The Royal Bank was now incorporated with the Company of the Indies, and the king remained guar rantee of the bank notes, of which none were to be fabricated in future, except in virtue of edicts of council. The profits which had been made by the bank since his- majesty had taken it into his .own hands, in December 1718, were given up to the com pany; and as they were supposed to be immense, the public entertained a high idea of the company's opu.
lence. At this period, the public credit of France was at its height ; but it soon experienced a reverse, that involved thousands in misery and distress.
Cardinal du Bois, and others of the ministry, who envied or detested Mr Law, represented to the re gent that it was necessary, to equalize the value of the parr currency and the coin, by either raising the denomination of the latter to 130 livres the mare, or reducing the former to one half. This absurd no tion prevailed in the council, and it was resolved to diminish the value of the bank notes, and the India Company's actions, that a just proportion between them and the coin might be maintained. For that purpose, an edict was issued on the 21st May 1720, ordering that shares in the company should be imme diately reduced to 8000 livres ; on the 1st July to 7500 livres ; on the 1st August to 7000 livres ; and so on by 500 livres a month till the 1st December, when they were to remain fixed at 5000 livres. It ordered also that bank notes should be reduced in the proportion as 10 is to 8; but that on the 1st of July they should be farther those of 10,000 livres to 7500, and so on monthly, at the rate of 500 livres, until the 1st December, when they should remain fixed.
This impolitic and disgraceful measure was ac companied with corresponding consequences. The notes lost all credit, and the Whole paper fabric, in a moment, fell to the ground. Mr Law's system was overthrown, and in its ruin, involved thousands who had converted their property into bank currency, on the faith of the declarations of government, which had solemnly engaged, that whatever alterations should take place on the coin, the bank notes should always remain invariable, and be paid in full.
At this time, the amount of notes in circulation were not less than 2,235,085,590 livres, and as they would not pass for any fixed value, the distress of the public became.extreme; so much so, that the people were driven almost to despair, and threatened the very existence of the government. To alleviate, in
some degree, the calamities, which the regent and his council bad so imprudently brought upon the coun try, the bank, which had been shut on the 27th May, under pretence of examining the accounts, was again opened on the 10th June for the payment of notes of 10 livres ; and notes of 100 livres *ere to be changed into small notes, but only one to be brought by each person coming for that purpose. The 17th July was appointed for the.payment of notes of 100 byres; but the concourse of people who wished to exchange notes was so great, and so many obstruc tions were thrown in their way, that a scene of riot and• confusion took place, which was. only suppressed by a military force.
To absorb, however, the immense quantity of pa per with which France was deluged, government had recourse to the plan of granting annuities to the hol ders of bank currency. Accordingly, 25,000,000 of perpetual annuities at the rate of forty years pur chase, and 4,000,000 on livres, at twenty-five years purchase, were constituted. Books of accounts cur rent, and transfers of 600,000,000 were opened at the bank, and in August, 8,000,000 more of perpe tual annuities, at the rate of fifty years purchase, were issued. By these methods, it was expected that 2000 millions of notes would be retired; but not withstanding the discredit of the paper currency, the ' unfavourable nature of the terms made several people hesitate. It was therefore thought necessary to pub lish an edict on the 15th August, that notes of 10,000 and 1000 livres should have no currency ex. cept for the purchase of annuities and bank accounts, or for the supplemental payments directed to be made on the actions ; and by a subsequent edict, all payments in notes were prohibited on the 1st of No vember 1720.
Thus terminated Mr Law's celebrated banking system, which, though founded on principles calcu lated to ensure its stability, could not resist the folly or perfidy of a despotic government. But France had reaped some advantage from its establish ment, in her agriculture, her manufactures, and com merce; and the people had in general become more industrious and better acquainted with the principles of trade, in consequence of the abundance of the cir culating medium, which this establishment had af forded.