarterly, or half-yearly instalment payments of the outstanding capital owed. The overall market valuation of shares was totally out of line with the actual amount of capital supplied. As the market started to dip ominously in mid-August the demand for credit, to meet calls and to maintain share prices, increased greatly. The South Sea Company found itself competing with the new companies for the limited amount of funds on the market. This competition and the action of the South Sea Company to protect its own interests led to the collapse of the South Sea Bubble in the autumn of 1720. But before dealing with this collapse we digress temporarily to locate Cantillon in Amsterdam. As he had done in Paris and London, he was establishing himself in situ at the start of Europe's third stock market boom of 1720.

Amsterdam Cantillon had arrived back in France in early June 1720. But by 24 June he was in Amsterdam. Why did he leave Paris so quickly? There were a number of probable reasons that pushed Cantillon towards Amsterdam. First of all, the faction ﬁghting at the Court against Law must have convinced him of the frailty of Law's control over the Mississippi System. Law, after all, had been under house arrest and would have been imprisoned but for Argenson's tardiness in carrying out an order that was later rescinded. Thus, even though Cantillon was back on good terms with the ‘great man’ (Chandos's term for Law), Cantillon probably deemed it better to be out of France. Furthermore, Law commissioned Cantillon to carry out some services on his behalf in Amsterdam. These were the push factors that may have caused Cantillon to leave Paris, but there was also a pull factor in that trading in the now buoyant South Sea stock would be easier in the more sophisticated Dutch ﬁnancial system and the news from Holland suggested that a third stock market boom, after those of Paris and London, was developing in Amsterdam. Cantillon's commission on behalf of Law is intriguing. On 20 June Law's brother William borrowed £20,000 from Cantillon and Hughes in Paris, promising to repay the money on demand in London at Martin Harrold's house. Four days later John Colebrook, acting on William Law's instructions, requested Richard Cantillon, then in

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Amsterdam, to purchase all the copper he could ﬁnd in Holland and in Hamburg.17 We know that William Law was acting on his brother's account when purchasing this copper, for John Law was later to write to him, ‘inform me of M. Cantillon, and Colebrook's affair’. But why did the Law brothers want to corner the European copper market in 1720? Was it linked with a project mentioned by Pulteney on 8 March: ‘Mr William Law, Jones the gun-founder, and some others have undertaken to set up a mill for milling lead and are to have the monopoly of importing lead, which has hitherto been reckoned as a contraband commodity.18 Or were such purchases necessary to provide copper for the minting of low denomination coins in France? On 29 July William Law wrote to Cantillon informing him that he had instructed Colebrook not to purchase any more copper. But by this stage a considerable quantity had been acquired, with Cantillon and Hughes's bank drawing 1,400,000 livres on George Clifford and Company in Amsterdam for these purchases. A second piece of evidence showing that Cantillon was at this time working for Law and the French came from the pen of Daniel Pulteney. On 31 July he wrote to Craggs: I have reason to believe that Mr Law and his friends are using all their endeavours to engage as many people as they can, of all nations who have any effects in England, to draw them out and that for this purpose they are for promoting schemes and subscriptions in Holland; Cantillon who got considerably in the Mississippi and since in the South Sea is now in Mr Law's service at Amsterdam and writes here very impertinent letters to discredit our funds.19 One wonders if, assuming Pulteney's account to be correct, it was Cantillon who was responsible for the bearish comment in the July issue of the normally staid and uncontentious Mercure historique et politique published at the Hague: The South Sea Company is continually a source of wonderment. The sole topic of conversation in England revolves around the shares of this Company, which have produced vast fortunes for many people in such a short space of time. Moreover it is to be noted that trade has completely slowed down, that more than one hundred ships moored along the river Thames are for sale, and that owners of capital prefer to speculate on shares than to work at their normal business. The consequence of all this could be very prejudicial to the nation, all the more so if foreigners sell as many shares as possible and send their proﬁts out of the kingdom in specie.20 The Mercure historique et politique, which in its June issue had been content to note that ‘the shares of the South Sea have risen to nearly 900’, gave excellent advice to its readers in July for, as seen, South Sea

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had peaked at 1,050 on 24 June and started to fall dramatically at the beginning of August. Cantillon did not spend all his time in Holland operating on behalf of John Law and the Mississippi Company. While the Mississippi Company was in decline, the South Sea Company and the bubbles it had spawned were moving each week to new highs and the Dutch had started to model their behaviour on the seemingly successful South Sea Company. In Amsterdam, with its excellent banking and ﬁnancial facilities, investors could buy and sell shares and share options in French, English, and Dutch stocks. It was a cosmopolitan ﬁnancial centre where disparate groups such as Portuguese Jews, Genevan bankers, and British traders did business side by side in the stocks of the Mississippi, South Sea and Bank of England, Dutch East India and West Indies Companies, and so on, in the narrow and winding Kalverstraat. We do not know whether Richard Cantillon operated from the Engelsche or the French Kofﬁehuis when he traded on the Kalverstraat. As in Paris, where he operated not only as a banker but also as a wholesale marchand mercier and wine trader, his dealings in Amsterdam were varied. He continued to search out proﬁtable trading opportunities. A £4,000 transaction with the Amsterdam dyestuff ﬁrm of Jan and Jacob de Bruyn, purchases worth £6,800 from Isaac Franco Mendes, one of Holland's largest tobacco dealers, and a payment of £180 to Alvaro Samuel da Costa, a Surinam sugar dealer, suggest that Cantillon kept his hand in the commodities markets during his stay in Amsterdam.21 But of course Cantillon's main concern continued to be with shares. He traded actively in English shares, he started selling French shares once again in July and August, and moved into Dutch shares. We have seen that Cantillon had written to Chandos in late August suggesting that some Dutch stocks would be a good buy. Chandos instructed Cantillon to purchase such shares for him. Cantillon was extremely interested in the Dutch West Indies Company's shares as a short-term investment both for himself and Chandos. He bought some for Chandos in late August but seemingly warned Chandos that they should be regarded very much as short-term investments. Chandos replied: ‘I perfectly agree with you in your notion of the solidity of their stocks; and therefore as there is no real foundation of value in them, they cannot subsist long, and happy will be he who gets out in time.’22 Cantillon's account with the Amsterdamsche Wissel Bank shows that he paid 10,200 guilders to William Clermond Jansz, a registered broker for the Dutch West Indies Company, on 29 August.23 Despite his advice to Chandos to move out

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of Dutch stock, Cantillon himself admitted on 23 September in a letter to his Parisian banking partner John Hughes that he had stayed too long in Dutch stocks: But as I have been lately unsuccessful in remitting to you and lost here the best parts of my proﬁts in the West I begin to grow more cautious and I wish I were fairly out of the West which lies very heavy though the Directory are at the Hague. I will see to sell these subs[criptions] you are contained in as soon as I can.24 Cantillon seems to have been ashamed of his earlier advice to Chandos about the prospects of the Dutch West Indies Company and offered to take Chandos's losses in this stock on himself, an offer which Chandos turned down.25 But his offer is indicative of the reversal of roles that had taken place between Cantillon and Chandos. No longer was it Chandos who was offering gifts or loans to Cantillon but the opposite. Cantillon's extremely liquid position was very much in contrast to Chandos's heavy involvement in shares that suffered sharp daily reverses. From the autumn onwards it was Cantillon who was to lend money to Chandos. Prior to these developments, Cantillon was the recipient of an intriguing invitation to return to France.

John Law's Invitation to Cantillon As the Mississippi System continued its downward movement during the second half of 1720, John Law increasingly urged Cantillon to return to Paris to help him to rescue the System. Law obviously held the Irishman in high esteem offering him at one stage what amounted to a virtual partnership arrangement to manage the French ﬁnances. Both Chandos's and Pulteney's correspondence conﬁrm that such offers were made and that Cantillon gave them serious consideration, serious to the point of asking both Chandos and the famous Dutch banker Andries Pels for their views on the tantalizing offers that Law had made. On 5 September (24 August, OS) Chandos advised Cantillon as follows: You had often acquainted me with the distrust you had of the sincerity of the professions made you in France and that why you went to Italy was chieﬂy to be out of his reach. Supposing since that time, you are so well reconciled that you could be willing to trust yourself in his power and you best know yourself what was the wideness of the ground between you, yet are you satisﬁed he will be able himself to maintain his ground, and if you come to be one of the most considerable next to him, and to be chieﬂy in trust by him (otherwise it will be hardly worth the while of one of your fortune and experience to embark again in business) are you well assured that should he fall a sacriﬁce, your other

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friends would be able to protect you from sharing his fate, especially if such misfortune should happen before you had been long enough under him to have provided yourself with a purse large enough to secure you against the terrors of such a day. This is a consideration which deserves to be well weighted by one of your easy circumstances. Not but that I am persuaded that if you would venture it, you might have any employment you would, for the nation is so prejudiced against him, and there are so few he can trust, and yet his occasion for some he can rely upon are so great, that I doubt not but your capacity and integrity would entitle you to any preferment he can give you.26 Chandos's view, ‘if you come to be one of the most considerable next to him and chieﬂy in trust by him’, is revealing. Law was offering Cantillon a position at the top beside him. He needed Cantillon back in France to help him regenerate conﬁdence in the System. But Cantillon's relationship with Law blew hot and cold. He left France in August 1719 because he distrusted Law; having returned in February 1720 he left in April fearing that the System was on the brink of collapse. At one stage Law had even threatened Cantillon with the Bastille. But on his return to France in June 1720 he settled his differences with Law and, as we have seen, they operated in tandem during part of the summer of 1720 when Cantillon worked for Law in Holland. By the autumn Law wanted Cantillon back in Paris working with him but Cantillon hesitated. No doubt he must have fancied the idea of being one of the main administrators of Law's highly centralized ﬁnancial system. No doubt also he must have been amused at the irony of having a Scotsman and an Irishman jointly managing French monetary and ﬁscal policy! Chandos advised him against accepting Law's offer, arguing that if Law fell Cantillon would be enmeshed in his disgrace and might not have had the time ‘to have provided yourself with a purse large enough to secure you against the terrors of such a day’—a remark that reveals much about the former Paymaster General's attitude to dipping into the public purse when in a position of responsibility. Twelve days later Chandos reiterated his warning, raising a new constraint in that as Cantillon had taken out French nationality he was subject to a recent edict ordering all French citizens to repatriate foreign-held assets.27 By 24 September Cantillon had made the decision not to accept Law's invitation to return to France. Chandos endorsed this decision: I have received the favour of yours of the 24th and must confess I cannot but be glad to hear you don't intend to return to France. The direction you had from Paris to give a good reason why you don't come back carries more with it than you seem to apprehend to his looks, as if their friendship was not so cordial.28

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But Law's powers of perseverance were great. He wanted Cantillon back in Paris and would not take no for an answer. Right through October and November he put increasing pressure on Cantillon to return. Chandos, on 25 October, then more worried about his own ﬁnancial position as a result of the collapse of both the English and Dutch stock markets, noted at the end of a letter, ‘surely Mr Law's behaviour towards you is no encouragement to return into France’.29 In November 1720 Law used the copper debt as bait to inveigle Cantillon back to Paris. By November the Mississippi System was in a state of virtual collapse and Pulteney's correspondence shows that the Amsterdam-based Protestant banker Jean-Henri Huguetan had been brought to Paris in an attempt to rescue the System. Huguetan (1665–1749) was a banker of vast experience who earlier, in 1707, had written a memorandum for the Duke of Marlborough to present to the Dutch. In this he suggested ways of preventing the French from paying their soldiers, then at war. His work so alarmed the French that they kidnapped him and attempted to bundle him over the border only to be stopped by frontier guards.30 In 1720 he was invited to Paris but, according to Pulteney, his arrival was kept secret. The situation must have been desperate for the French to invite Huguetan, their former enemy, to come and help them out of the dire ﬁnancial straits in which they found themselves. The ﬁnances must have been in extremis, for there is no evidence to show that Huguetan decided to stay on to salvage the System. Law, ever anxious for Cantillon to come to Paris, obviously preferred to be assisted by the Irish banker than by Huguetan. Pulteney's letter on 7 December shows the lengths to which Law was prepared to go to force Cantillon to change his mind: Monsieur Huguetan is arrived here but is as yet incognito; he is to set out under Mr. Law. However those who know his temper believe he will not long care to continue in that subjection, but will endeavour to rule himself. He is looked upon to have more knowledge and experience in money matters than Mr Law, and more capable of furnishing schemes for this country. Mr Cantillon who was a banker here and got considerably by the Mississippi, which he improved in the South Sea, and in the stocks in Holland, where he now is, has been pressed by Mr Law to return and settle here with great offers of preferment. He has hitherto declined it, upon which it has been signiﬁed to him, that if he does not comply with these offers, they will not pay some bills to the value of £20,000 sterling which he had drawn for copper he bought in Holland by commission for the Company and has sent here; but that this sum shall be reckoned as a tax on him for his gains in the Mississippi.31 Pulteney's letter indicates the high esteem Law had for Cantillon. Cantillon had brought off a rare winning treble for bankers of the time

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at the successive ‘ﬁnancial races’ in Paris, London, and Amsterdam. While Law's Scottish banker, George Middleton of the Strand in London, was just on the verge of bankruptcy, a common event in both Paris and London in the winter of 1720, Richard Cantillon had squirrelled away his specie and shown his fellow bankers how to survive and thrive through three different stock market booms and crashes. Cantillon refused either to be wooed by Law's offers of preferment or threatened by the prospect of not being repaid the £20,000 he had advanced to William Law. He cut his copper losses by impounding some of the metal he had bought at Amsterdam. But even when Law departed hastily into exile just before Christmas, aided by the Regent, there were still members of the ruling junta in France who wanted Cantillon to return to France. In January 1721 he was sounded out by Lady Mary Herbert with the offer of being made a Director of the Mississippi Company: As to what your Ladyship desire to know viz. whether it would be agreeable to me to be made a director of the Company there I can only say that I don't understand it and that considering the French would be apt to be jealous of any foreigner after Mr Law's proceedings I don't desire to be amongst them. There is an air of freedom and property in this island that would tempt me very much to stay here for good if I could enjoy lands in it but even as it is I am not in haste to go back.32 Cantillon declined the invitation and, owing to the wealth tax imposed under the 1721 Visa, did not return to France till 1727.

The Bursting of the South Sea Bubble Law was not the only person soliciting Cantillon's assistance during the autumn of 1720, for in October the Duke of Chandos, a man rich enough to build his magniﬁcent mansion Cannons at a cost of over £200,000, encountered considerable liquidity difﬁculties and had to borrow extensively from Cantillon. Chandos, like many others, was caught in the collapse of the South Sea Bubble. South Sea stock had reached 1,050 in the fourth week of June. The share then remained over 950 during July, dropping back 50 points to hover around 900 over the ﬁrst two weeks of August. But the last two weeks of August started a traumatic downturn in South Sea stock. Ironically, it was the Company itself that unleashed these bearish forces. The success of the South Sea Company and the rise in the share prices of the other big companies, the Bank of England, the East India Company, and the Royal African Company had induced a

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plethora of public issues in a wide range of newly established companies whose objectives varied from the serious to the bizarre. Some were plain swindles aiming to attract funds quickly from a gullible public. Others, such as the insurance companies, seemed to have more legitimate and forward-looking proposals.33 Financial capitalism was groping its way out of the womb but its umbilical cord was quickly to be severed. The South Sea directors had become increasingly worried about the new ‘bubbles’, as they were called, that were springing up each week. Their speciﬁc concern was that these ‘bubbles’, in seeking to raise capital from the public, would divert capital away from the South Sea Company. As the Company had no method of increasing the issue of banknotes it had to ensure that the limited amount of capital on the market did not leak out of the South Sea circuit into the coffers of the new ‘bubbles’. The directors resolved to use the legal system to force out of business other companies that were competing with it for cash subscriptions. The campaign was directed against the companies with the highest market ratings, that is companies with stock exchange quotations over twenty times the par price of their stock. On 18 August the directors applied for a writ of scire facias against four companies, the English Copper Company, the Royal Lustring Company, the Welsh Copper company, and York Buildings Company, alleging that they had misused their charters or had changed the status of the original charter given to them. For example, it was contended that the York Buildings Company had been transformed from one concerned with waterworks to a speculative land development company. However, given the illegal operations to which the South Sea Company itself had resorted, the action taken on 18 August was a clear case of the pot calling the kettle black. Furthermore, what was the position of the South Sea Company's bank, the Sword Blade Company, set up originally with a charter to manufacture hollow sword blades?34 The effect of the writ was to cause a collapse in the share prices of not only the companies affected, which at least had charters, but also those operating illegally without charters. If companies with charters could be prosecuted the legal status of those acting without charters was even less tenable. Anderson estimated that at the height of the boom the total market valuation of stocks was £500 million.35 Many of the shareholders in these secondary ‘bubbles’ also held shares in the mainline bubble—the South Sea Company. Exposed by their borrowings to ﬁnance share acquisitions, these shareholders could not sit back and attempt to ride out the sudden fall in their shares. They found it necessary to sell some or all of their South Sea stock to compensate their losses. These sales caused South Sea stock to fall, and

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a vertiginous downward process was activated. Within a week of the writ of scire facias South Sea had fallen 90 points to 810; by 30 August, twelve days later, the price was down to 755. To arrest this trend the South Sea Company announced a dividend of 50 per cent. Momentarily the downward slide was checked. The share price rose to 815 on the thirty-ﬁrst and 780 ex dividend, that is 830, on 1 September. But the market rally only lasted two days and the price started moving downwards towards 750. On 6 September South Sea fell 50 points and the next day it fell below 700. But worse was to come, for within two days it had crashed through the 600 barrier. The stampede to move out of the South Sea was really under way. The breaking of the 600 barrier had more than a psychological effect, for many banks had lent funds to investors during the early summer ‘bull’ market on collateral of South Sea stock valued at 600 or more. With the price moving below 600 the banks called in their loans and investors were forced to sell their stock. These sales magniﬁed the sellers' market and between 15 and 19 September the market dropped 200 points down to 380. At some stage in this downward process the South Sea Company went short on the market, selling shares on the basis that it would be able to repurchase them at a far lower price thereby making a proﬁt on the operation! Each fall in South Sea stock provoked cumulative reactions as investors' collateral was wiped out and creditors pushed their stock on to the falling market thereby accentuating the trend. People were losing fortunes not only on the shares they held but also on their contractual commitments to the South Sea Company. Transactors who had contracted to purchase shares at high prices but had only paid up one or two instalments on such purchases found themselves unable to meet the new repayment calls on their stock. Many transactors had been attracted into the market by the small initial payment that was asked for and the easy repayment terms, believing that they would be able to sell their shares long before having to complete the ﬁnal payment on the stock. Cantillon had remarked on this trend in the letter to Lady Mary Herbert on 29 April quoted above.36 Such shareholders, along with those who had converted their Government stock for South Sea stock at 800, wanted a change in their terms to compensate them, at least partially, for their heavy losses. But these neophytes were countered at an angry meeting of stockholders by those who had been in the stock for a longer period and did not want the value of their shares diluted by the offer of revised terms to latecomers. This shareholders' meeting on 20 September did not reach a decision and the next day the price of South Sea ﬂuctuated between 350 and 395.

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The Bank of England, whose operations had been dwarfed by the magnitude of the South Sea's projects in 1720, was called in to help to mount a rescue operation. But despite the Bank of England having reached what seemed to be an agreement with the South Sea Company aimed at supporting the latter's shares, a development that temporarily helped to stabilize the share price between 350 and 400 on 22 September, Exchange Alley was rocked two days later by the stopping of payments by the Company's bank, the incongruously named Sword Blade Company. The ﬁnancial system had started to develop huge ﬁssures, a development which Chandos pointed out to Cantillon when discussing the option contract the latter had made with Pierre Huguetan. But at this stage, Chandos was conﬁdent that the agreement between the South Sea Company and the Bank of England would counterbalance the fall of the Sword Blade Company and push the shares back up from under 300 to between 500 and 600: The stopping of the Sword Blade Company has occasioned no small prejudice to credit and has brought down SSS [South Sea Stock] to under 300. This is the effect of people's terror and as soon as their apprehensions are a little paciﬁed, I make no question but the stock will get up again, The Bank being coming in to support with the South Sea Company: amongst other articles it is stipulated that they shall receive the repayment of the loan to the public which was to have been made them at Midsummer next £1,600,000 and at Mich[aelmas] following the latter loan of about £1,700,000 in S.S. stock valuing each 100 at 400. This valuation will certainly raise the stock in a little time (for without it the Bank must be a very great loser) and it is generally judged by men of experience in these matters that it will be put up at about 500 or between 5 and 600.37 But the Bank reneged on its agreement with the South Sea Company. This agreement provided that ‘the Bank should take South Sea stock at 400, in payment of a sum of £3,775,025-17s-10d of redeemable debt held by the Bank’.38 However, the stopping of payments by the Sword Blade Company caused, as we see in Chandos's letter, South Sea to fall to 300. The agreement now looked a bad bargain for the Bank and its directors opted out of it. In taking such action the Bank probably saved itself, for buying into South Sea at 400 would have caused it to lose over £2 million, judging by the ensuing fall in the price of South Sea. Furthermore, many banks had failed or were on the verge of collapsing and credit had become extremely tight. That said, the Bank broke its word—in those days the City's implied rule of conduct, ‘my word is my bond’, had evidently not been coined and certainly was not being practised. Subsequent events would justify the Bank's refusal to ratify the agreement, but were the Bank's directors in a position to judge the

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poor state of the South Sea's ﬁnancial position on 27 September, the day when the decision not to ratify the agreement seems to have been disclosed? The market, as was to be expected, reacted harshly to this decision and South Sea hit 200 on 28 September. These changes in market sentiment come through strongly in Chandos's two letters to Cantillon on 27 and 28 September. In the ﬁrst letter he had expressed conﬁdence that as a result of the Bank of England/South Sea agreement the share price of South Sea would rise back to 500–600. But this conﬁdence was tinged with the realization that he was one of the ‘unfortunates’ who had not sold as much as he ought to have done when the market was buoyant. He still asked Cantillon to sell any of it, later on in the letter he speciﬁed 5,000 or 10,000 capital, ‘for three or four months at any price above 500’. He recognized that Cantillon had been right in advising him to sell out of the South Sea, ‘your remarks upon the SS project I fear are but too well grounded and it is incredible the distraction mankind is in already upon the fall of the Stocks’. These comments served as a prelude to Chandos's revelation of his own liquidity predicament. Chandos wrote to Cantillon, ‘there is no premium I would not give for the use of about £40,000 for about two months’.39 His problem was that he owed £70,000 and he was afraid his creditors would force him to sell stock at a price which he believed too low. Offsetting his debts Chandos had £200,000 capital in stocks and £100,000 in mortgages. Chandos was by no means destitute! He was still extremely wealthy but he lacked liquidity—liquidity being deﬁned as the ability to turn an asset into cash without loss or delay. Chandos had no desire to sell his stocks at prices which he believed were abnormally low, while the sale of mortgages would have been extremely difﬁcult given the shortage of credit in London. His letter of 27 September was a broad hint to Cantillon that he might help his old patron out of his temporary liquidity difﬁculties by lending him £40,000. Their roles had changed. Cantillon was no longer the borrower but the potential lender. Cantillon was no longer the man who had to be introduced to European bankers but someone who could possibly lend £40,000 on demand. Cantillon was no longer running errand services for Chandos, as we will see, but was asking the Duke to obtain information on the English credit rating of customers of his bank such as Pierre Huguetan, Lady Mary Herbert, and the Duke of Powis. Circumstances had changed and they were to change even more within the space of a day. On 28 September, as a result of the disclosure that the Bank of England was opting out of its agreement with the South Sea Company,

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the latter's stock plunged to 200. Chandos needed money and needed it fast. A special courier was called to his house and told to travel immediately to Cantillon in Amsterdam: Your last contained such instances of friendship as give me great reason to hope I shall succeed in the request I am going to make you, and which being of a nature that requires dispatch, I am forced to send a messenger on purpose to you about the very great and sudden fall of the stocks, as it has plunged whole families into irretrievable ruin and has involved even those who thought themselves most out of danger under no small difﬁculties.40 Chandos went on to add that he was in the latter grouping. He was in difﬁcult circumstances for, despite his still substantial net worth in stocks and land, ‘the scarcity of money is such, that I cannot raise ten thousand pounds in any manner or way I have tried’. He owed £70,000 and his money-lenders were pressing for repayment. The eighteenthcentury equivalent of the Maﬁa seem to have been knocking at his door looking for payment, ‘the persons I owe I really believe are, in earnest, when they tell me they are exceedingly fresh for it’. Chandos greatly feared that he would have to liquidate a large part of his shareholdings at par. Ruefully, in this letter on that black 28 September, Chandos reﬂected on the fact that he had been ‘a net gainer of £855,000’ a month previously! Chandos had sold some of his stock but not ‘as much as would quite clear me’.41 Assuming such sales were small and taking the stock he listed in his possession on 28 September, we can compare it with the market valuation of such stock a month earlier and obtain some indication of the extent of the ‘paper losses’ Chandos suffered in just one month (see Table 11). Despite the plunge of 550 points in South Sea stock over the month, Chandos's biggest loss was in East India stock where he had a huge holding of 141,000 shares. He lost £282,000 on these shares in a month! But these were paper losses. We believe that Chandos had bought a considerable quantity of his shares prior to the market boom of 1720. In October 1711 he had purchased £50,000 capital of the new South Sea shares, though we do not know whether this was on his own account or with public funds.42 He was a director of the East India Company and a member of the Court of Assistants of the African Company. His investment in the large British trading companies seems to have been a long-term one and he continued to believe even at the end of September that the downward trend in the shares of the leading companies would be reversed. This optimism seemed to be conﬁrmed two days later on 30 September. The market in South Sea turned, as a result of a meeting of

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Table 11.Chandos's Losses Between August and September 1720 Price Company

Chandos's holding East India 141,000 South Sea 47,000 Bank of Eng- 10,000 land Royal African 40,000 Co (a1 September prices.)

28 August

Market Valuation ( £ ) 28 September 28 August

28 September Loss ( £ )

350 780 235

150 230 170

493,500 366,600 23,500

211,500 108,100 17,000

282,000 258,500 6,500

130a

50

52,000

20,000

32,000

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the Court of Directors the previous day, where it was resolved that instead of stock being exchanged at 800 and 1,000 for issues made in August it was to be priced at 400. This move, it was felt, would greatly help investors in the August subscription and help to restore credit.43 Suddenly the market was all buyers, a scene described by Chandos to Cantillon on 30 September: Things here have taken a quite different turn. The resolution of the General Court has inspired everyone with new life and stocks are rising apace. South Sea is got up to 350 and all buyers, so that I desire you'll not sell my S. Sea for my account under 500 or at least 450 . . .44 As a result of the change in the market Chandos needed to borrow only 200,000 guilders, about £20,000, which he wanted transferred through Pels's account to Sir Matthew Decker in London, and £10,000 guineas in coin. He had arranged with John Senserf, son of the Dutch banker, to notify his father in Rotterdam to deliver 10,000 guineas to Chandos or his agents on the receipt of Cantillon's money. Cantillon, let it be said, went to Chandos's assistance immediately. Chandos's letter had been written on 11 October. It would have taken a couple of days to deliver it to Cantillon in Amsterdam. However, by 15 October the latter had arranged to transfer 200,000 guilders to Andries Pels for Chandos. We can see the transfer of this money through Cantillon's account at the Amsterdamsche Wissel Bank (AWB). On 9 October (118,000) and 14 October (82,000), Andries Pels had lodged 200,000 guilders with Cantillon.45 Between 15 and 23 October, Cantillon transferred to Pels for Chandos's beneﬁt. Whatever the downturn in his paper proﬁts, Chandos still did business in style, sending over his own private sloop to collect the 10,000 guineas which Cantillon had arranged to send to John Senserf. Cantillon had helped his aristocratic friend at a critical moment and the Duke was extremely thankful, promising in return to reveal to Cantillon information on the Government's plans with respect to the South Sea Company. This information, he hoped, would make Cantillon a larger fortune than the one he had already made in France: I cannot end without repeating again the sense I have of the kindness you have shown me on this occasion and which is still imprinted deeper in me by the generous manner you have done it in. What gives me no small satisfaction is that I have a prospect of knowing something that is intended to be done here as soon as the Parliament meets of returning your civility in a way which may prove as beneﬁcial to you almost, as the whole of your transactions in France.46 The promised information was presumably privileged information but Chandos, as in his Paymaster General days, seems to have put the

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private interests of himself and his friends above those of the public interest. The information never came through and South Sea continued its downward trend, ﬁnishing the year between 150 and 200. But the £31,000 that Cantillon lent Chandos in October was only part of the Duke's borrowing from Cantillon. On 1 November Chandos acknowledged in a letter to Cantillon that he owed him £68,030. Some of this debt had probably come through losses on shares in the Dutch West Indies Company, a share that Cantillon had speciﬁcally recommended. By 24 October Chandos was ‘very glad to hear you concerned me no deeper in the West’. The size of Chandos's borrowing from Cantillon exempliﬁes the extent to which Richard Cantillon had gone liquid prior to the crashes in the Dutch and English stock markets. Cantillon seemed in no hurry to be repaid the money he lent in October, allowing Chandos to ﬁx the repayment date himself: ‘Midsummer next by which time our Parliament will have adjourned or prorogued long enough for the stocks to have felt the beneﬁt of their resolution’. Furthermore, Cantillon had offered Chandos an extra line of credit on the Amsterdam banker George Clifford for up to 120,000 guilders, roughly £12,000, on 24 October. Initially Chandos had turned down this offer, but by 1 November he asked if he could draw 120,000 guilders on Clifford's bank in order to pay for £5,000 Bank of England stock that he had purchased at 225 when ‘the Bank had just come into an agreement to support the public credit upon a supposition their stock could not fail to rise upon it’. Chandos was certainly the eternal optimist, always believing that the market was about to move upwards once again. Earlier, on 24 October, he asked Cantillon to purchase 40,000 East India stock for delivery in March 1721, arguing that he felt this stock had reached its low and that as its ‘constant dividend’ was 10 per cent it was a good buy.47 On 3 November he drew for £11,000 on George Clifford to purchase his Bank of England stock, leaving him indebted to Cantillon for £79,030. The relationship had certainly changed. Chandos was now very much Cantillon's debtor and the repayment of the debts greatly strained their relationship.

Cantillon's Option Market Dealings Cantillon's ability and willingness to use a wide range of ﬁnancial techniques during the European stock exchange booms of 1720 is further evidenced by his involvement in option dealings with the Amsterdam banker Pierre Huguetan in the autumn of 1720. An option is a ﬁnancial instrument giving its purchaser the right, but not the obligation, to buy or sell a security or share at a speciﬁc price

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(the exercise price) on or before a certain date. The buyer of an option pays a non-refundable premium for an option to the seller. A call option gives the buyer the right to buy the security or share at a speciﬁc price before a speciﬁc date. A put option gives the right to sell a security or share at a speciﬁc price before a speciﬁc date. A call option is based on the buyer's belief that the price of a share will rise above a certain price, the option's exercise price, in the future. If this happens then the buyer of the call option will have the opportunity to purchase the shares at the lower price from the issuer of the option, thereby making a proﬁt. A put option is based on the buyer's belief that the price of a share will fall below the option's exercise price in the future. If this happens then the buyer of the put will exercise his option and sell to the issuer at the agreed price. If he does not own shares he may purchase them at the lower market price and then sell them to the option issuer. Call options are therefore purchased when there is a widespread expectation that market prices will rise and conversely put options are in demand if there is a widespread expectation that market prices are due to fall. John Law was an adept trader in the option markets and it may have been from some of Law's earlier dealings that Cantillon picked up the techniques of option trading. As early as May 1718, Law arranged a Mississippi call option with Thomas Crawford, the British envoy to France (1715–24), whereby Crawford agreed to furnish 20,000 livres at 30 per cent loss at any time over the following twelve months.48 As the nominal price of Mississippi shares was 500 livres, the transaction thereby involved Law acquiring the right to purchase 40 shares of the Company at an exercise price of 350 livres per share. At this early stage of the System, Law wanted to show his conﬁdence in his newly established Company, and the option transaction was a good means of doing so. Law made a handsome proﬁt on this transaction. Another winning transaction by Law was with the Chevalier Philippe Alexandre Conﬂans, a cousin of the Chancelier d'Aguesseau. This involved an even-money bet for 1,000 livres that the price of Mississippi shares would rise above those of the South Sea Company.49 Law's predilection for option dealings created grave problems for him in 1720. His attempt to introduce a type of ofﬁcial call option market in Mississippi shares, the primes, whereby it was possible to purchase the right to buy Mississippi shares at 10,000 livres, on the payment of a premium of 1,000 livres, backﬁred in that many existing shareholders sold their shares in order to purchase primes. Primes, despite committing purchasers to pay 11,000 livres for one Mississippi share, were temporarily attractive in that they enabled potential shareholders to acquire rights to ten times the number of shares that

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they formerly possessed. Lady Mary Herbert, as we have shown, was one such investor attracted by primes. However, the substitution of primes for shares caused the price of Mississippi shares to fall and within a short period of time this partial option market was abandoned. Law's chauvinism, combining with his option dealings, caused him further problems, for he arranged a very sizeable put option for East India Company shares with Lord Londonderry just at the start of the London stock market boom. He lost very heavily as the price of East India rose following the lead established by the South Sea Company.50 Cantillon traded in South Sea options as early as May 1720, attempting to deal in ‘putts’ for Lady Mary Herbert.51 However, it was in Amsterdam in September that Cantillon really went to work on the option market in South Sea shares. The ﬁrst mention of Cantillon's involvement in this option market arose at an acrimonious meeting on 24 September with the broker Daniel Dias de Pas and a certain Louis Felix, both acting on behalf of Pierre Huguetan. They came to Cantillon's residence in Amsterdam to ﬁnalize a contract between himself and Huguetan: ‘The meeting was stormy, Cantillon throwing the draft contract at the feet of his visitors, who had to leave without accomplishing their mission.52 Despite this initial disagreement a contract was arranged which Cantillon mentioned a week later in a letter to Chandos. Chandos replied: The agreement you have entered into with Mr Huguetan for 25,000 cap[ital] SSS [South Sea Stock] at the different periods you mention, has so great an appearance at present of providing an advantageous one, that I fear the gentleman will hardly stand to it, and if he has not given good security, you may depend upon it, his principles will scarcely induce him to make it good. Chandos went on to discuss the problems raised by ‘the stopping of the Sword Blade Company’ in an extract quoted above on page 178. He ﬁnished by remarking: I mention this to let you see that your bargain is likely to prove a beneﬁcial one and therefore you should not take shares in, however as there is a chance for the latter part of it proving otherwise, if you are willing to take anyone with you, I am very ready to go such a part in each of the terms as you think proper.53 It is difﬁcult to glean from the above whether Cantillon was involved in a call or a put option with Huguetan. From some of the later correspondence between Chandos and Cantillon it is quite clear that it was a put option, that is an option giving Cantillon the right to sell South Sea at a price struck sometime between 24 September and 1 October.

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Making allowances for the eleven-day difference between the Julian [England] and Gregorian [Continent] calendars and the time taken for London prices to be signalled to Amsterdam, we believe that Cantillon acquired the right to sell South Sea to Huguetan at a price of around £600 sterling per share. With a capital of £20,000 involved, this meant that Cantillon had the right to sell 200 shares (nominal price £100) to Huguetan at around £600 per share. By the time Chandos wrote this letter Pierre Huguetan had arrived in London: ‘Mr Huguetan is now I am told in London. Would you have me endeavour to ﬁnd him out and say anything to him of what you have wrote in relation to your contract with him.’54 Cantillon, still living in Amsterdam, started to worry about Huguetan's ability to honour the option contract as the price of South Sea continued to fall. By 24 October, when Chandos wrote once again about this contract, South Sea were standing at just over 200, a third of the price at which the option contract had been arranged. Cantillon had asked his friend to consult with the British Attorney-General about the possibility of impounding some of Huguetan's assets in London: The bargain you have made with Huguetan is now become so sure of proﬁt, and the risk I should run on my part if I was to come in a sharer would be so inconsiderable, that there is no colour of reason for your parting with any of it, and therefore I can only return you my humble thanks and wish you all the success you have so fair a prospect from it. I go to London tomorrow and will discover with the Attorney General what is the proper method for arresting his stock and send you an account of it by Friday's post. There are two brothers of this name, which of the two you are concerned with I know not, but you'll let me know it, the name being to be expressed in the arrest.55 By 10 November, with South Sea still languishing at just over 200, Chandos informed Cantillon that he had attempted to determine the value of Pierre Huguetan's stock market holdings in London. He had searched the East India Company's register and found that Huguetan had just ‘one thousand pounds capital’. Chandos went on to add: What he has in the South Sea or Bank I shall know by next post but by what I understand from the directors they have no power to prevent his transferring it away if he should be inclined to do so—The only method I can learn for you to take is to attach his effects if you can ﬁnd out the hand in which they are lodged, and this too only in case of debt. For as to contracts and bargains still depending it is thought the law will not meddle, in regard till they are determined it cannot legally be known, whether the party will stick to the performance of them or not, nor can any legal demand (till that time comes) be made upon them.

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I return you many thanks for your kind intentions of letting me into a share of this agreement but it would be very unreasonable in me to accept it and therefore if he does prove so honest as to stand by his word, I do however decline it, nor could I with any reason justify myself the depriving you of so considerable a proﬁt.56 In summary then, Cantillon, as is quite clear from Chandos's letters, had made a considerable ﬁnancial killing on his option contract with Pierre Huguetan. Once again he had shown his versatility in choosing the right ﬁnancial instrument to exact maximum proﬁt. Having made his paper fortune, Cantillon's attention had turned to debtcollecting. He was owed considerable sums of money by some of the most prominent traders in the European stock exchanges. His list of debtors was impressive, ranging from the Duke of Chandos, to John and William Law, to Joseph Gage, Lady Mary Herbert, the Duke of Powis, and Pierre Huguetan. He was to discover that debt-collecting was an extremely nasty business.

Conclusion How good was Richard Cantillon as a market operator during the stock market booms that arose in Paris, London, and Amsterdam in 1719–20? Certainly, when it came to imposing a retrospective proﬁts tax on him, the French authorities believed that this ‘inconnu’ had made a fortune of 20 million livres, a ranking which placed him in the top twenty ﬁve Mississippian millionaires. The Marquis de Mirabeau, one of the founding fathers of physiocracy, and author of the eighteenth-century best seller, L'Ami des hommes (1756), contended that Cantillon anticipated the complete development of Law's System and left orders with his correspondents on when to trade at various stages of the stock market cycle that he anticipated. This view of Cantillon's perfect stock market prescience has been accepted by subsequent commentators. However, it has been shown here that this view owes more to Mirabeau's elaborate literary embroidery than to the actual way in which Cantillon made his fortune. Using contemporary letters and manuscripts an alternative view of Cantillon's stock market behaviour has been presented. This view does not contradict the account that Cantillon greatly enriched himself during 1719–20, but shows that he made his money in a way quite different from Mirabeau's perfect anticipations scenario. Cantillon made his fortune in three different ways: (1) pure stock market speculation, (2) exchange rate hedging, and (3) option dealing. His stock market speculation was characterized by an uncanny ability to locate himself in Paris, London, and Amsterdam just at the

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start of each boom. He bought early into the Mississippi and South Sea shares but sold out when he felt that the activities of these companies were getting out of hand. From a short-run viewpoint he under-anticipated the extent of the market booms. He sold Mississippi shares around 2,500, though four months later these shares had risen to 10,000. He advised his clients to sell South Sea stock at around 350 only to ﬁnd them rise to a high of 1,050 within a month of this advice. Cantillon, unlike his friends and business associates such as Joseph Gage and the Duke of Chandos, was happy to realize his capital gains once he felt that the underlying nature of the Mississippi and South Sea companies had become unsound. In the longer-run time horizon of nine months in the case of the Mississippi System and four months in the case of the South Sea Company, his view was vindicated. As was shown in the previous chapter, he made a second fortune taking a position against the French currency in the foreign exchange market, once he realized the basic incompatibility of Law's policy of expanding the money supply while simultaneously attempting to revalue the exchange rate of the new paper banknotes. However, as will be shown in detail in Chapter 11, Cantillon's sale of shares in the Mississippi Company between March 1720 and January 1721 was not always superprescient. During this period he sold shares before the market totally collapsed but he did not sell them at the market high as alleged by his adversaries. His option deal with Pierre Huguetan suggests that he ended 1720 on a high note by contracting to sell South Sea shares prior to the major collapse in this market. Cantillon did not anticipate perfectly each twist and turn of the European stock market booms of 1719–20, but he showed a great ability to appraise rationally the consequences of policy decisions and their implications for different markets.

Notes 1 2

3 4 5

PRO SP 78/166, 7 November 1720. Pulteney to Craggs. The best accounts of the South Sea Bubble are to be found in W. R. Scott, The Constitution and Finance of English, Scottish and Irish Joint-stock Companies to 1720 (1912, reprinted Gloucester, Mass., 1968) and P. G. M. Dickson, The Financial Revolution in England (London, 1967). The following account of the South Sea Company's activities in 1720 is derived chieﬂy from these two works. Scott, op. cit., i. 409. Ibid., i. 409. See also iii. 307. Dickson, op. cit., p. 101: ‘Its proﬁts would come from the difference between the proceeds of this sale and the sum payable to the government. Thus the larger the sum payable to the Exchequer, the higher the market price of stock had to be for the company to get the same proﬁt.’

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6 7 8 9 10 11 12 13 14 15 16 17

18 19 20 21 22 23 24 25 26 27 28 29 30

189

Ibid., p. 103. Scott, op. cit., iii. 314–17. Dickson, op. cit., p. 126. Ibid., pp. 131–2. HMC Portland, v. (1899), 594. Letter from Edward Harley to Robert Harley, Earl of Oxford, 21 April 1720 (OS), p. 594. NLW Powis 10726, London, 29 April 1720 (OS). Richard Cantillon to Lady Mary Herbert. NLW Powis 10726, London, 19 May 1720 (OS). Richard Cantillon to Lady Mary Herbert. According to J. K. Galbraith, Fisher backed up his opinions with his money. ‘In the late nineteen twenties Fisher went heavily into the stock market and in the Crash lost between eight and ten million dollars.’ See Galbraith, The Age of Uncertainty (London, 1977), 192. Alexander Pope, Epistle to Several Persons, ed. F. W. Bateson (London, 1951), 102. HMC Portland, v. (1899), 599, Edward Harley to the Earl of Oxford, 25 June 1720 (OS), 599. Scott, op. cit., n. 2 above, iii. 321. An account of this transaction is to be found in ANMC lxxxii. 346, 6 March 1755, ‘État déposé’. John Law discussed this transaction with his brother William in a letter written in 1722 ‘Inform me of M. Cantillon, and Colebrook's affair, and of that of Mr Briggs. Likewise of the copper and tobacco assigned to Lord Londonderry.’ Letter book of John Law in the Bibliothèque Méjanes, Aix en Provence, fos. 205v and r. The copper affair continued to drag on right through the 1720s, as a further letter from William Law to his brother John, dated 23 December 1728, shows. See Law Papers no. 190 in the Rijksarchief in Limburg, Maastricht, Holland. This letter will be quoted in detail in Chapter 13. PRO SP 78/166, 8 March 1720. Pulteney to Craggs. PRO SP 78/166 31 July 1720. Pulteney to Craggs. Mercure historique et politique (July 1720) (The Hague), ‘Nouvelles de la Grande Bretagne’, 96 (translation). Richard Hyse, ‘Richard Cantillon, Financier to Amsterdam, July to November 1720’, Economic Journal (December 1971), 811–27. Huntington St. 57, xvii 166. Chandos to Cantillon, 6 September 1720. Hyse, op. cit., 826. NLW Powis 10705. Cantillon to John Hughes, 23 September 1720. Huntington St. 57, xvii. 182, 27 September 1720. Chandos to Cantillon, ‘you are very generous in being willing to take the loss upon yourself, but it was my own act, and it is not reasonable you should suffer for it’. Ibid., St. xvii. 57, 161–3, 25 August 1720. Chandos to Cantillon. Ibid., St. 57, xvii. 166–7, 6 September 1720. Chandos to Cantillon. Ibid., St. 57, xviii. 159, 18 September 1720. Chandos to Cantillon. Ibid., St. 57, xvii. 225, 14 October 1720. Chandos to Cantillon. Herbert Luthy, La Banque protestante en France (Paris, 1959), i. 167–8. There were two Huguetan brothers, JeanHenri and Pierre. They were Huguenots from Lyons who emigrated to Amsterdam after the revocation

190

31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56

LONDON AND AMSTERDAM: THE GREAT CRASHES

of the Edict of Nantes. They were both booksellers and bankers. They established a wide multinational banking business that stretched as far as Turkey. At the time that Jean-Henri Huguetan was invited to Paris, Cantillon was involved in a massive option contract for South Sea shares with his brother Pierre in Amsterdam, a transaction which is dealt with later. PRO SP 78/166, Paris, 7 November 1720. Pulteney to Craggs. NLW Powis 10726, London, 9 January 1721 (OS). Richard Cantillon to Lady Mary Herbert. For a full list of these companies, some 190 in all, see W. R. Scott, op. cit., n. 2 above, iii. 445–58. One of the more bizarre companies was the co-partnership for trading in hair, ‘hair being a commodity whose consumption is equal to, if not exceeds, most of the necessaries, used in dress by both sexes’! Scott, op. cit., n. 2 above, iii. 324–6. See also Adam Anderson, An Historical and Chronological Deduction of the Origins of Commerce (1764), ii. 96. Anderson, op. cit., ii. 302. NLW Powis 10726, 29 April 1720 (OS). Cantillon to Lady Mary Herbert. See n. 11 above. Huntington St. 57, xvii. 182–5, 27 September 1720. Scott, op. cit., n. 2 above, iii. 240. Huntington St. 57, xvii. 182–5, 27 September 1720. Chandos to Cantillon. Ibid., St. 57, xvii. 191, 28 September 1720. Chandos to Cantillon. Ibid. C. H. Collins Baker and Muriel Baker, The life and circumstances of James Brydges ﬁrst Duke of Chandos (Oxford, 1949), 51. Scott, op. cit., n. 2 above, iii. 329. Huntington St. 57, xvii. 196, 30 September 1720. Chandos to Cantillon. Cantillon's account at the Wissel Bank is described in detail in Hyse, op. cit., n. 21 above. Huntington St. 57, xvii. 223–5, 14 October 1720. Chandos to Cantillon. For further details on these letters see Huntington St. 57, xvii. 254–6, 1 November 1720 and xvii. 188, 3 November 1720. Chandos to Cantillon. Maastricht, Rijksarchief in Limburg. Papers relating to John and William Law, 1715–34. No. 29, a signed acknowledgement of this option deal by Thomas Crawford. Ibid., no. 30, a signed acknowledgement of this transaction by Conﬂans. Earl J. Hamilton, ‘John Law of Lauriston: Banker, Gamester, Merchant, Chief?’, American Economic Review, lvii. nos. 1–2 (1967), 273–82. Letter of 29 April 1720 (OS) from Richard Cantillon to Lady Mary Herbert quoted above. See n. 11. Hyse, op. cit., n. 21 above, 817. Huntington St. 57, xvii. 182–5. Chandos to Cantillon, 27 September 1720. Ibid. Ibid., St. 57, xviii. 167–8. Chandos to Cantillon, 24 October 1720. Ibid., St. 57, xvii. 262–5. Chandos to Cantillon, 10 November 1720.

