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Another fifty years and another monarch was about to lose not only his head but his throne. This time it was the turn of the King of France.
The French monarchy foundered on finance - in other words it went bankrupt.
Was this a natural outcome of over extravagance? Or was the ship of state deliberately guided towards the rocks?
John Law the son of a successful goldsmith was born in 1671. He went to London in 1692 and then to Amsterdam where the Dutch had improved on the Italian system of public debt. They had also reformed their currency and established the world's first central bank. Amsterdam Exchange Bank (the Wisselbank). Their greatest invention was the joint stock company and the stock market which followed.
Although the Dutch financial system was a revelation to Law, he felt that it was not complete.
Initially he tried his luck in Genoa and Venice and to the Scottish Parliament but it was in France he was given the chance to try out his system. Saddled with enormous debts from the wars of Louis XIV the government was on the brink of its third bankruptcy. In October 1715 Law's first proposal for a public note-issuing bank was put forward to the Council but was rejected because of opposition to Law's suggestion that the bank should also act as the Crown's cashier and receive all tax payments. But a proposal for a purely private bank was successful and the Bank Genérale was established in 1716 and licensed to issue notes payable in gold and silver for a twenty-year period.
Under Law's scheme the monarch would delegate his credit to a trading company into which all materials of trade in the kingdom were enmassed in one. In 1717 he also proposed a new Company of the West to take over France's trade with the Louisiana territory. In early 1718 the Parliament launched fierce attacks on Law's bank following the chaos caused by the 40% debasement of the coinage.
However in 1718 the Regent granted the Company of the West the right to collect all the revenues from tobacco, the privileges of the Senegal Company and the Bank Générale became the Bank Royale - the first French Central Bank. The Company of the West continued to expand. In 1719 it took over the East India and China Company to form the Company of the Indies. While in July Law secured the profits of the Royal Mint for a nine-year period. Law's expansion of the money supply with bank notes clearly did provide a much needed stimulus whilst he tried to convert the public debt into the equity of an enormous privatised tax-gathering monopoly trading company. He was appointed General Controller of Finances in charge of the collection of all France's indirect taxes, the entire French national debt; the 26 French mints that produced the country's gold and silver coins, the colony of Louisiana, the Mississippi Company which had a monopoly on the import and sale of tobacco, the French fur trade with Canada and all France's trade with Africa, Asia and the East Indies.
By September 1720 inflation was accelerating and prices in Paris were roughly double what they had been two years before as a result of the extraordinary increase in note circulation and the tinkering with the bank rates of gold and silver.
Law offered his resignation but was dismissed on the 29th May. The losses to France however were more than just financial. Law's bubble and bust set back France's financial development and for the remainder of the reigns of Louis XV and his successor Louis XV! the crown lurched from one abortive reform to another bankruptcy which finally precipitated revolution.
Jacques Necker started off as a clerk in a Swiss Bank of Issac Vernet at the age of 15. In 1750 he moved to the bank's Paris branch and by 1762 was made a partner.
After Turgot was dismissed from the Government in 1776 Necker replaced him as Director General of Finances. Following a policy of borrowing rather than raising tax to finance state expenditure, then exploding because of the American war, (once more it was war which inflated debt) Necker earned a good deal of popularity. However Necker's short-term high interest loans pushed the government closer to bankruptcy. Necker's reputation as a financial genius came from his 1781 report where by cooking the figures he made it appear that the French State account were in surplus. He was dismissed in 1781.
Despite the truly desparate condition of French State Finances, when Alexandre Colonne tried to bring in some of Turgot's old reforms there were howls of opposition and Necker entered into a very public confrontation in 1785.
In 1788 as bankruptcy loomed Necker was called back and he arranged a series of last minute loans but, realising that bankruptcy was imminent, Necker urged the convocation of the Estates General. It was upon the news of his removal that the population of Paris headed to the Bastille on July 14 1789.
Necker was appointed Minister of Finance by the new regime but went into retirement to his Swiss Estate soon afterwards.
Bankers indulged in a cheated system. They realised that they could issue more money than they had to back it up and not only that they could charge interest on it as well. This was the beginning of Fractional reserve banking or loaning out more money than there are assets on deposit.
In Paris, the Bank of France was created in 1800. Napoleon wanted France to break free from the power of the bankers and the debt. He said that:
"when the Government is dependent on bankers for money, the bankers not the leaders of the Government are in control."
And went on to say:
"The hand that gives is above the hand that takes. Money has no motherland. Financiers are without patriotism or decency. Their sole object is gain."
Today the central bank scam is really a hidden tax. The government sells bonds to the Central Bank to pay for things it does not have the political will to raise taxes to pay for. But the Bonds are purchased with money the Central Bank creates out of nothing. More money in circulation makes money worthless.
Capitalism is therefore built on shifting sands. It has to keep moving. Stagnant money spells disaster. Hence the constant call for "Economic Growth". For the bankers, for the financiers wars keep the ball rolling, the more destruction, the more mayhem the better because that requires more building, more borrowing, more interest ... And so to the United States:The United States before Federal Reserve
Naturally any dissenting voice had to be silenced: