Chap. XXIII: Of the first Establishment of Mr Law's Bank in France, in the year 1716

In deducing the principles of credit, I have it chiefly in view, to set in a fair light, the security upon which paper money is established: and as I imagine, this important branch of my subject will still be rendered more intelligible, by an example of the abuse to which this great engine of commerce is exposed, I now propose to give my reader a short account of the famous bank of circulation first established in France by Mr Law; but afterwards prostituted (whether by design, or by fatality, I shall not here determine) to serve the worst of purposes; defrauding the creditors of the state, and a multitude of private persons.

So dreadful a calamity brought upon that nation, by the abuse of paper credit, may be a warning to all states to beware of the like. The best way to guard against it, is to be apprised of the delusion of it, and to see through the springs and motives by which the Missisippi bank was conducted.

After the death of the late King of France, Louis XIV, the debts contracted by that Monarch were found to extend to 2000 millions of livres, that is, to upwards of 140 millions sterling.

It was proposed to the Duke of Orleans, regent of the kingdom, to expunge the debts by a total bankruptcy. This proposal he rejected nobly; and, instead of it, established a commission (called the Visa) to inquire into the claims of such of the nation's creditors as were not then properly liquidated, nor secured by the appropriation of any fund for the payment of the interest.

In the course of this commission, many exorbitant frauds were discovered; by which it appeared, that vast sums of debt had been contracted, for no adequate value paid to the King.

After many arbitrary proceedings, this commission threw the King's debts, at last, into a kind of order.

Those formerly provided for were all put at 4 per cent. The creditors to the amount of six hundred millions, which had not been liquidated, nor provided for, had their claims reduced, by the commission, to two hundred and fifty millions. for which they obtained notes of state, (Billets d'état, as they were called,) bearing an interest of 4 per cent also.

These operations performed, the total debts of the late King were reduced to the sum above mentioned; to wit, two thousand millions; bearing an interest of 4 per cent or eighty million per annum.

From the necessities of government, and the distressed situation of the kingdom, this interest was ill paid; and there hardly remained, out of an ill-paid revenue, wherewith to defray the expence of the civil government.

About this time, Mr Law presented to the Regent the plan of a bank of circulation.