10 The Rich Mississippian and His Wife Mary Anne On 27 November 1720, the famous London publisher and bookseller Jacob Tonson reported meeting both Richard Cantillon and Sir Isaac Newton in Exchange Alley in London.1 Tonson was a well-known personality in literary circles though, like many a publisher, he was subjected to the ridicule of one of his authors, in this case Dryden, who described him as follows: With leering looks, bull faced, and freckled hair, With two left legs, and Judas colour'd hair And frowsy poses that taint the ambient air.2 Tonson had invested part of the proﬁts from the publishing business in Mississippi shares and was more concerned in their fate than in the attitude of his writers to him at this time. Earlier that autumn, in September, he had instructed his banker John Drummond, ‘to leave my affairs in Mr Cantillon's hands’ when Drummond left Paris.3 Tonson had invested £14,000 sterling in Mississippi shares and obviously wished to consult with Cantillon as to the likely fate of his greatly depreciated French shares. Tonson's linking of Cantillon and Newton in Exchange Alley makes one wonder if it was at this stage that Cantillon debated with Newton on the appropriateness of the latter's reduction of the guinea to 21 shillings, an issue discussed by Cantillon in Chapter 4 of Book III in the Essai. Like Tonson, Cantillon was concerned with ﬁnancial matters. He was owed considerable sums of money, in particular by Lady Mary and the Powis family, by Pierre Huguetan, and by the Duke of Chandos. He later estimated that Joseph Gage, Lady Mary Herbert, and other members of the Powis family owed his bank £64,603.4 Lady Mary, owing a further £60,000 to Lord Londonderry, had been forced to ﬂee from London to escape his writ of ne exeat regna. Her debts had already broken the London banker Jernegan.5 Her departure to France did not materially improve her position, as a letter to her brother Lord Montgomery from a Mr Ward a year later indicated: She is a strange lady. How she lives I do not know. She killed two or three horses in one day from Versailles. I saw her pass the Bank last week with a

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patched equipage, Gage's horses, Aunt's coach, and the Duke's footman. I fear after all she is a neant like all the other great visas. Gage was better beloved than she and they have not given him a farthing and never will.6 Fearing that Lady Mary would be unable to pay her debts, Cantillon set in motion the legal machinery to sequester the assets of her father, aunt, and brothers who had provided cross-guarantees for borrowings that she had made from him. The legal processes resulting from these borrowings are discussed in Chapter 11. If our interpretation of the Cantillon–Huguetan South Sea option contract is correct, then Pierre Huguetan had lost as much as £80,000 sterling, over £2.5 million in today's money, to Cantillon by the end of November 1720. Cantillon's earlier correspondence in October with the Duke of Chandos showed that he had already attempted to sequester Huguetan's holdings of shares in British companies.7 No doubt the Huguenot bankers remembered Cantillon's ﬁnancial success over their confrère Pierre Huguetan, for a number of them, led by the banker Isaac Thellusson, were prominent in giving evidence against Cantillon in the French courts in the late 1720s. Cantillon also needed to acquaint himself with the ﬁnancial situation of the Duke of Chandos notwithstanding the latter's great wealth, a wealth which allowed him to maintain a full choir, along with the great composer Handel, in his residence at Cannons. As shown in Chapter 9, the Duke had run short of liquidity in the autumn of 1720 and had borrowed over £79,000 from Cantillon. Despite the wealth of the Duke, Cantillon must have been worried about his loan during December of 1720. The collapse of the South Sea Bubble had created massive strains for the ﬁnancial system. Many of the London-based Scottish bankers had gone bankrupt, including John Law's banker George Middleton. These bankruptcies and the general ﬁnancial distress caused the ruin of prominent Scottish lords such as the Duke of Argyll.8 Even the Bank of England came close to collapsing when there was a run on it by depositors just before Christmas. The memory of this event was deeply embedded in Cantillon's memory, for it is one of the few events of this tumultuous time that he explicitly referred to in the Essai. He described the stratagems that had to be resorted to in order to prevent the Bank from failing: The reﬁnements introduced to support the Bank and moderate its discredit were ﬁrst to set up a number of clerks to count out the money to those bringing notes, to pay out large amounts in sixpences and shillings to gain time, to pay some part to individual holders who had been waiting whole days to take their turn; but the most considerable sums were paid to friends who took them away and brought them back secretly to the Bank to repeat the same manoeuvre the

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next day. In this way the Bank saved its appearance and gained some time until the panic abated. But when that did not sufﬁce the Bank opened a subscription engaging trusty and solvent people to join as guarantors of large amounts to maintain the credit and circulation of the Bank notes. It was by this last reﬁnement that the credit of the Bank was maintained in 1720 when the South Sea Company collapsed.9 The fact that the Bank had to rely on this subscription list underwritten by ‘wealthy and powerful people’ to stop the run on the Bank's deposits showed how close the Bank came to bankruptcy. If the Bank had collapsed it would have created a far deeper ﬁnancial crisis than that already experienced through the collapse of share prices. The merger of the Banque Royale in France with the Mississippi Company had led to a collapse of the French monetary system in accompaniment with the stock market crash. Britain had been fortunate that the South Sea Company had not been allowed to take over the Bank of England, but even then the Bank had narrowly avoided bankruptcy. In August 1721 Cantillon asked Chandos to repay the amount outstanding on the money he had lent him. The loan had been due to be repaid in full by the middle of the summer. Chandos was clearly rankled by Cantillon's demands on a man of his stature. He wrote back to Cantillon: ‘Yours of the 17th is come safe to hand. I cannot but be concerned to ﬁnd by it the uncaring you have so often showed on account of the money you accommodated me with still remains, notwithstanding the assurances I have given you that you shall soon receive it . . . ’10 He offered Cantillon a choice of assets to cover the amount outstanding. These assets were (1) stock of the Royal African Company with the residue to be made up by a draft on Pels, (2) £1,000 per annum on the per cent Barbadoes quitrents, or (3) mortgages. In the case of the mortgages Chandos offered him the mortgage he had on Bolingbroke's estate: As for the mortgages and stock, what I wrote you on that head was true and I have several times offered you the ﬁrst as a security and now again renew it, that if you'll pitch upon any person to whom it may be assigned over in trust for you I will very gladly concur in it; the mortgage I have on Lord Bol[ingbroke's] estate amounts to above £36,000.11 The problem about Cantillon acquiring the mortgage which Chandos alluded to was that as a Catholic he could not own land in his own name—a problem he had mentioned earlier that year to Lady Mary Herbert—and consequently would need to have it held on his behalf by some third party.12 This approach did not appeal to Cantillon and he opted for the Barbadoes quitrents. Chandos ﬁnished this particular letter on a hostile note, ‘there be

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nothing I desire more than to have an end of this affair’.13 While Chandos went on to acknowledge that Cantillon had been generous in making the loan, he also remembered that it was Cantillon who had advised him to stay out of Mississippi shares: I cannot but remember on the other side that had you followed my directions, and Mr Law's repeated advice, I had made as considerable a fortune in the Mississippi as some others did and not been in a condition to have needed such a friendship from you:14 This remark was quite disingenuous on Chandos's part. We have already shown that Cantillon had advised Chandos to stay out of Mississippi shares in August 1719. However, the Duke did not accept this advice. He sent a large sum of money to the Parisian based banker John Drummond in October 1719 to purchase Mississippi shares on his behalf. Once again Chandos's chronic inability to take capital gains at the opportune moment allied with his reluctance to sell shares on a falling market resulted in him losing most of the £35,000 he had invested in the Mississippi Company. Over the following years he made pathetic attempts to bribe various French ofﬁcials associated with the 1721 Visa. He wrote to the Dutch banker Andries Pels in May 1722 to ask him to use his inﬂuence with the French ﬁnancier Samuel Bernard. Bernard's son was one of the chief administrators of the Visa. Chandos suggested to Pels that: ‘If a present to any friend of this Samuel Bernard would be a motive to engage him in my behalf, I will willingly leave it to you to determine to what amount and whatever you should please to promise in my name shall be most punctually performed.’15 A month later Chandos wrote to Samuel Bernard proposing that, if money was required ‘pour faciliter l'expédition de cette affaire’, he would be happy to send it to him.16 Chandos had lost none of his ability to give pots-devin—he even sent Samuel Bernard a case of ‘l'eau de Barbade which is very difﬁcult to be met with in France’.17 Thus, while Chandos could blame Cantillon for his advice not to purchase Mississippi shares in the summer of 1719, he could not claim at the same time that he had missed the opportunity of making money out of the Mississippi Company. He had acquired a shareholding costing him £35,000 and lost most of it. He evidently wished to use the episode to sever his relationship with Cantillon. By October 1721 Chandos was disputing with Cantillon as to whether he had requested the latter to purchase Dutch West Indies shares in 1720. ‘I questioned whether I ever gave you an order upon Mr Pels for the West Indies subscriptions.’18 Such questioning showed that their relationship had greatly deteriorated for Chandos had never doubted Cantillon's word in any of the previous dealings they had. Later that day in a letter to

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Andries Pels, Chandos's memory seems to have improved: ‘I desire you'll please to deliver up or transfer to Mr Cantillon the bearer the several West Indies subscriptions you have of mine in your hands or name and for so doing this shall be a sufﬁcient authority and discharge.’19 The letter of 26 October 1721 from Chandos to Cantillon, the last extant letter between them, heralded the end of their ten-year relationship. It had started during the ﬁnal phase of the War of the Spanish Succession, with Cantillon very much an employee of Chandos. Chandos through his proﬁteering activities during the War had emerged one of the wealthiest men in England. By 1721 the disparity between the two men's personal fortunes had been greatly reduced by Cantillon's ability to play the stock and foreign exchange markets and by Chandos's inability to sell shares on a falling market. Cantillon's fortune was immense. Mirabeau later wrote that Cantillon had houses in ‘seven of the principal cities of Europe’.20 His loan to Chandos, the capital gain he made from Pierre Huguetan, as well as the money due from a wide range of debtors ranging from John and William Law, to Joseph Gage, to Lady Mary Herbert and the Powis family, suggest that Cantillon had emerged from the 1719–20 European stock booms as one of the most successful market operators. This view as to his ﬁnancial successes was conﬁrmed, as Cantillon feared, by the French authorities under the conﬁscatory Visa of 1721–2. Earlier, in Chapter 4, it was shown how the French authorities periodically resorted to arbitrary reductions of part of the state's indebtedness. In 1716 596 million livres of the state's ﬂoating debt had been arbitrarily reduced to 196 million livres by the Pâris brothers as a measure to improve the state's ﬁnancial situation. The operation in 1721, run once again by the Pâris brothers, was more grandiose. Public notaries were obliged to disclose all ﬁnancial and property transactions between July 1719 and December 1720. When a complete picture was obtained, securities with a nominal value of 2.5 billion livres were reduced to a value of 1.7 billion. Additionally, an order of 15 September 1722 introduced a wealth tax on the property of big Mississippians, ‘les hommes nouveaux’. These ‘actionnaires, millionaires et autres Mississippiens’ were divided into four classes.21 Cantillon was listed fortieth in the ﬁrst class comprising the leading forty-six Mississippian millionaires. On examination of this class one ﬁnds that only twenty-two people were listed as having made more money than Cantillon. His capital gains were estimated at 20 million livres. At the exchange rate then prevailing in September 1722 such a sum was equivalent to over £630,000 sterling. The tax to be levied against Cantillon's estimated gains was 2.4 million livres.

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Cantillon had stayed away from France, fearing the consequences of the taxing activities of the Visa authorities. He had written from Amsterdam in May 1722 to John Hughes in Paris about the matter: ‘I am told they are busy in taxing the Mississippians that have gained estates and that the affair will be over before June next when I shall see whether my name is left out.’22 Reading between the lines here one suspects that Cantillon had his agents working hard behind the scenes to have his name excluded from the Visa. They failed, but at least gained the compensation of having him classiﬁed as an ‘inconnu’. Cantillon was certainly not unknown in Paris at this time, for his bank was still operating there and was listed in the annual publication, the Almanach royal. No doubt the Pâris brothers and some of the two thousand clerks employed in the 1721–2 Visa had a great deal of detailed information on Cantillon which in some way was suppressed. Despite omitting details of Cantillon's career, the French authorities still wanted him to pay the tax. By January 1723 he still had not paid the tax and an order was made to proceed to the sale of the property of ‘Antoine Richard Cantillon’.23 Cantillon stayed away from Paris during this period and progressively wound down the operations of the bank of Cantillon and Hughes. The bank had also been involved in the Visa operations, for it disclosed details on share transactions by many non-residents. The client list, detailing such transactions, which was presented by the bank's notary in June 1721, was impressive, ranging from prominent London ﬁnancial personalities such as Matthew Wymondesold and Moses Beranger, to English merchants such as Thomas Doggett, William Lock, Edward Jones, James Dolliffe, James Alexander, Robert Newton, John Tutt, Colonel John Fermor, Henry Cairnes, Bulstrode Peachy, Francis Biddulph, Samuel Clarke, Edward Jeffreys, Timothy Treadway, Cantillon's friend Henry Furnese, to Dublin merchants such as John Bayly, and the banker Richard Maguire. It also included some Irish people living in France, such as Captain Edmund Fitzgerald, Anastase Browne, and Cantillon's former mistress Olive Trant, by then the Comtesse d'Auvergne.24 In October 1721 John Hughes was summoned by Cantillon to London. The two men settled the accounts of the bank. The accounts show transactions amounting to 430,736 Dutch ﬂorins (around £43,000 sterling) between April 1720 and October 1721, while a separate account for the months of July, August, and September 1720 shows transactions amounting to 4,754,989 livres. The accounts proved, according to Cantillon, that the bank owed him £13,518 by the end of November 1720. He added to this a further 48,000 ﬂorins which represented an injection of capital on his part as commandite in October

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1721. Adding this injection of capital to the £13,518, he estimated that the bank owed him £18,210 in October 1721.25 Despite the injections of new capital, the bank's business seems to have slowed down considerably over the next eighteen months up to the death of its manager John Hughes in May 1723. Cantillon's accounts show the bank handling only another £2,000 sterling over these eighteen months.26 This downturn in business may have been due to the progressive deterioration of John Hughes's health, but it seems more likely that Cantillon had decided that the bank's money-making days were over and that it would be better to adopt a low proﬁle during the ‘taxing’ period of the Visa. He himself did not return to Paris till 1727. At the same time Cantillon was conﬁdent that the ﬁnancial storm was over in England. Writing from Amsterdam to John Hughes in May 1722 he expressed the view that only a war could cause the price of British Government securities to fall further: I advised at my coming away with a person of great ﬁgure in England about the stocks which he has a most exact knowledge of and he advised me at a distance to steer clear of them. But I cannot do it as effectually as I could wish but my stake in them won't be too considerable nor my dependances with those concerned in them. From the present situation of our English affairs I don't know anything but a war can bear them down and the saving funds make them pretty strong even in case of a war.27 In accordance with this approach, he continued to trade in Amsterdam and London. His drawing ofﬁce account at the Bank of England, opened in September 1722 and closed in April 1724, just before his departure for Italy, gives a fragmentary vignette of his ﬁnancial transactions in London. In September 1722 he lodged £8,773. 1s. 10d. in the Bank, withdrawing £8,000 of this by cash deductions in October and November 1722. The account lay dormant till he lodged a further two deposits amounting to £17,392 in the ﬁrst two weeks of June 1723. These deposits, as shown in Appendix 2, served as a prelude to some large withdrawals to a group of Dutch-sounding traders named Fronseca (£10,942), De Gold (£5,037), and Jacob (£1,010). These withdrawals, along with a payment of £1,010 in favour of a Mr Booth, were all made over a four-day period between 21 June and 25 June. Cantillon's bank balance was subsequently built up by a deposit of £500 from a Mr Knipe, who presumably was Sir Randolph Knipe, a Turkey merchant, an alderman of the City of London, and a director of the Bank of England, by £700 from Mr Backer, presumably Cornelius Backer who acted as a London agent for Dutch stockholders, and by £600 from a Mr Goddard.28 Later in March Goddard deposited a further £6,400 in Cantillon's account. This money was used to make

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payments of £1,800 to Conyers and £8,500 to Colebrook. The ﬁrst named refers, in our view, to Sir Gerard Conyers, the 74-year-old former Governor of the Bank of England. Conyers was still a director at the Bank and also Lord Mayor of London at the time.29 The reference to Colebrook could have been to John Colebrook, the Amsterdam agent for John and William Law in the 1720 copper transaction. More probably it referred to the London merchant and active stock market trader Sir James Colebrooke, who later with Sir Cornelius Backer was one of the biggest subscribers to the 3 per cent loan of 1742.30 Cantillon withdrew the remaining £1,031 on 9 April 1724, thereby closing his drawing ofﬁce account at the Bank of England. While the transactions on the account are somewhat fragmentary they do at least show that Cantillon was dealing with Dutch ﬁnanciers and prominent men of money in the City of London such as Sir Randolph Knipe and Sir Gerard Conyers.

Mary Anne O'Mahony — Cantillon's Wife In keeping with his ﬁnancial position he had moved into a house on the ultra-fashionable Piazza at Covent Garden with his wife Mary Anne O'Mahony. He had married Mary Anne in London in February 1722. He was in his late thirties or early forties while she was only 20 years old. Cantillon seems to have shown a preference for ladies from his home county of Kerry. In Chapter 4 Grimm's inference of his liaison with the ‘young nymph’ Olive Trant, Comtesse d'Auvergne, was pointed out. Olive Trant came from Castleisland, County Kerry, while Mary Anne's father Count Daniel O'Mahony was born in Killarney, County Kerry.31 One of the soldiering ‘wild geese’, he was a well-placed ofﬁcer in the Jacobite court in exile, the future James III acting as godfather to his eldest son James Joseph in November 1699.32 Shortly after Mary Anne's birth to his wife Cecilia (née Weld) on 18 October 1701, he showed great valour at the battle of Cremona in Italy, fought on 1 February 1702. He was one of the ﬁrst to organize defensive measures to counter the surprise early morning attack on the French troops by the Austrians under the command of Prince Eugene. O'Mahony rallied his men to protect the Po gate to such effect that the Austrians attempted to bribe him to relinquish his position. He refused and he was honoured by being asked to ride to Versailles to bring the news of the French victory to Louis XIV.33 He arrived a week later, having averaged a hundred miles of riding a day, and delighted the French king with his description of the events at Cremona. Louis XIV declared that ‘Il n'avait jamais vu personne

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rendre un si bon compte de tout, ni avec tant de nettetté d'esprit, et de justesse, même si agréablement’. He was immediately promoted colonel by Louis and granted a pension of one thousand livres and a present of one thousand louis-d'or to meet the expenses of his trip. Additionally, he was knighted by James III at St-Germain. Mary Anne's mother Cecilia died on 28 May 1708, when Mary Anne was only 6 years old. Four years later her father married Charlotte Bulkeley, widow of Charles O'Brien, the ﬁfth Lord Clare. The Bulkeleys were prominent members of the Jacobite court. Her sister Anne was married to James Fitzjames, Duke of Berwick and Marshal of France, son of that illicit liaison between James II and Arabella Churchill, sister of the Duke of Marlborough. One of Charlotte's brothers, François, was destined to marry her stepdaughter Mary Anne after Cantillon's death! Cantillon would have met Mary Anne when she was a child, for the Chevalier Richard Cantillon, his cousin, was a very good friend of Daniel O'Mahony. In both of the latter's wills, made in 1710 and 1712, the Chevalier was appointed a provisional executor.34 The wills are of interest for they show that on both occasions Daniel O'Mahony was living at the Chevalier's house in the rue des Mauvaises Paroles, St-Germain l'Auxerrois. O'Mahony was killed in Spain in January 1714, with St-Simon paying a generous tribute to him.35 Both the Chevalier and later Cantillon himself handled the ﬁnancial affairs of the O'Mahony children after their father's death.36 At the time of his marriage Cantillon was an extremely wealthy banker who would have had little difﬁculty in marrying into European nobility. His choice of Mary Anne, for whom he had acted as a ﬁnancial custodian during her minority, shows that their marriage was a love match. Mary Anne was a lively lady well liked by prominent literati such as Lady Mary Wortley Montagu, Jean Baptiste Rousseau, and Montesquieu. In a letter she wrote during the month of June 1723 Lady Mary described the newly arrived Madame Cantillon: She is a new neighbour of mine having a very handsome house in the Piazza Covent Garden and herself eclipses most of our London Beautys. You know how fond we are of Noveltys; besides that she is really very pretty, does not want understanding, and I have a thousand commoditys in her acquaintance.37 Later, in 1726, when the Cantillons were in Brussels, Jean Baptiste Rousseau, the French poet and dramatist, waxed eloquent about Mary Anne in a letter to Lady Mary.38 As friends of the Wortley Montagus, Lord John and Lady Mary Hervey, and Bolingbroke, the Cantillons

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had access to a wide range of prominent personalities of the age. Mary Anne's most interesting friendship was that with Montesquieu. Lady Hervey, writing from London to Montesquieu, noted, ‘I have the pleasure (and ‘tis really a very great one) of conversing pretty often with Mme Cantillon who always speaks of you with great esteem’.39 This letter was written towards the end of 1734 when Mary Anne was in London. It shows that she was a very good friend of Montesquieu prior to Cantillon's demise in May 1734. Her relationship with Montesquieu suggests that she was a romantic with a strong sensuous streak, a trait no doubt developed through her conversations and correspondence with that liberated lady around town, Lady Mary Wortley Montagu. At one stage Mary Anne requested Montesquieu to compose a letter for her in the style of Ispahan Fatme's infatuated letter to her absent husband Usbek, in Montesquieu's Lettres persanes: I never go to bed without using the most gorgeous scents. I remember those happy times when you used to come to my arms. . . . I feel for you beside me, and it is as if you were eluding me; at last the ﬁre devouring me itself dissipates the illusion and brings me back to myself. By then I am in such a state of excitement that . . . You will not believe me, Usbek. It is impossible to live in this state: ﬁre ﬂows in my veins. . . . At moments like these, Usbek, I would give the empire of the world for a single kiss from you.40 At the time of making this request in May 1736 Mary Anne, then the widow of Cantillon, was about to marry her stepmother's brother François Bulkeley, one of Montesquieu's closest friends. Her correspondence with Lady Mary Wortley Montagu shows that she had been close to Bulkeley prior to Cantillon's demise and leads us to wonder whether her relationship with Cantillon had soured during the early 1730s. Initially the marriage seems to have been a happy one, with Cantillon lodging money in the English courts, as a surety in the litigation with Esther Hughes, widow of John Hughes, in order to bring his young wife with him to Naples. By that year of 1724 Mary Anne had borne Cantillon a son, but this infant died young.41 In 1726 they had a daughter Henrietta, their only surviving offspring, to whom Cantillon left the bulk of his estate. Later in the 1720s, on their return to France, Cantillon paid the artist of the French court, Nicolas Largillière, to paint a portrait of his wife, the type of present which indicates his deep affection for Mary Anne.42 He also purchased on her behalf a substantial property ‘composed of ﬁve sets of buildings’ in the place Maubert at the junction of the rue de la Bucherie and the rue des Trois Portes, adjacent to the Seine.43 This purchase made in 1726 cost

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Cantillon 57,000 livres; his objective seems to have been to ensure that the property would produce a substantial rental income for Mary Anne if he predeceased her. By 1732, however, problems seem to have arisen in their relationship. In a letter to Lady Mary Wortley Montagu in May 1732 Mary Anne paid particular attention to ‘Mr Bulkeley’, then visiting London, rather than to her husband. Did the sentence, ‘if we lose him the responsibility will be solely yours’, suggest a little more than friendship for her stepmother's brother?44 By 1733 Mary Anne was complaining about being locked up for six months in a convent while her husband took the waters at Spa (Belgium). Cantillon's incarceration of Mary Anne in a convent and the fact that she was not considered for a proposed later trip to Italy suggests that all was not well between them. Mary Anne despaired of the boredom of the convent—her fellow inhabitants there being contemptuously dismissed as ‘les prêtres et la prêtraille’. More revealingly she asked Lady Mary as to whether she had seen her ‘Chichisbé’: ‘If by chance my Chichisbé wheels about [caracoler] under your windows at Twickenham I would be most grateful if you could give him my compliments.’45 ‘Chichisbé’ represented Mary Anne's phonetic spelling of Sigisbée, taken from the character Cicisbeo in one of Ariosto's plays. The term sigisbée meant a gallant paying court to a lady. Combining this term with the militaristic ‘caracoler’ we fell that Mary Anne was alluding to François Bulkeley, who was an ofﬁcer in the French army, then on a visit to London. These allusions, allied with the fact that Mary Anne was living with Bulkeley six months after Cantillon's demise, lead us to believe that Mary Anne and François Bulkeley may have started their liaison in the early 1730s. Such a development was not uncommon in an age when monarchs and courtiers on both sides of the Channel openly ﬂaunted their mistresses. François Bulkeley is best known to us as one of Montesquieu's great friends and a frequent correspondent with the author of the Esprit des lois. Montesquieu appreciated Bulkeley's literary skills, writing, ‘Your letters, my dear Lord, are charming; they have a wit which everyone loves’.46 Notwithstanding his links with Montesquieu, links strengthened by the recent publication of sixty-eight unpublished letters by or to Montesquieu of which eighteen relate to Bulkeley, little has been published on Bulkeley and what has been written on his relationship with Mary Anne Cantillon has for the most part been erroneous.47 François Bulkeley was born in London on 11 September 1686. At an early age he was sent to pursue a military career. By the age of 16 he was a lieutenant and aide-de-camp of the Duke of Berwick, who married Bulkeley's sister Anne. By May 1707, when just 20, Bulkeley was a colonel of an infantry regiment which bore the family name. He fought

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military campaigns in Holland, Spain, Portugal, Dauphine, the Rhine, Bavaria, Flanders, and Germany between entering the service in 1702 and his eventual retirement at the age of 68 in 1754. During this time he rose to the rank of Lieutenant-General, one grade below Marshal, in 1738 and was appointed Governor of St-Jean de Pied de Port in 1751. He died in 1756.48 Bulkeley probably became acquainted with Montesquieu when stationed in La Guyenne under Berwick between 1716 and 1719. The earliest-known letter from him to Montesquieu is dated 10 September 1723, a correspondence and friendship that lasted right up to February 1755, when Bulkeley was at the bedside of the dying Montesquieu. Bulkeley was in a position to know Mary Anne O'Mahony from an early age. Both families were prominent military families who supported the Jacobite cause and were part of the exiled court at St-Germain-en-Laye. His sister was the stepmother of Mary Anne from 1712 and it would have been natural for Bulkeley to help out his sister's family on the death of Daniel O'Mahony in 1714. Bulkeley was in London in 1733 not only to view dashing ladies such as Lady Wortley Montagu but more importantly to sell his services to the British. Perennially short of money, Bulkeley seems to have entered into negotiations with the British Government for the payment of £500 to him. Two letters in the State Papers in the Public Record Ofﬁce in London show that in 1733 Bulkeley was paid £500 by Lord Waldegrave, the British ambassador in Paris at that time. These letters are worth reproducing: Delafaye to Waldegrave. Whitehall, March 23, 1733. In answer to your Excellency's private letters, I have, in the ﬁrst place, the pleasure of acquainting you with His Majesty's approbation of your care and diligence in your inquirys upon the several heads suggested in mine of the 2d of this month by Hineham the messenger, particularly with relation to the designs and motions of the Jacobites, upon which I shall send you all the lights and informations that can be procured here which may be of use to you. The King was very well pleased with your making use of Buckley, and would have you, for his encouragement, give him another sum of ﬁve hundred pounds, which will be repaid you upon your drawing for it; as he may be very serviceable. . .49 Pelham to Newcastle Fontainebleau Nov r 12th 1733 A few days before Mr Bulkeley left Paris to join the French army upon the Rhine, he told me that pursuant to the directions your Grace had sent my Lord Waldegrave from His Majesty, he had already received from his Lordship £250, but desired me at the same time to write to your Grace to know whether the £500 the King was pleased to allow him was meant in lieu of the arrears of two years he formerly mentioned to be due to his family or an allowance for the

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current year; upon which I acquainted him that before I left England I had asked this question and understood from your Grace that His Majesty without taking any notice of the arrears gave this money as he did the same sum last year. He expressed a very grateful sense of the King's goodness in giving this last £500 and assured me his conduct would shew a just acknowledgement of it. However, in representing his case to me ‘That tho’ he had lately obtained the command of a Regiment here, as he was not to have the pay till the death of Mr Lee who resign'd it on that condition, his expenses in the meanwhile must necessarily be greater than ever and less able should he be to supply his sisters with money’. He begged your Grace's intercession with His Majesty for some farther sum in lieu of the said arrears. He pressed me so much to write to you on this subject that I could not well refuse him, though I told him I could only relate what he said to me, leaving to your Grace's better judgement whether his request was proper or reasonable. I have deferred troubling you about it, but as I expect he will return in a few days to Paris where his intelligence may be of use, I would be able to assure him in case he makes any enquiry that I have not neglected to write.50 Was this money due as part of a family allowance from the British government to the Bulkeleys or was it just payment for services rendered by Bulkeley? Either way the British were using the payment of this money to extract intelligence information from Bulkeley. Delafaye's letter to Waldegrave shows that they were still concerned about Jacobite movements and terms such as ‘he may be very serviceable’ and ‘he will return in a few days to Paris where his intelligence may be of use’ show that he was exchanging political and military information with the British representatives in Paris. It is not possible to determine exactly how long Bulkeley's activities as a ‘mole’ went on, but he continued to have ﬁnancial problems up to his death. The ﬁnancial problems were acute, notwithstanding his liaison, followed by marriage, with Mary Anne Cantillon. The evidence indicates that, while living with Mary-Anne from at least the start of 1735, he did not ofﬁcially marry her until October 1736. In a letter to Montesquieu written from Orléans on 14 May 1736 he just talks about ‘la maîtresse de cette maison’ while Montesquieu, replying to him eight days later, says ‘mes respects s'il vous plaît à Madame de Cantillon’. All further correspondence between them in the summer of 1736 refers to Madame de Cantillon. However, the Bulkeley–Montesquieu correspondence of 1737 indicates a changed state, for both writers refer to Madame de Bulkeley.51 A letter from Argeville explains the mystery: 1736, Dec. 11 Mrs Cantillon's marriage was announced two months ago; it took place very

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secretly in England; even Mr de Chavigny [the French ambassador in London] was unaware of it. . .She gave birth to a daughter and left for England, calling herself Mrs Bulkeley. I believe, along with her friends, that she has made a mistake because the change of her status may pose difﬁculties for her in the business that she has to ﬁnish in that country and, what is even more insane, is that her husband wished, despite everyone's advice, to follow her. So I believe him to be currently in London.52 This letter is enlightening, indicating that Mary Anne Cantillon and François Bulkeley married in England, an event conﬁrmed in a legal document made after Mary Anne's death in 1751, ‘they were married according to the statutes and laws of the kingdom of England’.53 The daughter born to Mary Anne in 1736 did not survive, demonstrating once more her ill fortune with children. Despite Argeville's fears about Bulkeley going to England, he stayed there for some considerable time, corresponding from London in May and June 1737 with Montesquieu. Bulkeley's letters to Montesquieu show that he and Mary Anne were happy. ‘We will travel through a couple of provinces and will then return happily to France.’54 While in England, Mary Anne and François Bulkeley were appointed guardians of Henrietta, the only surviving child of Mary Anne's marriage to Richard Cantillon. In 14 July 1743 Henrietta Cantillon, a rich but seemingly ugly girl of 15, was married into the British nobility, taking as her husband William Mathias Howard, third Earl of Stafford. Like her mother, Henrietta seems to have been unlucky with children for she lost a daughter in 1749. Bulkeley, writing to Montesquieu (13 June 1749), described his wife's desolation at this turn of events: ‘The poor woman is inconsolable at the loss of our granddaughter and she cannot stop crying; even her health has suffered greatly.’55 The death of her granddaughter, followed a year later by that of her son-in-law William Mathias Howard, and the growing indebtedness of her husband must have all contributed to hasten the death of Mary Anne, who had contracted tuberculosis. On 24 January 1751, Bulkeley expressed concern about the state of his wife's health: ‘I am unable to have the honour of presenting myself personally to you to accept the Governorship of St-Jean Pied de Port, since I learnt that Mr de Maubourg would not accept it, because of the worrying state of Mrs Bulkeley who has suffered a chest infection.’56 Just over three weeks later, on 17 February, Mary Anne died. She was not to witness the posthumous and anonymous publication of her ﬁrst husband's Essai sur la nature du commerce en général, in 1755, nor her son's rise through the ranks of the French army to the position of lieutenant-general. Her husband, François Bulkeley, survived her by ﬁve years, dying impoverished in 1756.57 Her daughter, then the

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Dowager Countess of Stafford, survived her by ten years, remarrying like her mother, to Robert Maxwell, Viscount Farnham, in 1759. Henrietta had a daughter by this marriage, Lady Henrietta Maxwell, who married the Rt. Hon. Denis Daly of Dunsandle, County Galway, in 1780.58 Thus Richard Cantillon's granddaughter, his only descendant, returned to Ireland, the country the economist was born in and had left at the end of the seventeenth century. From Kerry to Paris, from Paris to Galway, such was the movement of Cantillon's family in little less than a hundred years.

Notes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

BL MS 28275, of. 150. Walter Scott, Dryden (1882), i. 388. BL MS 28275, fo. 119. PRO London C11/1441/27. Huntington St. 57, xvii. 262–5. Chandos to Cantillon, 10 November 1720. Chandos wrote that Lady Mary had bankrupted Jernegan because of a bill of exchange of £16,000 sterling she had prevailed upon him to accept. NLW Powis 917, 19 September 1722. Letter from J. Ward in Paris to Lord Montgomery. Huntington St. 57, xviii. 167–71. Chandos to Cantillon, 24 October 1720. Paris, Archives des Affaires Étrangères, Correspondance politique. Angleterre 333, fo. 156. A letter from the French diplomat Destouches. Essai, pp. 319–21. On this issue see also H. D. MacLeod, The Theory and Practice of Banking (London, 1892, 5th edition), p. 499. Huntington St. 57, xix. 158–61. Chandos to Cantillon, 18 August 1721. Ibid. NLW Powis 10726. Letter from Cantillon to Lady Mary Herbert, 9 January 1721 (OS). Cantillon wrote that he would be happy to stay in England ‘if I could enjoy lands in it’. Huntington St. 57, xix., loc. cit. Ibid. Northamptonshire Record Ofﬁce, Temple-Stowe papers. Box 22. Letter-book of the Duke of Chandos, 1721–2, fos. 222–3. Letter from Chandos to Pels, 25 May 1722 (OS). Ibid., fos. 255–6. Chandos to Samuel Bernard, 14 June 1722 (OS). Ibid., fo. 225. Chandos to Samuel Bernard, 28 May 1722 (OS). Huntington St. 57, xix. 337–8. Chandos to Cantillon, 26 October 1721. Ibid. Letter on the same day from Chandos to Andries Pels. Essai, p. 382. Henry Higgs's translation of Mirabeau's unpublished manuscript. See AN M.780. Barthélemi Marmont du Hautchamp, Histoire générale et particulière du Visa (The Hague, 1743), ii. 170. See also Luigi Einaudi, ‘On a Forgotten Quotation about Cantillon's Life’, Economic Journal (September 1933), 534–7.

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22 NLW Powis 10725. Letter from Cantillon in Amsterdam to Cantillon and Hughes in Paris, 10 May 1722. 23 AN K.895, 16 January 1723. Cantillon was listed number 77 on the role of Mississippians whose property was to be conﬁscated. It is interesting to note that he was referred to as Antoine Richard Cantillon. 24 AN MC, lxvi. 381, June 1721. Declaration to the French Visa authorities. 25 PRO C11/1441/27. 26 Ibid. 27 NLW Powis 10725. Cantillon in Amsterdam to Cantillon and Hughes at Paris, 10 May 1722. 28 For information on Knipe see Notes and Queries (27 July 1940); Backer and Knipe are mentioned in Dickson's The Financial Revolution, op. cit. Ch. 9 n.2, p. 286 and p. 498. 29 For information on Conyers see Notes and Queries (27 July 1940) and Dickson, op. cit. Ch. 9 n. 2, p. 264 and p. 430. 30 Dickson, op. cit. Ch. 9 n. 2, p. 288, p. 412, p. 436, p. 450. 31 See BN Pièces originales 2145. 32 AN Fonds T, Cote 408. 33 J. J. G. Pelet, Mémoires militaires (1836), ii. 670. The best account of O'Mahony's exploits is to be found in O'Callaghan, Irish Brigades in the Service of France (1870), pp. 196–217. 34 ANMC xxvi. 245 and xxvi. 266. these études include the two wills made by Daniel O'Mahony. The second will was written in the ﬁrst week of August 1712. 35 St-Simon, Mémoires 1713–14, x. (Paris, 1978), p. 177. 36 Higgs, Essai, found a document stating that the marriage settlements was 16 February 1722, though he did not cite the source of this information. 37 Robert Halsband (ed.), The Complete Letters of Lady Mary Wortley Montagu (Oxford, 1965) p. 25. This extract, taken from W. May Thomas (ed.), Letters of Lady Mary Wortley Montagu (London, 1861), was quoted by Higgs (Essai), except that ‘Piazza’ was erroneously transcribed as ‘village’, thereby provoking speculation that the Cantillons were in Asnières. The Wortley Montagus occupied nos. 9–10 of the Great Piazza in Covent Garden from 1720 to 1730. See F. H. W. Sheppard (ed.), Survey of London, xxxvi: The Parish of Covent Garden (London, 1970). The Cantillons probably occupied either 8 or 10–11 of the Great Piazza, now part of the Royal Opera House. 38 Halsband (ed.), op. cit., p. 59. 39 René Pomeau, ‘Une Correspondance inédite de Montesquieu’, Revue d'histoire littéraire de la France, ii. (1982), p. 209. 40 Montesquieu, Persian Letters (Penguin, 1977). Translated by C. J. Betts, p. 47. 41 See Higgs in Cantillon, Essai, pp. 372 and 379. 42 This portrait was reproduced in Cantillon, Essai (1931). It was sold at the disposal of the furniture and effects of Dunsandie Castle in 1952. 43 ANMC lxxxii. 311, 19 June 1751. ‘Inventaire Mary Anne Bulkeley.’ The

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44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

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house had been bought in the name of Cantillon's friend Edward Gough on behalf of Mary Anne. Sandon Hall, Stafford, Harrowby MSS. Letter from Mary Anne Cantillon to Lady Mary Wortley Montagu, 15 May 1732. Ibid. Letter dated May 1733. Montesquieu, Correspondance, ed. Gibelin, Morize (Bordeaux, 1914), i. 317. See for example Gunnar von Proschwitz (ed.), ‘Lettres inédites de Madame du Deffand, du President Henault et du comte de Bulkeley au Baron Carl Fredrik Scheffer, 1751–56’, in Studies on Voltaire and the Eighteenth Century, x (Geneva, 1959), p. 357 n.4, and René Pomeau, op. cit. n. 39 above, p. 210 n. 3 and p. 227 n. 6. Paris, Château de Vincennes, Archives de la Guerre. ‘Dossier d'Ofﬁcier François Bulkeley.’ PRO SP 78/206, 23 March 1733. PRO SP 78/203, 12 November 1733. Pomeau, op. cit. n. 39 above, letters 33 (p. 226), 35 (p. 229), 42 (p. 258), 49 (p. 245), 53 (p. 249). HMC, Denbigh (1911), v. 120. ANMC lxxxii. 311, 19 June 1751, ‘Inventaire Mary Anne Bulkeley’. Pomeau, op. cit., n. 39 above, letter 53 (p. 249). Pomeau, op. cit. n. 39 above (translation). Paris, Château de Vincennes, Archives de la Guerre, ‘Dossier François Bulkeley’ (translation). ANMC lxxxiii. 308, ‘Abandonnement et union entre M. De Bulkeley et ses Créanciers’. The Hibernian Magazine (1780).

11 Debt Collection and Its Legal Consequences From 1721 till his demise in 1734 Richard Cantillon was involved in litigation arising from his banking operations during the Mississippi System. Even after his demise the litigation continued and one case was still pending in the 1760s. It is important to consider the litigation on a number of counts. In the ﬁrst place, as will be argued later, it may have been the catalyst that inﬂuenced Cantillon to write Books II and III of the Essai. Some of the arguments advanced by Cantillon's lawyers closely parallel ideas developed on money, banking, the rate of interest, and the exchange rate in the Essai. The second reason for the detailed discussion of this litigation is to present a more balanced account of the issues at stake between Cantillon and his adversaries. Attempting to judge a man's guilt over 250 years after the event is a difﬁcult task. Surprisingly, despite successful verdicts in the English and French courts in favour of Cantillon, nineteenth- and twentieth-century commentators have tended not to accept the judgements of the eighteenth-century courts. No reason for accepting the accounts of Cantillon's legal adversaries has been advanced, though one suspects that this bias may have been due to the more accessible pleadings of Cantillon's opponents rather than to any objective conviction that Cantillon was guilty. The result of this summary judgement of Cantillon's banking activities is, as was pointed out in Chapter 7, that Cantillon has been branded with the reputation of being a rather unsavoury banker who duped innocents abroad such as Lady Mary Herbert, her common-law husband Joseph Gage, her aunt Lady Carrington, her father the Duke of Powis, her brother Lord Montgomery, and the Irish banking brothers John and Remy Carol. We do not see it as our function to attempt to produce a character portrait of Richard Cantillon as a banker above reproach. He was not, but the time during which he was engaged in banking was a hazardous one. Covering one's position could demand impromptu acts which would be frowned upon by a modern stock exchange committee dealing with codes of practice. However, it has been stressed that it is difﬁcult to use twentieth-century moral ‘glasses’ to judge eighteenth-century

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behaviour. Financial innovation, stock exchange booms and slumps, the use of paper credit, and so on were new phenomena to the eighteenth-century bankers. The rules of the game had yet to be drawn up. It is felt appropriate, in the interests of historical accuracy, to attempt to present a more balanced interpretation of the banking and stock market transactions that Richard Cantillon was accused of mismanaging. In particular a hitherto unrevealed document, which was actually in Lady Mary Herbert's possession, is presented showing the exact share dealings of Cantillon's bank in 1720. The third reason for discussing the litigation is that it may provide us with a basis for one of the hypotheses advanced in Chapter 14 concerning Cantillon's demise in 1734. The continuous threat of criminal prosecution by Joseph Gage and Lady Mary Herbert must have weighed heavily on Cantillon's shoulders from 1727 onwards. Temporarily imprisoned, on two occasions, albeit just for a couple of hours both times, he still faced the threat of imprisonment in 1734 if Joseph Gage won his case in the French criminal courts. After fourteen years of wearying litigation in both the French and English courts, did Cantillon decide that enough was enough and arranged to rid himself of these tiresome processes? Chapter 14 discusses this possibility. Finally, the litigation helps to show part of the aftermath of the collapse of the Mississippi System. It shows the type of defensive measures that the bankrupts of the System adopted in order to protect their position and status in society and the extent to which the winners had to go to claim their new wealth. The story at this level brings us in Chapter 12 to accusations made against Cantillon that he conspired to murder some of his adversaries and to counter charges about them involving allegations of attempted murder, sodomy, bigamy, and so on.

The Legal Adversaries It is our contention that, rather than viewing Cantillon's legal adversaries as representing a wide range of different clients, they must be seen as part of the Gage—Herbert axis against Cantillon. Members of Lady Mary's family were involved in litigation with Cantillon because of the personal guarantees they gave underwriting Lady Mary's borrowings. These guarantees, by her father the Duke of Powis, her aunt Lady Anne Carrington, and her brother Lord Montgomery, were given not only to Richard Cantillon but also to other money-lenders such as Lord Londonderry, Samuel Edwin, and Daniel Arthur Smith. These lenders served writs for non-payment of their loans on members

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of the Powis family. In all, we estimated in Chapter 7 that the debts Lady Mary had contracted amounted to nearly £95,000. Part of the Gage—Herbert strategy to stall some of their creditors was to hold out hopes of a sizeable award being granted to them against Cantillon. As long as they could hold out such hopes, the size of their ﬁnancial plight could be masked. But such action did not prevent her brothers from feeling the cold chill of impoverishment. Edward Montgomery wrote that, as a result of their legal plight, his brother William was ‘in close conﬁnement because we can't get bail nor security for the liberty of the King's Bench. . .My brother has no money nor me neither.’1 Earlier in June of that year Cantillon had written to John Hughes, ‘There are bailiffs now at Powis House and that family will be still more and more involved in the Lady's schemes’.2 Thus it is incorrect to view Lady Mary Herbert and Joseph Gage's litigation against Cantillon, along with that of other members of the Powis family, in isolation. Lady Mary Herbert and Joseph Gage had been involved in a vortex of speculation involving many other people besides Cantillon. These creditors were also taking legal action against Gage, Lady Mary, and members of her family. The legal action that Esther Hughes took against Cantillon gave a strong impetus to Lady Mary Herbert and Joseph Gage's suits against Cantillon. However, this did not start until after her husband John Hughes's death in 1723. Correspondence of Lady Mary with her London lawyers shows that the Powis family kept Esther Hughes on a retainer during those years when her case was pending against Cantillon. In return she handed over to them some of her husband's correspondence with Cantillon. Esther Hughes was not acting solely on her own initiative in prosecuting Cantillon. Her assistance in delivering part of the Hughes—Cantillon correspondence was crucial, in that the seemingly incriminating tone of some of the letters enabled Joseph Gage and the Carol brothers to extend their action against Cantillon from the civil to the criminal courts in France. Similarly, the Carols did not act against Cantillon on their own initiative. As bankers in Paris they had already been involved in business transactions with Lady Mary Herbert in 1720. Like many other bankers they were bankrupted by the System and in July 1721 owed their creditors 1.1 million livres. Short of money, they were in no position to take legal action against Cantillon. However, Joseph Gage and Lady Mary Herbert, acting through their agent Christopher Balfe, agreed to cover all their legal costs in their action against Cantillon. This offer must have greatly appealed to them for it at least raised the prospect of extracting some money from Cantillon. What had they to lose by initiating such legal action?

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The litigation involving Richard Cantillon and his adversaries had three main phases in the 1720s: (1) The initial skirmishing involving civil lawsuits between 1721 and 1723. (2) The revival of some of these lawsuits as a result of the disclosure of part of the Cantillon—Hughes correspondence after the death of John Hughes in 1723. (3) The criminal lawsuit of Joseph Gage, which dragged on from 1727 to Cantillon's demise, and that of the Carol brothers from 1728 to 1731. The initial litigation between Cantillon and the Powis family arose both in Paris, at the Bureau des Actions, and in the civil courts in London. There are complicating factors in that not all the lawsuits directly involved Cantillon. In the French courts the Powis family and Joseph Gage were sued by the banking ﬁrm of Cantillon and Hughes, with the Cantillon involved being ostensibly Cantillon's young nephew, the nominal co-owner of the bank. In London the lawsuits involved people such as John Shuckburgh, Martin Harrold, and Francis Moore rather than Cantillon directly. In the case of Cantillon's loan to Lady Mary Herbert, made in return for two promissory notes for £20,000 endorsed by Lady Carrington, he had later endorsed these notes over to John Shuckburgh, with Francis Moore also having an interest in them. It was Shuckburgh who brought the action against Lady Mary and Lady Carrington to the Court of Exchequer, though it is clear from later correspondence that it was Cantillon who was covering his legal costs.3 In the case of Lord Montgomery, he was brought to court by Martin Harrold in an action for the recovery of some £40,000. Lord Montgomery had lent his name to bills of exchange for his sister Lady Mary Herbert. Cantillon, on receipt of these bills, had endorsed them to his friend and relative Martin Harrold, a banker-cum-merchant in London. In Michaelmas term 1723 Lord Montgomery ﬁled his bill in Chancery against Cantillon senior and junior, Martin Harrold, Esther Hughes, Lady Mary Herbert, and Joseph Gage. By Hilary term 1726 Martin Harrold was dead, but an action was brought in the King's Bench by his executors, John Butler, Edmund Harrold, and Philip Cantillon, against Lord Montgomery. Lord Montgomery counter-sued and the case continued to drag on, becoming even more complicated to follow.4 The lawsuits involving Lady Anne Carrington became even more labyrinthine when Cantillon discovered in 1728 that she had secretly married the London solicitor Kenneth MacKenzie in 1705. It is easy to become embroiled in the

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technicalities and intricacies of eighteenth-century French and British law in these lawsuits. Rather than becoming enmeshed in the more minute points of law which lawyers from both sides brought to the courts’ attention, it is hoped to show the crucial issues in these lawsuits and the way they relate to Cantillon's life. The salient points relating to the loans made by Cantillon to the Powis family and Joseph Gage were discussed in Chapter 7. Cantillon lent them money through the bank of Cantillon and Hughes in return for bills of exchange or promissory notes payable on a future date. His adversaries later claimed that the interest rate exacted on these loans was usurious. Cantillon also requested them to deposit shares with the bank as collateral for the money borrowed and later, as the price of the shares fell, insisted upon them putting up further shares to top up their value as collateral. He was accused of selling these shares at the market ‘high’ for Mississippi shares so that, if his opponents are to be believed, he was just relending them their own money and charging them for the privilege of doing so. Cantillon's letters to John Hughes in 1721 seem to suggest that he himself recognized that the dealings of Cantillon and Hughes were not totally above reproach. In a letter dated 15 May 1721 he suggested that Hughes might have to go to prison on account of his dealings: I have another affair to acquaint you of which is that when Jo. Gage was here in the Mint though I sent him a message I would not say any action against him, yet as I have been since informed he laid the great stress of a fortune on his pretensions upon you and me. By which you may see that if the affair of Lady Mary was to be carried against us Gage would in his turn come upon us and there would be no end of arbitrary doings. Now if the worse should happen there is no medium but your ﬂying or going to prison. I think the latter case more eligible. You remember upon our ﬁrst broaching these schemes you were content to stand in the gap and it is neither likely nor reasonable that the Prior and Mr Shuckburgh should take their chance in anything but the bills. If you observe what I formerly recommend to you of putting these matters on your books as transacted for my account I take it that it will be your own interest to stand an imprisonment of twelve months rather than see all our schemes pulled to pieces by tyranny and arbitrary proceedings, for by standing the tack you have a maintenance secured to your family and if all were turned the other way and we were to pay off the Prior and Gough you would be in an ordinary condition. Let the case turn as it would you would be kept in prison no longer than the counter operation or lawsuit here were depending and the reinstating your house in business after the majority would be still practicable and easy.5 A little over two weeks later, Cantillon once again wrote to Hughes. On this occasion his tone had become more conﬁdent about the success of the lawsuits in England, but he asked Hughes to stand ﬁrm in France:

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If you are not treated with injustice you gain your cause. The selling of actions would not (if it were fairly to be proved) affect you in Chancery or Equity here unless you intended and meant to have sold for account of the concerned. If you were to have made them good the value ought to have been applied to all those who had effects in your hands as well as to your adversaries until the time you ﬁxed them to particulars from imprests. In a late letter written by Lady M[ary] she desires to have Mr Loftus to join with other evidences but I don't know of anything he has to inform no more than the others that can signify anything. She does not bring so much as in her former letters though she insinuates that Madam D, gives her still good hopes. If the whole should go against you and you could not resolve to stand it out as I proposed, I would choose to have you follow the former expedient you mentioned rather than be dragoon'd and undone but I still think it will be best to stand it out and dispose of matters for that intent. For my own part the consequence of Joseph Gage's rear and the other bad effects which might follow arbitrary doings determine me not to give up the advantage of the justice I have against them on this side. As to the wanting papers it will best upon the upshot to own the truth of fact as it stands upon your books that you disposed of matters before the 1st visa.6 Cantillon's suspicion that Lady Mary had enrolled his former banking partner Edmund Loftus to give evidence against him proved correct. By October Lady Mary had sworn afﬁdavits from Loftus, another Irishman, a Mr Lally, and the Marquis de Marches. All contended that Cantillon had immediately sold the shares deposited by Lady Mary and Joseph Gage with Cantillon and Hughes. Loftus's evidence was as follows: Mr Loftus, a banker at Paris, can swear that being with Cantillon in London, Cantillon said to Loftus that his brother [meaning Mr Loftus's] was in the wrong not to have sold Lady Mary's actions in order to pay himself the bills of exchange which he had of hers. That for his own part he had acted more cautiously and had sold all Lady Mary's actions, which he had of hers in his hands in order to pay himself her bills of exchange, being fully persuaded when he took them that she would not be able to pay them in January and that therefore he only depended upon the actions, which he had immediately disposed of and had paid himself, being thoroughly apprized that neither actions nor bank bills could be maintained. Wherefore he took his measures accordingly and notwithstanding he had paid himself yet he had still the same demand upon Lady Mary Herbert and that he would be again paid the bills of exchange if ever Lady Mary were able. That the great advantage he proposed to himself was to be paid twice and then return Lady Mary her actions which he had purchased at a very low rate.7 Mr Lally swore that he had met Cantillon in Brussels and that the latter had told him that he sold Lady Mary's shares the moment his bank received them and that he had remitted the proceeds to England to meet the bill of exchange he had given Lady Mary.

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The Marquis de Marches alleged that he met Cantillon in Holland. Cantillon proposed to sell him the bills of exchange of Lady Mary, Lord Montgomery, Lady Carrington, and Mr Gage for half the sum for which they were drawn. The Marquis allegedly replied that if the bills were good they were too cheap and if bad too expensive and that he suspected there was some secret to the matter. He contended that Cantillon then informed him that ‘Lady Mary Herbert and the others interested in the said bills of exchange at the same time put actions [shares] into his hands whereby he had secured himself so that what he could get would be clear gains, the bills of exchange being discharged by the actions’. Having heard this story the Marquis maintained that he had refused to buy the bills of exchange and urged Cantillon to return them to the parties who put them in his hands.8 Armed with these depositions Lady Mary felt conﬁdent to sue Cantillon. He in turn felt it necessary to disavow his relationship with his banking ﬁrm. In November 1721 he wrote to Hughes on this issue: I am favoured with yours of the 26th instant. The Lady has transferred hither all her French suit and brought it into the Exchequer which is much the same court of Equity as the Chancery. She has subpoena'd me (as well as Mr Moore, Mr Shuckburgh etc.) to declare upon oath whether the partnership with Cantillon and Hughes be not in trust for me and the sale of actions etc and brought in a bill of 96 sheets to delay the suit. And thus she blusters and splashes just as she did at Paris. I shall be obliged to declare that I am not in partnership with you, that I was to have no share of proﬁts in any other right than that of my nephew's. . .9 By this stage it is clear that Cantillon wished to cover himself and switch the apportionment of blame, if it was found to exist, to John Hughes and his young nephew. The nephew, as an infant, could not be prosecuted, while he had suggested to Hughes that if necessary he should go to gaol. What is not clear is the extent to which Cantillon was aware of all Hughes's transactions. In a later letter to Hughes in May 1722 Cantillon, besides wondering whether he was to be one of the Mississippians to be taxed, seemed confused as to the exact state of Hughes's banking transactions in 1720: . . .I am told they are busy in taxing the Mississippians that have gained estates and that that affair will be over before June next when I shall see whether my name is left out. Mr Moore will have sent you the copy of my answers which in relation to the sale of the actions is not clear since you varied so much in the account you gave me of that matter. It was always my opinion that you ought to have quoted the actions sold as they really were sold about the time Clifford drew on you the last pieces when I was here and that you ought to quote the particular days and pieces and to whom sold by Egan. And in case of need show your books by which it will appear that you made no

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hands of the whole even upon supposition of your settling in general for your own account and risk. I conceived that to justify what I answered in part upon what you then wrote to me you ought to set forth that you sold a piece of the actions which remained unsold in January. But the whole you set forth must be grounded upon truth and facts. And if you prevaricate in anything it will be difﬁcult to set a Court of Equity to rights. I owned to my lawyer that I had other securities from you towards my advance besides the Car[rington] bills but as the money was not yet come in for the copper he said my answer was still right. It is very strange you bring your lawsuit there to an issue with the friends you have. It would if gained there I reckon much facilitate the gaining of it in England where you must send the state of the sale of the actions before Mr Moore can proceed or appear personally.10 By the spring of 1723 strains had developed in the business relationship between John Hughes and Cantillon. Hughes's health had greatly deteriorated. He wrote to Cantillon: . . .It is much my misfortune that my want of health has occasioned some augmentation in my private expenses for some time past for in my ordinary ways I should not have exceeded 10,000 livres per annum notwithstanding the dearness of all necessaries in proportion to former times when the livre was heavier and including the expenses of a coach and horses which though seldom used on any other account than the business of the society I have hitherto placed all the charges of it to my private account because you never gave any hint to the contrary.11 This expense irked him and he went on to remark that ‘It would look off that a house in the ﬁrst class and reputed rich should want an ordinary conveyance’. Hughes was evidently short of money. He reminded Cantillon that he was a partner in the business, that he actually had put up 20,000 ﬂorins (about £2,000 sterling) of capital ‘to bear a proportion to your 40,000 ﬂorins’, and that he estimated his share of the assets of the company amounted to £10,000 sterling. This latter sum was based on an estimate of the money owed to Cantillon and Hughes's bank by the Powis family, Joseph Gage, the Carols, William Law, and some smaller debtors. However, Hughes recognized that a large part of this money outstanding would not be repaid—Cantillon seemingly had told him that the Powis debts were not worth £10,000. Hughes asked Cantillon to pay him £10,000 sterling for his share in the business but if Cantillon was unwilling to do so he would avail himself of a promised loan of £1,000 sterling from Cantillon at 5 per cent.12 Cantillon must have felt that Hughes had no right to £10,000 sterling as his share of the company, but he wrote back arranging for Martin

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Harrold to lend Hughes £1,000 at 5 per cent. Hughes's health had deteriorated further, as his letter replying to Cantillon on 14 April 1723 shows: . . .had you agreed to my project I was in hopes to have laid out some small matter for life or otherwise whereby to obviate the danger of wanting bread upon the loss of health or friends whereas as matters now stand it is possible I may fall from the pinnacle to the ditch which makes me sometimes thoughtful and perhaps contribute to my want of health which however I must leave to time to remedy.13 Hughes's fears about his health were prescient, for six weeks later, on 29 May 1723, he died. Some days prior to his death he seems to have decided to abandon Cantillon and to enter into negotiations with Joseph Gage, offering to disclose the bank's transactions in Mississippi shares in 1720. Hughes wrote an account of these transactions for Gage. This document is of crucial importance, for it reveals whether the allegations against Cantillon of selling other customers’ shares at the market high in 1720 were correct or not. The full text of this document is reproduced in Appendix 3 and discussed later (see Tables 12 and 13), when this contentious issue is explained in greater detail. Cantillon quickly wrote to Hughes's wife Esther, née Grindall, offering his assistance in explaining the company's books on the removal of the seals from John Hughes's effects by the French authorities. The replies from Esther Hughes show that she was on friendly terms with Cantillon at this stage: ‘I have no reason to believe that I can ﬁnd any friend equal to yourself and desire you'll not think that I have so much conﬁdence in anybody as in you.’14 In a second letter on 4 July she suggested that Mr Fennell, who worked at the bank, was the best person to consult on the bank's business, ‘he is withall so honest a man’. But she went on to add as a post scriptum that some of the Cantillon and Hughes papers might be embarrassing, ‘why I hint at Mr Fennell is because of some papers which it may not be proper for others to see’.15 Cantillon had in fact appointed a fellow Kerryman, George Verdon, rather than Fennell, to run the bank, giving him a power of attorney for this purpose on 18 June 1723.16 Verdon, then aged 25, was one of many young Irishmen working in Cantillon's bank. He came from Ardfert, a village adjacent to the area where Cantillon was born. Cantillon may have felt that, given Verdon's close Kerry ties, he was the best person to rely on to manage the bank.17 He was later greatly to regret this decision. Verdon, accompanied by Cantillon's friends Daniel O'Keeffe and the Abbé Maurice MacEnraghty, went to see Mrs Hughes. Mrs Hughes later alleged that O'Keeffe persuaded her to sign a power of attorney

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giving Verdon extensive powers. She contended that she thought she was giving Verdon powers just to inspect the books and papers relating to the bank. She alleged that, as she did not understand French, she was tricked into signing a power of attorney that empowered Verdon to pay money, to demand and compound debts due to the house, to give discharges, and to settle accounts.18 She then travelled to London to see Cantillon, with a view to reaching some settlement over money that she felt was due to her husband. Her hopes of reaching a rich settlement with Cantillon were rudely shaken, however, when he showed her three discharges signed by her husband in 1721: Cantillon then informed her that he had not paid any money or given any other consideration to Hughes for the same [the discharges] but had obliged Hughes to sign and give such discharges or receipts in order to keep him under his thumb. He said that Hughes was a bold adventurous man and might launch too far and ruin them both if he had not thereby taken care to prevent it or used words to that or the like effect.19 However accurate Cantillon's observations relating to John Hughes might be, it is quite clear that he was unwilling to give Mrs Hughes the money she was claiming as due to her from her husband's share in the banking partnership. Some years later Cantillon informed his lawyer Francis Garvan that Hughes ‘was so largely in my debt that if the whole demand were to be paid the most of it must come to me’.20 Shortly before Christmas 1723, she met another of Cantillon's friends, Francis Moore, who was involved in some of Cantillon's ﬁnancial transactions during 1720. He asked her ‘to execute an authority in writing to empower Verdon to send over the books and papers belonging to the copartnership to England’. Mrs Hughes refused to sign this document. She had realized that Cantillon was standing steadfast in his resolve not to pay her the money she was claiming. Cantillon kept quoting the three documents settling his outstanding accounts with Cantillon and Hughes in October 1721.21 Did Cantillon's refusal to pay Mrs Hughes the money she requested arise from a conviction on his part that no money was due, or was he attempting to defraud her of her husband's entitlements arising from his one-third shareholding in the bank? Cantillon must have realized that Mrs Hughes represented a potential danger in the litigation pending against him. Yet he did not attempt to buy her silence. Early in February 1724 Esther Hughes ofﬁcially signed up with the other side. Her move was not prompted solely by the desire to see that justice was done both to herself and to the Powis family. The Duke of

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Powis and his sons Lord Montgomery and Lord Edward Herbert issued two bills of exchange worth £3,000 to Mrs Hughes's lawyer John White, providing for this money to be paid to Mrs Hughes if the lawsuit taken by Lady Carrington, Lord Montgomery, and Lady Mary Herbert against Cantillon and Hughes was successful. In the interim the Powis family agreed to pay her a signing-on fee of £100 plus a yearly retainer of £200 while the litigation was pending. In return, Mrs Hughes agreed to open the seals on John Hughes's possessions and to allow the Powis family to examine accounts of Cantillon and Hughes.22 She also applied for a writ of ‘ne exeat regno’ to prevent Cantillon leaving England.23 The Powis family must have been overjoyed at reaching this agreement with Mrs Hughes, for it gave them the facility to carry out a detailed examination of Cantillon and Hughes's books. Once again their hopes were frustrated by Cantillon's speed of reaction. Mrs Hughes returned from London to Paris only to ﬁnd that the books and ledgers showing the accounts of the bank were no longer there. George Verdon had returned from England earlier than her and had sent these books to Cantillon in London. When Mrs Hughes questioned Verdon in early April as to how he could justify such action, he allegedly replied that Cantillon had promised ‘to save him from loss’.24 With the books relating to the bank in England, the Powis family lawyers, led by Lady Anne Carrington's husband Kenneth MacKenzie, obtained, that same month of April, an order obliging Cantillon to deposit in court all the books, papers, and writings of the partnership of Cantillon and Hughes, an order that Cantillon fulﬁlled shortly afterwards. Then the Powis family maintained that there was a book missing: It was pretended some time after that a book was secreted or suppressed belonging to the partnership entitled book of royal effects and which book, if not secreted, would have shown how French India actions deposited with the partnership had been disposed of, it being pretended that the partnership had sold actions for high prices which had been deposited with them and remitted the money arising therefrom to England and thereby paid their bills of exchange.25 Despite Verdon's collection of the books and papers of Cantillon and Hughes, Mrs Hughes still managed to retain in her possession some of Cantillon's letters to her husband in 1720. These letters were to be extensively used by Joseph Gage, Lady Mary Herbert, and the Carol brothers in the subsequent litigation. By April 1726 Cantillon was deeply concerned about the way these letters were being used against him. In a letter to his friend, the English

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barrister Francis Garvan, Cantillon, then at Abbéville in the French Alps, wrote: I have been reﬂecting on my journey of the letter I wrote to Messrs. Cantillon and Hughes on the 24th of July 1720 which my adversaries lay great stress on. I had quite forgotten the contents of that letter and most of the others I wrote to that house in the year 1720 as I neither kept copies of them nor the answers I received in that year from Mr Hughes, because that correspondence was intended only as a private one wherein I gave him the best advice and instructions I was able for his management. But the affairs themselves being transacted by him and entered in his books it was his business and not mine to keep regular accounts thereof.26 Cantillon went on in this letter to detail the way the shares were sold in 1720, material that was crucial to his defence, which will be discussed later. His case received a setback in 1727 when George Verdon left his service and promised to present evidence against Cantillon. Cantillon was either exceptionally unlucky in the agents he chose to manage his banking business in Paris or extremely difﬁcult to work under. His ﬁrst banking partnership with Edmond Loftus lasted only six months before Cantillon terminated it. A year later Loftus offered his services to the Powis family against Cantillon. His next manager John Hughes, who succeeded Loftus, seemed to desert Cantillon in his ﬁnal days when he offered to assist Joseph Gage. His wife, as has been shown, later accepted a retainer from the Powis family to give evidence against Cantillon. Now it was the turn of Hughes's successor George Verdon to become, in his own words, Cantillon's ‘declared enemy’.27 The extent of the breakdown in the Cantillon—Verdon relationship may be judged from a letter that George Verdon wrote to Cantillon's friend Henry Furnese in May 1727: As to Mr Cantillon it is you may depend impossible any opportunity should offer for his serving me but for he never wants or slips any for doing me prejudice. And far from desiring or expecting anything from him I renounce absolutely forever to any of his favours. You will, I believe, agree with me that a man cannot have a vast inclination to do essential services daily to a person who in return rewards him with all the disservice in his power.28 An earlier letter from Verdon to Garvan in April of that year seemed to suggest that the proximate cause of this dissension between Cantillon and Verdon had arisen through Cantillon's cousin Philip Cantillon: ‘I am quite incapable of proﬁting of his friendship and protection by Philip's not keeping his word.’29 Cantillon's enemies Joseph Gage, the Powis family, the Carols, and the new recruits Mrs Hughes and George Verdon proceeded to extend the attack against Cantillon by pursuing him not only in the civil courts

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but also in the criminal courts in France. On 8 June 1727 Joseph Gage, through his agent Christopher Balfe, obtained a warrant to have Richard Cantillon arrested on the charge of theft of 320 Mississippi shares from Joseph Gage.30 The arrest warrant could not be served on Cantillon as he was still out of France. He only learned of the arrest warrant some ten months later in April 1728 while he was in Italy. In great anger he wrote to Francis Garvan about it: I have been forced from Verona by a barbarous attempt of J. Gage's at Paris against my reputation by a criminal process carried against me at the Châtelet clandestinely. He accuses me of fraudulous bankruptcy, evasion without paying debts pro rata, and supposition of name. It's above a year since he had a prise de corps against me and I never heard a word on it till ﬁve days ago. I send my letter of attorney now to defend my fame and name if it be yet time. . .31 Five weeks later he wrote with more details of the accusations, asserting that George Verdon was the ‘principal engineer’ behind the accusations. The letter shows Cantillon, in lively literary form, accusing his adversaries of corrupting ‘witnesses and judges’: You will have seen that I went to Geneva upon the criminal process begun against me by Gage which they had carried on clandestinely since May or June 1727. Verdon has been the principal engineer who swore that though I was commandite yet I was in reality master of the partnership that Cantillon captiously blending my name with my nephew I sold several deposits upon which they had lent money in 1720 immediately or soon after they had received them and sometimes made a greater fund thereof than they had lent. That they had sold Gage's 320 actions as he believed immediately, that they had entered the sales under supposed names on their books, that Cantillon realized vastly as to several millions, that he wrote to Hughes to go to prison rather than deliver up the bills etc. He throws in the year 1719 with 1720 in which he charges Cantillon and Co. with having extorted 50 and 30 per cent for six or eight months and delivered up to Gage my letters to him which I suppose always related to his demand. I have sent a memoir to cross question this wretch how any of the India actions were sold immediately and whose actions were converted to a greater fund than the money advanced for in reality there is no such on the books. I have represented the word fund was equivocal, that actions or bank bills were all paper and a decaying fund whereas the sterling was permanent, that the house had carried several millions in bank bills to the compte en banque and sold several for a triﬂe in money both bank bills and compte en banque. But it seems the Lieutenant Criminel has so made his warrant of prise de corps against me as to require my going to Paris to have it taken off and dignify the accusation, pour vol, usure, violation de depots, fraude, supposition de personne. Now the vol and fraude are, I suppose, terms of art; but usure for a difference of exchange (and that in a place where exchange in that very month carried about

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30 per cent.), for six to eight months, was stretching his power, and violation de depots, in a place where all mankind sold actions, was as weak a foundation to go upon. Supposition de personne was directly contrary to a solemn contract, and all this criminal bustle had not furnished matter pour fouetter un chat if they had not had a mind to vex and injure me. In short Mrs Dupr has, in my opinion, been at the bottom of all this farce; though she is now the principal person, says the Abbé, who staves off the consequences and wants to be well paid for her services, since no effects of mine have been found to lay the hands of French justice upon. Thus have my adversaries, by corrupting witnesses and judges, and I suppose promising several sums out of my fortune, been playing law against me at the hazard and expense of my reputation and substance.32 Cantillon returned to France to face the charges, and on 6 September 1728 his lawyers obtained a restraining order on Gage's arrest warrant.33 Despite this he was still to be arrested on this warrant.

The First Arrest of Richard Cantillon, September 1728 On Friday afternoon, 31 December 1728, the appropriately named Café Anglais on the rue de la Comédie Française was agog with excitement. Irish and English merchants jostled to hear the news of the arrest and imprisonment of their rich confrère Richard Cantillon. Seated around a table in this café the wine merchant Patrick Hoare, John Cosgrave, a tailor, and the nephew of the banker George Waters discussed how the Dublin apothecary Christopher Balfe had succeeded in having their immensely rich fellow-countryman Richard Cantillon imprisoned in Fort Levesque. The legal dispute between Cantillon and Gage was well known in this circle. It had already dragged on for seven years since the collapse of the Mississippi System. But hostilities had now escalated to a higher public level with Gage, operating through Balfe, forcing the French authorities to imprison Cantillon. The arrest had occurred earlier in the morning in the rue de l'Arbre Sec. Cantillon had gone there to meet one of his lawyers, Maître Leger. At ten in the morning a group of archers, the local Parisian police of the period, had entered this street and established their presence at the tavern owned by M. Pautrat. They were accompanied by a process-server, a certain M. de Lastre. According to a waiter in the tavern, Marc Laumeau, the archers consumed a number of pints of wine over the next half-hour. Suddenly alerted by a watchman they sprang into action, rushing out of the tavern after a coach which was just turning the corner for the rue Betizy. One archer stopped the horses and the others jumped up on each side of the coach and opened its doors. There were two occupants in the coach, Maître Leger and his client Richard Cantillon.

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Cantillon was arrested on Joseph Gage's warrant of 8 June 1727. The archers apparently were not aware of the restraining order on this warrant that Cantillon's lawyers had obtained. Maître Leger protested that the warrant was invalid but this did not stop the archers from ordering the coach-driver to proceed down the rue de la Monnaie in the direction of the prison of Fort Levesque. The whole scene must have presented marvellous spectator sport to onlookers in the street. Archers rushing out of a tavern, arresting a gentleman of substance such as Cantillon while his lawyer, dressed in the robes of his profession, protested in vain; such was not the ordinary entertainment of the residents of the rue de l'Arbre Sec. As the coach moved towards Fort Levesque a large crowd gathered to follow it. Just outside the Mint, on the rue de la Monnaie, Maître Leger addressed this crowd, asserting that a piece of roguery was being perpetrated against his honest client. All the time Cantillon, no doubt seething with fury at the acute embarrassment caused by the archers’ action, remained inside the coach. Unable to stop the coach from driving on towards the prison, Maître Leger requested a certain Toussaint Lamprier, a 16-year-old shoe-black, to carry his papers and follow him. On arrival at the prison the archers further infuriated Maître Leger by keeping Cantillon incommunicado from his lawyer while he was being booked. Once more Maître Leger protested to the archers and the assembled turnkeys that the action they were taking was ultra vires. But to no avail. Cantillon was to be imprisoned under the warrant that Gage had obtained. The lawyer left in anger and asked Lamprier to rush to his ofﬁce requesting his clerks to bring the ﬁle of papers relating to Cantillon immediately to the Châtelet. There, within a matter of hours, he was able to arrange Cantillon's release. Four hours after entering Fort Levesque Cantillon was a free man. But the affair did not end there. The archers delighted by their morning's work returned to the same tavern in the rue de l'Arbre Sec. There in a basement snug they consumed another couple of bottles of wine. Arresting and imprisoning a big Mississippian like Richard Cantillon was an event to be celebrated. But the festivities were only an hour old when they were interrupted by the arrival of two men at the tavern door. These new arrivals asked to see Laurent de Lastre, the process-server, and the archers. The subsequent short discussion between the two parties gives us a fascinating insight into the character of Richard Cantillon. Fresh from his release from prison Cantillon, instead of retiring to his ﬁne home in the rue de Grenelle to brood over the day's events, went on the trail of the group that had arrested him. He must have been seething with anger at the insult of being arrested in the centre of Paris before a

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crowd of bemused onlookers. But rather than just getting angry Cantillon intended to get even. With Maître Leger he had tracked down the archers and the process-server to M. Pautrat's tavern. Once again Marc Laumeau, the waiter in this tavern, described what followed. Maître Leger asked to see the archers, ‘to thank these gentlemen’ (pour remercier ces messieurs)! On seeing them the lawyer immediately asked de Lastre if he had been responsible for serving the arrest warrant on Cantillon. Shaken by the turn of events de Lastre denied his involvement stating that it was a M. Godiot (or Godion) who was responsible. Maître Leger replied that whoever was responsible would go to prison (le carion) for he had acted against a decree of the Parlement. Neither Cantillon nor Maître Leger believed de Lastre's story. From the tavern they travelled back to the Châtelet to lodge a complaint against Joseph Gage, de Lastre, and others for wrongful detention of Cantillon. Within ﬁve weeks Cantillon and his lawyer arranged for the presentation of ﬁfteen sworn afﬁdavits relating to the events of Friday 31 December 1728.34 Cantillon's appearance at the tavern after his release and the vigour with which he pressed charges against Gage and the arresting group shows someone intent on redressing an insult and ensuring that his adversaries would more than pay for the affront to his dignity and reputation. Reading over the evidence of the ﬁfteen witnesses, which provides the basis for the above account, is intriguing. The drinking activities of the arresting group are subtly highlighted—even then, drinking while on duty would have been frowned upon. A number of the turnkeys at the prison were encouraged to swear afﬁdavits to show how Cantillon had been kept apart from his lawyer while being booked. More importantly, Irish witnesses Patrick Hoare and Hughes Tilham, in reporting the conversation and rumours at the Café Anglais, both implicated the Dublin apothecary Christopher Balfe. He was reported to have been the driving force behind the arrest, acting of course on Joseph Gage's behalf. Hostilities between Balfe and his mentors Joseph Gage and Lady Mary Herbert on one side and Richard Cantillon on the other were to go much further. Cantillon within ten months was once again to face the ignominy of being jailed as a result of Balfe's and Gage's machinations. Balfe's failure to have Richard Cantillon imprisoned in December 1728 did not deter him from continuing to ﬁnd new methods of attacking Cantillon on behalf of his employers, Joseph Gage and Lady Mary Herbert. The new campaign he orchestrated against Cantillon involved a change of tactics for, besides continuing to take legal action

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through Gage and Lady Mary, he arranged to have an outside party, the Irish banking brothers John and Remy Carol, prosecute Cantillon under the French criminal code. The Carols were ably assisted by George Verdon who acted as one of their chief witnesses. Earlier in June 1729 Verdon had travelled over to London to discuss his evidence against Cantillon with Kenneth MacKenzie, solicitor to Lady Mary Herbert, and his assistant, a Mr Travers. Verdon was not acting out of altruism. He wanted to be paid for his information and wrote to Travers about such payments: ‘Soon after he wrote a letter to him [Travers] with some innuendos of his dissatisfaction at his not having money given him in such plenty as he could wish.’35 Having consulted Kenneth MacKenzie in London, George Verdon returned to Paris to give evidence that was regarded as crucial to the charges that the Carols were bringing against Cantillon. As an insider in Cantillon's bank, he created the impression in his sworn testimony that he was privy to all that had happened in the bank in 1720. He argued that Cantillon had charged usurious rates of interest on the bank's loans, that he had sold the shares deposited as collateral immediately the bank received them, and that after John Hughes's death he had arranged to misappropriate the accounting books of the bank.36 All these charges formed the main part of the Carol brothers' accusations. Prior to bringing these charges formally against Cantillon, the Carols arranged to meet Cantillon in an attempt to reach an out-of-court settlement. Acting through an intermediary, his wife's stepmother Charlotte Bulkeley, Lady Clare, Cantillon met John Carol on 30 July 1729 and agreed to settle their dispute by independent arbitration. John Carol wrote to Lady Clare informing her of this agreement. But then, according to Cantillon, the Carol brothers reneged and refused to go to arbitration.37 On 25 September 1729 the Carols charged Cantillon with a variety of criminal offences ranging from usury, to theft of assets deposited with him, to concealment of his business books. On 5 November, the charges were presented to the Lieutenant Criminel at the Châtelet. Two days later, on 7 November, Charles Germain de Courcy, a commissioner (commissaire) at the Châtelet, working at the request of the Lieutenant Criminel, investigated the allegations and took evidence from three witnesses, 34-year-old Jean Pierre Lamoly, a former cashier at the Carols' bank, Michael Power, a 30-year-old Irishman who had worked as a clerk in the Carols' bank, and George Verdon.38 The evidence of Lamoly, Power, and Verdon was sufﬁcient for another warrant for Cantillon's arrest to be issued by the Lieutenant Criminel at the Châtelet. The next day the warrant was served on

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Cantillon at his residence in the fashionable rue de Grenelle. Not only was Cantillon arrested, but seals were placed on all documents and furniture in his house, with the process-server Adrien Saulnier and his son appointed to guard the house. Cantillon and his wife were both present when the warrant was served and the seals applied. The legal documentation involved gives us a rare example of Cantillon's precise handwriting, reproduced on page xv of the prelims. The seals were not taken off the house till 3 February 1730. Cantillon was imprisoned in the Châtelet on 11 November, interviewed at length by the authorities the next day, and released at ten o'clock in the evening. But the Carol brothers, no doubt spurred on by Balfe, were dogged adversaries. No sooner had Cantillon been released than they were back at the Châtelet protesting that the release order for Cantillon was invalid and requesting that he be reimprisoned. They even obtained an order for his rearrest, but the Attorney-General (Procureur-Général) ruled that this order was invalid because it was dated the same day as the release order. Legally it had to be dated after the release order: ‘It is not in keeping with the dignity of the Court that one may use a decree in which such a mistake inadvertently slipped through.’39 Thus on a technicality Cantillon remained free. All through the remaining weeks of 1729 and the ﬁrst two weeks of January 1730 the Carols attempted to have Cantillon reimprisoned.40 The process came to a head in the Tournelle Criminelle at the Châtelet at the end of January 1730. Named after the tower in which this court sat at the Châtelet, the Tournelle was the court in which the most important criminal issues were tried and to which sentences of the lower courts involving personal punishment were referred. Cantillon's fate was now in the hands of the ‘wig and gown’ merchants. The scene was set for a spectacular legal confrontation with Maître Normand representing the Carols and Maître Cochin representing Cantillon. Henri Cochin (1687–1747), then aged 43, was one of the most brilliant advocates at the French bar in the eighteenth century. Six volumes of his pleadings, including his defence of Cantillon against the Carols, were published shortly after his death.41 The merit of these pleadings was such that the work went through a number of editions. His obituary stated that he was well loved and regarded as a top-rate lawyer. He had a keen mind and was widely read, immersing himself in the work of the latin poets, and also Descartes, Newton, and Malbranche. He had already more than impressed his older colleague Maître Normand. Seemingly, after he had presented his ﬁrst case at the Court, Maître Normand ran over to tell him that in all his career he had never heard such eloquence. Cochin drily replied, ‘it is clear that you are one of those who do not listen’.42 Now as they set out against each

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other at the Tournelle Criminelle, Normand was to receive more than a verbal cuff on the ear from Cochin. The gloves were off and big stakes were riding on the pending litigation. Cantillon knew that if he lost to the Carols the legal ﬂoodgates would open as Gage, Lady Mary Herbert, and her family brought similar charges against him. He intended to defend his reputation and employed probably the best brain in legal circles to do so. Fortunately we have an account of both sides' pleadings from two memoranda published later.43 The case argued by Maître Normand on behalf of the Carols against Cantillon contained a mixture of the evidence presented by the three witnesses Lamoly, Power, and Verdon as well as a replay of much of the earlier testimony presented by Gage in January of that year. In particular, extracts of letters written by Cantillon to John Hughes between 1720 and 1723 were presented in court. These extracts had been published by Gage's lawyer Maître Millet in 1729. There were three principal charges brought against Cantillon by the Carols which, for expository purposes, we present in reverse order. The charges were: (1) He was guilty of fraudulent bankruptcy and suppressed the disclosure of details of his bank's transactions by transferring the registers of the bank out of the French jurisdiction. (2) He stole the assets that the Carols had lodged with him as collateral for the money they borrowed. (3) He charged a usurious rate of interest on the loan made to the Carols. Cantillon's defence to this charge is discussed in Chapter 13. Cantillon's lawyer easily countered accusation 1. Cantillon had never been a bankrupt. Furthermore he presented sworn afﬁdavits from creditors of the Chevalier Richard Cantillon which showed that Richard Cantillon the economist had paid in full all his cousin the Chevalier's debts. The Carols, on the other hand, owed their creditors 1.1 million livres in July 1721. Cochin went on to show that the books of the bank, while they had been taken out of France, had been lodged with the clerk of the Court of Exchequer in London where ‘all the world could see them, examine them and take extracts from them’. Sardonically Cochin went on to add that ‘the lodgement of the registers and titles in a public depository was a new method of removing them from so called creditors’.44 Charge 2 was more substantive, but Cochin skilfully contended that the issue was a civil and not a criminal one and that legal redress could only be sought through the civil courts. Furthermore he attempted to show that, even if it was a civil issue, the charge was still without foundation.

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There was nothing new in the charge. It had been earlier made by both Lady Mary Herbert and Joseph Gage. However, Cantillon's defence to the charge of selling immediately the shares lodged with his bank as collateral has not been accepted by commentators on his activities. As a result he has been credited with the reputation of combining extraordinary stock market skills in selling these shares at their market ‘high’ with acting in a dishonest manner by not disclosing such sales to his clients. His adversaries contended that Cantillon instructed John Hughes to sell immediately on receipt the shares he obtained from Joseph Gage, Lady Mary Herbert, Lady Anne Carrington, John and Remy Carol. Table 12 shows the date on which such deposits were made by these transactors as well as the amounts involved. Table 13 shows the actual sales of shares by Cantillon and Hughes between March 1720 and January 1721.45 Although Joseph Gage had been given the exact details of the sale of shares by Cantillon and Hughes's bank, he, and later the Carol brothers, based their main attack on a dubious interpretation of a series of letters written by Cantillon to John Hughes in which Cantillon commented on the decline in Law's System and the appropriate action the bank should take to protect itself from adverse ﬁnancial developments in France. Cantillon had anticipated the incipient collapse of Law's System for some time before it happened. Using the analogy of the Italian buffoon character Scaramouche as a portent for disaster—Scaramouche always appearing on stage in black—he had written to Hughes on 10 May 1720 (29 April, OS), ‘I am convinced Scaramouche will burst forth; thus you have the best game in the world to play’.46 Eleven days later Law's System received a self-inﬂicted fatal blow when the decree of 21 May was formulated, stipulating the enforced devaluation of share prices and paper money. Commenting on this development Cantillon remarked: ‘I have noted your comments on R[the Regent] and L[Law]. It is certain that Scaramouche is starting to appear; if he continues we will gain a great deal and as a consequence establish our reputation and fortune.’47 This extract was interpreted by Gage's lawyers as follows: The discredit of the System's paper announced by the decree of May 21, 1720 signiﬁed to Cantillon that if it continued they would earn a great deal, because, having sold the shares deposited for near to 9,000 livres each they foresaw that they would be able to purchase others for 4 or 5,000 and below; in this way he counted on making more than three millions on the surplus accruing from the sale of the sale of the 4 or 5,000 shares deposited with him as collateral in the months of March and April 1720.48 There was no factual basis for the lawyer to deduce such behaviour

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Table 12 : Deposit of Shares by Borrowers With Cantillon and Hughes as Collateral, 1720 Date 12 March 20 March 11 April 12 April 11 May 9 June 12 June

Borrower J. Gage J. and R. Carol Lady M. Herbert Lord Montgomery Lady M. Herbert J. Gage J. and R. Carol TOTAL

Shares 140 20 93 40 80 180 20 573

Table 13 : Sale of Shares by Cantillon and Hughes, 1720–1721 Date Prior to 12 March After 12 March After 12 March before 21 Maya Between 15 June and 9 Julya 26 July 26 July 26 July 1 August 2 August 3 August 3 August 3 August 5 August 13 August 4 September 4 September 4 September 4 September 21 January 1721 TOTAL a

Shares 20 40 79

Price (livres) 8,200 8,318 8,894

Receipts (livres) 164,000 332,700 702,607

142

5,243

744,528

200 44 198 40 49 127 50 3 200 22 180 50 47 50 201 (134 new) 1,742

5,000–5,180 5,420 4,570 4,950 4,950 4,900 4,860 4,860 4,810 4,860 4,550–4,672 4,550–4,672 4,620–4,670 4,615–4,660 1,667 (2,500)

982,200 234,190 905,680 193,423 (242,550) (622,300) 238,240 17,280 942,540 104,808.10 817,644 222,700 213,961.04 227,494 335,000 8,229,786.14

These prices are derived from Cantillon's letter to Francis Garvan on 6 June 1731 (PRO C11/1594/36). Source: NLW Powis 995.

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from Cantillon's letter. Table 13 shows the bank sold only 281 shares between March and 26 July, even though it had 573 shares deposited with it as collateral from Gage, the Carols, and the Powis family. Furthermore, the bank had not obtained anything like 9,000 livres per share sold. Using the statistics supplied by Cantillon to his friend and lawyer Francis Garvan, statistics which conform to those supplied in Table 13 by John Hughes, we ﬁnd that the bank sold 281 shares at an average price of 6,918 livres between March and 26 July. Additionally, Cantillon contended that Hughes's account showed that 20 of these shares had been sold prior to any share collateral being deposited with the bank and another 40 ‘after Mr Gage had deposited some actions but before Lady Mary Herbert, Lord Montgomery or Messrs. Carol had brought in any’.49 Cantillon made the decision to resume selling shares on 24 July 1720, when he was in Amsterdam. His letter of this date to Hughes suggests that it was at this moment that he decided to sell the shares deposited by Gage, Lady Mary, and others:‘It is appropriate to draw up a power of attorney from Mrs Duprat, Mr Gage, Lady Mary and others to sell their shares and to remit the proceeds here so that they may be invested here [Amsterdam] in those shares that I judge appropriate. . . ’ (our emphasis).50 Cantillon went on to discuss how some elements in the accounts might be ‘cooked’ ( fricasser les comptes), but the essential point in this letter is the revelation that the shares of Gage, Lady Mary, and others had still not been sold at this stage. Cantillon explained in detail his attitude as set out in the letter of 24 July 1720, in a later letter to Francis Garvan in April 1726.51 Gage's lawyer was quite disingenuous in interpreting Cantillon's letter of 24 July 1720, arguing that: ‘Cantillon abusing the conﬁdence of the houses of Powis and Gage wrote to Hughes to procure a power of attorney to sell their shares, whereas they had been sold a long time before without such a power just as is proven by the accounts of money advanced.’52 But the accounts of money advanced referred to in this letter were those of John Hughes as revealed to Joseph Gage shortly before his death. These accounts are reproduced in Appendix 3 and, with reference to the sale of shares by the bank, presented in a more readable format in Table 13. Quite clearly they do not disclose the pattern of sales alleged by Gage, Lady Mary, and the Carol brothers. In his letter of 24 July Cantillon seemingly, though Gage's lawyer did not cite such a suggestion, proposed to Hughes that he sell 440 shares, belonging to Gage (320 shares), Lady Carrington (80), and the Carols (40). Two days later, the time it would have taken a fast messenger to bring such a letter from Amsterdam to Paris, John Hughes started selling substantial quantities of shares, as may be seen in Table 13. On

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26 July he sold 442 shares at prices varying between 4,570 and 5,180, obtaining in total 2,122,070 livres. Were these the shares of Gage, the Powis family, and the Carol brothers? Five days later Hughes, faithfully carrying out Cantillon's advice, obtained a power of attorney from Lady Mary allowing the bank to sell her shares: Besides my former order to Cantillon and Hughes I [Lady Mary Herbert] desire that after my actions and effects in their hands are sold they will either pay bills drawn on them from Amsterdam or remit thither unto Mr Richard Cantillon the produce of my effects if they think it my interest to be employed in such stocks there as he shall judge proper which is to be applied towards the payment of my bills or notes in their favour in London.53 .The sales of shares by the bank continued as it sold 40 shares the next day at 4,950 livres each followed by 49 at the same price on the following day. This process gathered momentum on 3 August when 180 shares were sold at prices varying between 4,900 and 4,860. On 5 August another 200 shares were sold at 4,810, followed by a smaller sale of 22 on 13 August at between 4,810 and 4,860. During this period between 26 July and 13 August the bank sold a total of 933 shares. This was the most active selling period for the bank between March 1720 and January 1721, though it sold a further 327 shares between 4,550 and 4,672 in the ﬁrst two weeks of September and 201 shares in January 1721, by which time the price had collapsed to 1,667 (the 201 shares had actually been legally reduced to 134 shares valued at 2,500 per new share). Cantillon even produced a witness, James Egan, an Irish merchant trading at Bilbao, who had been employed in his bank in 1720, to conﬁrm these sales. Unlike his former colleague George Verdon, Egan was prepared, in Cantillon's words, ‘to evince the truth against Verdon's perjuring and prevarication’.54 Egan's sworn afﬁdavit conﬁrmed not only Cantillon and Hughes's account but also showed the latter as a careless custodian of the bank's portfolio of Mississippi Company shares (referred to as actions below): He remembers he sold the particulars of the twelfth of March, that Hughes had then a great number of actions far beyond that of 60 given in by Gage, that even then he kept all his actions indiscriminately in drawers, that he Egan sold all or most of the actions as well then as able the 21st of May and that no others were sold for the house but by himself or Fennel and that both always paid in the bank bills made of the sales to Verdon's cash which he regularly entered thereon, that this was practised well before as after the 21st of May 1720. That he, Egan, did not keep a separate account of the sales he made till about July 1720. He was constantly at the house where he dined every day and remained

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all day long except when he went about the sales. The number Egan has kept on account as sold in and after July 1720 amounts to about 8 or 900 with the 281 actions sold before answering nearly the 1192 actions mentioned in the Mémoire.55 Cantillon re-emphasized that the books showed he was innocent of the charges, even though Lady Mary and the Carols had, in his view, ‘false witnesses’ who stated the contrary. His letter to Francis Garvan stressed that his defence was based on the books of the bank: Now if the books should be made the rule and, I think it is impossible to state anything without them though they had a thousand false witnesses, it will be found there were 139 actions sold by Hughes before the 21st of May 1720 [making] 1,199,307, besides 142 actions sold between the 15th of June 1720 and the 9th of July making 744,528. The 1461 actions sold after the 26th of July were of so little value that nobody would allow their actions made part of them. If I say at an issue, with all the corruption and prevarication imaginable, the family should prevail in getting the ﬁrst 139 actions declared to belong to them the same books show the bank bills they produced and a great deal more remained in cash the 21st of May 1720 and that many millions in that cash comptes en banque remained in the house so late as September and October so that I cannot see how they can escape. . .56 Cantillon's point on the decline in the value of shares sold after 26 July is signiﬁcant. In nominal terms the fall in the shares from 9,000 to around 5,000 was not over dramatic, particularly as many shareholders had acquired their shares at prices below 5,000. However, the monetary environment had changed considerably in the summer and autumn of 1720. As pointed out in Chapter 9, shareholders were locked into holding either shares or banknotes. Specie was extremely difﬁcult to ﬁnd. The exchange rate between Paris–London and Paris–Amsterdam reﬂected the growing expectation of the collapse of the French paper currency. The écu which was worth 18–20 pence sterling in March, was down to between 10 and 12 pence sterling at the end of July. Cantillon recognized the effect the fall in the exchange rate was having on the remittances from Paris to London and Amsterdam. The shares sold in July 1720 were yielding considerably less in sterling and Dutch guilders than those sold prior to 21 May. In September 1720 he had written to John Hughes: I am apprehensive our friends will become everyday more and more needy and that their friendship will become disadvantageous. . . The disappointment of the bills you have running for July and the loss for the virments will be a good handle for you to plead and in reality I wish Lord Mount[gomery], Ga[ge] and ′Lady Car[rington] would only pay the original money for them.57

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These do not seem to be the words of someone who has made a large ‘killing’ out of selling the shares of Gage and the Powis family.

Summary on Cantillon's Share Dealings from March 1720 to January 1721 The evidence on Cantillon's share dealings from March 1720 to January 1721 is contradictory. On the one hand his adversaries lined up a range of witnesses such as the Marquis de Marches, Mr Loftus, and Mr Lally who contended that Cantillon had told them how he had sold shares deposited with his bank as collateral immediately on receipt of such shares. George Verdon, a former employee of the bank, added substance to these allegations. At times Cantillon himself seemed to admit to culpable behaviour by the bank when in his letters to Hughes he suggested, ‘if the worst should happen there is no medium but your ﬂying or going to prison’,58 and later on when he wrote, ‘I shall be obliged to declare that I am not in partnership with you, that I was to have no share of proﬁts in any other right than that of my nephew’.59 Cantillon also suggested tampering with the bank's books on a number of occasions. In the muchquoted letter of 24 July 1720 he mentioned that John Hughes would be in a position to ‘fricasser les comptes’, while on 27 February 1721 he wrote suggesting that Hughes allow him to ‘médiciner’ the accounts relating to bills of exchange of the Powis family.60 On the other hand, John Hughes's account of the sale of shares between March 1720 and January 1721 shows that the bulk of the bank's shares were sold on or after 26 July 1720, at a time when the French exchange rate had fallen considerably. Rather than making a fortune out of loans made to Gage, the Powis family, the Carols, and even more signiﬁcantly William Law (who deposited 1,000 shares as collateral for the June copper loan of £20,000 in 1720), Cantillon seems to have fought a defensive action in relation to these loans. His letter of September 1720 expressing the wish that Lord Montgomery, Joseph Gage, and Lady Carrington ‘would only pay the original money’ for the loans he had given them suggests that Cantillon found proﬁt-making extremely difﬁcult on these transactions.61 The evidence of Verdon against Cantillon was countered by that of James Egan in his favour. The coup de grâce to counter the Carols' accusation on the sale of shares was that, as the shares were not numbered, it was impossible to identify any one block of shares from another. Cochin had pleaded in Cantillon's favour:

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As a matter of fact these actions were not marked by numbers. Mr Cantillon sent them to Hughes and there they were mixed up with many others; subsequently Hughes sold many but even he could not distinguish his from those of the Carols and others. . .All the shares were held in the same portfolio; those sold were drawn randomly so that it was impossible to attribute them to one party or another, just as a man who had 20,000 golden louis in a chest, 5,000 of which was owned by others, could not be accused of theft of the deposit if he withdrew 10 or 15,000 from it.62 Cochin argued that the bank's holding of shares was far greater than the amount put up as collateral by Gage, the Powis family, and the Carols, so that it was not possible to allege that the Carols' shares had been sold at a particular time. In fact, on 15 November 1720 the bank still held 1,300 shares of the Mississippi Company. This argument was decisive in having the Carols' case thrown out. Cantillon wrote to Francis Garvan about it in November 1730: ‘The circumstances of the actions which were delivered without any mark was the reason why the witnesses were not believed or minded in Carol's criminal prosecution though they swore point blank I had sold and realised them there.’63 The verdict of the Tournelle Criminelle, ﬁnding Cantillon not guilty of the charges made by the Carols against him, had been pronounced on 1 February 1730. Cantillon counter-attacked and successfully won his civil case against the Carols at the Bureau des Actions. He was awarded 115,482 livres with interest on this sum running from the date of the judgment, 18 August 1731.64 Cantillon had at least made ‘somebody pay for the ill treatment that I have received’.65 While he had been victorious over the Carols his troubles had not ended. Christopher Balfe and Joseph Gage continued to press both criminal and civil lawsuits against Cantillon. To understand the pressures Cantillon endured in the 1730s before his demise it is necessary to digress to the subterranean prison cells of the Châtelet to outline a series of events which involve an incredible story of eighteenth-century skulduggery.

Notes 1 2 3

NLW Powis 11744. NLW Powis 11188. Letter from Richard Cantillon at London to Cantillon and Hughes, 1 June 1721 (OS). Stafford, County Record Ofﬁce, D 641/2/C/3/8, ‘Mr Lake's Case’. Bibye Lake, initially an articled clerk to the solicitor Francis Peters and from 1740 onwards a solicitor himself, acted for the Cantillon family in England. This case summarizes a great deal of the English litigation in which Cantillon and later his family were involved.

234 4 5 6 7 8 9 10 11 12 13 14 15 16 17

18 19 20 21 22 23 24 25 26 27 28 29 30

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Ibid. NLW Powis 11195. Letter from Richard Cantillon in London to Cantillon and Hughes, 15 May 1721 (OS). This letter was quoted by Higgs in ‘Richard Cantillon’, Economic Journal (1891), 280. It is similar to that quoted in the text except there are no references to ‘the Prior and Mr Gough’. NLW Powis 11188. Letter from Richard Cantillon in London to Cantillon and Hughes, 1 June 1721 (OS). NLW Powis 11185. Ibid. NLW Powis 8897. Letter from Richard Cantillon in London to Cantillon and Hughes, 20 November 1721 (OS). NLW Powis 10725. Letter from Richard Cantillon in Amsterdam to Cantillon and Hughes, 10 May 1722. NLW Powis 10300 and also Powis 9181. Letter from John Hughes in Paris to Richard Cantillon, 31 March 1723. Ibid. NLW Powis 10300. Letter from John Hughes in Paris to Richard Cantillon, 14 April 1723. NLW Powis 10300. Ibid. ANMC lxvi. 583, ‘Procuration Richard Cantillon à George Verdon’, 18 June 1723. Details on George Verdon's lineage were drawn up by James Terry in 1723. See BN Pièces originales 2963. Earlier, on 26 October 1722, Verdon had married Marie Jeanne MacDermott, a daughter of Peter MacDermott, a lieutenant in Dillon's regiment, and Marie Claude Cardon. The dowry for this marriage was 20,000 livres. See ANMC xliv, 26 October 1722. NLW Powis 10706. Ibid. PRO C11/1594/36. Letter from Richard Cantillon in Paris to Francis Garvan, 26 June 1731. NLW Powis 9766. BL Add. MSS 28351. Agreement with Esther Hughes signed on 3 February 1723–24 (OS). There are detailed accounts of the money given to Esther Hughes on behalf of the Powis family between 1724 and 1730 in these manuscripts. Cantillon was obliged to lodge securities valued at over £3,000 with the court in order to travel out of Britain. See Essai, p. 372. NLW Powis 10706. Stafford, County Record Ofﬁce, loc. cit., ‘Mr Lake's Case’. PRO C11/1594/36. Letter from Richard Cantillon at Nampon, near Abbéville, to Francis Garvan, 20 April 1726. Ibid. Letter from George Verdon to Henry Furnese, 17 January 1728. Ibid. Letter from George Verdon to Henry Furnese, 21 May 1727. Ibid. Letter from George Verdon to Francis Garvan, 2 April 1727. Bibliothèque de l'Arsenal, Archives de la Bastille, 11481.

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31 PRO C11/1594/36. Letter from Richard Cantillon in Chambéry to Francis Garvan, 17 April 1728. This letter is quoted in Higgs, op. cit. n. 5 above, p. 283. 32 Ibid. Letter from Richard Cantillon in Verona to Francis Garvan, 15 May 1728. 33 AN X2B 963, 6 September 1728. 34 The following account is derived from an investigation carried out by M. Louis Poget, conseiller du Roi, commissaire au Châtelet de Paris, made at the request of Richard Cantillon. The evidence of the witnesses is to be found in AN Y 13494 (3 January 1729). 35 BL Add. MSS 28238, ‘Letters of Lady Carrington and others to K. MacKenzie’, fos. 95–6. Kenneth MacKenzie, and his assistant, a Mr Travers, were the British solicitors who acted on behalf of the Powis family. MacKenzie had more than a professional interest as he had secretly married Lady Anne Carrington, Lady Mary's aunt, in 1709. Cantillon discovered this fact around 1729 and ﬁled a cross bill for the discovery of this marriage. In Easter 1729 he made Kenneth MacKenzie a co-defendant with his wife. It was admitted by MacKenzie that he married Lady Carrington in 1709. 36 AN Y 11216. 7 November 1729, ‘Information faite par nous Charles Germain de Courcy, commissaire au Châtelet de Paris, à la requeste de Jean Carol, banquier à Paris et de Remy Carol.. . . ’ 37 BN Fo. Fm. 2740, ‘Mémoire pour Richard Cantillon contre Jean et Remy Carol’, p. 4. 38 AN Y 11216, loc. cit. 39 AN X2B 295, 25 November 1729. 40 AN X2B 965, 23 December 1729 and Y2B 966, 1 February 1730. 41 Henri Cochin, Œuvres complètes de Cochin (Paris, 1751). Six volumes in quarto. 42 Le Nouvelliste œconomique et littéraire (Nov.–Dec. 1755). 43 BN Fo. Fm. 2740 and 2838, ‘Mémoire pour Richard Cantillon contre Jean et Remy Carol’ (also to be found in Œuvres complètes de Cochin) and ‘Mémoire pour Jean & Remy Carol contre Richard Cantillon’. 44 Ibid. ‘Mémoire pour Richard Cantillon. . . ’, p. 16. 45 NLW Powis 995. This account of the purchase and sale of transactions by Cantillon and Hughes's bank was given to Joseph Gage by John Hughes shortly before he died. Gage selectively quoted from the document which showed that there was a total of 1,742 shares involved. However, his lawyers insisted, despite the evidence in this document, that the bank had sold all its shares at a price of around 9,000 in March 1720. See NLW Powis 10880, ‘Pièces pour Messire Joseph Edouard Gage contre Richard Cantillon’, p. 5. 46 NLW Powis 10880, op. cit., p. 4. 47 Ibid., p. 5. Translated from French. Letter dated 15 May 1720 (26 May, NS). 48 Ibid.

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49 PRO C11/1594/36. Letter from Richard Cantillon at Nampon, near Abbéville, 20 April 1726. Cantillon's account of his share transactions is detailed in this letter. 50 NLW Powis 10880. Extract from a letter sent by Richard Cantillon in Amsterdam to John Hughes in Paris, 24 July 1720 (translation), p. 6. 51 Loc. cit. See n. 48. 52 Loc. cit. See n. 49. 53 NLW Powis Deeds 11185. 54 PRO C11/1594/36. Letter from Richard Cantillon in Paris to Francis Garvan, 10 July 1729. Cantillon had been involved in litigation with James Egan earlier and had obtained a favourable verdict from the French courts on 25 February 1726. See ANMC lxxxii. 351 (6 March 1755), fo. 23. It may have been this litigation which caused Cantillon to remark to Garvan in his letter, ‘I had no good opinion of him [Egan] at ﬁrst’. 55 Ibid. Cantillon to Garvan, 10 July 1729. 56 Ibid. Letter from Richard Cantillon in Paris to Francis Garvan, 6 July 1731. 57 NLW Powis 10705. Letter from Richard Cantillon in Amsterdam to John Hughes, 23 September 1720. 58 NLW Powis 11195. Letter from Richard Cantillon in London to Cantillon and Hughes, 15 May 1721 (OS). 59 NLW Powis 8997. Letter from Richard Cantillon in London to Cantillon and Hughes, 20 November 1721 (OS). 60 NLW Powis 10880. Letter from Richard Cantillon in Amsterdam to Cantillon and Hughes, 24 July 1720, and letter from Cantillon in London to Cantillon and Hughes, 27 February 1721 (OS). See pp. 6 and 7 of ‘Pièces pour Messire Joseph Edouard Gage contre Richard Cantillon’, op. cit. n. 45 above. 61 NLW Powis 10705. Letter from Richard Cantillon in Amsterdam to Cantillon and Hughes, 23 September 1720. 62 ‘Mémoire pour Richard Cantillon’, op. cit. n. 43 above, p. 15 (translation). 63 PRO C11/1594/36. Letter from Richard Cantillon in Paris to Francis Garvan, 29 November 1730. Cantillon was obviously happy to be rid of the Carols but still anxious about what was happening in Paris: ‘I beg to be less anxious about the fact of these lawsuits at Paris and I propose next week to revive and prosecute warmly Lady Mary, Lady Carrington and Lord Montgomery's affair at the Bureau.’ 64 This favourable verdict is recorded in Cochin's Œuvres (Paris, 1822), vi. 267. See also AN Y2B 966, 1 February 1730. 65 PRO C11/1594/36. Letter from Richard Cantillon in Paris to Francis Garvan, 26 June 1731: I am far from thinking I can have so much money or interest as they [the Powis family] in the course of these proceedings but if I must be in a state of war it is but reasonable I should preserve my right against mylord [Lord Montgomery] that I may have some change to make somebody pay for the ill treatment that I received.

12 The Strange Accusations of Christopher Balfe Few famous economists have been accused of murder. In the seventeenth century Antoine de Montchrétien, the author of the Traicté de l’œconomie politique, was forced to ﬂee from France on being accused of murder. John Law had been sentenced to death for killing a rival, Edward Wilson, in a duel in London in 1694, but was fortunate enough to have the sentence commuted through the good graces of one of his well-placed mistresses. In 1729 Cantillon was accused of conspiring to hire some Parisian ‘heavies’ to murder Christopher Balfe. This was just one of a range of accusations, which were never subsequently backed up by hard evidence, brought by Balfe against Cantillon. He also alleged that Cantillon had earlier attempted to have him exiled and had also offered him a bribe of £3,000 sterling. These accusations were symptomatic of the tension between the two parties with Gage, Balfe, and Cantillon involved in a web of accusations and counter-accusations concerning murder, sodomy, bigamy, theft, and fraud. These issues would seem more appropriate in a novel by Alexander Dumas than in the biography of an economist, more particularly as some of the central characters involved were a lame Dublin apothecary, a Scottish Jacobite spy, a French priest who had been named as one of the Mississippi millionaires, and the ever colourful Joseph Gage, then in hiding from his creditors. Before attempting to adjudicate on the veracity of either side's allegations and the effects this acrimonious battle had on Cantillon, it is helpful to give a chronology of some of the main events in this long-running saga: 1726

1727

1728 1729

1730 1733

1734 1740

1741

Balfe and Gage alleged to have hired Captain James Byrne to assassinate George MacKenzie. This accusation was made in 1729 and they countercharged that Cantillon bribed Captain Byrne to make it. Owing to the supposed failure of the assassination attempt Balfe and Gage were alleged to have conspired with the Abbé René Duval to bring a charge of homosexuality against George MacKenzie. Again Gage and Balfe countered that Cantillon, acting in concert with George MacKenzie, arranged in 1729 to have them implicated in these proceedings. Cantillon arrested and temporarily imprisoned through Gage's criminal charge brought at the instigation of Balfe. Cantillon arrested and temporarily imprisoned through the criminal suit brought by the Carol brothers, a lawsuit ﬁnanced by Lady Mary Herbert and Joseph Gage and managed by Balfe. Balfe alleged that Cantillon attempted to have him exiled, offered him a bribe of £3,000, and then conspired to have him murdered. MacKenzie, acting on information supplied by Cantillon, brought a charge of bigamy against Balfe. Balfe imprisoned. In February Balfe was released and obtained 20,000 livres damages

against MacKenzie. He reactivated criminal proceedings on Gage's behalf against Cantillon. Cantillon by July wrote saying that he despaired of ever ﬁnishing with the Gage litigation. Balfe alleged that he ﬂed from France to evade further legal proceedings. Cantillon's demise in Albemarle Street in May. The Tournelle Criminelle acquitted Balfe of

the further charges brought by MacKenzie. Balfe awarded 50,000 livres damages against MacKenzie. An order made to exile Balfe on the bigamy charge.

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The above brief chronology shows that the central character in these events was Christopher Balfe, one of the most bizarre characters encountered in the story of Cantillon's life. An Irishman, like Cantillon, he was born in Dublin in the late 1670s and remained there till 1711, when he came to France. An apothecary by profession, he was described around 1730 as being ‘aged about ﬁfty, both big and fat with a tanned face’. Balfe was physically handicapped: one leg was lame and he was obliged to wear a brace made of iron and leather in order to walk. This brace was to ﬁgure prominently in identifying Balfe. Balfe had worked for Joseph Gage as early as 1720.1 He became a vital part of the Gage–Herbert team after 1723 when Lady Mary Herbert was obliged to ﬂee from her pressing creditors in France and Joseph Gage could only circulate around Paris in disguise. It was Balfe who organized the civil and criminal suits on their behalf against Cantillon. He was a tireless worker for their cause but tended to be over ambitious and excessively conﬁdent in the expected outcome of the litigation against MacKenzie and Cantillon. Lady Mary remarked of him, ‘I know him to be always full of hopes and thinks himself sure of what he desires’.2 Later on she conﬁrmed that Balfe was over optimistic concerning his legal capabilities: ‘Balfe is certainly often mistaken in his law affairs. He means well but that is not sufﬁcient to overcome our adversaries.’3

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According to Balfe, Cantillon arranged with George MacKenzie during the Christmas period of 1729 to implicate Joseph Gage and himself in criminal defamation charges that MacKenzie had brought against the Abbé René Duval.4 Signiﬁcantly this alleged meeting would have taken place shortly after Cantillon's second arrest and release from prison. Had Cantillon, infuriated by the continuous legal pressure generated by Balfe, decided to even scores with his adversary by involving him and Joseph Gage in George MacKenzie's criminal defamation proceedings? George MacKenzie's lawsuit, like those of Cantillon, involved transactions in Mississippi shares. George MacKenzie's lawyer stated that his client was born into an old Scottish family and was heir to the title and barony of Trugh in the county of Monaghan in Ireland.5 He also added that he was related on his mother's side to Lord Keith, count and marshal of Scotland. Noble or gentlemanly lineage was apparently well regarded by the courts of the time. Balfe, on the other hand, maintained that he was of peasant stock, that his birthplace was in the village of Shonhive, near Aberdeen, and that his real name was George Makine. He alleged that MacKenzie, or Makine, was a failed herring-trader who travelled to France in 1703 where he was apprehended as a spy in 1705 and put in the Bastille. One is inclined not to attach too much importance to this spying charge, for MacKenzie had been imprisoned on the evidence of the infamous Simon Frazer, Lord Lovat, who had accused MacKenzie, then aged 18, of being in secret correspondence with the Lord MacKenzie of Cromarty, Secretary of State for Scotland. Later on it was Lovat who was found to be the spy and MacKenzie was released. MacKenzie did, however, work on behalf of the Jacobite cause. He maintained that he had been Queen Mary of Modena's ambassador to the Russian Court. There is independent evidence showing that he was working for the Duke of Mar, a personnage deeply involved in the Jacobite intrigues, in August 1718.6 In 1719 George MacKenzie was asked to go to Italy by the Regent. On receiving these orders he left 429 shares of the Mississippi Company in the hands of his neighbour in Chaillot, a certain Abbé René Duval. This turned out to be a major error of judgement for, on his return to France, the Abbé Duval, while acknowledging the receipt of the shares, refused to return them and MacKenzie took him to court. Apparently while MacKenzie was away from Paris the Abbé had been playing the market with MacKenzie's shares. He operated effectively in the market for Mississippi shares, for he was listed as one of the Mississippians who had made a large fortune in the Visa of 1721. du Hautchamp, in listing the Mississippians, described him as having made 18 million livres, some of which he had liquidated—‘en partie realisés’.7 The Abbé was taxed 2.6 million livres on these Mississippi gains. We

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surmise that these gains were not due solely to his skill in trading shares at the appropriate moment. He had access to the inside track on what was happening at the Bank through his brother Lablerie who, according to du Hautchamp, worked as a clerk in the Royal Bank. MacKenzie argued that the Abbé sold his shares and invested the proceeds in real estate, disguising these operations by purchasing land and property through the use of third parties. When MacKenzie obtained a judgment against the Abbé Duval for the restitution of his shares and the Abbé did not comply with the court order he was imprisoned in 1723. MacKenzie found it impossible to obtain his money because it was held through third parties rather than directly by the Abbé who, determined to hold on to what he possessed, stayed in prison living comfortably off the proceeds. George MacKenzie had also deposited 30 Mississippi shares with the Duke of Powis, Lady Mary Herbert, and Lady Anne Carrington, a deposit they acknowledged on 16 July 1723.8 Unable to return these shares they were sentenced to pay 60,000 livres by three court judgments delivered between May 1725 and May 1726. To escape these court orders the Duke of Powis returned to England and Lady Mary and her aunt, facing similar writs in England, ﬂed to Spain. Both the Abbé Duval and Joseph Gage, acting with Balfe for the Powis family, had a common enemy in George MacKenzie. Up to this point there is no real dispute with regard to the evidence though Balfe alleged, as he also did against Cantillon, that MacKenzie had charged usurious rates of interest on the loan that he had made to the Powis family. The course of events from this point on was challenged. MacKenzie contended that Gage and Balfe conspired to have him murdered and when that failed they conspired with the Abbé Duval to bring a charge of sodomy against him. Balfe and Gage strenuously denied these charges made by MacKenzie, arguing that they had been fabricated at the instigation of Richard Cantillon. They implied that Cantillon felt it necessary to get rid of them because of the pressure they had brought to bear on him through the Gage and Carol criminal lawsuits, and that he therefore conspired with MacKenzie to bring these trumped-up charges against them. Balfe argued that, conveniently, MacKenzie had a criminal lawsuit pending against the Abbé Duval in which Cantillon felt he could incriminate Gage and Balfe. Defendants in this lawsuit already implicated with the Abbé Duval were allegedly bribed by Cantillon and MacKenzie to implicate Balfe and Gage in the Abbé Duval's intrigues.9 MacKenzie's account of these events was quite different. His lawyer argued that Gage and Balfe were keen to avenge the honour of the Powis family on George MacKenzie and that they coalesced with the

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Abbé Duval in a united vendetta against MacKenzie. However, he also alleged that even prior to this rendezvous Gage and Balfe met and persuaded a young Irish ofﬁcer, James Byrne, a lieutenant in Rothe's regiment, to attempt to assassinate George MacKenzie while he was travelling through the forest between Versailles and Paris. Byrne was to hire other Irish ofﬁcers for this assassination attempt and was promised in return money and the prospect of promotion, seemingly to be obtained through Lady Mary Herbert and Joseph Gage's contacts with the court and army. The assassination project against MacKenzie failed, though Balfe later contended that Byrne's accusations were untrue and that the Irish army ofﬁcer had been bribed to defame him. In 1726 Joseph Gage and Christopher Balfe arranged to meet the Abbé Duval in his prison cell in the Châtelet. As Gage was a fugitive from his creditors he appeared in disguise at the prison dressed as the valet de chambre of Balfe, with the latter posing as a Scottish gentleman! The three agreed to press through third parties a charge of sodomy against MacKenzie. Eighteenth-century French society took a harsh view of homosexual behaviour, sodomy being classiﬁed as a crime punishable by death or a long prison sentence. MacKenzie's lawyer, in a marginal annotation to his memorandum, observed that a convicted sodomite had recently been burned at the stake. Balfe, Gage, and Duval had a number of meetings at the prison, though it was decided that because of Balfe's disability it would be prudent for him to minimize his hobbling visits to Duval. Apparently the conspirators feared that he might have been recognized, through his limp, as the individual who had solicited the assistance of Byrne and his fellow Irish ofﬁcers to assassinate MacKenzie. The planned action against MacKenzie was activated by the Abbé Duval's mistress, Mlle Vergnault. She had been living in what the lawyers euphemistically described as a ‘close relationship’ with the Abbé for ﬁfteen years and had beneﬁted greatly from gifts given her by the Abbé out of the money he had taken from MacKenzie. Mlle Vergnault claimed in a sworn deposition that she had seen MacKenzie in an indecent posture with a man. To give the charge extra colour she alleged that she had spotted MacKenzie with his black slave, ‘dans une posture infame avec son negre’. Nicolas Ajacques Desmarais, a fellow prisoner of the Abbé, was given the task of drawing up the deposition stipulating Mlle Vergnault's complaint against MacKenzie. Desmarais arranged for a variety of witnesses to sign accusations against MacKenzie. These witnesses were Philippe Estrope, Antoine Cheutin and his wife, Jeanne Saget, Marguerite Marguet, Marie Petit, called Manon, a servant of

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Mlle Vergnault. Another witness, François Geffrier, who actually wrote up the depositions, also contended for good measure that MacKenzie attempted to have him murdered. The depositions containing these complaints were presented to the Lieutenant Général de Police, the chief criminal prosecutor, and another copy was sent off to the court at Versailles. Notwithstanding all the planning of Gage, Balfe, the Abbé Duval, and his assistants, the sodomy accusation was quickly dismissed as the witnesses, after questioning, retracted their stories. Some of the witnesses claimed that the Abbé Duval's agents, Desmarais and Mouaque, had obtained their signatures through a variety of lies such as their suggestion that MacKenzie's family wanted him arrested so as ‘to cure him of the unfortunate vice of which he was accused’. Other witnesses said that they had been bought drink and when they were under the inﬂuence they were asked to sign a statement alleging that they had caught two men in the act of committing sodomy as they were coming home one evening to their house in the rue S. Martin. Gage and Balfe were alleged to have been the prime movers in the plot against MacKenzie: Accordingly one sees all the time these two Englishmen [Gage and Balfe] in all of this intrigue: it is they, who having failed with their assassination bid, conceived the unfortunate plan of the false accusation of sodomy. The Abbé Duval did not go looking for them, they came looking for him in prison to tell him their ideas, as a declared enemy of Mr MacKenzie. They made him an accomplice in the plot and they executed the greater part of the plot.10 The above account is taken from MacKenzie's Mémoire against René Duval, Christopher Balfe, and others. Balfe in his defence pleaded that he did not meet the Abbé Duval in the Châtelet prison, that he did not wear an iron brace on his leg (other witnesses claimed that he removed it prior to making an appearance in court), and that he had a relative with the same name who was a cripple and who might have been in contact with the Abbé Duval! Later he pleaded that Cantillon and MacKenzie paid an individual to go around acting like Balfe.11 If Balfe's plea was correct one wonders how many so-called Christopher Balfes were hobbling around Paris in the early 1730s! Balfe persisted in pleading his innocence and in 1733 was found, along with Gage, innocent of the charges made by MacKenzie. The magistrate at Meudon delivered this judgment. Additionally he awarded 20,000 livres damages to Balfe against MacKenzie. MacKenzie appealed against this decision but Balfe won again in a judgment delivered in December 1740 with the damages awarded against MacKenzie being raised to 50,000 livres.

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Whilst it is difﬁcult to ascertain whether Cantillon was involved in persuading MacKenzie to implicate Gage and Balfe with the Abbé Duval in the criminal defamation charges, we do know that Cantillon was instrumental in bringing the bigamy charge against Balfe. Right through the second half of the 1720s Cantillon had been brought under increasing legal pressure by Balfe. How could he even scores with this persistent adversary? His method of attack was to ask his friends in Dublin to investigate Balfe's background. This was done and his Dublin sources came up with a vital piece of evidence which was to be of considerable assistance to Cantillon. Balfe, prior to moving to France in 1711, had married in Dublin. There was nothing exceptional in this except that he also had married in France. Both his wives were alive. Thus he was a bigamist. Cantillon requested a copy of the marriage certiﬁcate from Dublin and when he obtained it passed it on to George MacKenzie to use in his lawsuit against Balfe. He also seems to have paid for Catherine MacDonnell, Balfe's ﬁrst wife, to come over from Dublin. Balfe was accused and imprisoned on the charge of bigamy. Balfe protested that Cantillon had fabricated the marriage certiﬁcate by bribing people in Ireland. He alleged that the woman that Cantillon brought over from Ireland was an impostor and he claimed furthermore that Cantillon had hired a cripple, called France, to visit this woman to create the false impression that he, Balfe, was visiting his ﬁrst wife. Balfe blatantly lied in attempting to counter the bigamy charge. The records of the parish of St Werburgh's Church in Dublin show that, on 28 August 1708, ‘Christopher Balfe and Catherine MacDanial’ were married, a marriage witnessed by the ofﬁciating clergyman, the Revd Edward Synge, and two church wardens, Richard Thompson and Richard Walsh.12 The certiﬁcate presented in the French courts was a correct record of this marriage in St Werburgh's Church. Balfe was found guilty of this bigamy charge in 1741 and exiled from France at the request of Mary Anne Cantillon's second husband, François Bulkeley. Cantillon eventually had his revenge on Balfe. His extensive involvement in bringing this bigamy charge is proved not only by Balfe's evidence but also by the fact that a copy of Balfe's marriage certiﬁcate was in his lawyer's possession. Balfe's blatant perjury during the bigamy proceedings places a grave question mark over the reliability of the accusations he made against Cantillon. Did Cantillon really attempt to bribe him and, that having failed, did he hire individuals to assassinate Balfe? Balfe never seems to have produced evidence to substantiate these charges. Even if we accept the French court's verdict that Gage and Balfe were not implicated with the Abbé Rene Duval in bringing the sodomy charge

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against George MacKenzie, to what extent, if any, was Cantillon involved in it? Balfe contended that Cantillon was so implicated in the MacKenzie conspiracy against him that Cantillon was forced to ﬂee from France after the magistrate at Meudon ruled in Gage and Balfe's favour on 23 February 1733. Free of MacKenzie's charges, though MacKenzie appealed against the decision, Balfe reactivated Gage's criminal proceedings against Cantillon. Cantillon left Paris sometime in that year and by July was in Brussels. His letter from there to Francis Garvan shows the extent of his despair of ever ridding himself of the criminal charges that Gage was pressing against him: But now I have an account that even the criminal sham is so stated, notwithstanding the difﬁculties and obstructions they had clogged it with, that it may end. I hope it will be soon determined. . .I now send him [Mr Molagne, Cantillon's French lawyer] the plan of my answer and if it were not so late in the season I should be great hopes to get over these suits of Gage, both civil and criminal, before the taxation. But I now almost depair of compassing it thoroughly till about this time twelve months and if any other obstructions should intervene the Lord knows when it may be ended.13 Cantillon's pessimism regarding the prospect of ﬁnding a quick legal solution to the criminal charges was accurate. There was no verdict in 1733, and even as he travelled over to London in 1734 he still had the criminal suit pending against him. The curious events at Albemarle Street in May 1734 were to cancel the decision of the French criminal courts. Dead men cannot be put in the dock. But was Cantillon's growing pessimism regarding the criminal charges a factor inﬂuencing the events in Albemarle Street?

Notes 1 2 3 4 5 6

NLW Powis 2425. NLW Powis 2155. Letter from Lady Mary Herbert to the Duke of Powis on 21 May 1737. NLW Powis 2121. Letter from Lady Mary Herbert to the Duke of Powis, 4 January 1740. Bibliothèque de l'Arsenal, Archives de la Bastille 11481. ‘Mémoire pour Charles Christophe de Balfe contre Georges Makine, dit Makensy’, p. 8. BN Of. Fm. 2013, ‘Mémoire pour Georges MacKenzie contre Rene Duval, Christophe Balfe, Irlandois, ci-devant apoticaire a Dublin & Agent des affaires des Sieurs & Demoiselles de Powis et al’. The account that follows is largely taken from this long ‘Mémoire’. HMC Stuart vii. (1923) 218–19.

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7 8 9 10 11 12 13

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Du Hautchamp, Histoire générale et particulère du Visa (The Hague, 1743), ii. 163. In his comment on the Abbé Duval, du Hautchamp stated: ‘His enemies reduced him to misery. After the System they brought criminal charges against him, which although false, ruined him.’ ‘Mémoire pour Georges MacKenzie. . . ’, op. cit. n. 5 above; See also NLW Powis 1546 and BN Of. Fm. 10294, ‘Memoire pour George MacKenzie contre les Sieurs Mylord & Dame de Powis et de Carrington’. Bibliothèque de l'Arsenal, Archives de la Bastille, 11481, fos. 123–4; also ‘Mémoire pour Charles Christophe Balfe’, op. cit. ‘Mémoire pour Georges MacKenzie’, op. cit. n. 5 above, p. 34 (translation). ‘Mémoire pour Charles Christophe de Balfe’, op. cit. n. 4 above. Dublin, St Werburgh's Church. Records of baptisms, burials, and marriages, 1704–1833. A copy of the marriage entry was drawn up in Latin by the ecclesiastical authorities in Dublin. It is to be found in the Bibliothèque de l'Arsenal, Archives de la Bastille, 11481, fos. 144–6. PRO C11/1594/36, Cantillon in Brussels to Francis Garvan, 27 July 1733.

13 The Writing and Contents of the Essai Sur La Nature Du Commerce En Général There is a high probability that Richard Cantillon wrote the Essai sur la nature du commerce en général between 1728 and 1730, at a time when, as has been shown, he was heavily embroiled in litigation with his adversaries. There are a number of reasons for this view. Amongst a variety of dates mentioned in the Essai the latest one listed is 1730. This date arose in Cantillon's discussion of the historical relationship between gold and silver prices. He listed the gold/ silver ratio at different dates: Year 1270 1361 1421 1500 1600 1641 1700 1730

Gold/Silver Ratio 1:10 1:12 1:11 1:12 1:12 1:14 1:15

These dates, while listed chronologically, seem to have been selected somewhat at random to display the secular trend from the thirteenth century, with the ﬁnal date, 1730, appearing because it was the particular time at which Cantillon was writing.1 Cantillon gave a further clue when, some pages later, he discussed the value of silver on the London market, stating that it ‘has risen again to and 66 pence sterling in the market’. There were three periods between 1718 and 1734 when silver varied between and 66 pence per ounce. These were (1) April 1718—June 1721; (2) December 1725—January 1726; (3) October 1728—April 1731.2 As Cantillon elsewhere also discussed changes in the French exchange rate that took place in 1726 we tend to the view that the period to which he was referring occurred between October 1728 and April 1731. While writing the Essai Cantillon was deeply involved in defending himself against the lawsuits brought by Joseph Gage and the Carol

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brothers arising from Mississippi-related loans in 1720. The most serious charge levelled against him was that he had charged usurious rates of interest on the loans made to Gage and the Carols in 1720. Under the French legal code usury was a criminal offence. Cantillon, acting through his lawyer Maître Cochin, had to refute this charge decisively if he hoped to stay out of prison. Despite Cochin's brilliance he was not prepared to leave his lawyer to prepare his defence by himself. Cantillon wished to be directly involved in the preparation of the defence. Proof of this direct involvement may be adduced from a letter he wrote to Francis Garvan in July 1729, the very time when the Gage–Carol activity against him was extremely intense: ‘I am preparing for the civil part of the cause this mémoire Egan will deliver to you. It is not the ﬁrst I have made and consequently not quite so full as one I have by me’ [our emphasis].3 There are strong similarities between Cantillon's discussion of ‘the exchanges and their nature’ in Chapters two and three of Book III in the Essai with Maître Cochin's ‘Mémoire pour Richard Cantillon contre Jean & Remy Carol’ presented in the French courts in 1730.4 In these chapters Cantillon explained in detail the nature of foreign exchange operations. Similarly, there is a detailed account of foreign exchange operations in the ‘Mémoire’. Such an account was necessary so that a distinction could be made between foreign exchange transactions and usurious loans. It was contended that what Gage and the Carols had interpreted as usury was in reality the exchange costs of transferring money from Paris to Amsterdam at a time when the French exchange against the Dutch was particularly unfavourable. In the Essai Cantillon wrote: The exchanges rarely vary apart from the balance of trade between one country and others. . .yet there are often circumstances and accidental causes which cause considerable sums to be conveyed from one state to another without any question of merchandise or trade, and these causes affect the exchange just as the balance of trade would do.5 One circumstance which he cited as causing the exchange rate to diverge from parity was a capital outﬂow. Such an outﬂow most probably explained why Parisian bills of exchange drawn on Amsterdam, costing 25 per cent more than usual, were so expensive at the time when Gage and the Carols borrowed from Cantillon. Cochin explained that ‘the Parisian banker who drew on Amsterdam provided 35 Dutch pence for the 28 that he received there’.6 In such circumstances, ‘it is absurd to treat as usury the price of exchange established on the market’.7 But, while one can sense that Cantillon's discussion of foreign

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exchange transactions was sharpened by his need to prepare a type of ‘economics brief ’ justifying his banking behaviour in 1720, the Essai had a far broader objective than just explaining the intricacies of foreign exchange transactions. It is, in our view, an attempt to encompass the overall nature of the economic system. Its title is suggestive of such a theme—Essay on the Nature of Trade in General. The term economics had not, at this time, been given its modern meaning. Trade, or in French ‘le commerce’, was a synonym for what would today be identiﬁed as economics.8 Cantillon's work may be better understood if we equate his use of the term trade with our modern use of the term economics. He wrote an essay on the nature of economics in general against the background of his understanding of eighteenth-century economic forces. Having outlined his understanding of the economic system, Cantillon then tested his model to see whether it would accept or reject the new grafts that John Law applied to it. Was the basic underlying model capable of accepting a new credit system based on paper money? Could it be stimulated through monetary expansion? Could it be pushed towards prosperity by reductions in the rate of interest? Could it be manipulated through the use of exchange rate policy? As such the strong secondary objective of the Essai was to provide a critique of Law and his System. This claim may be greeted with surprise by some readers of Cantillon's work, who might argue that John Law is never mentioned once in the Essai! But like Beckett's Godot, while Law never appears in the Essai, both he and the System are ever present. Before discussing Cantillon's general analysis of the economic system with his ensuing speciﬁc critique of Law's System, it is appropriate to digress temporarily to ask why Cantillon omitted direct references to John Law. Earlier in this work, Cantillon's involvement with Law in Mississippi-related schemes was discussed, ranging from the joint colonizing venture in Lousiana to Law's attempts to entice Cantillon back to Paris to assist him when the Mississippi System had started to decline. While Cantillon refused Law's overtures he did lend him, through the intermediation of William Law, £20,000 to purchase copper in Amsterdam. It was this loan and the subsequent litigation it provoked which was instrumental, in our view, in keeping Law's name out of the Essai. The loan had been made in June of 1720. Cantillon lent John Colebrook, acting on behalf of William Law, £20,000 to purchase copper. In return William Law deposited 200 Mississippi shares and 240,000 livres of banknotes deposited as ‘compte en banque’.9 As with the Carols, the Powis family, and Joseph Gage, the main point of

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dissension between the Law brothers and Cantillon arose over the date on which the collateral for the loan was to be valued. Was it 20 June, the date of the loan, as the Law brothers argued? Or was it November 1720, the time at which Cantillon demanded repayment of the loan? If 20 June was taken as the relevant date then Cantillon's bank owed money to the Law brothers, and vice versa if November was deemed the relevant date, for by that time shares and banknotes had greatly fallen in value. By implication one can infer from this dispute that John and William Law had alleged that Cantillon had sold the shares immediately and then converted the proceeds of the sale along with the banknotes into foreign currency. When Cantillon refused Law's invitation to return to Paris the latter threatened not to repay the copper loan.10 Cantillon took steps to safeguard his money and by January 1721, acting on behalf of Cantillon and Hughes, he had obtained a lien from John Colebrook on part of the copper purchased to the value of £10,900. The terms of the agreement stipulated that the copper would remain in the possession of Cantillon and Hughes until William Law provided £10,900. Furthermore the copper was transferred to London.11 By ostensibly transferring the copper to the account of Cantillon and Hughes the dispute became one between the bank and the Law brothers. However, Cantillon, acting as commandite for the bank, continued to press for repayment. John Law's involvement in this copper transaction is borne out by a letter to his brother William written in March or April 1722 when he requested, ‘Inform me of M. Cantillon, and Colebrook's affair, and of that of Mr Briggs. Likewise of the copper and tobaccos assigned to Lord Londonderry.’12 Later in the 1720s William Law had a disagreement with his Dutch agent John Colebrook and had him imprisoned. In a letter to John Law on 23 December 1728 he indicated the way in which he hoped to use the legal pressure he had exerted over Colebrook to force the latter to give evidence against Cantillon: I thought that in giving in my letters to Mr Alexander I should have had your answer the sooner but it has proved otherwise not having had any letters from you for the past ten months. I had Mr Colebrook arrested for the diamond earrings and about 800 pounds my wife had gained in the Dutch stocks and which loss Mr Colebrook's made himself debtor to her. But he was released upon ﬁnding bail for a 1,000 pounds, he having made oath that there were sundry accounts yet to settle between him and me. This will bring in the affair of Mr Cantillon so let me know what I shall do in it. I am of the opinion that Colebrook may be very useful in that affair of Cantillon and which is the most material he being employed in the affair of the copper with Cantillon and Hughes and that Hughes was to dispose of the actions to answer the draughts

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from Holland made by Cantillon for the payment of the copper bought up there. . .Mr Makenzy has my procuration to act against Colebrook for the diamond earrings belonging to my wife and for the money she gained in the Dutch stocks but I think Middleton a much ﬁtter person especially in so far as relates to the copper affair.13 This letter shows once again the type of pressures exerted by debtors concerned with winning their cases against successful Mississippians such as Cantillon. The dispute between Cantillon and the Law brothers dragged on after John Law's death in 1729 and in 1733 Cantillon eventually managed to make the French courts give a decision on it. His French lawyer maintained that Cantillon brought this action to pre-empt and forewarn William Law's creditors that William Law was a debtor rather than a potential creditor of Cantillon. The tribunal dealing with the case, the Bureau des Actions, ruled in Cantillon's favour on 10 July 1733, stipulating that the shares and banknotes deposited as collateral with Cantillon in June 1720 should be valued at their market prices in November 1720 when William Law defaulted on the loan. William Law gave notice of appeal, but there is no evidence to show that he pursued the matter any further.14 This tortuous dispute between Cantillon and the Law brothers presents us with a very forceful argument as to why Cantillon never explicitly mentioned Law or the Mississippi System.

The Essai The Essai is written in a crisp, clinical and dispassionate style. Readers of the English version of it who wonder that its style is more modern than that of contemporary works such as Jacob Vanderlint's Money answer all Things (1734), should realize that it is an English translation carried out partially by Malachy Postlethwayt in the early 1750s and more comprehensively by Henry Higgs in 1931.15 These translations present the Essai in a more modern language than that written by Cantillon. But apart from this more modern language the Essai did represent a departure from contemporary economic essays and pamphlets because of its scientiﬁc style. This style is characterized by a Cartesian model-building approach, a concentration on mainline issues, and an avoidance of peripheral topics allied with a belief in the necessity of using empirical date to support theoretical argument. In Cartesian style Cantillon stripped down a problem to its essential parts and then slowly reconstructed the model, showing at each stage the modiﬁcations in the argument resulting from the new additions. Thus he used the abstraction of a single large landed estate, ‘which I wish to consider here as if there were no other in the world’, to show the

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essential features of a centralized non-market economy using money. This model was then viewed in a closed economy setting, ‘I am considering only at present a state in relation to itself ’ (p. 25), which in the second half of the Essai is changed into an open economy. Outlining this type of approach, Cantillon eschewed dealing with side topics that might arise, banishing them from the text with phrases like ‘all other things being equal’ and ‘this is outside my subject’. More generally he wrote, ‘I conﬁne myself always to the simple views of commerce lest I should complicate my subject, which is too much encumbered by the multiplicity of the facts which relate to it’ (p. 265). In accordance with this scientiﬁc style he also wished to provide empirical veriﬁcation for his theories: ‘There is no branch of knowledge in which one is more subject to error than statistics when they are left to the imagination, and none more demonstrable when they are based upon detailed facts’ (p. 133). Like Sir William Petty, whose work greatly inﬂuenced him, Cantillon wished to quantify economic behaviour whenever he deemed it possible. He intended accomplishing this detailed quantiﬁcation in a statistical supplement, which was to form an appendix to the Essai. In Book I of the Essai there are seven references to this supplement though, surprisingly, there are no further references to it in Books II and III. These references give a glimpse of Cantillon attempting to quantify problems such as the labour to steel ratio of a watch-spring and the amount of land required to provide subsistence food, clothing, and other necessaries of life for a labourer. Unfortunately, the supplement was never published so that we have no information about the detail and accuracy of Cantillon's calculations. There is a growing literature on Cantillon's contributions to economic theory. Hayek, Higgs, and Spengler have given increasingly useful overviews of the Essai, while Salleron has provided a helpful commentary on it. More detailed analyses of particular aspects of the Essai have been presented by Spengler, dealing with demographic issues, Brems, on the land theory of value, Hebert, on spatial economics, and Bordo, on monetary economics.16 At a conference in Monterey, California, Grampp discussed Cantillon's market theory, West evaluated Cantillon against Adam Smith, while O'Mahony interpreted the Essai in the context of the eighteenth-century world as Cantillon knew it. 17 In this chapter, rather than emphasizing speciﬁc aspects of the Essai, it is hoped to present Cantillon's overall vision of the economic system. While the Essai is divided into three books it is contended that they interlink to provide a systematic account of the overall working of the economy as Cantillon understood it. Book I shows Cantillon's outline

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model of the real economy. In Book II he superimposed the monetary system on this model of the real economy and showed the overall self-equilibrating nature of this combined real/monetary system. In Book III the economy was opened up further to take foreign trade and foreign exchange into account. Then the complete model was tested by Cantillon to determine its ability to accept or reject the type of policies that John Law implemented in France. Consistent with our understanding of this overall vision we concentrate on developing the discussion of the following themes in the Essai: (1) (2) (3) (4)

The theory of market behaviour with particular attention to the co-ordinating role of the entrepreneur (Book I) The interrelationships and interdependence of markets as shown by the circular ﬂow of income (Books I and II) Monetary theory and the linkages between the real economy and the monetary economy (Books II and III) The critique of ﬁnancial innovations (Book III).

Markets and Entrepreneurs Underlying Cantillon's analysis was the belief that, irrespective of whether one was dealing with a barter or a money economy, goods were exchanged at their intrinsic value. Intrinsic value was determined by the land and labour inputs necessary to produce a commodity. Even in the case of a Seine water-carrier, where no land was directly involved in the service offered, it was still needed to provide food and clothing for the water-carrier. Like Petty, Cantillon attempted to reﬁne the concept of intrinsic value into one common denominator of value measured in terms of land inputs. His method was to express labour inputs necessary for the production process in terms of the land inputs needed to sustain the labour input, that is the amount of land used to feed and clothe the labourer and his family. Ricardo was later to follow this approach of using a common denominator of value except that he opted to explain it in terms of a labour theory of value. Karl Marx later advanced the other great nineteenth-century labour theory of value.18 Leaving aside Cantillon's quest to derive a land theory of value, it is quite clear in the Essai that he considered intrinsic value to comprise the costs of the factors of production plus normal proﬁt. As such it equates with the long-term equilibrium price determined in a competitive market. Cantillon recognized that if the market price was above or below intrinsic value, then factor resources were directed into or out of the production of the commodity until the increased or reduced supply brought the market price into line with its intrinsic

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value. His analysis of the workings of the market system started off with the recognition that the market price is determined by demand and supply: Prices are ﬁxed by the proportion between the produce exposed for sale and the money offered for it; this takes place in the same spot, under the eyes of all the villagers of different villages and of the merchants or entrepreneurs of the town. When the price has been settled between a few the others follow without difﬁculty and so the marketprice is determined. (p. 13) Having established the role of demand and supply forces in determining the daily market price, he gave many examples of the equilibrating nature of the system. Changes in the demand and supply of corn were frequently cited to show how market forces operated. If more corn was supplied than demanded, prices fell, and might induce the farmer, if he understood that the market disequilibrium had been produced by a permanent downward shift in demand, to move away from tillage into livestock such as sheep. A reduction in the supply of tailors would push prices up in a town while an increase in the supply would push prices down. Similarly, if there were too few hatters in a city the higher rate of proﬁt that they were making would attract others into the business while if there were too many hatters there would be bankruptcies in store for some of them.19 The market price normally equated with intrinsic value but, if it did not, then the discrepancy between market price and intrinsic value acted as a signal to market agents to reallocate resources, either by shifting out of corn and into sheep, or, in the case of the hatter or tailor, either by leaving town to go elsewhere, or by moving into another trade. Fundamental to these decisions is the activity of the entrepreneur. He is the catalyst of production and exchange activity and it is Cantillon's discussion of his vital role that helped to develop our understanding of the market economy. The term entrepreneur was in common usage before Cantillon wrote the Essai, appearing, for example, in the late seventeenth century, in the most famous French commercial manual of the time, Jacques Savary's Le Parfait Négociant.20 But in Chapters 13 and 14 of Book I Cantillon brought a new dimension to analysing the vital function of the entrepreneur. The identiﬁcation of the key role of the entrepreneur in the Essai is greatly facilitated by reading Chapter 14 before Chapter 13. In Chapter 14 Cantillon skilfully contrasted an economy conceived in the context of a single large estate model with that of a market system. It is the contrast between a centralized command economy and a competitive market economy. He used the model of the single large estate to distinguish the differences between the centralized system of

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control that it embodied and the decentralized market system which evolved to replace it. This evolution involved a change at both the social and economic levels. At the social level it represented a shift from a feudal system where power and wealth were vested solely in the landowning class to a society where part of this power and wealth was transferred to the entrepreneurial class. Earlier in this book it was suggested that this evolution mirrored Cantillon's own family movement away from being landowners and lords of the manor in the barony of Clanmaurice to becoming wine, drapery, and banking merchants in France. At the economic level the shift involved the transfer of decision-making from the control of the landlord to the entrepreneur. Here, unlike Adam Smith in the latter part of the eighteenth century, who relied on the quasi-mystical concept of the ‘invisible hand’ to solve the way in which resources were allocated to production and exchange, Cantillon found that it was the entrepreneur who sorted out the allocation problem in a market setting. In the centralized estate model society was grouped as comprising (1) the landlord, (2) overseers, and (3) workers. In the transformation from the single large estate model to the market economy the fundamental change was that ‘overseers now become farmers or entrepreneurs’ (p. 59). As earlier he had described the farmer as an entrepreneur we may telescope both farmers and entrepreneurs together and restate this view as being equivalent to one whereby overseers become entrepreneurs. In the centralized system entrepreneurs do not exist. The landlord is omnipotent. He is the sole decision-maker, communicating his decisions to the work-force via the intermediation of the overseers. Neither the overseers nor the workers has any say in this decision-making process. It is the landlord who determines what is to be produced and who is to produce it, though Cantillon tacitly recognized that the overseers had some ﬂexibility in their supervision of the labour force. In this centralized system there is no role for the entrepreneur. This is in stark contrast to the market economy where the entrepreneur is at the centre of the production and exchange process. No longer is the landlord in dictatorial fashion determining what is to be produced. He is still of dominating importance in Cantillon's model, as most wealth is vested in his hands, but now he communicates his desires for goods and services through his demands as expressed on the market. It is the task of the entrepreneur to identify these demands and direct output to meet them. The entrepreneur is the co-ordinator of the production and exchange process, channelling goods from the production stage through the various exchange networks to ultimate consumers. He is deﬁned by Cantillon as the person who buys at a

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known price to sell at an uncertain price. The entrepreneur is a risk-taker with respect to the price at which he sells his goods or services. He searches out market signals as to overall demand and supply conditions. For example, farmers ‘always take care to use their land for the production of those things which they think will fetch the best price at market’ (p. 61). The entrepreneur scouts around, he sniffs out potentially proﬁtable ventures, he forms hunches, and he reacts quickly if his hunches prove incorrect—otherwise he goes out of business. He is the highly visible hand that ensures co-ordination between producers and consumers. Cantillon conceived the entrepreneurial role straddling a wide range of economic activities carried out in different market settings. This range may be classiﬁed in the following way: ENTREPRENEURS ECONOMIC ACTIVITY PRODUCTION

EXCHANGE

FARMERS MANUFACTURERS PROVIDERS OF LABOUR SERVICES WHOLESALERS RETAILERS

AUCTION *

MARKETS FIX PRICE * * * * *

This classiﬁcation shows entrepreneurs engaged in both production and exchange activities selling their output of goods and services in both auction and ﬁx price markets. Cantillon explicitly recognized that entrepreneurs were required for both production and exchange. The title of Chapter 13 stated this clearly, ‘The circulation and exchange of goods and merchandise, as well as their production, are carried on in Europe by entrepreneurs, and at a risk’ (our emphasis). Producer entrepreneurs consisted of farmers, manufacturers, and the providers of labour services, with the activities of this last group ranging from shoemakers and carpenters, to physicians and barristers, even to beggars and robbers. Cantillon did not pay a great deal of attention to manufacturers, citing just the example of the woollen manufacturer. Labour service entrepreneurs were discussed in greater detail, with Cantillon recognizing that they did not necessarily have to own capital but in many cases were selling what is referred to today as human capital, ‘entrepreneurs of their own labour without capital’ (p. 55). They, like other entrepreneurs, live in uncertainty, ‘since their customers may forsake them from one day to another’ (p. 53). Consistent with his views on the dominating importance of agriculture, he devoted more attention to the farmer entrepreneur and

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those exchange entrepreneuers, wholesalers and retailers, vital to the circuit which ensured the circulation of goods from the country to the city and back again. The farmer was interpreted as an entrepreneur working at risk. His input into the production process is both direct, to the extent that he is involved in farming itself, and indirect, in terms of supervising workers that he employs. He promises ‘to pay to the landowner, for his farm or land, a ﬁxed sum of money without assurance of the proﬁt he will derive from the enterprise’ (pp. 47 and 49). The price he will obtain for the tillage or livestock output that he produces is uncertain. It is impossible for him to foresee the weather and climatic conditions that will determine the supply of agricultural output. Similarly population and income changes will make it difﬁcult to calculate demand conditions: ‘Consequently he conducts the enterprise of his farm at an uncertainty’ (p. 49). The farmer learns the price for his output in auction type markets in cities or towns where agricultural commodities are purchased by wholesalers. Once this output has been sold, price uncertainty has been transferred from the farmer to the wholesalers: These bind themselves to pay the farmer a ﬁxed price for his produce, that of the market price of the day, to get in the city an uncertain price which should however defray the cost of carriage and leave them a proﬁt. But the daily variation in the price of produce in the city, though not considerable, makes their proﬁt uncertain. (p. 49.) The exchange sequence continues with Cantillon envisaging these middlemen wholesalers selling to specialist wholesalers and retailers in the towns and cities. Again the nature of the entrepreneurial operation involves purchasing at a certain price ‘to resell wholesale or retail at an uncertain price’ (p. 51). The move from the farmer/wholesaler market to the wholesaler/retailer market involves an important change. In the ﬁrst case prices were determined in an auction market setting; in the second case it is up to wholesalers and retailers to be price-makers. Wholesalers and retailers, ranging from wholesalers in wool and corn to bakers, butchers, manufacturers, and so on act in an uncertain environment, not knowing how demand conditions will vary or what strategies their competitors will adopt to increase their market share. They need to devote great skill and expertise to establishing a price which will ensure that they are not left with unwanted inventories. Cantillon cited the example of the draper, with whose business he was well acquainted through his membership of the marchand merciers guild in Paris, to show the risk involved in the price-making process if the draper pitched his prices too high:

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He can of course ﬁx a price and stand out against selling unless he gets it, but if his customers leave him to buy cheaper from another, he will be eaten up by expenses while waiting to sell at the price he demands, and that will ruin him as soon as or sooner than if he sold without proﬁt. (p. 51.) At this level, price-making is a crucial aspect of the entrepreneur's functions, with Cantillon warning that if the merchant is not sufﬁciently ﬂexible in his pricing strategy he will accumulate unwanted and costly inventories which will push him out of business as soon or sooner than if he just sold at cost price. Inventory holding and disposal is the main business of wholesalers and retailers. Consumers do not normally stock goods, other than wine, because they do not have storage capacity. The retailer's activity is analogous to the wholesaler's, though his inventory holdings will normally be smaller than those of the latter, in that he provides consumers with what they want, ‘ready to hand in small quantities’ (p. 53). Consumers are willing to pay a little more for a good rather than have to lay in a stock of the good in question. In equilibrium the proﬁt of the retailer should be equivalent to the perceived inventory costs of handling and holding a good. In auction markets, such as those for perishable commodities like meat or green peas, Cantillon recognized that prices moved quickly, reﬂecting demand and supply conditions. But many of the markets that he discussed were not of the auction market variety. They were markets where entrepreneur manufacturers, providers of labour services, wholesalers, and retailers had a price-making role. Without the beneﬁt of the auction market the entrepreneur faces uncertainty as to whether he has priced his goods or services correctly. He does not wake up each morning to ﬁnd a list of market clearing prices written up overnight by some angelic ‘invisible hand. Markets are not mysterious phenomena to be explained away by invocations of the eighteenth-century back-to-nature movement with its reliance on natural laws or by recourse to obfuscatory metaphors such as the ‘invisible hand’. Entrepreneurs have to work hard at determining what is happening in the market. They have to form expectations as to what buyers are likely to purchase if they are entrepreneur producers, or learn what purchasers are actually buying if they are entrepreneur wholesalers/retailers. They can make mistakes: It often happens that sellers who are too obstinate in keeping their price in the market, miss the opportunity of selling their produce or merchandise to advantage and are losers thereby. It also happens that by sticking to their prices they may be able to sell more proﬁtably another day. (p. 121.) Markets work because of the activities of entrepreneurs. They work badly if the entrepreneur is short-sighted, unimaginative, lazy,

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excessively risk averse, and so on. They work more efﬁciently if entrepreneurs do not suffer from these deadly sins. While Cantillon at times invoked the laws of nature, he was sufﬁcient of a pragmatist to recognize that markets did not work in a vacuum but relied very much on the skill and acumen of the entrepreneur.

The Circular Flow of Income The entrepreneur is at the centre of Cantillon's description of the circular ﬂow of income process, one of his outstanding contributions to economics. The entrepreneur farmer is considered to be of fundamental importance: ‘All the produce of the country comes directly or indirectly from the hands of the farmers. . .The three rents of the farmer must be considered as the principal sources or so to speak the mainspring of circulation in the state’ (p. 123). When the output of the farmer arrives in the towns and cities it is the exchange entrepreneurs who ensure that it is circulated amongst the various groupings. ‘Circulation in the cities is carried out by entrepreneurs and always corresponds directly or indirectly to the subsistence of the menservants, workmen, etc’ (p. 145). Earlier he had recognized the reciprocity in exchange between the different economic groups: ‘All these entrepreneurs become consumers and customers, one in regard to the other, the draper of the wine merchant and vice versa. They proportion themselves in a state to the customers or consumption’ (p. 53). Thus Cantillon envisaged a circular process whereby income, output, and expenditure were interrelated in the economy. He paid particular attention ﬁrst of all to output, envisaging two possible scenarios for the employment of the population. His analysis may be depicted as set out in Table 14. In outlining such employment possibilities Cantillon followed the example of Petty in A Treatise of Taxes and Contributions (1662). However, Petty envisaged only 10 per cent of the labour force in agriculture, 20 per cent producing exports, 20 per cent in the service Table 14. Occupational Status of Population (%) Young and old dependents (1) Landowners, entrepreneurs, and the sick (2) Agricultural Workers (3) Military personnel, servants, craft workers (4) Miners, tool makers, etc.

State 1 33 17

State 2 33 17

25 25

25 —

—

25

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sector, and 40 per cent ‘employed in the ornaments, pleasure and magniﬁcence of the whole’. This left a surplus of 10 per cent, referred to as supernumeraries, to be employed. Petty suggested in remarkably Keynesian-type language that there should be active intervention to employ these people: Now as to the work of these supernumeraries, let it be without expense of foreign commodities, and then ’tis no matter if it be employed to build a useless pyramid upon Salisbury Plain, bring stones at Stonehenge to Towerhill, or the like; for at worst this would keep their minds to discipline and obedience, and their bodies to a patience of more proﬁtable labours when need shall require it.21 Cantillon's schema for the distribution of the labour force implied that he perceived agriculture as being less efﬁcient than Petty. In Petty's model, which deals with the labour force only, only 10 per cent of the labour force is employed in agriculture, whereas Cantillon felt that 25 per cent of the population would be employed in this sector. Once dependants, agricultural workers, landowners, and entrepreneurs are aggregated together, there is still 25 per cent of the population to be employed. Cantillon presented two possibilities. The employment could be made up of a services sector, comprising soldiers, domestic servants, and so on, or alternatively a ‘tangibles’-producing sector which manufactured durable goods that could be exported. The mercantilistic streak in Cantillon made him express a preference for the latter. If employment could not be found in this sector he felt, like Petty, ‘no objection to encouraging employment which serves only for ornament or amusement’ (p. 91)—always providing this labour was not employed as mendicant friars whom Cantillon, in a rare burst of passion, castigated for interrupting and hindering ‘the labour of other people’ (p. 95). In Book II Cantillon considered the circular ﬂow of expenditure. Expenditure determined the pattern of output in his schema, with resources being allocated to the production of commodities which the landlord wishes to purchase. Advancing a theory of conspicuous consumption behaviour, he believed that the other classes with money to spend would model their behaviour on that of the landlord. Thus, while output is produced by the activities of farmers and entrepreneurs, the pattern of demand is determined by landlords who own most of the wealth of the state. The dominating role of the landlords in the expenditure process comes through in his discussion of the doctrine of three rents. He divided agricultural output into three rents, with one third being paid to the landlord, one third being used up to cover labour and maintenance costs, and the ﬁnal third accruing to the farmer, ‘to remain with him to make his undertaking proﬁtable’

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(p. 121). In the case of this third rent Cantillon assumed that it was spent on ‘living more comfortably’ (p. 123) rather than saved. In other words, he assumed that farmers had a marginal propensity to save of zero, a conclusion which seems at odds with his previous paragraph where he suggested that farmers with capital were more efﬁcient producers than ‘beggarly’ farmers. Despite the contradiction, the assumption is needed, as Cantillon did not seem keen to introduce the complication of savings acting as a leakage out of the expenditure circuit. By assuming that farmers and, of course, landlords did not save, he rid his model of such a complication. Cantillon envisaged the absentee landlords spending all the income they derived from the ﬁrst rent in the city, with farmers spending more than one half of the third rent (that is one sixth of agricultural income) on urban commodities. In toto this meant that more than one half of agricultural income was destined for expenditure in the cities. He further assumed that half of the population lived in cities and ‘consequently the citizens consumed more than half the produce of the land’. Thus the farmers exported more than half of the agricultural output to the cities and with the income so earned paid the landlord's rent and bought urban commodities equivalent to one sixth of agricultural output: ‘The farmer will sell there produce exceeding half the output of his farm; he will pay his landlord in the same city the money value of one third of his produce and the rest to merchants or entrepreneurs for merchandise to be consumed in the country’ (p. 137). The expenditure of the landlords and the farmers generated income for urban dwellers and so enabled them to purchase agricultural output sent from the country. In this way Cantillon furnished the ﬁrst macro-economic picture of the overall working of the economy with the circular process showing the interaction between output, income, and expenditure. One person's expenditure formed another person's income, which was derived through the creation of goods or services. Furthermore, by making certain assumptions with regard to the location of the population and to the absence of savings, he was able to show that this equilibrating process could reproduce itself. It was Cantillon's analysis which no doubt inspired Quesnay to encapsulate the process in the tableau économique (the economic picture) in 1758. Quesnay, like Cantillon, attached dominating importance to agriculture and to the expenditure propensities of the landlord. Like Cantillon he showed the interaction between income, output, and expenditure between different socio-economic groupings which he tagged as landlords, farmers, and the ‘sterile’ group. Despite Quesnay's magniﬁcant achievement in giving a visual presentation of the circular ﬂow in the tableau économique it is Cantillon who is credited by Schumpeter with the discovery:

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Cantillon was the ﬁrst to make this circular ﬂow concrete and explicit, to give us a bird's-eye view of economic life. In other words, he was the ﬁrst to draw a tableau économique. And, barring differences that hardly affect essentials, this tableau is the same as Quesnay's, though Cantillon did not actually condense it into a table. Cantillon's priority is thus beyond question as regards the ‘invention’ that Mirabeau, indulging as usual his generous ardors, compared in importance to the ‘invention’ of writing.22 Cantillon and Quesnay differed in terms of their views on the consequences arising from the produit net in agriculture. Quesnay, as Eltis has shown, was able to envisage the agricultural surplus producing economic growth—the size of the economic circle increased.23 Cantillon believed that any surplus in agricultural production would just increase population, a theory which Quesnay scathingly ridiculed in a conversation with Mirabeau.24 Quesnay was more interested in the dynamic income-generating process and the implications it had for ﬁscal policy, that is the possibility of the produit net in agriculture being able to support the full weight of taxation through the imposition of a single tax—the impôt unique. Cantillon had a different concern in analysing the circular ﬂow. He examined it in order to determine the velocity of circulation of money, the ﬂip side of the coin to what is described in modern terminology as the demand for money. It is important to stress this point. Cantillon's analysis of the circular ﬂow of income was not carried out in isolation. It arises in a chapter discussing ‘the circulation of money’ (Chapter 3, Book II). The analysis of the circulation of money was of such importance that Cantillon devoted three chapters in Book II to it (Chapters 3, 4, and 5). By analysing the demand for money, Cantillon was able to link the more efﬁcient money-using economy to the real economy that had been elaborated in Book I. Having shown that money was more efﬁcient than barter, Cantillon then attempted to determine the equilibrium money supply required in the economy. To do this he had to attempt to quantify the demand for money. Hence the emphasis on the circular ﬂow of income. How much money was required to ensure that this circular process operated smoothly? This question brings us to Cantillon's monetary theory.

Monetary Theory—The Linking of the Monetary Economy to the Real Economy Cantillon's writing on monetary theory has been discussed by Hayek, Spengler, Blaug, Bordo, and Caesarano.25 In the course of their analysis of the Essai these writers have credited Cantillon with being

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the originator of the self-adjusting price specie ﬂow mechanism (Hayek), the pioneer of the monetary approach to the balance of payments (Bordo), the originator of the so-called ‘Cantillon effect’ (Spengler and Blaug), and a forerunner of the rational expectations approach (Caesarano). Once again there seems to be a distinctly modern range of views in the Essai. While there is always the danger that modern interpreters of a work written over 250 years ago may tend to read too much into it, particularly when they are seeking suitable intellectual bloodlines to provide respectability to a new theory, one is still struck by the close parallels of Books II and III of the Essai to modern textbooks on monetary economics. They contain the standard distinction between a barter and a money economy, a detailed analysis of the factors inﬂuencing the demand for money, a listing of the sources of monetary expansion, and more importantly an attempt to examine the transmission mechanisms whereby changes in the money supply inﬂuence prices, output, and the balance of payments. These sections are followed by analysis of the determinants of the rate of interest, the nature of foreign exchange transactions, the role of the banking system, the process of credit creation, and ﬁnally by a pointed discussion of the role of the Central Bank. Such a coverage of topics was remarkable for a work written in the 1720s. In this section it is intended to concentrate on Cantillon's contributions on the following issues: (1) The theory of the demand for money. (2) The analysis of the sources of monetary expansion and the transmission mechanisms whereby changes in the money supply inﬂuence economic activity. (3) The distinction between traded and non-traded goods. (4) The description of the self-equilibrating specie ﬂow mechanism on the balance of payments.

The Demand for Money Having established his conception of the nature of the real economy in Book I, Cantillon quickly recognized that the efﬁcient working of the economy required the use of money. He understood that a money economy was more efﬁcient than a barter one and that there was a need to have money in the form of specie (gold, silver, and copper coins) circulating in the economy as a medium of exchange. Gold, silver, and copper, used as money, were commodities that possessed intrinsic value. ‘The real or intrinsic value of metals is like everything else proportionable to the land and labour that enters into production’

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(p. 97). Money was regarded as a commodity to be manufactured up to that point where its costs of production were equal to the costs of production of those goods for which it was traded. ‘Money or the common measure of value must correspond in fact and reality in terms of land and labour to the articles exchanged for it’ (p. 11). As such it was not something to be artiﬁcially created or expanded at the whim of monarchs or governments. This theme, which became a pervasive one in Book III, had already emerged at the end of Book I: If for example a prince or a republic gave currency in the state to something which had not such a real and intrinsic value, not only would the other states refuse to accept it on that footing but the inhabitants themselves would reject it when they perceived its lack of real value. . . .The history of all times shows that when princes have debased their money, keeping it at the same nominal value, all raw produce and manufactures have gone up in price in proportion to the debasement of the coinage. (pp. 111 and 113.) Thus, with Cantillon solidly lining up against manipulative monetary policy but at the same time recognizing that money was required to produce an efﬁcient exchange system, the issue of concern became one of estimating the equilibrium money supply required in an economy. To answer this question Cantillon examined the circulation of commodities in the economy and the amount of money required to service such circulation. This led him to the model of circulation based on the doctrine of three rents described above. As part of agricultural output may be paid in kind, for example food, drink, clothing, housing, he initially concluded from his analysis of the circular ﬂow of income that the total amount of cash in circulation would be one half of agricultural output. But this initial estimate of the demand for money was subject to considerable modiﬁcation once allowance was made for ‘the rapidity or slowness of the circulation of money in exchange’ (the title of Chapter 4 in Book II). Cantillon was not the ﬁrst author to introduce the velocity of circulation of money into monetary theory. Both Sir William Petty and John Locke analysed it. In Chapter 5 of Verbum sapienti (1665), Petty discussed ‘money and how much is necessary to drive the trade of the nation’, speciﬁcally recognizing that payment practices inﬂuence the demand for money.26 Locke recognized that there was some proportional relationship between money and trading activity, ‘but what proportion that is, is hard to determine because it depends not barely on the quantity of money, but the quickness of its circulation’.27 Following on Petty and Locke's account of the factors inﬂuencing the velocity of circulation, Cantillon gave a more systematic analysis of velocity in Chapters 3 and 4 in Book II.

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Like Petty, Cantillon recognized that the demand for money was positively related to income, but that it could be greatly reduced if the time interval for payments was reduced, for example if payments were made on a quarterly rather than an annual basis. Cantillon did not recognize banknotes as money, though he acknowledged that the use of banknotes speeded up the velocity of circulation of money. So also did commercial credits. ‘These exchanges by valuation seem to economise much cash in circulation, or at least to accelerate its movement’ (p. 141). While payment practices, paper money, and commercial credits may speed up velocity, he cited a number of factors which could retard it, such as: (1) Urbanization—the growth of towns and cities increased the demand for money as payments have to be made with money as against payments in kind in rural areas. (2) Hoarding—‘Many miserly and timid people bury and hoard cash for considerable periods’ (p. 147). He returned to this hoarding propensity later on. ‘Hoarded money, plate, Church treasures, etc. are wealth which the state turns to service in extremity, but are of no present utility’ (p. 175). (3) Money held for precautionary purposes—‘Many landowners, entrepreneurs and others always keep some cash in their pockets or safes against unforeseen emergencies and not to be run out of money’ (p. 147). Making allowance for income, expenditure patterns, and the velocity of circulation of money, he concluded that the money in circulation was equal to one ninth of the value of agricultural output, an estimate quite close to that of Petty who calculated it at one tenth of agricultural output. Cantillon had a very comprehensive approach to analysing the demand for money. He had income, albeit agricultural income, as a key variable inﬂuencing the demand for money. He identiﬁed the role of payment practices, commercial credits, paper money, and so on in inﬂuencing it. He recognized a precautionary motive for holding money, while the inclusion of hoarded money in his analysis showed that he believed that money could be held as an asset because of uncertain expectations about the future. Having analysed the factors governing the demand for money, through his discussion of the velocity of circulation of money (the greater the demand for money the lower the velocity of circulation, the smaller the demand for money the greater the velocity of circulation),

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he then turned his attention to analysing the money supply process in Chapters 6 and 8 of Book II.

The Sources of Changes in the Money Supply and the Transmission Mechanisms Whereby Such Changes Inuence Economic Activity Cantillon's general overview of the consequences of an increase in the money supply was that it raised expenditure which ‘gradually brings about increased prices’. However, he did not believe in what later came to be termed the crude quantity theory of money, which suggested that prices rise proportionally to the increases in the money supply. To Cantillon the process of monetary expansion could be likened to the pressure of water in a river, ‘a river which runs and winds about in its bed will not ﬂow with double the speed when the amount of its water is doubled’ (p. 177). Hence there was a need to examine the channels through which monetary expansion affects expenditure. These channels correspond to what are currently termed monetary transmission mechanisms, that is those mechanisms which show the way in which increases in the money supply work through different expenditure processes to inﬂuence prices and/or output and/or the balance of payments. Cantillon chided John Locke for not attempting to elaborate such mechanisms: ‘He [Locke] has clearly seen that the abundance of money makes everything dear, but he has not considered how it does so. The great difﬁculty of this question consists in knowing in what way and in what proportion the increase of money raises prices’ (p. 161). While Cantillon went into considerable detail in outlining the different channels of monetary expansion, it must be emphasized that it does not seem to have been his intention to link speciﬁc monetary transmission mechanisms exclusively to particular sources of monetary expansion. For example, when discussing the inﬂuence of an expansion in the money supply resulting from gold or silver mining, he stipulated that one effect would be to make more money available for lending. But the effect of the increased money supply on the rate of interest was not discussed till he dealt with the role of capital inﬂows in the money supply process. Similarly, he did not introduce the distinction between traded and non-traded goods until discussing the inﬂuence of an increase in the money supply resulting from a capital inﬂow. Obviously this distinction may be made in the analysis of the effects of the other sources of monetary expansion. In order to show the wealth of detail outlined by Cantillon in the discussion of the different monetary transmission mechanisms it is useful to present a taxonomy of these mechanisms, albeit dressed in modern terminology, in Table 15. This table demonstrates the

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Table 15. Taxonomy of Monetary Transmission Mechanisms in the Essai Sources of Monetary Expansion Mining of gold and silver Balance of trade surplus Capital inﬂows Invisible earnings

Decisions by Moneyholders Expenditure

Markets

Saving

Financial

Hoarding

Commodity

Market Supply Condi- Consequences tions Openness of the Employment and economy Output Inﬂation Degree of spare capacity

Balance of Payments

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complexity of what is now referred to as the ‘black box’, that is attempting to trace changes in the money supply through the changes in economic activity. Cantillon suggested a variety of potential sources for increasing the money supply, noting that spending or saving propensities were in part inﬂuenced by the way in which the money supply had been increased. He envisaged the increase in the money supply as having different effects depending on whether it was spent, lent, or hoarded. If it was spent then it immediately affected the commodity market with the exact impact being dependent on whether the market was open or closed to international trade and whether there was spare capacity in the production of the commodity demanded. If the economy was open and the commodity demanded was a traded good, then, even if domestic production was at full capacity, the commodity could be imported. Such imports would affect the balance of payments rather than prices. If, on the other hand, the commodity demanded was a non-traded good, then output and employment would be affected if production was sensitive to increased demand, while prices would increase if production was at full capacity. Similarly Cantillon also recognized that money, instead of being spent, could be lent and so have its initial impact on the ﬁnancial markets, working through to the commodity markets via interest rate effects. To show the way he developed his theory of the different transmission mechanisms, it is appropriate to describe brieﬂy the type of effects he envisaged resulting from increases in the money supply originating from (1) gold or silver mining, (2) capital inﬂows, and (3) a balance of trade surplus. (1) Gold or Silver Mining The increased money supply produced in this way generated increased expenditure on the part of those directly concerned with the production of such specie as well as serving to increase the supply of money destined for lending purposes. The increased expenditure raised both prices and employment. The resulting erosion in the purchasing power of those on ﬁxed incomes could force some workers in this situation to emigrate. The process continued with inﬂationary pressures making domestically produced goods less competitive, thereby allowing imports to increase and a balance of payments deﬁcit to emerge which would reduce the money supply. Cantillon cited Spain and Portugal as examples of this process, for neither country had been able to retain permanently the specie that it had taken from South America. (2) Capital Inﬂows He noted that foreign borrowing increased the

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money supply and lowered the rate of interest: ‘By means of this money the entrepreneurs in the state ﬁnd it possible to borrow more cheaply to set people on work and to establish manufactures in the hope of proﬁt’ (p. 191). He observed that one of the beneﬁcial side effects of the increased expenditure was that it increased the amount of indirect taxation accruing to the state, but he pointed out that external borrowing was a costly operation because of interest payments that were paid to non-residents and more importantly because of the potentially destabilizing effects a sudden withdrawal of such funds would have: ‘It will certainly arrive that they will want to withdraw it at the moment when the state has most need of it’ (p. 193). (3) A Balance of Trade Surplus Taking the trade account in isolation to represent the balance of payments, though Cantillon clearly understood how capital ﬂows and invisibles inﬂuenced the overall balance of payments, he believed that a trade surplus would initially increase output and employment: ‘This annual increase of money will enrich a great number of merchants and entrepreneurs in the state who will give employment to numerous mechanics and workmen who furnish the commodities sent to the foreigner from where the money is drawn’ (p. 167). At the start he suggested that the marginal propensity of exporters to save was high and that they attempted to build up their savings to acquire property and securities. But once they accumulated sufﬁcient wealth they increased consumption expenditure and prices started their inexorable upward movement. The increase in prices would reduce exports and increase imports, though he admitted that this development could take a long time to emerge because of the technical advantages a country possessed in producing certain types of exports. Once again the increase in the money supply was only transitory: Moreover it is usual in states which have acquired a considerable abundance of money to draw many things from neighbouring countries where money is rare and consequently everything is cheap: but as money must be sent for this the balance of trade will become smaller. (p. 169.) While he recognized that there was a close relationship between changes in the money supply and changes in prices, he was not prepared to specify that it was a proportionate one. ‘Market prices will rise more for certain things than for others however abundant the money may be’ (p. 179). This qualiﬁcation led him to distinguish between traded and non-traded goods and to provide an eclectic view of the self-equilibrating specie ﬂow mechanism of the balance of payments.

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Traded and Non-Traded Goods Cantillon was not the ﬁrst to show how international arbitrage would create the law of one price for traded goods. John Law, in Money and Trade Considered (1705), discussed the issue when he asked why prices in Scotland had not fallen signiﬁcantly as a result of a substantial reduction in the money supply. He answered his question by stating that prices were not determined in the Scottish market but in the European market: ‘The value of goods or money differs, as the quantity of them or demand for them changes in Europe; not as they change in any particular country.’28 He countered the argument of William Petyt, in Brittania Languens (1680), that ‘the goods in any country fall in value, as money in that country grows scarcer’. In strikingly pre-Humean language Petyt had asked what would have happened if the money supply of England was reduced to only £500. Would this not cause oxen to be sold for a penny each? Law disagreed, arguing that oxen were traded goods, ‘as the ox might be exported to Holland, it would give a price in England equal or near to that it would give in Holland’.29 Cantillon also used the example of oxen in his discussion on traded and non-traded goods, though by the time he wrote oxen had become a non-traded good. In making the distinction between traded and non-traded goods Cantillon noted that ‘Market prices will rise more for certain things than for others however abundant the money may be. In England the price of meat might be tripled while the price of corn went up only one fourth’ (p. 179). Corn was a traded good, that is a good bought and sold across national frontiers, whereas meat was a non-traded good. Corn could be imported freely into Britain at the time but legislation prevented the importation of cattle: ‘But what generally causes meat to become dearer in proportion than bread is that ordinarily the free import of foreign corn is permitted while the import of cattle is absolutely forbidden’ (p. 173). The price of corn was therefore determined by the price prevailing on the international market plus transportation costs. Any increase in the domestic money supply would not cause any signiﬁcant increase in the price of corn. On the other hand the price of meat would be directly affected by an increase in the domestic money supply because meat was a non-traded good—implicitly Cantillon was assuming that there was no great substitutability between meat and traded goods: ‘An ox weighing 800 pounds sells in Poland and Hungary for two or three ounces of silver, but commonly sells in the London market for more than 40. Yet the bushel of ﬂour does not sell in London for double the price in Poland and Hungary’ (p. 179). He emphasized the distinction by taking other examples of non-traded

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goods. Timber was a non-traded good because of its high transportation costs, as were perishable items such as butter and milk.

The Specie Flow Mechanism In the long run Cantillon believed that it was not possible for a country to retain excess money balances indeﬁnitely. There was a self-equilibrating process at work whereby the excess money balances spilled out of the economy through a balance of payments deﬁcit. He described the process as follows: If more money continues to be drawn from the mines all prices will owing to this abundance rise to such a point that. . .the mechanics and workmen will raise the prices of their articles so high that there will be a considerable proﬁt in buying them from the foreigner who makes them much more cheaply. This will naturally induce several people to import many manufactured articles made in foreign countries, where they will be found very cheap: this will gradually ruin the mechanics and manufacturers of the state who will not be able to maintain themselves there by working at such low prices owing to the dearness of living . . .The great circulation of money, which was general at the beginning, ceases: poverty and misery follow and the labour of the mines appears to be only to the advantage of those employed upon them and the foreigners who proﬁt thereby. This is approximately what has happened to Spain since the discovery of the Indies. (pp. 165–7.) This approach seems quite similar to that adopted by David Hume in his essay ‘Of the Balance of Trade’, published in 1752, three years before the publication of the Essai. It seems as if both writers independently reached the same conclusion and therefore that both may be credited with the discovery of the self-adjusting price specie ﬂow mechanism. An extract from Hume shows some striking similarities with the approach of Cantillon. Initially Hume discussed the likely consequences of a reduction in the British money supply (prices would fall pari passu with the reduction in the money supply). He then asked what would happen if the money supply was increased ﬁvefold: Must not all labour and commodities rise to such an exorbitant height, that no neighbouring nations could afford to buy from us; while their commodities, on the other hand became comparatively so cheap, that, in spite of all the laws which could be formed, they would be run in upon us, and our money ﬂow out; till we fall to a level with foreigners, and lose that great superiority of riches, which had laid us under such disadvantages. . . Can one imagine, that it had ever been possible, by any laws, or even by any art or industry, to have kept all the money in Spain, which the galleons have brought from the Indies.30 Hayek believed that the similarities between Cantillon's and Hume's approaches were so striking that Hume must have had access to a

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manuscript copy of the Essai, and there were at least three such copies in circulation prior to its publication.31 However, we reject Hayek's suggestion on the ground that, had Hume read the Essai he would have been able to derive a more complete understanding of the specie ﬂow mechanism than that enunciated in ‘Of the Balance of Trade’. The key aspect of the adjustment process in Hume's account, as Fausten has noted, was the relative price effect produced by an increase in the money supply.32 To Hume, as indicated in the above passage, an increase in the money supply caused an increase in prices, making exports less competitive and imports more competitive. As a result of the country's output prices being uncompetitive relative to other countries, a balance of payments deﬁcit ensued which caused the money supply to fall. It was this relative price effect that characterized his account of the self-adjusting balance of payments process. Cantillon's adjustment process was more eclectic as it incorporated both a relative price effect and a cash balance effect. The passage quoted above showing the similarity of views between Cantillon and Hume, would seem to suggest that Cantillon also believed in a relative price effect. But that was only in the context of a temporarily closed economy. He recognized, through his distinction between traded and non-traded goods, that the impact of an increase in the money supply on prices was dependent on the openness of the economy. If the good was a traded good its price would not increase: ‘An increase of money only increases the price of products and merchandise by the difference of the costs of transport when this transport is allowed’ (p. 179). In such instances an increase in the money supply would have a direct cash balance effect reducing exports and sucking in imports. The use of both the relative price effect and the cash balance effect in the Essai raises the question as to whether Cantillon was inconsistent in this aspect of his analysis. However, such seeming inconsistency may be explained against the background of the early eighteenth-century economy. At the time communication and transport were both slow and difﬁcult. It took time for market signals and information to travel from one country to another. It may be hypothesized that, in the short run, domestic prices rose as a result of increases in the money supply. The signalling of this new price information and the reaction of foreign producers to it took time. In the intervening period national price levels differed. But once foreign exporters reacted to the increased demand for goods, international competition pushed down traded goods prices in the economy where the money supply had been expanded. The relative price effect operated in the period during which foreign producerś were reacting to the changed market signals. Once they met

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the increased demand, the cash balance effect took over. The excess money supply relative to the demand for money disappeared from the economy via the balance of payments deﬁcit. The increase in the money supply also changed the relative price of non-traded to traded goods. The excess money supply pushed up the price of non-traded goods. Such a price increase also caused national prices to differ and, with a low degree of factor mobility between the traded and non-traded goods sectors, the re-establishment of equilibrium between non-traded and traded goods prices took time. The guild system, the difﬁculties of transportation, and the hierarchical class structure made it awkward for labour to move quickly from one sector to another. Cantillon, as we have seen, emphasized this distinction between traded and non-traded goods. Cantillon's detailed analysis of the monetary sector makes him, it is contended, the true forerunner of the modern Monetary Approach to the Balance of Payments. His analysis was far more comprehensive and more closely related to the Monetary Approach to the Balance of Payments than that of David Hume. Using Mussa's classiﬁcation of the main issues in the Monetary Approach to the Balance of Payments, we ﬁnd in Cantillon's writings,33 (1) An emphasis on the aggregate balance of payments rather than a speciﬁc concern with just one of its constituent parts such as the balance of trade or the balance of payments on current account. His analysis showed that he was interested in the way in which changes in trade, invisibles, and capital ﬂows inﬂuence and are inﬂuenced by monetary ﬂows. (2) A detailed account of the factors inﬂuencing the demand for money as well as an outline of the different sources of monetary expansion. (3) A recognition that the system was self-adjusting in the long run so that no nation could indeﬁnitely maintain excess money balances. (4) An eclectic approach to the adjustment process which allowed for both a relative price effect and a cash balance effect. Monetarists have belatedly recognized the importance of the transmission mechanism when dealing with closed economy models. Advocates of the Monetary Approach to the Balance of Payments need to do likewise and to recognize that the cash balance approach, while important, is not the only way whereby changes in the money supply inﬂuence the balance of payments. That said, we must express a caveat on Cantillon's analysis and its relationship to the Monetary Approach to the Balance of Payments.

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Advocates of this approach contend that a balance of payments surplus arises when there is an excess demand for money relative to domestic credit expansion. The implication of their analysis is that the money supply increases endogenously as a result of the balance of payments surplus. In such a situation the money accumulated through a balance of payments surplus will not be spent as the public, rather than wanting to spend more, is attempting to rebuild its real money balances. Yet in Cantillon's analysis a balance of payments surplus resulting in an increase in the money supply leads to increased expenditure. Does this imply that Cantillon's analysis was inappropriate? It would if implicit in his approach was the assumption that additional money balances were accumulated in this manner. However, not all balance of payments surpluses accrue this way. Supposing, as has been the case with the Gulf States, that there is a natural resources discovery in the form of an oil ﬁnd. This will immediately create a balance of payments surplus. However, it cannot be said that such a surplus represents an increase in the demand for money relative to domestic credit expansion. An oil discovery is similar to a gold or silver discovery. When such a discovery is exploited and translated into a balance of payments surplus, it represents an increase in the money supply. The same process would result from a balance of payments surplus arising from a technological breakthrough which enables a country to jump ahead of its competitors in the production of a particular commodity. It was this latter type of increase in the money supply that was, in our view, at the back of Cantillon's mind when he wrote about a monetary expansion resulting from a balance of payments surplus. In analysing the effects of an increase in the money supply in Book II, Cantillon opened up the economy to international inﬂuences by his consideration of the distinction between traded and non-traded goods. Consistent with his gradual model-building approach, there were further reﬁnements to be added to the model, namely the inﬂuence of exchange rates and the role of the banks. On one level Book III may be interpreted as a reﬁned exposition of the nature of foreign exchange and the role of the banking system. On this level these two modules serve to complete his model of the economy, a model that had been assembled in the following sequence: (1) The evolution of society from a centralized economy to an entrepreneur-activated market economy (Book I). (2) The change from a barter economy to a money economy (Book II). (3) The move from a closed economy to an open economy (Book II).

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(4) The shift from a simple specie system to a more complex foreign exchange system (Book III). (5) The addition of a paper money system to the specie system (Book III). Despite adding on these ﬁnal two modules, the same principles that applied in the real economy discussed in Books I and II still rule, that is to say that intrinsic values are at the base of the system; specie must embody intrinsic value, and such specie in the form of silver is ‘the true sinews of circulation’ (p. 319). However, as noted at the beginning of this chapter, there is a further level at which to consider the arguments advanced in Book III. At this level we ﬁnd a systematic undercurrent of criticism directed by Cantillon at Law's System. Cantillon, let us remember, had been offered a position by John Law equivalent to acting as his deputy in managing the French economy. He must have pondered long and hard as to whether he had made the correct decision in turning down Law's offer. Could he have controlled the System that Law had created? Were Law's theories on the role of the rate of interest, the exchange rate, and the money supply correct?

The Critique of Financial Innovations The previous chapters of this biography have shown Cantillon's involvement with Law and the extent to which he had to live with the fall-out of the System's collapse, a fall-out that included unpaid debts, a retrospective wealth tax, and lawsuits that clung like leeches to Cantillon wherever he went. Even though he had to be circumspect in his criticism, Cantillon felt it appropriate to criticize the type of ﬁnancial innovations that Law had applied in France. Occasionally the allusions to aspects of Law's System almost give the game away, allusions such as those to the ‘general bank’, to ‘systems’, and to ‘great kingdoms’. At one stage Cantillon mentioned ‘une banque générale’, the name of Law's original bank, ‘Though I consider a general bank is in reality of very little solid service in a great state’ (p. 315). Shortly afterwards, when discussing the South Sea Bubble, he described the consequences of money spilling out of the ﬁnancial circuit into the real circuit, concluding that ‘this broke up all the systems’ (p. 318). However, system was a term that normally referred to John Law's Mississippi System rather than to the South Sea Bubble. Furthermore, his use of the term ‘great kingdom’ seems more a reference to France than to England, while the ﬁnal paragraph of the Essai, dealing with the interconnection between ‘a Minister of State’ and a central bank, refers in our opinion to John Law.

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It was shown in Chapter 8 above that Law had attempted to increase the money supply and lower the rate of interest in France. This strategy involved policies such as: (1) Exchange control regulations limiting the holding and transfer of specie. (2) Changes in the domestic exchange rate between specie money and banknotes in order to encourage people to move out of specie into banknotes. (3) Increases in the issue of banknotes in order to support the price of Mississippi shares and, by implication, to keep the rate of interest down. In the spring of 1720 Law had introduced a wide range of exchange control regulations, a phased devaluation of specie relative to banknotes, and had used the printing presses of the Royal Bank to maintain the price of Mississippi shares at 9,000 livres. These policies were attacked by Cantillon in Book III. Exchange control measures were condemned in Chapter 3, changes in the exchange rate were criticized in Chapters 4 and 5, while the dangers of ﬁnancial innovation and over-expansion of paper money were stressed in Chapters 6–8. The opening chapter of Book III gives little information as to what is to come. It is a disappointing chapter, showing once again Cantillon's difﬁculty in escaping from mercantilistic doctrines, a difﬁculty exempliﬁed by his conclusion that ‘above all care must be taken to maintain the balance [of payments] against the foreigner’ (p. 243). Additionally, he reproduced his economic cycle that envisaged growth, followed by luxury expenditure, followed by decay. Once he moves into a discussion of exchanges and their nature in Chapter 2 his style sharpens up considerably. His method of approaching the issue is again worth observing. He builds up his analysis of foreign exchange from a balanced ﬂow of funds between two towns (Paris and Châlons) within one country to a more sophisticated multicountry trade model. He contends that: ‘The nature of exchange seems at ﬁrst more difﬁcult to explain, though at bottom this exchange differs from that between Paris and Châlons only in the jargon of bankers’ (p. 255). Consistently with this view he dispelled the mysteries surrounding foreign exchange, maintaining that the exchanges were regulated by the intrinsic value of specie. That rule stated, he pointed out that speculation could temporarily distort the exchange rate between two countries. While this activity could delay the transport of specie in the short run, ‘in the end it is always necessary to pay the debt and send the balance of trade in specie to the place where it is due’ (p. 259).

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In the case of multi-country trade, he concluded that the criterion for determining whether a country had an overall balance of payments deﬁcit or not was movements in the price of gold in its domestic market. If the market price for gold moved above the mint price then this suggested that gold bullion was being exported to ﬁnance a balance of payments deﬁcit. He recognized that such outward movements of specie could induce the state to introduce exchange control regulations aimed at stopping the outﬂow. In a skilful analysis that once again demonstrated his understanding of market forces, he showed the way in which market operators would circumvent such controls. Initially the effects of the controls would be to increase the price of imports. The rise in the price of imports would encourage ‘Jews and others’ to export specie illegally with the supernormal proﬁts made on such trade encouraging further entrants into the market. More efﬁcient methods for avoiding the controls would be found, which in turn would reduce the cost of exporting bullion or specie to the normal market rate of ‘2 or 1 per cent’. Furthermore, he contended that exchange control regulations caused ‘more money of the state to go abroad than if there were no such law’ (p. 267). Cantillon ﬁnished this chapter with some barbed comments directed at Law: I do not know whether I have succeeded in making these reasons clear to those who have no idea of trade. I know that for those who have practical knowledge of it nothing is easier to understand, and that they are rightly astonished that those who govern states and administer the ﬁnances of great kingdoms have so little knowledge of the nature of exchanges as to forbid the export of bullion and specie of gold and silver [My emphasis]. (p. 267.) The same type of critical comments are to be seen in his analysis of arbitrary changes in the domestic exchange rate between specie and the money of account, that is the rate between a silver coin such as the écu and the livre tournois. While he is content to discuss domestic exchange rate changes in France before (1714) and after (1726) the Mississippi System, one feels that it is Law that he attacked in his conclusion: ‘All people are full of false prejudice and false ideas as to the nominal value of their coinage’ (p. 299). He felt that tampering with the domestic exchange rate could not alter the fundamental rule of intrinsic value whereby goods were exchanged for coins of a speciﬁc weight and ﬁneness. Having asserted this rule, that exchange was based on intrinsic value, one does not expect to ﬁnd Cantillon favouring a credit or paper money system. He was not an arch-conservative on this issue, however. After all, he had been a banker and was not prepared to condemn unequivocally his trade. He acknowledged that banks could expand

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credit, thereby relaxing his intrinsic value rule, by maintaining a specie to deposits reserve ratio of between 10 per cent and 33 per cent. He was also prepared to admit that banks were useful in a state where there were ‘public debts of considerable amounts’. The transfer of claims to public debt and other types of ﬁnancial capital could be expedited by the use of banknotes. He believed that the advantage of banks was ‘to accelerate the circulation of money and to prevent so much of it from being hoarded as it would naturally be for several intervals’ (p. 305). It is interesting to note here Cantillon's continued concern with hoarding, an issue discussed on two occasions previously.34 Like Law he acknowledged that hoarding was undesirable. Unlike Law he did not believe the solution to the problem was the establishment of a central bank in a ‘great kingdom’. He was prepared to admit that a central bank could bring utility to a small state, but in a large state such a ‘national’ bank could do more harm than good: An abundance of ﬁctitious and imaginary money causes the same disadvantages as an increase of real money in circulation, by raising the price of land and labour, or by making works and manufactures more expensive at the risk of subsequent loss. But this furtive abundance vanishes at the ﬁrst gust of discredit and precipitates disorder. (p. 311.) The harm created by a central bank could be greatly magniﬁed when a ‘Minister of State’ worked closely with the bank to force interest rates down via an expansionary monetary policy. He understood how the minister could increase the issue of banknotes and use them to purchase government stock, causing the price of such stock to rise and the interest rate to fall. Expectations of further interest rate falls would cause the public to take up more of the stock, so amplifying the initial demand pressures for it: ‘It is then undoubted that a bank with the complicity of a Minister is able to raise and support the price of public stock and to lower the rate of interest in the state at the pleasure of this Minister when the steps are taken discreetly, and thus pay off the state debt’ (p. 323). However, this type of operation was fraught with danger because of the self-interest of the people in power: ‘But these reﬁnements which open the door to making large fortunes are rarely carried out for the sole advantage of the state, and those who take part in them are generally corrupted’ (p. 323). The economy can survive this excessive expansion of the money supply as long as the excess money balances are kept within the ﬁnancial circuit and used to purchase securities. But, once the excess money balances spill out of the ﬁnancial circuit into the circular ﬂow of real activity that Cantillon had detailed in Chapters 3 and 4 of Book II, then the whole system can blow up:

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The excess banknotes, made and issued on these occasions, do not upset the circulation, because being used for the buying and selling of stock they do not serve for household expenses and are not changed into silver. But if some panic or unforeseen crisis drove the holders to demand silver from the Bank the bomb would burst and it would be seen that these are dangerous operations. (p. 323). This is a reference to Law's System rather than to the South Sea Bubble. The Bank of England, as was shown in Chapter 9 above, was not empowered to expand the money supply to nurture the South Sea boom. The Bank's activities were not closely connected with those of the South Sea Company. John Law, on the other hand, had used the note-issuing powers of the Royal Bank to support the price of Mississippi shares. For a while this aspect of his policy worked, as transactors were content to move between banknotes and Mississippi shares. But the wealth effects generated by the high price of shares and banknotes encouraged transactors to spend part of their gains ‘raising the price of land and labour’ and ‘making works and manufactures more expensive’ (p. 311). The French economy overheated and Law's efforts to control the situation by an all-round deﬂation in May 1720 broke the public's conﬁdence in his paper money system. Written against the background of the collapse of Law's System, the Essai is a forerunner of the classical approach to economic theory which stresses the dichtomy between the real and monetary sectors. Cantillon stressed real sector values, namely the role of physical inputs of labour and land into the production process creating output which he referred to as intrinsic value. While he recognized that money, that is specie money embodying intrinsic value, was necessary for exchange he was ever fearful of the consequences of over-expanding it. His analysis of the circular ﬂow of income and payment practices was undertaken to determine the public's demand for money. Once that was determined the objective of the government should be to keep the money supply in line with the demand for money. Cantillon favoured such a policy: Thus it would seem that when a state expands by trade and the abundance of money raises the price of land and labour, the prince or the legislator ought to withdraw money from circulation, keep it for emergencies, and try to retard its circulation by every means except compulsion and bad faith, so as to forestall the too great dearness of its articles and prevent the drawbacks of luxury. (p. 185.) Otherwise the excessive monetary expansion would cause inﬂation and balance of payments problems. Cantillon feared that the use of paper money and a credit-creating banking system increased the risk of

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excessive monetary expansion. The Mississippi System seemed to provide empirical veriﬁcation of the dangers of such ﬁnancial innovation. The transformation of the economy from a depersonalized specie—using system to a paper money/credit-creating system under the personalized control of a ‘minister of state’ such as John Law was an excessively risky strategy to Cantillon. Cantillon and Law had different visions of the economic universe. Cantillon was not optimistic about the condition humaine. He had a Hobbesian position on the acquisition of wealth, which he saw concentrated in the hands of the few. He believed population growth occurred at the expense of people's standard of living. He had a static interpretation of economic processes. He perceived international trade as a zero sum game in which one country could grow only at the expense of another. Even if a country achieved growth, he believed that such growth was only part of the upswing of an economic cycle that was deterministically followed by depression and decay. He was a conservative with a jaundiced eye on the possibility of economic progress and ever fearful about the undesirable consequences arising from ﬁnancial innovation. John Law's optimism was in direct contrast to such a pessimistic appraisal of economic evolution. He believed that employment and output could be expanded through monetary policy. He found nothing natural about the constraining factors to growth, the shortage of money, and the underutilization of the French economy's productive capacity. He favoured intervention and ﬁnancial innovation. He attempted simultaneously to boost economic activity and to solve France's national debt problem. While his System may have failed his vision of the way in which paper money and the banking system would evolve was far more perceptive than that of Cantillon. On the other hand Cantillon greatly advanced economic theory through the Essai. His work on the role of markets undoubtedly inﬂuenced Adam Smith both directly and indirectly through the inﬂuence it had on the French économistes. His outline of the circular ﬂow of income helped Quesnay to formulate the Tableau économique, while his theory of the specie ﬂow mechanism compares most favourably with modern attempts to formulate the monetary approach to the balance of payments. It would be wrong to look for a winner from the implied debate between Cantillon and Law. Both writers helped to advance our understanding of economic theory though neither was living to witness the publication of the Essai in 1755, Law having died in Venice in 1729 and Cantillon exiting from European society in mysterious circumstances in 1734.

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Notes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

16

Essai, p. 275. To compare the silver/pence sterling price quoted by Cantillon in the Essai on p. 295, see John H. McCusker, Money and Exchange in Europe and America 1600–1775: A Handbook (North Carolina Press, 1978), Table 1.4. PRO C11/1584/36. Letter from Richard Cantillon in Paris to Francis Garvan, 10 July 1729. BN Fo. Fm. 2740, ‘Mémoire pour Richard Cantillon contre Jean et Remy Carol’. Compare, for example, pp. 8–9 in this ‘Mémoire’ with pp. 253–6 of the Essai. Essai, p. 263. ‘Mémoire’, op. cit, p. 10. Ibid., p. 11. This point is discussed further in Chapter 15. Noel Chomel's Dictionnaire œconomique, published in 1709, referred not to economics as we know it today but to ‘the act of valuing land’. ANMC lxxxii. 346, 6 March 1755, ‘État general. . .au sujet des différentes affaires que M. Molange a conduit pour feu M. de Cantillon et sa succession’. PRO SP 78/166. Letter from Pulteney to Craggs on 7 November 1720. Quoted in Chapter 9. ANMC lxxxii. 346, loc. cit. Aix-en-Provence, Bibliothèque Méjanes. Letter-book of John Law of. 205. Rijksarchief in Limburg, Maastricht, Law Papers 190, p. 20. Letter from William Law to John Law. ANMC lxxxii. 346, loc. cit. See n. 9 above. Essai. In Appendix A Higgs gives a broad outline as to the chief parallels between Malachy Postlethwayt's The Universal Dictionary of Trade and Commerce (London 1751–5) and the Essai. Unfortunately it is not all that detailed, so that without an explicit analysis of Postlethwayt's work it is not possible to determine how much of the translation was carried out by Higgs. Friedrich von Hayek, ‘Richard Cantillon, sa vie, son œuvre’, Revue des sciences économiques (April, June, and October 1936, Liège); Henry Higgs, ‘Richard Cantillon’, Economic Journal, i (1891), and ‘Cantillon's Place in Economics’, Quarterly Journal of Economics, vi. (1891); Joseph Spengler, ‘Richard Cantillon: First of the Moderns’, Journal of Political Economy, lxii, no. 4, part 1 (August 1954) and lxii, no. 5, (October 1954); also Joseph Spengler, ‘Cantillon, l’économiste et le démographe’ in Richard Cantillon, Essai sur la nature du commerce en général (INED, Paris, 1952); ‘Note liminaire’ and textual commentary by Louis Salleron in Cantillon, Essai (INED), op. cit.; Hans Brems, ‘Cantillon versus Marx: The Land Theory and the Labour Theory of Value’, History of Political Economy, x, no. 4 (1978); Robert F. Hébert, ‘Richard Cantillon's Early Contributions to Spatial Economics’, Economica, xlviii (February 1981); Michael D. Bordo, ‘Some Aspects of the Monetary Economics of Richard Cantillon’, Journal of Monetary Economics, xii (1983).

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17 William D. Grampp, ‘Cantillon on the Market’; Edwin G. West, ‘Richard Cantillon and Adam Smith: A Reappraisal’; David O'Mahony, ‘Richard Cantillon—A Man of his Time’. Papers presented at the Institute for Humane Studies Symposium on Richard Cantillon at Monterey in 1980. 18 See Brems, op. cit., n. 16 above. 19 Essai. See pp. 21, 53, 61. 20 Jacques Savary, Le Parfait Négociant (Paris, 1675). 21 Sir William Petty, A Treatise of Taxes and Contributions (1662), Chapter 2. 22 Joseph Schumpeter, History of Economic Analysis (1981, 12th printing), pp. 222–3. 23 Walter Eltis, ‘François Quesnay: A Reinterpretation’, Oxford Economic Papers, xxvii, no. 2 (July 1985). 24 See M. G. Strekeisen-Moultou, J. J. Rousseau, ses amis et ses ennemis (Paris, 1865), vol. II, 365–7. 25 The reference to Hayek, Spengler, and Bordo have already been cited. See also Mark Blaug, Economic Theory in Retrospect, (London, 1979, 3rd edition), pp. 22–4; Filippo Caesarano, ‘The Rational Expectations Hypothesis in Retrospect’, American Economic Review (March 1983). 26 Petty described the way in which different payment practices inﬂuenced the velocity of circulation of money: If the revolutions were in such short circles, viz. weekly, as happens among poorer artizans and labourers, who receive and pay every Saturday, then 40/52 parts of 1 million of money would answer these ends: but if the circles be quarterly, according to our custom of paying rent, and gathering taxes, then 10 millions were requisite. (Verbum Sapienti (1665), Chapter 5.) 27 For a more detailed treatment of Petty and Locke on this issue see M. W. Holtrop, ‘Theories of the Velocity of Circulation of Money in Earlier Economic Literature’, Supplement to the Economic Journal 1926–29, 503–24. For further discussion on Locke's monetary theory see A. H. Leigh, ‘John Locke and the Quantity Theory of Money’, History of Political Economy, vi, no. 2 (1974). 28 John Law, Money and Trade considered, ed. Harsin (1705, reprint 1980), Vol. I, p. 100. 29 Ibid., p. 102. 30 David Hume, ‘Of the Balance of Trade’, in E. Rotwein (ed.), David Hume: Writings on Economics (Edinburgh, 1955), pp. 63–4. 31 Hayek, op. cit. n. 16 above, Revue des sciences économiques (October 1936), 224–5. 32 Dietrich Fausten, ‘The Humean Origin of the Contemporary Monetary Approach to the Balance of Payments’, Quarterly Journal of Economics, xciii, no. 4 (November 1979). 33 Michael Mussa, ‘Tariffs and the Balance of Payments’ in The Monetary Approach to the Balance of Payments, ed. Jacob A. Frenkel and Harry G. Johnson (London, 1976). 34 Essai, pp. 147 and 175.

14 The Demise of Richard Cantillon A rich banker, whose name one is assured is well known in Paris where he earned the bulk of his fortune, had retired to London to enjoy quietly his wealth. He took a magniﬁcent town house in Albemarle Street, between those of Lord St. John [Bolingbroke] and your Lord Perceval. His style of living, his furnishing, the air of opulence and happiness that surrounded him made people say: happy the owner of so many possessions ‘Beatum dixerunt populum cui haec sunt’. Perhaps he himself shared this idea of his happiness when in less than three hours the style of living, the furnishings and the wealth were consumed along with the master by a ﬁre which did not leave even the walls standing. This is to be engulfed like Sodom. This is to descend living into hell ‘Descendant in infernum viventes’.1 The banker in question, engulfed like Sodom, was Richard Cantillon. His gory demise, described in great length in the journal Le Pour et contre, inspired its author the Abbé Prévost to draw the moral that the possession of riches was no guarantee of happiness: ‘Who will dare describe as a blessing the source of so many ills? Riches! Are those who congratulate you on possessing such fully aware that the sword is hanging over one's head that the basest hand may cut the thread at any moment.’2 While Cantillon's demise may have served to cause the French readers of Le Pour et contre to reﬂect on the problems that arose from the ownership of wealth, it also, as Prévost pointed out, raised a considerable hue and cry in wealthy and aristocratic circles in London. Cantillon was a rich banker. Not only had he been engulfed in the ﬁre, but the adjoining houses of Bolingbroke and Lord Percival had also been burned down. There was considerable interest and gossip about the ﬁre in Albemarle Street. In keeping with Cantillon's lifestyle, the circumstances surrounding the events in Albemarle Street during the night of 14 May 1734 are extremely difﬁcult to disentangle. There are three possible hypotheses to consider: (1) Cantillon was accidentally burnt to death. (2) He was murdered. (3) It was not Cantillon's body that was burnt in his house in Albemarle Street. Instead the economist fabricated an elaborate charade to facilitate his disappearance from Europe.

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In the immediate aftermath of the ﬁre it was believed that the ﬁrst hypothesis was correct, namely that Cantillon had accidentally died in a ﬁre. This view changed shortly afterwards to the opinion that he had been murdered. Some of his servants were accused of murder and tried at the Old Bailey. However, they were found to be not guilty and acquitted. One year later a large quantity of papers belonging to Richard Cantillon was found in the jungles of the Dutch colony of Surinam in South America. This discovery renders the accidental death hypothesis implausible, so we may concentrate on the murder and disappearance hypotheses. Before considering the second and third hypotheses it is appropriate to describe the events as witnessed by residents and onlookers in Albemarle Street on 14 May. Cantillon had been busy during the day. According to his coachman he had been ‘at the Temple and other places all day, and particularly at a house in Queens Square, Westminster, where he supped and set him down at his own door at ten at night’.3 One of his servants, Elizabeth Pembroke, put him to bed: She said he was sober, she put him to bed herself, drew the curtains and shut the windows. Then he took his book and she said to him, sir, do you want anything else? He answered no, I may read these two or three hours; and as she was going out, he said to her, bid the footman take the key of the door that I may not be disturbed in the morning, and tell him to take a side-box in the playhouse.4 These apparently were the ﬁnal words of Richard Cantillon. Sometime between 10.30 p.m. and 3.30 a.m. events occurred which led to the disappearance of Richard Cantillon from European society. Albemarle Street was, and to this day still is, in a highly fashionable area of London. The rich and noble lived there. Lady Penelope Compton, in a letter to the Countess of Northampton, described what had happened: We have been tonight very much alarm'd with a ﬁre in Albemarle Street. . .it happen'd to be of the other side of the way next Bond Street, so that our house was not in any danger, but seeing it so near was very terrible, for it burnt very ﬁerce two houses entirely down before they could get any water. It began I think they say in one Mr Cantillon's who was quite burnt before it was discovered and they say it was by reading in his bed but there are so many reports one can't tell what is certain.5 Fires were commonplace occurrences in eighteenth-century London and normally merited little attention from the newspapers and journals. However, this ﬁre, which destroyed not only Lord Percival's house but also that of Lord Bolingbroke, attracted a considerable amount of newspaper attention, some of it on the front pages, in

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journals of the day such as the London Evening Post, the Daily Journal, the Daily Advertiser, the Weekly Miscellany, the London Gazette, the Gentleman's Magazine, and the Monthly Intelligencer. Even the Mercure de France in June 1734 gave an account of the death of Monsieur Cantillon. The initial newspaper accounts stated that Cantillon had unwittingly caused his own death by falling asleep, leaving his candle burning. This burning candle, it was believed, set ﬁre to some papers which in turn set ﬁre to the house. This was the story in the Daily Journal, published on Wednesday 15 May, a copy of which was reprinted verbatim in the London Journal of Saturday 18 May: On Tuesday morning about half an hour after three o'clock the house of Mr Cantillon in Albemarle Street was perceiv'd to be on ﬁre and the smoke and smother being traced to the gentleman's bedchamber, the servants rush'd in, and found their master dead, with his head almost burnt off. The corpse was however carry'd off, and some jewels and a few other things of value were saved; but the ﬂames were so violent that the house was soon burnt to the ground, as was likewise that of the Hon. Mr Percival, brother to the Earl of Egmont, the Lord Visc. St. John's, and two other houses adjacent were greatly damaged. This accident is generally said to have been occasion'd by Mr C[h]antillon's reading in bed, and falling asleep with the candle burning, which is supposed to have set ﬁre to some papers that lay near it on the table. Mr C[h]antillon was formerly a banker in this city but about ﬁfteen years ago removed to Paris, where having acquired a plentiful fortune, he lately returned hither in order to purchase an estate. His Lady is still abroad but shortly expected here. She was the daughter of Mons. Omani, one of the richest merchants in Paris, and half sister to the Lord Clare, an Irish nobleman who follow'd the late King to St. Germains. She is near her time and purpos'd to lie in here. ’Tis said that Mr C[h]antillon had money and other effects in his house to the value of 20,000 l. Yesterday Sir Thomas Clarges, Bart. took several examinations, relating to the ﬁre which happen'd on Tuesday morning in Albemarle Street, Mr C[h]antillon having receiv'd at the Bank, 10,000 l in notes the morning before the ﬁre.6 This newspaper account corresponded closely both with that given by Isaac Berridge, one of the servants tried for Cantillon's murder, when he made a sworn statement to the investigating magistrate Sir Thomas Clarges, and with the accounts given by the servants to passers-by. Berridge in his statement gave the following account of what had happened: He let his master in last night about eleven a clock, who undressed himself in the parlour as usual; took his candle and book, and went up to bed soon after; and told this examinant he would read. . . .He afterwards (between three and four o'clock in the morning) went into the yard, and saw the smoke coming out of the wall of his master's bedchamber, and immediately ran upstairs; and

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coming to his master's chamber-door, found it open, and attempted once or twice to pull his master out of bed, the room being full of smoke and ﬁre: that at last, he got him by the legs, and pulled him off the bed to the stair-case, and then swooned away, and was carried off. Says, he does not remember he had his shirt on, and that his breast, face, and bowels, were scorched and burnt; and does not remember his having his night-cap on. Says, that his said master usually locked himself up.7 Berridge's statement corresponded with the account he and some of the other servants gave in the Red Horse Inn in Bond Street the following day. There, two servants from the Percival household, Sarah Leneve and Elizabeth James, met three maids from Cantillon's house: We sat down with them and asked them how the ﬁre happened. Elizabeth Pembroke answered, my master is very much given to reading in his bed and he did it himself. What time did he come home? Says I. Between 10 and 11. Says she. Was he in drink? Says I, no, she said he was sober, she put him to bed herself, drew the curtains, and shut the windows. . . .I asked her why they did not bring their master downstairs; and she said the man was bringing him down, but the ﬁre catch'd hold of his (the man's) cap, and he fell down over his master on the stairs, and somebody came and fetch'd him (the man) away, or he had been burnt too.8 This conversation between Elizabeth Pembroke and Sarah Leneve allegedly took place in the presence of Cantillon's menservants Berridge and Arnold. Elizabeth James, who accompanied Sarah Leneve to the Red Lion, was not able to conﬁrm the presence of Berridge or Arnold in the tavern but swore a similar story to that of Sarah Leneve. All the servants were there—I can't say the men were there; but the three maids were.—Leneve said, How came this ﬁre? And Elizabeth Pembroke said that her master did it, for his way was to read a-bed every night. . . .Leneve asked her why they did not take their master down: And she made answer, that the man did go to take him, but swooned upon the corpse, and his cap was on ﬁre, and he had been burnt if somebody had not carried him away.9 Elizabeth James also maintained that Elizabeth Pembroke told her that ‘the left-side of Cantillon's face, shoulders and belly were burnt’. In fairness to Elizabeth Pembroke she contended that this conversation did not take place: This examinant further says, that she never had any conversation with Sarah Leneve and Elizabeth James since her master's house was burnt; except once, that the said Sarah Leneve came to the Red Horse and told this examinant she was sorry for his misfortune; which was all that passed between them at that time.10 The newspapers of the time printed a story similar to that recounted

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by Sarah Leneve and Elizabeth James. The London Evening Post (Tuesday 14 May to Thursday 16), in an account partly based on what appeared in the Daily Journal (15 May), went on to add that ‘the corpse was carried off ’. This point was contradicted in the Weekly Miscellany (Saturday 18 May), which, while reprinting the Daily Journal and London Evening Post accounts suggesting that the cause of the ﬁre was Cantillon's bedside candle setting ﬁre to some papers, went on to add, ‘but a report was current of the gentleman having been murdered, and the house afterwards set on ﬁre by the assassins; but nothing of this could be prov'd, the corpse having being burnt to ashes’. Thus four days after the ﬁre the ﬁrst suspicion that a murder had been committed appeared in print. Seemingly two days earlier Bolingbroke, Cantillon's next door neighbour and friend, became suspicious as to what had happened and went searching in the ruins of Cantillon's house: His suspicions led him at the start to look for Mr Cantillon's corpse which was still to be found in the ashes though roasted in the most hideous way. It had no head. How is it conceivable that the ﬁre could have decapitated a man? It is even vouched that it is still possible to distinguish the marks of several deep wounds on the torso.11 Bolingbroke's discovery of the burnt headless torso was not publicized because it was decided by the legal authorities that all of the servants were to be arrested on suspicion of murder. According to Prévost, one of the three servants confessed to one of the investigating magistrates, Lord Carpenter—the other magistrate involved was Sir Thomas Clarges. This lady, referred to as Cantillon's housekeeper (presumably Elizabeth Pembroke), was allegedly inveigled by her lover, Cantillon's valet (presumably Isaac Berridge), into the plot to rob and kill Cantillon. The valet promised that the takings from the robbery would be great and topped up his offer with a promise of marriage. Together they persuaded a number of other servants to join them. Just after Cantillon had fallen asleep the servants entered Cantillon's room and slit his throat. Prévost described how all the conspirators were involved in this act. ‘They ﬁnished by cutting off the head which remained hanging on by a sinew.’12 They then ransacked the cupboards and strong boxes taking as much as time allowed. Then, as arranged, they set ﬁre to Cantillon's bed. But there was a hitch here as they found it difﬁcult to set ﬁre to it. As dawn was about to break they were almost panicked into ﬂight but eventually the ﬁre took hold. At this point they leaned out of the windows, crying out to passers-by that they needed their assistance as the house was on ﬁre. Berridge, the

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valet, was careful to run to Cantillon's room and to tell several witnesses that he had found his master dead and already half burnt. Despite this supposed confession, the other two servants refused to admit to any crime. According to Prévost, the valet's confession was not sufﬁcient to warrant the conviction of the servants and so Cantillon's cousin Philip Cantillon offered a reward of £200 for evidence leading to the conviction of the murderers.13 The London Evening Post (25–8 May) carried the ﬁrst of a series of widely advertised notices publicizing the reward and requesting information concerning the robbery and also the alleged murder. A representation having been made to the King, that Richard Cantillon, Esq, was robb'd and murder'd in his dwelling house in Albemarle Street on the 14th instant, and his house burnt to the ground, his Majesty for better discovering and bringing to justice the persons guilty of such heinous crimes, is pleased to promise a pardon to any one of the accomplices therein concern'd (except the person by whom the murder was committed) who shall discover any one or more of the criminals, so as he, she, or they be apprehended and convicted. And Philip Cantillon, merchant, promises a reward of 2001, to anyone who shall make such discovery.14 A week later, in the same paper, Philip Cantillon increased the reward to £500. Despite the reward, the chief suspect, Cantillon's former cook Joseph Denier, was not apprehended. Notwithstanding the absence of the chief suspect, the Crown brought three of the servants, Isaac Berridge, Roger Arnold, and Elizabeth Pembroke, to trial accused of the murder of Richard Cantillon. The trial took place in December 1734 with the Crown charging that: Berridge, by assaulting, and with both his hands and feet on the breast, belly, groin, and privy-parts, kicking, and striking, and beating him, and giving him several mortal wounds and bruises on the 14th of May 1734 of which mortal wounds and bruises he instantly died; and Arnold and Pembroke, together with Joseph D'eniere, by being present aiding, abetting, comforting and maintaining the said Berridge in committing the said murder.15 The evidence of some of the eyewitnesses, other than the accused, seems to have been consistent with the Crown's view that Cantillon had been murdered, as the following extracts taken from the proceedings at the trial indicate. Malachi Kelly, a servant to Lord Percival, who was the ﬁrst person to enter Cantillon's bedroom along with Isaac Berridge, stated that Berridge ‘pull'd the Deceas'd out by the Legs; and as soon as ever I saw him, I said to the Servant your Master is murder'd’. Kelly, from a distance of about six feet, observed that the lower part

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of Cantillon's anatomy was covered in red spots, but at the same time he saw no evidence of Cantillon having been burnt: MALACHI KELLY. . . . . .The deceas'd seemed to be quite naked to the navel. There was a vast many red spots on his belly, knees and legs, and down his thighs—he was all over large spots. COUNCIL. Did you observe any part about him, that appeared to be scorched or singed? M. KELLY. No, I saw no scorching or singeing. COUNCIL. How near were you to him? M. KELLY. I was then about 6 feet from the Chamber-door. COUNCIL. You say that he was naked to the navel: do you know if any part of him was cover'd? Had he a shirt or night-cap on? M. KELLY. I can't say as to that, for I did not see his head nor his arms, I saw nothing but the lower part of his body, as the servant had hold of his legs. COUNCIL. Then he might have had a shirt on the rest of his body, and a night-cap on his head, tho’ you did not see them. M. KELLY. Yes, he might. The fact that the lower part of Cantillon's body was bruised was conﬁrmed by a passer-by, Charles Woolmer: I ran up stairs, and saw no ﬁre then; but the deceas'd was lying at full length with his head against his own door, and his feet to the parlour. He had a white cap on, and his shirt was burned up to his navel; his privities appear'd bruised and blackish; his linnen was not at all singed. I stept to the chamber door, looked in, and saw the bed standing, and the cloths turned up against the side of the wall. Oliver Price, a servant to Lord Bolingbroke, gave similar evidence: I saw the lower part of the deceas'd’s body; the lappet on his shirt was turned over his stomach. There was redness about his thighs, and privy members and belly, but whether they were burnt, or bloody I can't tell—I could not distinguish—the man Isaacs had him by the legs, one leg in each hand. However, despite the evidence of Malachi Kelly, Charles Woolmer, and Oliver Price about the lower part of the body being bruised, this was not conﬁrmed by William Marson. Marson, a servant to Mary Cooley, who lived ‘almost over against Mr Cantillon's house’, was the only witness who made a positive identiﬁcation of Cantillon's face, but he saw no ‘red spots’ or signs of scorching. WILLIAM MARSON. . . ..I ran up one pair of stairs, and saw the corpse of the deceas'd lying at length upon the landing place—I saw by his face that it was the deceas'd—he was naked to the stomach.

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COUNCIL. Was his body entire? W. MARSON. Yes: I saw him at full length; no part of his body was off. COUNCIL. Did his body appear to be scorched? W. MARSON. No. COUNCIL. Did you observe any red spots upon him? W. MARSON. No. COUNCIL. Or any blood? W. MARSON. No. This evidence is curious in that it is contrary to that of all the other witnesses. Berridge maintained that Cantillon's ‘Breast, face, and bowels were scorched and burnt’ whereas the other witnesses mentioned above maintained that the lower part of the economist's body was covered in ‘red spots’, was ‘red’, and his ‘privities appear'd bruised and blackish’. Marson's evidence is important in that he was the only person who claimed to have recognized Cantillon—all the other witnesses only saw the lower part of the corpse. His evidence discounts the statement of Berridge but at the same time does not conﬁrm the views of the other witnesses on the state of the lower part of the body. The female witnesses at the trial introduced a more gory account of what happened. One of them, Mary Mersit, who was passing by the house at the time of the ﬁre, told the court that Isaac (Berridge) ‘himself said, that he went in and dragg'd him by the legs, and his head dropped off ’. This evidence seems to conﬁrm Prévost's account. On the other hand Francis Brooks, a shopkeeper, informed the court that at about seven o'clock on the morning of the ﬁre Elizabeth Pembroke and Isaac Berridge came into her shop and ‘there was some talk how the house came on ﬁre, and one of the maids, I think it was the prisoner, said, When I came down and saw my master bloody, I was frightened out of my wits. Bloody, says I. How came he to be bloody? and Berridge made answer, in pulling him down seven stairs his bowels came out.’ If one were to believe all the witnesses' accounts of what went on this particular May night then Cantillon's ‘breast, face and bowels were scorched’, and ‘there was redness about his thighs, and privy members and belly’. Subsequently his head fell off and his bowels came out as he was taken from his room down the staircase, while ﬁnally the body was burnt to ashes! What a way to go! What does seem to be clear is that Berridge and Elizabeth Pembroke suggested to enquirers that Cantillon's death was caused by a ﬁre which the economist had caused through forgetting to extinguish his candle. This view is at odds with some of the witnesses' accounts of the state of the body as they saw it in either the room or on the staircase.

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Furthermore, Edward Martin, a coachman to Lady Aston, swore to the court that he heard a seeming admission of guilt from Isaac Berridge: EDWARD MARTIN. . . . and having set my lady down, I saw several people about Sir Thomas Clarge's door; and among the rest there was the prisoner Isaac Berridge. He was iron'd and complain'd that his irons were very troublesome to him, but said he should have a heavier pair that night. Somebody asked him Why so? Because, says he I shall go to Newgate tonight: Upon which a woman said, may be more than you may go. I believe not, says he, for they don't deserve it. COUNCIL. Who did he speak of then? E. MARTIN. His fellow servants; he said neither of my fellow servants deserve it. COUNCIL. Did he say that he himself deserved to go? E. MARTIN. No: he said his two fellow servants did not deserve to go; but he should go himself. Additionally many of the witnesses expressed surprise at the inertia of the servants when informed that their house was on ﬁre and their master's life in danger. The jury was not convinced by the evidence presented and the three servants were found not guilty after a ﬁve-hour trial.16 From our reading of the transcript of the trial it seems that Isaac Berridge was implicated in the events of 14 May but the difﬁculty for the Attorney-General and Solicitor-General, who tried to prove the charge, was that the leading suspect had not been apprehended. Here in true Agatha Christie style suspicions point to the cook, one Joseph Denier, who had been in Cantillon's employment for eleven years but who had been dismissed about ten days before the murder. The London Journal of Saturday 1 June 1734 gave the following account of the murder: We hear that there is a great suspicion, that the said gentleman was murdered by a person who had lived with him as his cook, and was dismiss'd his service about 10 days before; the said person coming, during the time that Mr Cantillon's house was on ﬁre, to a brandy-shop in St. Giles's, and desired to leave there a portmaneau which seem'd very heavy, and which by endeavouring to lift, one of his breeches pockets burst, wherein was a large quantity of guineas. It appears likewise, that he fetch'd the said portmanteau away on Wednesday morning early, and took a hackney coach to an inn in Gracechurch Street, from when he rode post to Harwich. He is supposed to have got into the house by means of a ladder, which some witnesses are said to have perceiv'd standing against the back windows, and that after murdering

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the gentleman, he riﬂed his closet and then set the house on ﬁre. . . . Upon examination of the said Mr Martin (A French Distiller), we hear he acknowledged the cook of Mr Cantillon (the supposed murderer) had been at his shop, but not often, and that he recommended him to a lodging, at the Cart and Bell, the upper end of Hog-Lane, where he lodged about four days, during which time he was absent one night, under a pretence to go to Kensington to see some friends, which as we hear, was the night the ﬁre happened. The extent to which the authorities took Cantillon's murder seriously and attempted to capture Joseph Denier is indicated by a report in the London Evening Post (11 June to 13 June 1734): They write from Paris that the wife of Joseph Denier, alias Lebane, a Frenchman who had been cook to the late Mr Cantillon and suppos'd to have robb'd and murdered that gentleman had been put under arrest, at her house three miles from that city, and her letters seiz'd, in order to a discovery of her husband, all of which had been done at the insistance of the Earl Waldegrave, his Majesty's Ambassador at the French Court. Rather ironically, Earl Waldegrave's daughter married Lady Mary Herbert's brother Edward later that year. The London Evening Post (27–9 June 1734) announced: A treaty of marriage is concluded between the Right Hon. the Lord Edward Herbert, second son to the Marquis of Powis and the Lady Henrietta Waldegrave, only daughter of the Right Hon. the Earl Waldegrave, his Majesty's Embassador Extraordinaire to the Court of France. Thus, within a few days of having the wife of the alleged murderer of Richard Cantillon imprisoned, the Earl Waldegrave was arranging the marriage of his daughter to a family, the Herberts, who to put it mildly had little love for Cantillon! The Daily Advertiser on 1 June 1734 reported that the cook was said to have been ‘apprehended in Holland, having been discovered by the master of the ﬁshing boat who carried him over from Harwich, and to whom he had given 8 guineas for his pains’. This is an unlikely story, however, as there is no evidence that this person was brought to trial. Manuscript sources indicate that whoever escaped from Albemarle Street on 14 May 1734 more than likely ended up in the Dutch colony of Surinam in South America. In a letter from the Governor to the Directors of the Surinam Company, dated 3 January 1735, the Governor, Emilius Henry de Chausses, mentions the appearance for the ﬁrst time of a certain ‘Chevalier de Louvigny’ in the colony. According to the Governor, the Chevalier de Louvigny arrived in Paramaribo on 11 December 1734, being one of nine passengers abroad the ship of a certain Gerrit Buys. He attracted the attention of the captain as his luggage included sixteen

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riﬂes, a barrel of powder, and a keg which included iron instruments and a substantial number of gold guineas. The captain reported his suspicions about this mysterious person to the Governor who ordered the captain to bring his passenger to him so that he might examine his passport. In the meantime, the Chevalier de Louvigny decided to skip this passport examination and escaped in a small boat with four Negro slaves.17 The Governor ordered that all small boats be checked and this suspicious foreigner apprehended. Despite these searches the Chevalier escaped to a hiding-placed in the Tampaty creek near the river Commawine. A party of ﬁve soldiers was sent to arrest him there, when the Dutch authorities learned about this hiding-place. On 14 January 1735 the Governor reported on the failure of this mission to capture the Chevalier. The soldiers had located the hiding-place and had succeeded in capturing three slaves as well as goods and documents left by the Chevalier. However, the Chevalier had escaped. The documents found had been buried by the Chevalier and led to the suspicion that the escaped man was the murderer of Richard Cantillon.18 The elusive Chevalier was not located by a second expedition sent to look for him. Whether he died in the jungle from exposure or escaped to the neighbouring French colony we do not know. He did show a remarkable ability to elude his pursuers. His goods were sold by public auction, while the documents which were found to relate to Richard Cantillon, including statements of his bond holdings and his second will, were copied by clerks of the Surinam Company.19 Obviously the Dutch authorities quickly learnt that the documents were of considerable interest to people in England. In a letter from the director of the Surinam Company to the Council of Police, dated 30 November 1735, orders were given to make authenticated copies and to send the original documents and the copies on different ships to Amsterdam.20 The resolutions of the Directors of the Surinam Company, dated 2 May 1736, mention that a Mr van den Bempden received a letter from Walpole, requesting the delivery of the Cantillon papers to Mr Trevor. Mr van Sommelsdijck was instructed to deliver the authenticated copies.21 On 26 June 1736 Robert Trevor, writing on behalf of Horatio Walpole, the British Ambassador to Holland, noted: As to what Lord Scarborough desires, in relation to the original papers of Mr Cantillon, I shall take care to apply to the proper persons to have them delivered in to my hands, as soon as they arrive from Surinam, and will then lose no time in forwarding them, thro’ yours, to his Lordship.22

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On 3 July 1736 Trevor wrote: I have spoken to Mr Somersdyke [Sommelsdijck], and wrote to Mr van den Bempden about Cantillon's original papers. I know from a private hand, that they are arrived. I am in daily expectation of receiving them. However, if they are not immediately forthcoming, I shall begin to imagine they may be kept back a little as a hostage for some gratuity to the clerks of the Ofﬁce who have indeed had a good deal of work in copying, sequestering, etc besides the stamps etc in the authenticated copies transmitted sometime since to Lord Scarborough. It may not be amiss to mention this to his Lordship and if he thinks ﬁt to make any present to the ofﬁce, and will give you what he thinks proper, I'll take care that they shall receive the value of it here.23 On 10 July 1736 he wrote: Monsieur van den Bempden has written a very civil letter in answer to mine about Mr Cantillon's original papers. He tells me he will lay my letter before the society, the ﬁrst meeting they have; and makes no question of their complying, with pleasure, to what I have desired, so that I am in expectation of receiving the packet every day. As to the gratuity (tho’ as yet I have not had the least hint given me of one from the Society) if the trustees are disposed to consider the Under-Ofﬁcers trouble, I should imagine twenty guineas would be sufﬁcient.24 The size of the gratuity that Trevor recommended should be noted. It meant that the clerks had to copy a considerable number of documents if they were to be deemed worthy of such a payment. Following on this, the question must be asked as to what the supposed assassin was doing carrying such a voluminous quantity of papers, which would of course incriminate him, around the jungles of Surinam. After all, he would have had plenty of time to jettison such papers in the weeks of the sea voyage to Surinam. While the hypothesis that Richard Cantillon was murdered seems to be the most plausible explanation to accept, it is necessary to raise the third hypothesis, namely that the body in Albemarle Street was not that of Richard Cantillon. The reason for raising this possibility arises because of the suspicious nature of some of the circumstances surrounding the murder and later on the behaviour of the mysterious Chevalier de Louvigny in Surinam. Let us list the reasons for our doubts:

(1)Richard Cantillon's Behaviour The day before he was murdered he withdrew a huge sum of money from his bank, reported to amount to £10,000.25 Did Cantillon liquidate part of his wealth with the intention of moving out of Europe? Furthermore, though it was believed that he possessed a great quantity

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of precious objects in his house, no gems or plate were found by the reﬁners who sifted through the ashes.26 Surely the murderer or murderers, if such existed, had not the time to pick the house clean without attracting attention.

(2) The Identication of the Body The evidence of the servants and of the passers-by is contradictory, the servants suggesting that part of the body had been scorched by the ﬁre while the passers-by felt that the body had been assaulted. Furthermore, only two witnesses indicated that they saw the face of the corpse that night. Neither of the witnesses, Elizabeth James nor William Marson, was employed in the Cantillon household. It is quite conceivable that they would not have known Cantillon. None of the other witnesses saw the head of the corpse, as it was either covered with nightclothes or out of their line of vision because of the way Berridge was pulling the body from the room. Did Berridge deliberately conceal the head of the corpse for the very good reason that it was not that of Richard Cantillon? The acquisition of a corpse to substitute for Richard Cantillon in his bed would have been relatively easy. Body-snatching from the graves and even from the gallows by the resurrection men was an active business in eighteenth-century London to meet the demand for corpses for anatomical research. It would have been quite easy for a man of Cantillon's talents to purchase a body and arrange for it to be burnt in his house—presumably with the connivance of Isaac Berridge.

The Attitude of Cantillon's Relatives to the Events of 14 May Is Difcult to Understand According to the Earl of Egmont they were not particularly interested in ascertaining if foul play had been committed. In his diary for 14 May the Earl noted: I was most disagreeably surprised at my arrival in town to hear that my brother Percival was this morning at four o'clock burnt out of his house and had lost all his furniture, except his plate, some pictures, and some books. The ﬁre began as he told me at the next house, lately taken by Mr Cantillon, the rich banker whom I knew at Paris, who was but lately come to the house, and was burnt in his bed, of which there are varying reports, some saying he came home at twelve at night, and ﬁred his bed, others that his servants murdered him and then ﬁred the house to conceal their crime. He was a debauched man, and his servants of bad reputation so being very rich it is thought they were tempted to commit this fact, for which informations were taking when I visited my brother on this great loss, amounting as he tells me to 700.27 Fifteen days later in another diary entry Egmont explained how

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Cantillon's cousin, presumably Philip Cantillon, seemed to be reluctant to press charges against the servants: My son told me he had been extremely diligent in discovering Cantillon's murderer, which comes plainer out every day, and his cousin Cantillon, a banker, together with a Popish counsellor and another who did business for the deceased, are extremely blamed for their behaviour on this occasion, they being (while admitted at the examinations of witnesses and of persons suspected) too favourable to the latter. My son was from ten o'clock in the morning till four next morning present at examinations, and believes that if he had not stirred in it the suspected persons would have been admitted to bail and all the prosecution dropped.28 Why were members of the family reluctant to press charges against the servants? Why were they ‘too favourable’ to the suspected servants? Were they convinced of their innocence or, alternatively, did they wish to cover up what they knew had actually happened?

(4) The Behaviour of the Chevalier De Louvigny Did not Fit the Mould of the Typical Murderer Why did he carry with him so many incriminating papers relating to Richard Cantillon? Why carry these papers to Surinam and then transport them through the jungle when it would have been quite easy to throw them overboard during the sea voyage? Even the choice of the name de Louvigny was peculiar. There was a Comte de Louvigny, the son of the Duc de Guiche, who was very much involved with the Mississippi System and John Law.29 Would a cook have had the ability to pass himself off as a member of the French aristocracy? Would a cook have chosen the name of a prominent Mississippian? Having listed these doubts and having raised the possibility that the Chevalier de Louvigny was in reality Richard Cantillon, we need to ﬁnd a motive for such behaviour. Why might Cantillon have contrived to create the impression that he had been burnt to death in Albemarle Street? By May 1734, Cantillon may have felt that the pressure arising from thirteen years of unending litigation arising from his Mississippi-related fortune was too great. Nor was the litigation over. Despite winning favourable verdicts against William Law and Joseph Gage in the civil courts and against the Carol brothers in the criminal courts he was still being pursued relentlessly by Christopher Balfe, on behalf of Joseph Gage. This lawsuit, which, as has been shown, started in June 1727, was a criminal one. It had dragged on through 1733 with Cantillon hoping to rid himself of it: If I can't otherwise bring matters to bear I will put down my coat. I press M[r]

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L[aw] and M[r] G[age] at the Bureau des Actions where they have both made their opposition to these judgements I obtained against them by default the 19th of July last. They do all they can to gain time. I am also pressing the decision of Gage's affair at the Tournelle or Parlement for the criminal.30 Despite his efforts and those of his lawyers the criminal litigation was not settled by the end of July 1733 when Cantillon was in Brussels. From his letter to Francis Garvan we can judge the extent to which he despaired of ever ridding himself of the criminal charges hanging over him: But now I have an account that even the criminal sham is so stated, notwithstanding the difﬁculties and obstructions they had clogged it with, that it may end. I hope it will be soon determined . . . I now send him [Molagne, Cantillon's French lawyer] the plan of my answer and if it were not so late in the season I should have great hopes to get over these suits of Gage, both civil and criminal, before the taxation. But I now almost despair of compassing it thoroughly till about this time twelve months and if any other obstructions should intervene the Lord knows when it may be ended.31 Cantillon's despair had probably been increased by Christopher Balfe's release from prison and his and Joseph Gage's legal victory against George MacKenzie on 23 February 1733. It was Cantillon who had been instrumental in bringing the bigamy charge against Christopher Balfe. Balfe had been imprisoned on this charge and prison no doubt had sharpened his animosity towards Cantillon. On release from prison he lodged charges against both George MacKenzie and Cantillon. He alleged that Cantillon ﬂed from France to avoid the consequences of this charge.32 Gage later indicated that it was Cantillon's death that caused the criminal charges to be dropped by an order of the French courts on 3 June 1737.33 Did the pending criminal charges and the burden of warding off attacks on his fortune in the civil courts force Cantillon to search out more tranquil surroundings? We can hypothesize that Cantillon, fearing the results of the criminal and civil proceedings, decided to hasten his demise in the eyes of the law by faking his death. He liquidated a great part of his wealth, drew a large quantity of money from his bank, substituted a corpse in his bed, and instructed Isaac Berridge to set ﬁre to the house. Taking this line we can imagine how the plan nearly backﬁred when passers-by came into the house before the ﬁre had become sufﬁciently intense to burn the corpse. Berridge, improvising, concealed the head of the body from onlookers, and when the ﬁre broke on to the staircase

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he pretended to faint, thereby ensuring that the efforts of those in the house would be devoted to taking him out, leaving the corpse to the ﬂames. With the body burnt to ashes, Berridge, well compensated for his assistance, could afford to sit out the trial conﬁdent that the Crown would be unable to prove its case.34 On 10 July 1734, nearly two months after the ﬁre in Albemarle Street, the coroner for the City, Borough and Town of Westminster in the County of Middlesex, Robert White, released the ‘remains of Richard Cantillon’. Just below the coroner's statement is one signed by J. A. Smith, curator and registrar of the parish church of St Pancras, who certiﬁed: These are to certify unto all whom it may concern that by virtue and in pursance of the above copied warrant, the remains of the body of the late Richard Cantillon Esquire mentioned in the said warrant, were buried in the churchyard belonging to the parish church of St. Pancras otherwise Kentish town in the County of Middlesex, on this day, as appears by the Register Book of Burials of the said Parish, witness my hand this thirteenth day of July 1734.35 But does the graveyard of Old St Pancras really contain the remains of Richard Cantillon? Or did he at least see the jungles of Surinam?

Notes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Abbé Prévost, Le Pour et contre, xlviii (Paris, 1734), pp. 49–50. My thanks to Professor Jean Sgard for indicating this reference in Prévost's work. Ibid., p. 55. ‘Trial of Richard Cantillon's servants’, The whole proceedings of the Sessions of the Peace, and Oyer and Terminer for the City of London and County of Middlesex, 1734, no. 1, pt. II, British Library. See BL catalogue, cxli. 349. Henceforth referred to as ‘Trial’. Ibid. HMC Townshend (1887), 237–8, 14 May 1734. Daily Journal (Wednesday 15 May). ‘Trial’. Ibid. Ibid. Ibid. Prévost, op. cit. n. 1 above, p. 52. Ibid. Ibid., p. 54. London Evening Post 25–8 May 1734. ‘Trial’. Weekly Miscellany (14 December 1734). The Hague, Algemeen Rijksarchief. Archive Soc. van Suriname, inv.

298

18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

33 34 35

THE DEMISE OF RICHARD CANTILLON

no. 261, of. 1042. My thanks to Mr Y. W. van der Meiden of the Rijksarchief for his assistance in locating this manuscript. Ibid., inv. no. 262, of. 1. Ibid., inv. no. 262, fos. 150 and 153. Ibid., inv. no. 96, of. 70. Ibid., inv. no. 30, of. 10. Weston Papers, Lewis Walpole Library, Farmington, Connecticut. Not catalogued. Ibid. Ibid. The London Evening Post (14–16 May 1737) mentions that he withdrew £10,000 on the morning before the ﬁre. The wealth in the house was reported to be worth £20,000 by the Daily Journal (15 May 1734); £200,000 by the Weekly Miscellany (18 May 1734) (probably a misprint for £20,000). HMC Egmont, II. Diary of the ﬁrst earl of Egmont, p. 102. Ibid., p. 105. Correspondence of John Law, bibliothèque Méjanes, Aix-en-provence. See also BN NAF 9801, of. 73. PRO C11/1594/36. Letter from Cantillon in Paris to Francis Garvan, 24 January 1733. Ibid., Richard Cantillon at Brussels to Francis Garvan, 27 July 1733. Bibliothèque de l'Arsenal, Archives de la Bastille 11481, ‘Mémoire pour Charles Christophe de Balfe contre George Makine, dit Makensy’, p. 25: ‘Richard Cantillon who, in 1733, had learnt that the Bailiff of Meudon's verdict had permitted the accused to give evidence against MacKenzie and his accomplices, ﬂed and took refuge in London where by a divine and just punishment he was assassinated and burnt in his house’ (translation). BN Fo. Fm. 12940, ‘Mémoire pour le Comte de Gage contre la Dame Veuve du Comte de Stafford, ﬁlle et unique heritière de Richard Cantillon, Banquier’. The London Evening Post (1–4 June 1734) noted: ‘The affair of enquiring into the death of the late Mr Cantillon appears very dark and intricate, and it is to be feared that, although the unhappy gentleman had foul play, it will be a matter of great difﬁculty to discover it’. Statement by Robert White, the coroner, on 10 July 1734. Madame Jurgens, archivist at the Archives Nationales, kindly showed me a copy of this document. Unfortunately, we have been unable to locate the notarial study in which it was found. The Parish Records of Old St Pancras contain the following entry: Burial, July 13, 1734—Cantillon, Richard esq.

15 The Publication of the Essai in 1755 Twenty-one years after Richard Cantillon's demise in Albemarle Street, almost to the day, the Essai sur la nature du commerce en général was published. The title-page suggested that it had been published ‘à Londres, chez Fletcher Gyles, dans Holborn’ and that it had been translated from English. It soon became apparent that this anonymous work had been written by Richard Cantillon1 and had been published in France rather than London, Fletcher Gyles the supposed publisher having died of apoplexy on 8 November 1741.2 The mysteries which surrounded Cantillon's life and demise were now transferred to the Essai. Why did it bear a false publication location and the name of a long-dead London publisher? Who had been instrumental in having it published? Was it mere coincidence that Cantillon's book was published at a time when, according to the eighteenthcentury French economist Dupont de Nemours, the science of economics was being created?3 These questions are interrelated, and in answering them we unravel part of a larger story involving some extremely signiﬁcant developments in the evolution of economic thought in France in the 1750s. This chapter initially shows how the false publisher's imprint was a necessary part of the French censorship laws of this period. Outlining the censorship regulations enables us to prove the name of the real publisher of the Essai and, via the books of this publishing house, to link its publication with the name of that most important contributor to eighteenthcentury French economic thought, Vincent de Gournay. The link between the Essai and Gournay leads to reconsideration of the objectives and writings of the group of ‘économistes’ who attempted, under his tutelage, to produce major economic reforms.

Censorship in France During the 1750S From the death of Louis XIV, the liberalization of the system of censorship of books in France underwent a period of gradual and continuous improvement. The old system, which required a published book to have a privilège, was found to be too rigid in the increasingly liberal spirit of the age. In order to obtain a privilège a book had to pass the scrutiny of the Director of the Book Trade and the rigid

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examination of a censor. As the latter's name was included in the ofﬁcial approval printed in the book when it was published, censors were ultraconservative, for the most part, in allowing the publication of new works, particularly those relating to political, philosophical, and theological issues. If, after publication, the work was found to contain matter deemed to be pernicious to the Church or the Monarchy, the censor faced the possibility of losing his position in society or even more serious repercussions. Pressure to change the over-rigid system of censorship came from two sources. Firstly, it was recognized that the censorship laws were shifting business away from French publishers, printers, and booksellers to foreign competitors. The professionals in the French book trade therefore lobbied for a change in the system. Lamoignon de Malesherbes, Director of the Book Trade from 1750 to 1763, outlined the problem: ‘commercial interests dictated that foreign publishers and booksellers [libraries] should not be continually prospering by selling books at the expense of their French counterparts. It is this situation that gave birth to the permissions tacites’.4 The authorities also recognized that in many cases it would be impossible to stop the publication of a work. Rather than force the publishers underground while at the same time in order to ensure some form of control over the book trade, it was deemed desirable to introduce a quasi-ofﬁcial but more ﬂexible system of control, the permission tacite. Malesherbes explained this new awareness on the part of the administrators concerned with policing the book trade: Since the desire to publish on all sorts of topics became more widespread and people, particularly those with inﬂuence, became more sensitive to literary allusions, circumstances arose where the public authorization of a book that is the granting of a privilège was not dared, but where, at the same time, it was felt that it was not possible to stop its publication. It was this dilemma that produced the ﬁrst permissions tacites.5 The permission tacite was a typical French compromise arrangement facilitating the publication of works deemed ineligible for a privilège. Under the new system, authors or publishers seeking a permission tacite had to go through the same control channels as if they were requesting a privilège, that is the work had to be registered at the ofﬁce of the Director of the Book Trade and examined by a censor. However, neither the ofﬁcial seal nor, more importantly, the censor's name was printed on a book granted a permission tacite. The anonymity of the censor protected him from the public view and therefore allowed him to be more liberal in his examination of a work.

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Malesherbes explained the system as follows: Permissions tacites, as well as formal priviléges, are only given on the report of a censor who signs his approval and initials the manuscript or a copy of the printed book, and a list of them is registered at the Chambre Syndicale in Paris. I believe that this system was introduced so that, on the one hand, the publisher and author might be free to publish and, on the other hand, so that the censors might be shielded from importunate and often very unreasonable complaints from individuals who believe that they have to object to a book. By these permissions, which are kept in a register, a censor who makes a mistake is not protected from action by the Government which conﬁded the work to him; but when the complaints are ridiculous, which often arises, because people are not reasonable when it comes to their own particular interests, the censor is not embroiled in a personal dispute.6 Malesherbes who inherited the growing system of permissions tacites on his appointment as Director of the Book Trade in 1750, obviously felt unhappy with this state of affairs and wanted the Government to legalize the system of permissions tacites by having a law passed stipulating that books could be published without the explicit printed approval of a privilège: By way of answer I was informed that the Government recognized the necessity of the permissions tacites, as did the Parliaments, traditional opponents of the Administration; that they knew that they existed and that moreover they would never prosecute as fraudulent books published under this system, but that they would not consent to passing the law that I proposed to them.7 The register for the permissions tacites was called ‘Le Registre des livres d'impression étrangère présentés à Monseigneur le Chancelier pour la permission de débiter’. This title indicates the rather unusual jurisprudence in which the permissions tacites were set by the French adminstrators. The illegality of the permissions tacites was disguised by the assumption that the system was dealing with works published outside France. While books actually published outside France had to go through the same control channels, it was recognized that the bulk of works seeking a permission tacite were published in France. The ﬁction that a permission tacite dealt solely with books published externally was convenient to French publishing houses for, just as the censors hid behind the anonymity of the permission tacite, so also they were able to hide behind the anonymity of ﬁctitious publication locations such as Amsterdam, Berlin, Dresden, Geneva, London, and even Peking! Publishers, printers, and booksellers could have their

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livelihood taken away from them if found guilty of printing or circulating works deemed injurious to the State. The use of a foreign publication location protected a publisher who, despite having passed his book through the censor's hands, felt that some contentious matter in it could lay him open to prosecution by the authorities at a later date. While this would not fool experts on the book trade such as Malesherbes and the Inspector of the Book Trade, Joseph d'Hémery, they acquiesced in public to the ﬁction of the foreign publishing house which gave them, as well as the publisher, a double line of defence against any non cognoscenti of the book trade outraged by the content of the book. Look at the title page, sir, this book was not published in France. Thus, in consulting economics works not bearing a privilège but at the same time believed to be published in France, one should not expect to ﬁnd a French publisher's name and address on the title page. On the contrary, one would expect to ﬁnd a ﬁctitious publication location such as Amsterdam, Berlin, Dresden, London, and so on, and at most a line stating that the book was available for sale through a particular bookseller in Paris. The next task is to go behind these false publication locations and to attempt to ﬁnd the real French publishers of the work and the attitude, if any, of the French authorities to its publication.8 Table 16 shows the various stages a book had to go through in order to obtain a permission tacite in the period that interests us, 1752–8. Later on, in the 1760s, the system became ever more ﬂexible, with the Director of the Book Trade giving permissions simples, a type of verbal permission to publish. Initially, the publisher or author had to present the work at the ofﬁce of the Director of the Book Trade, requesting either a privilège or a permission tacite (stage 1). The work having been registered, the Director of the Book Trade appointed a censor to read it (stage 2). The function of the censor was to ensure that the work contained nothing prejudicial to religion, the state, and ‘les mœurs’.9 The appointment of a censor allowed the Director a certain amount of scope for liberalizing the system, assuming he was inclined that way, as it was at his discretion which censor to appoint, the censors being members of panels that specialized in particular areas, such as theology, philosophy, literature, politics, and so on. After reading the work, the censor returned to report to the director (stage 3), and on the basis of this report the latter decided whether or not to allow publication or not (stage 4). If the censor or Director of the Book Trade was unhappy with the work it would be returned to the

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Table 16. Censorship Control Channels for Publications Seeking a Permission Tacite Stage 1 Stage 2 Stage 3 Stage 4

Stage 5

(a) (b) Registration of work at the Ofﬁce of (1) ‘Répertoire alphabétique des the Director of the Book Trade registres de la librairie de 1750–1760’ (MF 21,997) Director of the Book Trade ap(2) ‘Registre des livres d'impression points a Censor étrangère’ (MF 21,994) Censor submits his report to the (3) ‘Jugements des Censeurs’ (MF Director of the Book Trade 22,137–MF 22,140) (4) ‘Registres des déclarations donDecision of the Director of the Book Trade registered at his Ofﬁce nées aux syndics et adjoints de le librairie par les imprimeurs des and the Chambre Syndicale ouvrages nouveaux’ (MF 21,982) Also: ‘Registres des livres d'impression étrangère (MF 21,994). See (2) Book examined by the Inspector of (5) ‘Le Journal de la librairie de the Book Trade, Joseph d'Hémery Joseph d'Hemery’ (MF 22,156–22, 161)

All references are to documents found in the Manuscripts Français at the Bibliothèque Nationale.

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publisher with a refusal or a request to make certain deletions and corrections. The Director's verdict was registered both in the Register of Books at his ofﬁce (‘Registre des livres d'impression étrangère’) and in the register kept at the Chambre Syndicale (‘Registres des déclarations données aux syndics et adjoints de la librairie par les imprimeurs des ouvrages nouveaux’). Copies of the book had to be inspected by the Inspecteur de la Police (stage 5). Theoretically, there are a number of documents that may be consulted for this period corresponding to each of the stages which a book passed through. Unfortunately, the registers and reports corresponding to stages 1 and 3 were found to contain few references to economics works during the early 1750s, while those corresponding to stages 2 and 4, though containing some interesting references, are not sufﬁciently detailed. They do however provide sufﬁcient material to cross-check the accuracy of the most detailed and useful work, that produced at stage 5, ‘Le Journal de la Librairie’ of Joseph d'Hémery. Hémery and Malesherbes, two of the most inﬂuential personalities in the policing of the French book trade in 1750s, should not be typecast as repressive forces eager to censor and stop the publication of any unorthodox writings. The opposite was the case. Under Malesherbes's relaxed administration the ﬁrst volumes of the Encyclopédie and the burgeoning writings of the great Enlightenment thinkers were published. Malesherbes himself wrote on economic issues and was, according to Dupont de Nemours, a member of Vincent de Gournay's circle. In 1751 the ﬁrst edition of the Journal æœconomique was published with the ‘protection particulière’ of Malesherbes. The Abbé Morellet, a young member of Gournay's circle, described how, in the mid-1750s, ‘M. de Gournay, M. Turgot and M. de Malesherbes were very happy with me’.10 Malesherbes was an obvious friend at court for writers on economics subjects. Hémery described in his ‘Journal de la Librairie’ (20 April 1758) how Forbonnais's Recherches et considérations sur les ﬁnances de France depuis l'année 1595 jusqu’à l'année 1721 was ‘published in Avignon and distributed in Paris with a type of assent given by Mr. de Malesherbes. This work, which will cause a stir, is by Mr Véron de Forbonnais who had never been able to obtain permission to have it published.’11 In a similar vein to Malesherbes was the Inspector of the Book Trade, Joseph d'Hémery. Like Malesherbes he seems to have been tolerant and ﬂexible. In his policing role in the book trade:

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He held a commission from the Lieutenant General de Police under which he is obliged to see that the regulations relating to the booktrade are implemented . . .to be acquainted with those cases in which the regulations are broken by booksellers, publishers and book pedlars, also to watch over all that is published clandestinely or with a permission tacite.12 Additionally, Hémery acted as a type of literary reviewer for Madame de Pompadour, the King's mistress, informing her of new developments in the literary world.

Hémery's Journal De La Librairie As an inspector of the Book Trade, Hémery represents one of the most informed commentators on the French world of letters of the 1750s. He had numerous sources of information concerning what was happening in literary circles and publishing houses. His ‘Journal de la Librairie’ covers, with some gaps, the period 1750–69. It was not a personal diary for Hémery's eyes only.13 It was available for inspection by Hémery's superiors, the Lieutenant-General of Police and the Director of the Book Trade. There is a qualitative difference in the ‘Journal’, however, in the years prior to 1754. Up to that year the ‘Journal’ was supplemented by a separate section of notes similar to the type of information one would have expected him to have been sending to Madame de Pompadour—gossip, the latest satirical verses, descriptions of people. For example, on 17 September 1753 he described the physical appearance of Plumard de Dangeul: ‘He is a tall, well-built young man, a little too blonde, with a very pleasant face. He is very nice and very witty’. From 1754 onwards these notes disappear and we are left with just his formal treatment of the books that he inspected each week. His usual approach was to list the title, give a technical description of the book, the name of the publisher, the type of permission given, the name of the author, and his own observations on the book. For example, on 5 February 1756 he observed: ‘La Noblesse Commerçante. Brochure in 12 of 214 pages, published by Duchesne with a permission tacite. It is the Abbé Coyer who is the author of this pleasant joke’. At times he noted only the title and the publisher. Hémery was very fastidious in compiling the journal. If he made a mistake he was quick to correct it. For example, on 17 May 1753, in discussing the translation of Ulloa's Rétablissment des manufactures et du commerce d’ Espagne, he cited Véron de Forbonnais as the translator, but on 20 September he corrected this, saying: ‘The work is not, as I had announced, by Mr Véron de Forbonnais. It is by Mr Dangeul who lives with his brother-in-law Mr Bellanger, Advocate General of the Cour

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des Aydes et Gabelles, in the rue St André des Arts. Mr Dangeul is the son of a rich Le Mans merchant’. In some cases he cited a work and only later learnt the name of its author. For example, on 23 October 1755 Hémery wrote, ‘It is Mr Véron de Forbonnais who is the author of the Examen des Avantages et des Désavantages de la Prohibition des Toiles Peintes, which I previously discussed.’ This work has been incorrectly attributed to Turgot. In the case of Traités sur le commerce, the translation of Child's work, he stated, ‘I believe that Mr Vincent de Gournay is the author of this work’. The general impression gained from reading the ‘Journal’ between 1752 and 1758 is that Hémery was very accurate in what he wrote and that he normally corrected his mistakes. His great expertise was in the identiﬁcation of publishers of books.

The Publisher of the Essai In the ‘Journal de la librairie’ for 29 May 1755, Hémery noted: Essai sur la nature du commerce en général traduit de l'anglois. Vol in 12 imp. par Guillyn avec permission tacite. Essay on the nature of trade in general, translated from English. Vol. in 12 published by Guillyn with a permission tacite. This entry is most signiﬁcant in that it is the ﬁrst known reference to the publication of the Essai. It is of even greater interest in that it proves that the Essai had not been published in London or clandestinely in France but rather that it went through the normal censorship channels and had received a permission tacite from the ofﬁce of the Director of the Book Trade. But could Hémery have been wrong in citing Guillyn as the publisher? After all Barrois, at the Quai des Augustins, is listed as selling the book by two literary reviews, the Journal des sçcavans and the Suite de la clef. Given Hémery's ability to identify publishers this is very unlikely. Corroborative evidence that Guillyn was the publisher of the Essai is to be found in Hémery's ‘Journal’ entry for 22 January 1756, where he identiﬁed Guillyn as the publisher of the translation of Josiah Tucker's work Questions importantes sur le commerce. This identiﬁcation is important in that Tucker's work bore the same false imprint as that on the Essai, namely ‘Fletcher Gyles, Holborn, London’. Hémery, however, in examining these two works was not duped by the false imprint of Fletcher Gyles. There was an eight-month gap between his examination of the two works and in the interim he had

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consulted numerous other books. Yet on both occasions he had sufﬁcient information to replace Fletcher Gyles with Guillyn as the publisher. Furthermore, in a catalogue of books on sale at Guillyn we ﬁnd Tucker's Questions importantes sur le commerce.14 One further economics work published in 1755 may be linked to Guillyn. It is Bûtel-Dumont's translation of John Cary's work Essai sur l’état du commerce d’ Angleterre. Surprisingly for him, Hémery did not list the publisher of this book when noting its appearance in his ‘Journal’ on 13 March 1755. However, it appeared in the ‘Registre des livres d'impression étrangére’ as work 261 being examined by the censor Courchetet, with a permission tacite to publish being given to Guislin (a misspelling for Guillyn). True to form, the title-page of the Essai sur l’état du commerce d’ Angleterre states that it was published in London. Three copies of this work have been examined and each bears the name of a different bookseller—Guillyn, Nyon, and Vaillant. In our view this suggests that a publisher often used his colleagues in the book trade to sell books. Guillyn was a near neighbour of Barrois and this explains why the latter publisher and bookseller stocked Cantillon's Essai. Pierre André Guillyn (1715–81) was located at the Lis d'Or, on the Quai des Augustins, besides the Pont Saint Michel. He published other economics works besides those of Tucker, Cantillon, and Cary. The register of the book trade and Hémery's ‘Journal’ show that he also published work by Gournay's student, the Abbé Carlier, and more signiﬁcantly the Considérations sur le commerce et en particulier sur les compagnies, sociétés et maîtrises (1758).15 This book, while ostensibly written by Clicquot-Blervache, was modelled on an economic memorandum presented by Vincent de Gournay to the Chamber of Commerce of Lyons.16 Dupont de Nemours later remarked that the Considérations had been composed by M. de l'Isle (pseudonym for Clicquot-Blervache) ‘under the supervision of Mr Gournay. . .One can recognize in it, like all other work which emanated from this digniﬁed adminstrator, excellent principles on the liberty of trade’.17 The linking of Guillyn to the publication of Cantillon's Essai leads us to the view that Cantillon's work was not published by chance but as part of a deliberate economics publication programme by Vincent de Gournay and his followers. Gournay was a most inﬂuential personality in the formation of French economic thought. Dupont de Nemours, one of the most inﬂuential physiocratic writers, credited Gournay along with Quesnay as being the founder of ‘the science of political economy in the 1750s’.18 However, while Quesnay has received considerable attention from historians of economic thought, Vincent

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de Gournay has tended to be neglected. This comparative neglect may be due to the fact that his published works, as listed by Schelle, are, with the exception of his Obsérvations sur l'agriculture, le commerce et les arts de la Bretagne (1757), coauthored along with Forbonnais, Clicquot-Blervache, and Morellet. His intended major contribution in 1754, the Remarques in his translation of Child's Traités sur le commerce, was banned from publication by the censor. Only recently Professor Takumi Tsuda discovered and published these Remarques. Well versed in trade from his career as a business man in Cadiz (1722–44), he worked as an Intendant du Commerce from 1751 to his death in 1758. In this important administrative position he wrote numerous memoranda suggesting how the French commercial system could be improved. Best known as the author of the maxim laissez faire, laissez passer, his approach, as Tsuda has pointed out, might better be summarized by the maxim ‘liberty and protection’.19 In his memoranda he attacked a wide range of restrictive practices in France that interfered with production and exchange. He advocated policies that would create freedom of both production and exchange. However, when it came to international trade he was not an out-and-out free trader like many of the later ‘économistes'. In the period 1755–8 Gournay motivated Turgot to translate Tucker's work into the Questions importantes.20 He coauthored with Clicquot-Blervache the Considérations sur le commerce. Bûtel-Dumont, his co-translator of Child's Traités, also translated Cary's Essai sur l’état du commerce d'Angleterre. All these works were published by Guillyn. So also, as has been shown, was Cantillon's Essai. Tentatively we conjecture that the linkages of Gournay with Guillyn and of Guillyn with Cantillon's Essai produce a third linkage, that of Gournay—Cantillon, suggesting that Gournay was the motivating force behind the publication of the Essai. Consistent with this view we believe that Gournay had read the Essai in manuscript form before its publication, for one of the memoranda shows a close parallel with the ideas of Cantillon on the productivity of Flemish lace-makers.21 We know also from the Abbé Morellet that Gournay urged his friends to read Cantillon's work.22 Morellet also listed other works inspired by Gournay. These, together with those published by Guillyn, are listed in Table 17. This list is not exhaustive but it does represent the bulk of economics works deemed worthy of long reviews by inﬂuential literary journals such as the Journals des sçavans and the Journal de Verdun. These literary reviews noticed the sudden growth in economics literature in 1755, the year of the publication of the Essai. In March of that year Grimm wrote, ‘over the last eighteen months nothing has been more common than works on trade’.23

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Table 17. Economic Works Connected With Vincent De Gournay, 1753–1758 Date a 7 June 1753

a b

28 February 1754

Author Forbonnais (based on King) Dangeul

21 March 1754

Forbonnais

1 August 1754

Child (tr. Gournay)

13 March 1755

Bûtel-Dumont (based on Cary)

29 May 1755

Cantillon

22 January 1756

Tucker (tr. Turgot)

20 July 1758

Clicquot-Blervache and Gournay

Title and Correct Publisher b Le Négociant anglois (Les Frères Estienne) Remarques sur les avantages et les désavantages de la Grande Bretagne par rapport au commerce (Estienne). Éléments du commerce (Briasson, David, Le Breton, Durand) Traités sur le commerce (Guerin et De La Tour) Essai sur l'état présent du commerce d'Angleterre (Guillyn) Essai sur la nature de commerce en général (Guillyn) Questions importantes sur le commerce (Guillyn) Considérations sur le commerce et en particulier sur les compagnies, sociétés et maîtrises (Guillyn)

Gournay Connection Morellet Morellet

Morellet Translator By implication By implication Dupont de Nemours Co-author

The dates refer to the earliest mention of the book concerned in the ‘Journal de la Librairie’ of Joseph d'Hémery. The publishers given are taken from Hémery's ‘Journal’.

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The Journal de Verdun in its May 1755 review of Dangeul's Remarques noted: This succinct review is the ﬁrst of a series which we propose to give on several interesting writings which have appeared over the last year on trade. They have contributed to this happy revolution which has worked on the spirit of the nation and which has engaged not only the interest of enlightened citizens but even the attention of that most frivolous section of the population which has adopted it with the usual haste characteristic of its fancies. We can only applaud this change; but as we wish to ensure that the observations of these citizens, which have enlightened their fellow countrymen on trade and have awakened their spirit of enterprise, are not the objects of sterile speculation we believe it necessary to reproduce them in later editions of this review, without fear of being accused of useless and unproductive repetition [Translation]. The reviewer of Cantillon's Essai in the Journal des sçavans observed in September 1755, ‘Despite the fact that a large number of works on trade have recently been published, the subject matter on it has not been exhausted.’ In October of the same year Grimm wrote, ‘This subject [trade] is becoming each day more interesting; and as the public ﬁxes its attention on it, as it seems bent on doing, we will have the double advantage of being instructed in a science which will soon become the basis for the superiority. . .of the French government.’24 The comments of these reviewers are extremely informative. They indicate that there was a sudden upsurge in economic writings, that these writings were well received by the reading public, and that there was the feeling that the new subject matter would revolutionize attitudes on trade and the role of the government in this area. Obviously something major was happening to the development of economic thought in France. Even the King, Louis XV, was reported by the Marquis d'Argenson to be at least pretending to read Dangeul's Remarques. ‘The King pretends to read it [Dangeul's Remarques] as do the courtiers; in attendance they praise it without knowing what they are saying.’25 The attention given to the new works on economics by the literary reviews shows the extent to which Gournay and his circle managed in a very short space of time to obtain a great propaganda coup for their ideas. Nearly all of the works listed in Table 17 were given substantial reviews by the Journal des sçavans and the Journal de Verdun, with Dangeul's and Cantillon's works obtaining the lengthiest reviews. Gournay's group, as listed in Table 17, comprised Bûtel-Dumont, Clicquot-Blervache, Dangeul, Forbonnais, and Turgot. It was not a school in the sense of that of Quesnay and his followers. Writers such as Forbonnais and Turgot were too independent to be kept in the same

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fold for more than a very limited period. But Morellet must have had some reason for linking these authors with Gournay. To our mind it was because they wrote for a short, but highly important period, under Gournay's tutelage about ‘le commerce en général’. In the modern idiom they may be likened to a group of young Enarques1 of the same age grouping, sharing for the most part a similar type of commercial background and ﬁnding their feet in Parisian society through the patronage and guidance of Gournay and his friends and superiors Machault d'Arnouville and Trudaine de Montigny. The Abbé Bonnot de Mably acidly described Gournay's followers in the following way: ‘ . . .he was eagerly listened to by a crowd of minor Maîtres des Requêtes who were destined to become Intendants or Ministers and thought they knew it all by crying: liberty, liberty, all that is needed is to keep quiet and to have laisser faire.’26 In 1754 only four years separated the members of the group. Forbonnais, who came from Le Mans, was born into a rich, well-established textile family. Dangeul, his ﬁrst cousin, also born in Le Mans, was the son of a rich merchant. Clicquot-Blervache was a merchant in his home town of Reims, while Turgot's father ﬁnished up a distinguished career as Prévôt des Marchands de Paris. Gournay himself, a native of the thriving commercial port of St-Malo, worked as a trader in his family's business both in France and in Spain. In 1751 he was made Intendant of Trade by Machault. Consistent with their background we ﬁnd that all of the works listed in Table 17 deal with ‘le commerce’. This emphasis on trade makes one question Weulersse's observation that ‘in this economics literature, agriculture occupied the place of honour’. More recently Stephen Kaplan in discussing some of the pre-physiocratic literature suggests, ‘Rarely did it venture beyond the single issue of grain; it failed to develop the germ of the potent liberal theory into a coherent, global conception of political economy.’27 Certainly agriculture occupied an important part of this literature. This one would expect, given the very high proportion of French gross national product that originated from this sector. However, the titles of these works indicate that these writers had a far more general view of the nature of the economic system than the later speciﬁcally agricultural vision of Quesnay and his followers. The key to understanding and differentiating the approach of Gournay's group is their concept of ‘le commerce’. As stated above, it is not mere hazard that it appears in the title of all the works listed in

1

‘Enarques’ is a term for graduates of the École Nationale d'Administration, one of France's most prestigious academic institutions.

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Table 17. It is contended that the group's use of the term ‘le commerce’ is synonymous with our own use of the term ‘economics’. While the term ‘économie politique’ was used at the time, it had not yet acquired its speciﬁc modern meaning. This is exempliﬁed by the fact that the editors of the Encyclopédie asked a philosopher, Jean Jacques Rousseau, to write the article on ‘économie’. Rousseau's contribution (volume v, Encyclopédie), published in 1755, deals mainly with the moral basis of the state's authority: ‘the ﬁrst task of the legislature is to conform laws to the general will’, along with a short discussion of the roles of public ﬁnance.28 On the other hand, Véron de Forbonnais, a member of Gournay's group, was entrusted with the Encyclopédie entry on ‘le commerce’, which he deﬁned as follows: ‘From the individual citizen's viewpoint it consists of the purchase, sale or exchange of commodities wanted by other people with the objective of making a proﬁt.’29 The reference is not speciﬁc to agricultural or industrial goods. It deals with all types of goods, ‘le commerce en général’. Indeed, the term ‘le commerce en général’ keeps coming up in the group's literature. It is part of the title of Cantillon's Essai, it is the title of Forbonnais's ﬁrst chapter in the Éléments, and Dangeul among others makes frequent mention of it.30 Members of the group took pains to point out that their subject matter was a science. The term ‘la science du commerce’ frequently appears in the literature of this period. Gournay, in his Remarques on Child's Traités, states: ‘The science of trade consists solely of deriving returns from one's country, activating men and money, and developing the land.’31 Forbonnais, in the preface to the Éléments du commerce, wrote, ‘Finally, I believe I have rendered a service to trade by making it known as a science in a nation. . . ’. Forbonnais's deﬁnition of trade represents an attempt to deﬁne the subject matter of economics, albeit emphasizing it in an exchange context, and to regard it as an area of study worthy of scientiﬁc examination. Modern economics was beginning to take shape in embryonic form. The challenge facing Gournay's group was an exciting one in that it was attempting to establish the foundation-stones of modern economic science. Think of it the following way. You live in France in 1750, you are interested in the economic world around you and concerned about the harmful effects of certain policies on economic activity. What do you do? In such circumstances you may recognize the need to produce a more systematic approach to organizing economic activity. This approach would attempt in the ﬁrst place to establish a set of principles which

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could be used to analyse the economic problems that arise. Secondly, countries that seem to manage their economic affairs more efﬁciently would be examined so that their successful policies might be imitated. Thirdly, it would be recognized that statistics are required in order to measure and quantify what is happening in the economy. Fourthly, policy conclusions based on the interpretation of economic data, the analysis of economic theory, and the example of other countries would be made. A systematic approach would involve the selection and publication of works that (1) discuss economic theory and establish a set of economic principles, (2) show the success of policies carried out by successful competitors such as Great Britain, and (3) deal with the compilation and interpretation of economic statistics. The books listed in Table 17 ﬁt these various criteria. The works of Cantillon, Dangeul, and Forbonnais (Éléments du commerce) contain solid core of economic theory. English authors Cary, Child, Tucker, King, and others were translated for the wisdom they contained on the management of economic affairs in Great Britain and the need for France to model itself on the British approach. Gournay and Clicquot-Blervache's Considérations contained many speciﬁc policy recommendations as to what was urgently needed in France as did the translations of English works on trade. Anglomania was rife in France at this time, but the English works on trade served also as a suitable means for surreptitiously attacking what was believed to be wrong in France. Dangeul went further by writing under the British nom de plume of Sir John Nickolls, even though he was quickly recognized as the author. Other translations were ‘traductions libres’, with the French translator's explanatory comments often outweighing the British author's text, Bûtel-Dumont's translation of Cary being a case in point. Gournay attempted to achieve a similar result through the incorporation of detailed remarks on Child's Traités, but he was prevented from publishing them. Members of the group seem to have recognized that if progress in the examination of economic issues was to be made it was necessary to produce a statistical base. Davenant's work on ‘political arithmetic’ was included in the translation of King's work by Forbonnais; Dangeul made a plea for a census of population and agricultural holdings in the Remarques, while Book I of Cantillon's Essai contains a number of tantalizing references to a statistical supplement. These economic writings were part of the Enlightenment movement. Two authors in the group, Forbonnais and Turgot, were contributors to the Encyclopédie. Like the Enlightenment writers, the economists of the early 1750s saw a need to change the system and to promote greater

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freedom. They were emancipationists seeking greater political and religious freedom. Dangeul, the most radical of the group, urged a redistribution of wealth and a movement to the British parliamentary system. Turgot, echoing the sentiments of Josiah Tucker, was against discriminatory religious laws. Other aspects of religion such as the celibacy of the clergy and the number of Church holidays are criticized. On this latter point, for example, we ﬁnd Cantillon, Dangeul, and Forbonnais in agreement that Church holidays reduce national output.32 Consistent with this more liberal political and religious approach, the group strongly favoured internal free trade. They attacked monopolies, restrictive practices, and regulations limiting the free mobility of labour and goods on the domestic market. Whilst Gournay was cited by Turgot as the author of the maxim laissez faire, laissez passer the members of the group were not out and out laissez-faire supporters on the lines of the Marquis d'Argenson.33 They favoured government intervention in certain areas of economic activity. The interventionist stance arose from their philosophical and economic conception of society. From a philosophical viewpoint they recognized the potential for a clash between the particular interests of the individual and the general interests of society. They did not totally accept the natural order doctrine with its inferences of a pre-ordained social harmony which should be left alone by man. They saw the possibility of private and social interests not coinciding and the need for governments to intervene when such a situation arose. Here they ran the risk of being accused of inconsistency in that they recommended a laissez-faire approach in one area, the supply side of the market, but also recognized the need for government intervention on the demand side. As a counter to this possible accusation it is argued that this middle-of-the-road approach, a hybrid of laissez-faire and state intervention, was part of their more balanced approach to economics. Consistent with this balanced approach we have already seen that they regarded both industry and agriculture as sources of output rather than falling into the unidimensional view of the Physiocrats on the role of agriculture. Similarly so they were not seduced by pre-ordained harmony of nature argument into a dogmatic laissez-faire stance. Whilst nature was subject to scientiﬁc laws and the inbuilt instinctive urges of animals, man as a thinking creature had the ability to improve the system he lived under. This improvement required in the ﬁrst place the accumulation of information on the workings of the economy and then, through the use of this knowledge, the manipulation of the system to produce optimal results for society.

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Gournay and his group had a macro-economic vision of the world. Such a vision involved understanding the general equilibrium nature of the economic system. Two quotations are presented showing this view: Les hommes réﬂéchissent rarement sur les choses qu'ils sont dans l'habitude de voir. Ce qu'ils trouvent établi dans la société dont ils font partie leur paroît être l'effet du hazard. Non seulement ils n'en aperçoivent pas les causes, mais ils ne se doutent pas même qu'il y en ait. D'ailleurs ces causes sont si compliquées, il y a si peu de personnes qui ayent intérêt de les connoître, qu'il n'est pas étonnant qu'elles demeurent presque universellement ignorées. Cependant il n'est pas indifférent d’être éclairé sur les principes qui ont produit le systême sous lequel nous vivons, et de sçavoir quelles sont les raisons de la distribution locale des hommes sur la terre, de la distribution des travaux parmi ces hommes, et du produit de ces mêmes travaux. Cette économie est dépendante de l'action d'une inﬁnité de ressorts que nous faisons mouvoir, et le dérangement d'un seul de ces ressorts est capable d'occasioner les désordres les plus fâcheux. Si nous pouvions en calculer tous les effets, il n'est pas douteux que nous serions plus en état d'entretenir la juste proportion qui doit régner entr'eux. (Journal des sçavans (September 1755), Review of Cantillon's Essai) The second quotation comes from Dangeul's Remarques (3rd edition, Dresde, 1754), pp. 266–9: Mais que l'intelligence des hommes est bornée! Ces hommes à qui sous la direction suprême d'une Providence qui embrasse tout l'Univers, le soin des choses terrestres est conﬁé, connoissent à peine quelle est la forme de Société sous laquelle il leur est plus avantageux de vivre, quelle est la distribution des hommes la plus favourable au systême qu'ils ont préféré. Tant de circonstances qui n'ont pas dépendu des hommes, ont contribué à former ces Sociétés, ces systêmes, ces distributions, que ceux qui les trouvent établies sont tentés de les croire l'ouvrage du hazard. Le plus grand nombre des hommes existent sans en aperçevoir les causes, et en sont l'effet sans le sçavoir: elles sont si combinées, et d'ailleurs l'intérêt de les connoître touche si peu d'esprits! Il est pourtant dans tout systême de Gouvernement, une proportion plus favorable qu'une autre de l'usage de la terre et des eaux et des productions qu'on arrache de son sein; de la distribution locale des hommes, dans les campagnes, bourgs, villages et villes; de la distribution des différens emplois de la société parmi ces hommes; de la distribution des travaux dans chaque classe, et du produit de ces travaux les richesses ou l'aisance. Mais cette proportion supposée existante, est sujette à tante de changemens violens, comme les disettes, les pestes, les guerres; à tant de changemens imperceptibles comme le progrès du commerce, du luxe, des mœurs; tant de variations que les rapports avec les autres états occasionnent; tant d'autres qui sont l'ouvrage des loix que les hommes font, sans en prévoir toutes les conséquences! Cependant il n'est pas indifférent pour les hommes d’être éclairés sur cette économie, ses proportions, ses changemens et leurs suites; c'est du rapport parfait de toutes ces causes entr'elles, que dépend l'existence du systême sous

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lequel ils vivent; eux mêmes sont soumis pour leur conservation, à l'action de ces ressorts qu'ils font mouvoir sans en pouvoir calculer sûrement les effects; un seul de ces ressorts détruit ou affoibli, étend quelquefois ses désordres jusques sur les sources de la vie, et ces superbes créatures qui s'imaginent être les causes des choses terrestres, périssent par leurs propres ouvrages et avec eux. These two passages are of considerable interest on a number of counts. In the ﬁrst place, a reading of them in French suggests that they were both written by the same author, Plumard de Dangeul. The Journal des sçavans was a semiofﬁcial literary review with the Director of the Book Trade appointing its editor. That Dangeul was selected to review Cantillon's Essai in such a lengthy way indicates the Administration's interest in having it publicized. Here was a prominent courtier and administrator who had already published the enormously successful Remarques, under the ﬁctitious name of Sir John Nickolls, being asked to review an anonymous work on le commerce en général. Thus we see a second aspect of the administrators’ keen interest in the publication of economics works. Not only did the Director of the Book Trade ensure the smooth passage of economics works through the censorship channels, but specially selected reviewers from within Gournay's group were reviewing for the Journal des sçavans the work of authors chosen by the group for publication. However, of even greater importance is the originality of Dangeul's conception of the task of economics. The very fact that he paraphrased and copied some of his earlier comments from the Remarques in his review of Cantillon's Essai indicates how important he considered this view of economics. In these passages we see Dangeul's general equilibrium view of the economy. The economic forces that operate in the system are interdependent. Equilibrium between these forces may be disturbed by explicit exogenous shocks in the form of plague, famine, and war and by largely unseen changes caused by technical progress, the growth of prosperity, changes in habits, alterations in trading relationships with other countries, and so on. He did not take a passive approach. ‘Il est pourtant dans tout systême de Gouvernement une proportion plus favorable qu'une autre . . . ’ Man by his very actions is inﬂuencing the system. The problem is to ensure that the action of the government is consistent with the underlying economic forces at work—otherwise men will ‘périssent par leurs propres ouvrages et avec eux’. Action was required on two fronts. In the ﬁrst place Dangeul wished to see an improvement in people's analysis of the economic system. Information on economic magnitudes needed to be created and

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improved upon. In the particular chapter of the Remarques which is the subject of the above quotation, Dangeul argued in favour of a census of the population and of a system for valuing agricultural holdings. With improved knowledge intervention can be justiﬁed. Here his approach ﬁts in with what Coddington recently described as ‘hydraulic Keynesianism’.34 He envisaged the economic decision-maker faced by a multitude of levers (‘des ressorts’) which have to be manipulated carefully in order to obtain the optimal equilibrium (‘la juste proportion qui doit régner entr'eux’). But we have to be careful in our interpretation of what was meant by intervention. On the supply side, Gournay and his group construed it to mean the need for the government to liberate markets. On the demand side, their attitude on government intervention evolved from a monetary policy à outrance to one which took into consideration the constraints on monetary policy in an open economy. Liberty of action in the markets for commodities and the factors of production required changes on the part of the government to suppress the wide range of restrictive practices that hindered the mobility of capital, labour, and goods. Gournay summarized, along with Clicquot-Blervache, this supply side approach in the Considérations sur le commerce, when he urged the liberation of trade, the abolition of restrictive practices, and the free mobility of labour, including foreign labour. Dangeul, similarly, came out strongly against such restrictive practices and shows his preference for competition: ‘Sçavoir, que dans le commerce l'industrie naît de la liberté; la consommation intérieure et extérieure, du bon marché, suite de la concurrence; de la consommation enﬁn, l'emploi des hommes et la population, seuls principes actifs et créateurs dans un état.’35 Forbonnais wrote that competition was ‘le principe le plus actif du commerce utile . . . il est l’âme et l'aiguillon de l'industrie’.36 Despite such remarks Forbonnais has been accused of mercantilist tendencies in that he favoured a tariff on imports. However, the tariff that he recommended was only 15 per cent, an extremely low tariff by the standards prevailing in France at that time. Forbonnais was in favour of such a tariff on the grounds of ‘infant industry’ rather than a deep-rooted protectionist attitude.37 Members of the group also attacked the heavy burden of taxation which suppressed the incentive to work of the lower-income workers and the anaesthetizing inﬂuence of the system of ‘charges’ which sucked entrepreneurial talent and capital away from industry into the domain of government functionaries and government bonds. Gournay wrote of the system of ‘charges' as follows:

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La multiplicité des charges de toute espèce que l'on regarde comme plus honnêtes, où préférables à l’état de négociant, rien n'a plus contribué à engourdir l'industrie, que ces charges sans nombre qui font le point de veue et l'ambition de presques toute la Nation, et qui font qu'une partie des Sujects du Roy se voue à l'oisiveté en achetant ces charges . . .38 Their analysis of demand side failures and the need for government intervention evolved from their acceptance of Josiah Child's simplistic recommendations on low interest rates to a realization of the dangers of excessive expansion of the money supply. It was recognized that there was a vast amount of resource underutilization in France. Apart from the supply side failures there was a demand side problem: deﬁcient demand caused by hoarding. Hoarding compounded the consumption demand failure problems by forcing interest rates upwards thereby cutting back investment expenditure. Gournay and Forbonnais readily identiﬁed the problem of hoarding. In summing up the problems of French trade Gournay discussed ‘la masse d'argent inutile’ which ‘croupie dans les coffres’.39 Forbonnais too recognized the dangers of hoarding. But he also showed, both in Chapter IX of the Éléments and in the ‘notes préliminaires’ to Le Négociant anglois, that there were limits to the expansion of the money supply: S'il est vrai de dire que l'argent remplit dans un corps politique, les fonctions du sang dans un corps humain; la surabondance de l'un doit être aussi dangereuse que celle de l'autre. La science du Médecine tend à maintenir les liqueurs dans l’équilibre, l'habileté du politique consiste à l’établir entre les diverses occupations du peuple.40 One ﬁnds in both Dangeul and Forbonnais a growing awareness that too great an expansion of the money supply could have adverse price and balance of payments repercussions. Gournay, the great advocate of low interest rates, seems also to have recognized that there were serious problems arising from an over-expansion of the money supply. Here we surmise that Cantillon's Essai may have had a decisive inﬂuence in changing Gournay's attitude. One of the dominant themes of this book has been to show how Cantillon, writing with the memory of Law's System etched ﬁrmly in his mind, described the type of problems that arose from excessive government intervention in the macroeconomy. Was this the message that Gournay took from the Essai when he made the following comment to Bonnot de Mably on the occasion of the latter borrowing the unpublished Remarques on Child's Traités sur le commerce?

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The shortage of money is harmful, but I was wrong to believe that one could never have too much of it. I will erase everything that I said on public credit. I regarded it as an advantage, but on more attentive consideration I concluded that it would always be abused.41

Notes 1

In this chapter Takumi Tsuda's view, based on a detailed analysis of woodcuts and printing styles of economics works published in the 1750s, that Jacques Guérin was the publisher of Cantillon's Essai is disputed (see ‘Étude bibliographique sur l'Essai de Cantillon’ in Richard Cantillon, Essay de la nature du commerce en général, ed. Takumi Tsuda (Tokyo, 1979)). However, as the later analysis shows, we agree with his assessment of the importance of Gournay in motivating the publication of economics works during this period. See also Grimm, Diderot, Raynal, et al., Correspondance littéraire, philosophique et critique (Paris, 1878). On 1 July 1755 Grimm wrote that the Essai published about a month earlier had been written by ‘An Englishman, Mr Cantillon’. Later, on 15 July 1755, he discussed Cantillon's relationship with John Law. 2 H. R. Plomer, G. H. Bushnell and E. R. McC. Dix, A Dictionary of Booksellers and Printers who were at Work in England, Scotland and Ireland from 1726 to 1775 (London, 1932). 3 Pierre-Samuel Dupont de Nemours (ed.), Œuvres de M. Turgot (Paris, 1808–11). 4 Lamoignon de Malesherbes, Mémoire sur la librairie et sur la liberté de la presse (1809, reprinted by the University of North Carolina Press, 1979). Translation. 5 Ibid. Translation. 6 Ibid. Translation. 7 Ibid. Translation. 8 The following discussion on the French system of controlling the book trade was greatly facilitated by Robert Estivals's masterly work, La Statistique bibliographique de la France sous la monarchie au XVIIIe siècle (Mouton Paris, 1965) and by conversations with Professor Estivals. I am deeply indebted to him for the valuable advice he gave me. 9 La France littéraire (1755). 10 Abbé André Morellet, Mémoires inédites de l'Abbé Morellet (Paris, 1821). 11 BN MF 22160, Joseph d'Hémery, ‘Journal de la Librairie’. The references to Hémery's work given in the text may be found in this manuscript by using the dates of the entry. These dates are supplied in the main text. 12 E. Coyecque, Inventaire de la Collection Annisson-Duperron sur l'histoire de l'imprimerie et de la librairie principalement à Paris (Paris, 1900). Translation.

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13 The ‘Journal de la Librairie’ covers the period 1750–69 (BNMF 22156–65). 14 This catalogue is found in a volume containing three of the Abbé Carlier's works published by Guillyn (Trinity College, Dublin OLS 200 N. 57). This catalogue, which was published in 1763, is described as ‘catalogue de quelques livres d'Agriculture, etc. qui se trouvent à Paris, chez Guillyn, Librairie, Quai des Augustins'. Included are Questions importantes sur le commerce, Essai sur l’état du commerce d'Angleterre and Considérations sur le commerce. . . . 15 This work shows the way the control system operated as outlined in Table 16. It is found as number 813 in the ‘Registre des livres d'impression étrangère presentés à Monseigneur le Chancelier pour la permission de débiter’. When permission was given for it to be published it was listed in the ‘Registres des déclarations données aux syndics et adjoints de la librairie’, 15–22 June 1758, no. 813, Considérations sur le commerce. Permis à M. Guillyn’. On 20 July Hémery conﬁrmed in the ‘Journal de la Librairie’ that it had been published by Guillyn with a permission tacite. The Abbé Carlier's translation of F. W. Hastfer's Instruction: sur la manière d’élever et de perfectionner les bestes à laine (1756) was published by Guillyn. 16 Gustav Schelle, Vincent de Gournay (Paris, 1897). 17 Dupont de Nemours, Ephémérides du citoyen (Paris, 1769). 18 Dupont de Nemours, Œuvres de Turgot, op. cit., n. 3 above, see ‘Éloge de Turgot’. 19 Takumi Tsuda (ed.), Traités sur le commerce de Josiah Child et remarques inédites de Vincent de Gournay (Tokyo, 1983). In this book see Tsuda's ﬁne account of Gournay's life, ‘Un économiste trahi, Vincent de Gournay (1712–1759)’, pp. 445–85. 20 See Gustav Schelle, op. cit., p. 30. 21 T. Tsuda (ed.), Vincent de Gournay, ‘Si le travail des gens de Mainmorte . . . ’, Keizai Kenyku (Japan, April 1980). See also Essai, Book III, Chapter 1. 22 Morellet, op. cit., n. 9 above, p. 38. 23 Grimm, op. cit., n. 1 above, March 1755. Translation. 24 Ibid., October 1755. 25 Journal et mémoires d'Argenson, ed. E. J. B. Rathery (Paris, 1866), viii. 274. Entry for 14 April 1754. 26 Œuvres complètes de Mably, ‘Du commerce des grains’, xiii (Paris, 1794–5), p. 291. 27 Georges Weulersse, Le Mouvement physiocratique en France de 1756 à 1770 (Paris, 1910) and Stephen Kaplan, Bread, Politics and Political Economy in the Reign of Louis XV (The Hague, 1976), pp. 114–15. 28 Jean Jacques Rousseau, article on ‘l’économie’, Encyclopédie (1755). 29 Véron de Forbonnais, article on ‘le commerce’, Encyclopédie (1751). Translation. 30 Plumard de Dangeul, Remarques sur les avantages et les désavantages de la

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France et de la Grande Bretagne par rapport au commerce (3rd edition, Dresde, 1754), pp. 263 and 265. Vincent de Gournay, ‘Remarques sur le chapitre 9 touchant la balance du commerce’, Tsuda (ed.), op. cit., n. 19 above. Cantillon, Essai (Higgs edn.), p. 94; Dangeul, Remarques, p. 29; Forbonnais, Eléments du commerce (Amsterdam, 1755), pp. 265–6. Journal œconomique (April 1751). It is assumed that Argenson was the author of ‘Lettre á l'auteur de Journal œconomique au sujet de la dissertation sur le commerce de M. le Marquis de Belloni’. Alan Coddington, ‘Keynesian Economics: The Search for First Principles’, Journal of Economic Literature (December 1976), pp. 1258–73. Dangeul, op. cit., n. 30 above, p. 265. Forbonnais, op. cit., n. 32 above, p. 88. On this point see Christian Morrison, ‘Le libéralisme de Forbonnais et ses limites’, in Questions ﬁnanciers aux XVIIIe et XIXe siècles by Christian Morrison and Robert Gofﬁn (PUF, Paris, 1967), p. 12. Gournay, Remarques, in Traités, n. 19 above. Ibid. Forbonnais (tr.), Le Négociant anglois, notes préliminaires, p. 141. Mably, op. cit., n. 26 above, p. 194. Translation.

322

CONCLUDING NOTE

Concluding Note This book has shown only part of the complex mosaic of Richard Cantillon's career as both an entrepreneur and an economic theorist. Cantillon, the ﬁrst economic theorist to deﬁne rigorously the activities of the entrepreneur, showed throughout his career an ability to mesh entrepreneurship with economic theorizing. Financial entrepreneurship, involving decisions to purchase ﬁnancial assets at a certain price only to sell at an uncertain future price, requires skill and expertise. In the modern world transactors in ﬁnancial markets are furnished with a wide range of information to assist them in making proﬁtable investment decisions. Brokers, consultants, and forecasting agencies abound to provide forecasts on expected variations in the money supply, interest rate changes, and foreign exchange rate movements. In the early eighteenth century such information was not available to ﬁnancial transactors. The South Sea and Mississippi Companies were new ﬁnancial innovations whose market prices were pushed out of line by unrealistic expectations by investors and politicians. Cantillon was not caught up in the euphoria generated by the Mississippi System and South Sea Company. He distanced himself from the projectors and used economic theory as the basis for his decision making. He did not perfectly anticipate each twist and turn in stock market prices and exchange rates but his ﬁnancial transactions led to his being termed one of Europe's ﬁrst ‘millionaires’—the term being used to describe fortunate Mississippians. Embroiled in a vast amount of litigation arising from the Mississippi System, it has been contended in this book that one of Cantillon's motives in writing the Essai was to provide an intellectual refutation of John Law's theories and policies. In it Cantillon outlined a model of the real economy showing the key roles of markets, entrepreneurs, and a monetary system of exchange. This model was then tested to identify the extent to which it was capable of accepting the kind of macro-economic grafts, involving changes in the money supply, the rate of interest, and the exchange rate, that Law applied to the French economy during his System. Further details of Cantillon's life, banking activities, and writings will undoubtedly surface as more research on the ﬁrst half of the eighteenth century is carried out. A considerable amount of archival

CONCLUDING NOTE

323

material relating to this period lies unopened in houses and chateaux in France. There is a great need for a centralized agency, on the lines of the British National Registry of Archives, providing information on the location of such archival material in French private collections. Once such an agency is established we may feel conﬁdent that manuscripts like the missing Supplément to Cantillon's Essai will be found to enrich our knowledge of this remarkable economist.

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Appendix 1 Lady Mary Herbert's Debts An Account Of £94,938-12-8 Was Returned Beyond Sea and Lost and It In South Sea and Mississippi Etc. Mr Edwin Gave Mr Gage Lord Montgomery to his judgement suit Mr Baker lost by being a third subscription Sent beyond the sea Mr Molleux Her Grace To the Bank Dr. Chamberlen Dr. Gardiner Lost by Jerningham Lady Mary took out of the town house at Paris Lord Montgomery Besides my Lord Montgomery lent his Grace £200 per annum Mr Benson returned Lady Mary several bills of exchange Rudyard's bills for law Paid Mr Gill Paid Hale Lost by the earrings Paid Mr Strickland as his Grace and Self were engaged for Lady Mary His Grace sent to the Spanish mines out of the lead mines and Lord Montgomery had £1,000 of it out of the mines in all

£ 29,650 4,000 6,000

d. 2

5

0

15

2a

15

2

18

8

19

0

12

8

3,500 2,500 2,300 450 10,000 3,328 1,050 1,500 10,000 16,000 91,278 1,000 92,278 26 766 60 20 575 350 361 500

£94,938 Besides a great many other sums as his Grace sent to Lady Mary a

s. 10

We make this total £90,278. 15s. 2d. (Powis Castle, 15890)

Appendix 2 Richard Cantillon's Drawing Ofﬁce Account at the Bank of England 1722–1724 Date (1722) 26 September

Name

Debit £

Credit s.

d.

By Cash

Total for Month Balance 5 October Balance To Cash Him Total for Month Balance 5 November Balance To Cash Him Total for Month Balance (1723) 7 June Balance By Cash 14 By Cash 21 To Cash Fronseca 22 To Cash De Gold 22 To Cash De Gold 25 To Jacob 25 To Booth Total for Month Balance 26 August Balance By Knipe 26 By Backer 26 By Goddard

8,773

1

£ 8,773

s. 1

d. 10

8,773

1

10

8,773

1

10

8,773

1

10

3,773

1

10

3,773

1

10

773 7,396 9,995

1 6 13

10 8

18,165

1

10

165 500 700 600

1

10

10

5,000 5,000 3,773

1

10

3,000 3,000 773

1

10

10,000 1,007

10

0

942 1,010 18,000

10

0

165

1

4,030

10

327

APPENDIX

10 September

Total for Month Balance Balance

1,965

To Conyers 1,800 Total for 1,800 Month Balance 165 (1724) 12 March 17 18 18 27

1 April 2 4 9

Balance By Goddard By Goddard By Goddard NB NB Total for Month Balance Balance To Him To Colebrook NB To Cash Him Total for Month

8,731

1

1

11

1,965

1

10

1,965

1

10

1,965

1

10

165 2,000 3,500 900 1,166 1,000 8,731

1

10

10

0

11

10

11

10

11

10

10

10

10 8,731

200 8,500 1,000 1,031

11

10

9,731

11

10

9,731

Appendix 3 Alleged Sale of Shares by the Bank of Cantillon and Hughes, Acting on the Advice of Richard Cantillon, in 1720 1720 839,636 September 12 to 200 old actions sold at different rates at about 4,400

21 October 23

21

14 actions ditto 22 actions ditto cost

59,139 46,164

183 actions 38,560 Cost 750 actions 3,398,920 transferred to copper account to 173 actions transferred (as this day sold to acct H) 1,732,419

1721 22 January

1. 173 Lady Mary

2. 320 Gage

said 173 old 76,400 makes 116 new actions this day sold at 200 dster in silver is to 400 old actions 1,808,819

23,200

1720 March by Imprests 1° 20 old 164,000 actions sold at 8,200

9

by Imprests 2° by Imprests 3° 26 July

40 ditto

332,700

221 ditto at 1,447,135 abt 6,500 200 ditto 982,200 from5,000 to 5,180

1 August

44 ditto 234,190905,about 680 5,42040 ditto about 4,950198 ditto about 4,570

2

49 ditto about ditto

3

238,240 127 ditto about 4,9000 by Imprests C.O. 50 ditto at 4,860

193,423

329

APPENDIX

3. 40 Carol

more (in 266.3 new actions) sold also at 200 dster in silver each transferred also to Account H to be made good to several proprietors to whom they belong if they approve the sale£53,2001,742

5134 September172120 January

——3——by bank 200 ditto 481030ditto 22 ditto about 4,860ditto 180 ditto 4,550–4,67250 ditto - -47 ditto 4,6207050 ditto 4,615-60201,134 new banknotes1,742 actions

17,280942,540104,808 10817,644222,770213,961 4227,494335,0008,229,786-141,808,8196,420,966

Some days before Hughes' death, he gave Mr Gage in his own hand writing a paper of which the above is a copy. The names Lady Mary, Gage and Carol were as they appear above. I believe the books and papers are in the 2d remembrance ofﬁce. The above account contains the pretended transactions written upon the books when the borrowers became due Author's note—Imprests refers to money advanced This side of the above account contains real sales which shows that Cantillon made six millions of proﬁts. NLW Powis 995

Index agriculture 6–7, 311; in Essai 255–61 Aislabie, John 159–60, 162–3 Alary, Abbé 46, 48 Albyville, Marquis d’ 24 Alexander, James 196 Almanach royal 52, 196 Amsterdam 82, 122, 146, 157, 169–87passim Amsterdamsche Wissel Bank 171, 182 Anderson, Adam 176 Anne, Queen of England 29, 44 annuities, conversion of 71, 159, 163, 166–8 Antonetti, Guy 12 Arbuthnot, Robert 10, 52–3, 76 Argenson, René Louis de Voyer de Paulmy, Marquis d’ 310, 314 Argeville 203–4 Argyll, Duke of 4ln , 192 army purchase 31–2 Arnold, Roger 285, 287 Arthur, Sir Daniel 2–3, 15, 24, 26–9, 59 Arthur, Francis 26, 27, 28 Arthur and Crean, bank of 27, 28, 59 Atalaya, Count d’ 37–8 augmentations see underspecie Auvergne, Frédéric-Jules de la Tour, Comte d’ 47 Backer, Cornelius 197, 198 Bagnall, Walter 122 Baker, C. H. C. and M. 29, 32 balance of payments deﬁcit 7, 50, 139, 270–4 balance of trade surplus 268 Balfe, Christopher 4, 210, 238; and Cantillon’s lawsuits 220–5, 295–6; accuses Cantillon of murder 237–44; accused of bigamy 238, 243–4 Bank of England 49, 68, 69; Cantillon’s accounts with 197–8, 325–6; and South Sea Bubble 158–9, 162, 164, 175, 178–80; stock speculation 73, 112, 122, 158, 166, 183; run on 192–3 banking (18th c.) 208–9see economic system banknotes 7–8; in Essai 7–8, 276–8; in Mississippi System 69, 71, 79, 128, 131–40passim, 148–53 Barrois 306, 307 Bayly, John 196 Bempden, van den 292–3 Bénard de la Harpe 100 Beranger, Moses 196 Bernard, Samuel 194 Berridge, Isaac 28490passim, 294–7

Betham, Sir William 11–12, 13 Biddulph, Francis 196 billets d’état 55–6, 70–1, 129, 130 bills of exchange 33 ‘black box’ 267 Bland, Major 39 Blaug, Mark 1, 261–2 Blyke, Mr 38 Bolingbroke, Lord (Henry St John) 2, 3, 3544–9, 92, 193, 199; and Cantillon’s death 47, 282–3, 286, 288 Bordo, Michael D. 251, 261–2 Bosher, J. F. 31 Bouillon, Duke of 110 Boulainvilliers , 48 Brems, Hans , 251 Brinsden, John 47 Britain ; banking 26–7, 132–4; ﬁnancial instability 27–9, 43, 49, 50, 67; speculation in France 52, 56, 140–3; Parliament and South Sea proposals 162–4 Brooks, Francis 289 Browne, Anastase 196 Brydges, James see Chandos, Duke of Bulkeley, Charlotte (Lady Clare) 199, 224 Bulkeley, François 199–204passim, 243 Bûtel-Dumont, Georges-Marie , 307, 308, 310, 313 Butler, John 211 Buvat, Jean 149 Byrne, James 241 Cadogan 33 Caesarano, Filippo 262 Cairnes, Henry 196 Calendar of Treasury Books 30 Cantillon, Lt. Col. Antoine Sylvain de 11–12 Cantillon, Bernard 4, 17, 83, 90; Louisiana expedition 93–101 Cantillon, Bridget 15 Cantillon, Henrietta 200, 204–5 Cantillon, Mary Anne 43, 59, 198–205 Cantillon, Philip 211, 287, 295 Cantillon, Chevalier Richard 2–3, 10, 12, 25, 27, 199; and Richard Cantillon 26, 42–6, 50–2, 58–9, 226; bankruptcy 50–4

INDEX

Cantillon, Richard Senior 15 Cantillon, Richard ; birth 2, 10; genealogy of 10–17; introduction to banking 3, 10, 18, 25, 28–31and Chevalier R. Cantillon 42–3, 50–2, 58–9Paris bank of 42–60; and Duke of Chandos 10, 27–8, 33–9, 175, 179–83, 192–5; and Pierre Huguetan 183–95passim; and John Law 3–4, 7–8, 59–60, 65, 73–5, 79, 127, 147, 169–70, 172–5; and Andries Pels 10, 30, 51–2, 58; ﬁrst Mississippi fortune 75–85; second Mississippi fortune 82, 125, 132; and the Visa 195–7; in Amsterdam 157, 169–87; in Italy 79, 82, 83; Bank of England accounts of 197–8, 325–6; foreign exchange dealings 139–47; option dealings 183–7; and Lousiana expedition 91, 101; marriage of 199–201; debtcollecting 187, 191–2; litigation against 4–5, 106, 192, 208–33, 246–7accusations 220–1, 226–32arrests 221–5trial 225–32; accused of murder 237–44; death of 8–9, 21, 47, 209, 244, 279, 282–97trial of servants 287–90suspicious circumstances 293–7; estimates of ﬁnancial skills of 81–2, 175–6, 187–8, 195; art collection 59; descendants of 204–5;French citizenship 3, 25; handwriting of 329; literature on 251; wine dealer 59see also Essai; Gage, Joseph Herbert, Lady Mary; Mississippi System; South Sea Bubble Cantillon, Richard (nephew) 126–7 Cantillon, Thomas 15–16 Cantillon and Hughes, bank of 126–7, 139, 147; accounts of 197–7; clients of 196; lawsuits against 211, 212–18; loans made by 141–5, 169; sale of shares by 226–33, 328–9; wound down 196 Carlier, Abbé Claude 307 Carnarvon, Lord see Chandos, Duke of Carol, John and Remy 106–7, 142–9passim; sale of shares of 227–32, 295; litigation against Cantillon 208, 210, 211, 215, 218, 246–8; and Cantillon’s arrest 224, 225–6, 238 Carpenter, Lord 286 Carrington, Lady Anne 106, 109, 144; litigation against 208, 211, 218, 227–32 Cary, John 307, 313 Castaing, John 152–3 censorship 299–306 Chamberlen, Dr Hugh 69, 112, 122 Chambre de Justice 54, 56–7, 91 Chandos, Duke of (James Brydges, Lord Carnarvon) ; career of 2, 29–33passim, 42, 59, 173, 182–3, 195; and Bolingbroke 44–6; and Cantillon 3, 10, 18, 28–39, 42, 45, 49–52, 56, 58, 157, 171–4, 185, 195; and Chevalier Cantillon 50–1; and John Law 73–4, 80–1, 172–4; Dutch shares of 171–2; and Mississippi System 76, 79–81, 126–7, 188, 194; and South Sea Bubble 30, 80, 157, 158, 175–83, 188; debts of 175, 179–83, 187, 191, 192–5 Charles VI, Emperor 34, 35 Charlevoix, Fr. 98, 99

Chausses, Emilius Henry de 291 Chetwynd, William 28, 142–3, 147 Child, Sir Josiah 306, 308, 312, 313, 318 China Company 76, 88 circular ﬂow of income 5–8, 252, 258–61 Clarges, Sir Thomas 284, 286 Clarke, Samuel 196 Clicquot-Blervache, Simon 307, 308, 310, 311, 313, 317 Clifford, George 146, 170, 183 Club de l’Entresol 48 Cochin, Maître Henri 5, 81–2, 225–6, 247 Coddington, Alan 317 Colebrook, John 169–70, 198, 248–50 Colebrook, Sir James 198 ‘commandite’ 81, 126–7, 196–7, 220, 249 ‘(le) commerce’ 5, 311–12 Compagnie des Indes see Mississippi Company Compagnie d’Occident 69, 70, 76, 88, 91 Company of Africa 77, 88 Company of the East Indies 76, 88 Compton, Lady Penelope 283 Conﬂans, Chevalier Philippe Alexandre 184 Conyers, Sir Gerard 198 Cooke, Robert 94 copper transactions 4, 157, 170, 174–5, 232, 248–50 corruption 29–33, 35–9 Cosgrove, John 221 Courchetet (censor) 307 Courcy, Charles Germain de 224

331

332

INDEX

Craggs, James 89, 170 Crawford, Thomas 105–6, 184 Crozat, Antoine 27, 57, 71, 90–1 currency see banknotes; specie Daily Advertiser 284, 291 Daily Journal 284, 286 Daly, Rt. Hon. Denis 205 Dangeul see Plumard de Dangeul Darby, Jonathan 94, 101 Darcy, Martin 143 Darling, John 94 Davenant, Dr. Charles 33, 51, 313 Decker, Sir Matthew 3, 30, 51–2, 58, 61n, 75, 126 Delafaye 202–3 demonetization 129, 132, 134, 138–9 Denier, Joseph 287, 290–1 Desmarais, Nicolas Ajacques 241 Desmaretz, Nicholas 55, 56, 134 Dickinson, H. T. 44–5 Dickson, P. G. M. 161 diminutions see underspecie Doggett, Thomas 196 Dolliffe, James , 196 Drummond, John 117, 191, 194 Dryden, John 191 Dundas, William 122 Dupont de Nemours, Pierre-Samuel 299, 304, 307 Duprat, Mrs 221, 229 Dutch West Indies Company 171–2, 183, 194–5 Dutot 75, 79, 137, 138, 149 Duval, François 99 Duval, Abbé René 237, 239–43 East India Company 30, 49, 68, 73, 117, 158, 186; and South Sea Company 158–9, 163, 175, 180–3, 185 economic system 208–9, 248 Edwin, Sir Humphrey 118 Edwin, Samuel 112, 118–22, 143, 209 Egan, James 230–1, 232, 236n, 247 Egmont, Earl of 47, 294–5 Eltis, Walter 261 ‘Enarques’ 311 English Copper Company 176 Enlightenment, the 313–14 entrepreneur, role of 5–6, 8, 25–6, 98, 252–8 Essai sur la nature du commerce en général ; importance of 1, 5–6, 246–79, 310, 313–19; reviews and analysis of 82, 251, 310, 315–16; date of 246–7; style of 83, 250; publication of 9, 299–319publisher of 306–19; effects of litigation on 208, 246–7; on Bank of England 192–3; on banknotes 276–8; on circular ﬂow of income 258–61, 278; on entrepreneurs 98, 253–8; on ﬁnancial innovations 274–9;

on foreign exchange operations 139, 247–8, 275–6; on landlords 17–18, 49, 254, 259–60; on markets 252–8; on Mississippi System 49, 248–50, 274–8; on model of economy 273–4, 279; monetary theory 79, 261–74; on South Sea Bubble 49, 274, 278 exchange control regulations 8, 147 exchange rate operations 8, 30, 33, 82, 106, 132–4; and Cantillon 3, 5, 139–47, 276; and Lady Mary Herbert 118–20, 140; and John Law 139, 140–7, 148–9 Fage, Anita 106, 107 farmers 6, 254–60passim Faure, Edgar 88, 131, 138, 140, 151–2 Fausten, Dietrich 271 Felix, Louis 185 Fennell, Mr 216, 230 Fermor, Colonel John 196 ﬁnancial innovations 5, 8, 49, 65–7, 252, 274–9 ﬁnanciers 49, 56–7 Fisher, Irving 166–7 Fitzgerald, Captain Edmund 196 ﬂoating debt 55, 67 Forbonnais (Véron Duverger de), François 71, 304, 305–6, 308–13, 317–18 France ; ﬁnancial management 4, 27, 33, 43, 50–5passim, 127–8, 131–4, 152; development of economic thought in 307–19; censorship in 299–306; Jacobites in 2, 11, 24–5, 26, 198; and Louisiana expedition 90–1, 93; taxation 54–6, 128see also Law, Johnsee also Mississippi System Frazer, Simon (Lord Lovat) 239 Fréron, M. 45 ‘fund of credit’ 160–1 Furnese, Henry 142, 196 Gage, Joseph ; career of 2, 107–8, 125; and Cantillon 4–5, 75, 105–22, 187, 191, 195litigation with 208–21passim, 246–8arrest of 220, 222trial of 226–33further accusations against 237–44, 295–6; and Lady Mary Herbert 111–12; and Louisiana expedition

INDEX

92–3; and Mississippi System 83, 85, 188; speculations of 83–4, 125, 140–5, 148–9 Galiani, Ferdinando 133 Garvan, Francis 217–20, 228–33passim, 244, 247, 296 Geffrier, François 242 genealogy 11–12 General Bank (later Royal Bank) 69–71, 75, 129, 134 Gentleman’s Magazine 284 George I, King of England 30, 44 Giraud, Marcel 91–2 Giraudeau 136, 151, 152–3 Goddard, Mr 197 gold see underspecie Gough, Edward 207n Gournay see Vincent de Gournay government securities 49, 53, 66, 277 Grampp, W. D. 251 Grimm, Frédéric-Melchior, Baron de 47, 79, 308, 310 Guilly, Pierre André 306–8 guinea, value of 191 Gyles, Fletcher 299, 306–7 Hammond, Anthony 29, 35, 37, 39 Harley, Edward 165, 168 Harley, Robert see Oxford, Earl of Harrold, Edmund 211 Harrold, Martin 126, 146, 169, 211, 215–16 Hautchamp, B. M. du 239–40 Hawkins, William 12–13 Hayek, F. von 251, 261–2, 270–1 Hayes, Richard 10 Hebert, R. F. 251 Hémery, Joseph d’ 302, 304–7 Herbert, Lord Edward see Montgomery, Lord Herbert, Lady Mary ; and Cantillon 2, 26, 46, 112, 120, 175, 179, 187, 191–5litigation against 4–5, 208–14, 218–19, 223–4, 227, 238, 247–8; and Samuel Edwin 118–22; and Joseph Gage 111–12; and William Law 113–16; and Lord Londonderry 116–18, 209; and George MacKenzie 240–1; speculations of 83–4, 105–22, 140–3foreign exchange dealings 118–20, 140–5, 148–9Mississippi System 83, 85option dealings 185South Sea Bubble 118, 165–6, 177; debts of 119–22, 143–4, 191–2, 210, 324 Herbert, William (Duke of Powis) 106–10passim, 120, 122, 143–4, 179, 240 and Cantillon 187, 191, 195litigation against 208–10, 218–19, 247–8 Herbert, William 120, 121 Hervey, Lord John 199 Hervey, Lady Mary 199–200 Higgs, Henry 1, 106–7, 250 hoarding 7, 128, 132, 152, 264, 318 Hoare, Partrick 221, 223 Holland see Amsterdam

333

homosexuality 237, 240–2 Hone, Joseph 10, 12 Hôtel de Ville contracts 55, 137 Howard, William Mathias 204 Hughes, Esther 200, 210, 211, 216–20 Hughes, John ; and Cantillon 52, 126–7, 146, 166, 172, 196–7, 200, 210, 219letters to 218–19, 226, 227; and lawsuits 212–16, 249–50; sales of shares by 227–33 Huguenots 2, 25, 26 Huguetan, Jean-Henri 174, 190n Huguetan, Pierre 178–9, 183–8, 190n, 192, 195 Hume, David 7, 270–1, 272 interest rates 8, 66–7, 71, 129, 134, 138–9, 146 ‘invisible hand’ 6, 65 Ireland ; merchants from 2, 25, 59, 63n; Petty on 19–20see also Jacobites irredeemable debt 159, 163, 166–7 Italy 79, 82, 83 Jacobites 2, 11, 13, 24–6, 43, 45–6, 198 James II, King 2, 18, 24, 27, 109, 199 James III, Pretender 2, 45, 47, 110, 198, 199 James, Elizabeth 285–6, 294 Jansz, William Clermond 171 Jeffreys, Edward 196 Jernegan, Henry 122, 191 Jevons, Stanley 1 Jones, Edward 196 Journal des sçavans 306, 308, 310, 316 Journal de Verdun 308, 310 Kamen, Henry 28 Kaplan, Stephen 311 Kelly, Malachi 287–8 Kerry, Co. 18–20 Kincaid, Michael 117 King, Charles 313 Knipe, Sir Randolph 197, 198 Kramnick, Isaac 48 La Rochelle 94–5, 99, 100 La Salle, René Robert Cavelier 90, 91 Lablerie 240

334

INDEX

laissez faire 314 Lake, Bibye 234n Lally, Mr 213, 232 Lamoly, Jean Pierre 224, 226 Lamprier, Toussaint 222 land banks 69 landlords 6, 17–18, 49, 254, 259–60 large estate model 250–1, 253–4 Largillière, Nicolas 59, 200 Lastre, de 221–3 Laumeau, Marc 220, 223 Law, John ; and Cantillon 65, 73–5, 79, 127, 147, 157, 169–75, 187, 195criticized by 7–9, 139–40, 248–50, 274–9inﬂuence on 2–5, 43–4, 48, 59–60; and Duke of Chandos 80–1; and Lord Londonderry 117; and Louisiana expedition 88–101; economic theories of 65, 128–9, 269; monetary policies of 134–9; Controller-General 128, 150; duel fought by see also Mississippi System Law, William 112–16, 169, 175; and Cantillon 187, 195, 215, 232, 248–50, 295 Law’s System see Mississippi System Le Gendre Darminy, Joseph 71 Le Moyne d’Iberville, Pierre 90, 91 Leaves, John 37–8 Legac, Charles 100 Leigh, Theophilus 32 Leneve, Sarah 285–6 Levesque de Pouilly 48 liquidity 132, 152; Chandos’s lack of 175, 179–80, 192 Lock, William 196 Locke, John 263, 265 Loftus, Edmund 81–3, 125–7, 213, 219, 232 London Evening Post 284, 286–7, 291 London Gazette 284 London Journal 284, 290–1 Londonderry, Lord (Thomas Pitt) 112, 116–18, 185, 191, 209, 249 Louis XIV, King of France 2, 26, 34, 35, 54, 90, 198–9 Louis XV, King of France 310 Louvigny, Chevalier de 9, 291–3, 295 Lüthy, Herbert 56 Mably (Bonnot, Abbé de), Gabriel 311, 318 MacEnraghty, Abbé Maurice 216 MacKenzie, George 237–44, 296 MacKenzie, Kenneth 109, 211, 218, 224 MacNamara, Thomas and Daniel 59, 63n Machault d’Arnouville, Jean-Baptiste 311 macroeconomic viewpoint 6, 69–70, 260, 315–16 Maguire, Richard 196 Malesherbes, Chrétien-Guillaume de Lamoignon de 300–1, 304

Mar, Duke of 110, 239 Marches, Marquis de 213–14, 232 Marié, Louis-Dominique 92 markets 5, 252–8 Marlborough, Duchess of 29 Marlborough, Duke of 30, 31–2, 174 Marson, William 288–9, 294 Martin, Edward 290 Marx, Karl 252 Masham, Lady Abigail 29 Maxwell, Lady Henrietta 205 Maxwell, Robert (Viscount Farnham) 205 Medina, Sir Solomon de 31–2 Melon, Jean François 75 merchants 2, 25, 59; South Sea Co. petition 161–2 Mercure de France 88, 99, 128, 284 Mercure historique et politique 170–1 Mersit, Mary 289 Mezières, Marquis (Eugène-Marie de Béthisy) de 92 Middleton, George 117, 175, 192 Millet, Maître 226 Milner 30 minerals 89–90, 91, 98, 112, 267 Minsky/Kindleberger sequence 66–7 Mint, the ; and Mississippi Company 78, 79, 80, 88 Mirabeau (Riquetti, Marquis de), Victor 8, 81–2, 187, 195, 261 Mirbaise de Villemont 100 Mississippi Company 76–80passim, 129–32; share issues 77–9, 130; and Mint proﬁts 78, 79, 80, 88; and Louisiana expedition 88–101; ofﬁce of 131–2, 136, 137; decrees 136–9 Mississippi System 43, 57, 65, 69–75, 105–6, 134, 184–5, 239–40; and Cantillon 4–8, 48, 188, 214–16, 226–32profits from 75–85; and Louisiana expedition 88–101; share issues 71, 76–8, 129–31; failure of 128–54passim, 174faux pas 132–9exchange rate strategy 139–48decree of 21 May 148–53, 228; effects of 193, 209; inﬂuence on South Sea Bubble 158 Molagne, Thomas 296 Monetary Approach to the Balance of Payments 272–3

INDEX

monetary economy, theories of 5–8, 128–9, 252, 261–74 monetization 131, 138 money of account 132 money supply ; in Britain 159, 176; demand for 262–5; changes in 265–9; increases in 7, 77–9, 134, 139; and John Law 131–40passim, 144–7, 188 monopoly trading 67, 68, 71–3, 77, 90–1, 161–2 Montagu, Lady Mary Wortley 199–202 Montesquieu (de Secondat, Baron de la Brède et de), CharlesLouis 48, 199, 200–4 Montgomery, Lord (Edward Herbert) 106, 116–17, 120–2, 191–2, 210, 291; litigation against Cantillon 208, 209–10, 211, 218; speculations by 141–5, 229 Monthly Intelligencer 284 Moore, Francis 211, 217 Morellet, Abbé A. 304, 308, 311 Montchréstien (de), Antoine 237 Montigny, Trudaine de 311 Mouaque 242 Mussa, Michael 272 national debt 49, 50, 55, 66, 70, 128, 134 Neville, Colonel 28 New Orleans 99 Newton, Isaac 48, 191 Newton, Robert 196 Noailles, Duke of 55–7 Normand, Maître 225–9passim Notice historique, généalogique et biographique de la famille de Cantillon 11–12 Nouveau Mercure 88, 91, 99 O’Keeffe, Daniel 216–17 O'Mahony, Count Daniel 42–3, 198–9, 202 O'Mahony, David 251 O'Mahony, Mary Anne see Cantillon, Mary Anne Oglethorpe, Françoise-Charlotte 47, 92 option dealings 3, 183–7 overseers 254 Oxford, Earl of (Robert Harley) 44, 165, 168 Panmure, Lord 110 paper money see banknotes Pâris brothers 56, 195–6 Pas, Daniel Dias de 185 Patterson, William 69 Peachy, Bulstrode 196 Pels, Andries 3, 51, 146, 172, 182, 194; and Cantillon 10, 30, 51–2, 5861n Pembroke, Elizabeth 283, 285–7, 289 Percival, Lord 282–3, 287, 294 Petty, Sir William 19–20, 251, 252, 258–9, 263 Petyt, William 269 Philip V, King 34–5

335

Philip, Duke of Orleans 54–6, 69–70, 77, 110, 175 Pitt, Thomas see Londonderry, Lord Plumard de Dangeul, Louis-Joseph 305–6, 310–17passim Pompadour, Jeanne-Antoinette Poisson, Marquise (Duchess) de 305 Pope, Alexander 30, 108, 110–11, 167–8 Portugal 33, 34, 37–8, 267 Postlethwayt, Malachy 250 Power, Michael 224, 226 Powis family see Herbert, Lady Mary; Herbert, William (Duke of Powis); Montgomery, Lord Preston, Mary (Duchess of Powis) 109–10 Prévost, Abbé 47, 282, 286–7, 289 Price, Oliver 288 price-making 256–7 Prior, Matthew 53, 76 Prior, Thomas 27 proﬁteering 29–33, 37–9, 56, 173, 182–3, 195 Pulteney, Daniel 89, 107, 138, 140, 143, 152, 170, 172, 174 Pyot, Mr 105 Quesnay, François 1, 6–7, 260–1, 279, 307–8, 310–11 redeemable debt 159 rentes 129, 130 Ricardo, David 252 Rousseau, Jean Baptiste 48, 199 Rousseau, Jean Jacques 312 Royal African Company 30, 73, 158, 175, 180, 193 Royal Bank 73, 77–9, 128, 131, 134, 136, 147, 149–50; collapse of 193; in Essai 275, 278; Royal Economic Society 1; Royal Lustring Company 176 St John, Henry see Bolingbroke, Lord St Simon, Louis de Rouvroy, Duc de 117, 199 Salleron, Louis 251, 280n Sarsﬁeld 59 Saulnier, Adrien 225 Savary, Jacques 25, 127, 253 Schumpeter, Joseph 1, 260–1 scire facias, writ of 176, 177 Scotland 69, 269 Scott, W. R. 161, 167 Scouller, R. E. 31

336

INDEX

Senserf, John 58, 182 share prices 78, 151–3 shares, speculation in 77–82, 157, 176–7; Cantillon 75–82; Carol brothers 142; Chandos 30, 80–1, 125, 158, 179–82; Gage 83–4, 125, 140–3; Lady Mary Herbert 83–4, 106–22, 140–3; Lord Londonderry 117–18; in Mississippi System 73, 77, 105–6, 137–8, 152 Shuckburgh, John 211 silver see underspecie Skene, Major 113, 116 Smith, Adam 1, 6, 51, 251, 254, 279 Smith, Daniel Arthur 209 Smith, J. A. 297 Sommelsdijck, van 292–3 South Sea Bubble ; Company established 43, 49, 65–9, 71, 127, 147; shares issues 68–9, 163–5, 168–9; new plan 158–61; annuities conversion 166–8; government bribes 162–3; and Cantillon 4, 5, 48, 49, 82, 157–8, 188; and Chandos 30, 80, 157, 158, 175–83, 188; and Lady Mary Herbert 118, 165–6, 177; bursts 175–82; results of 192 Spain 26–7, 112, 267, 270 Spanish Succession, War of 3, 27–39passim, 43; Cantillon's activities in 34–9 specie 71, 89, 131, 246, 262; in Mississippi System 134, 137, 140, 148–52, 231; augmentations of 133–4, 137–8, 150; demonetrization 138–41; diminutions of 133–4, 137–41, 144, 146–50, 246 specie ﬂow mechanism 7, 8, 268, 270–4 Spengler, Joseph 1, 251, 261–2 Stahremberg, Field-Marshal 28, 34–5, 37–8 Stair, Earl of 92, 107, 108, 137 Stanhope, Charles 28, 34–5, 163 stock exchange 49, 65–7, 88–9, 105–6, 157, 167–9, 175–7shares, speculation in; Mississippi System; South Sea Bubble state intervention 65, 314–19 Suite de la clef 306 Surinam 9, 21, 283, 291–3 Swift, Jonathan , 46, 118 Sword Blade Company 163, 176, 178, 185 taxation 7, 56–7, 88, 128see also Visa Terry, James 12–13 Thelusson, Isaac 192 Thiériot, Nicholas 48 Tilham, Hughes 223 tobacco 88–9, 95, 98 Tonson Jacob 191 traded goods 7, 269–70 Trant, Olive (Comtesse d'Auvergne) 47, 61n, 92, 196, 198 Trant, Sir Patrick 47 Travers, Mr 224

Treadway, Timothy 196 Trevor, Robert 292–3 Tsuda, Prof. Takumi 308 Tucker, Josiah 306–7, 308, 313, 314 Turgot, Anne-Robert-Jacques, Baron de ; l'Aulne 308, 310–11, 313–14 Tutt, John 196 urbanization 264 usury 4, 5, 144, 212, 220–1, 224, 226, 247 Utrecht, Treaties of 43, 44 Vanderlint, Jacob 250 venture capitalism 167 Verdon, George 216–20, 224, 226, 230–2, 234n Vergnault, Mlle 241–2 Vernon, Mr 37–8 Vincent de Gournay, Jean-Claude Marie 9, 299, 304, 306–18passim; group of 304, 307–19passim Visa 53–6, 57, 71, 91, 131, 175, 195, 197 Voltaire, François 48 Walcot, Charles 37 Waldegrave, Lord 202–3, 291 Walpole, Horace 110, 162 Walpole, Horatio 292–3 Walsh, Thomas 59 Weekly Miscellany 284, 286 Welsh Copper Company 176 West, E. G. 251 Weulersse, Georges 311 White, John 218 White, Robert 297 wild geese see Jacobites Wilson, Edward , 237 Windham, Sir William 47 Woolmer, Charles 288 Wright, Broughton 122 Wymondesold, Matthew 196 York Buildings Company , 176