Dangerous and Dishonest Men: The International Bankers of Louis XIV's France

G. Rowlands

• Publisher: Palgrave Macmillan
• Year: 2014
• Print ISBN:
  9781137381781
• eBook ISBN:
  9781137381798
• Topic: Business
• Subtopic: Financial Services
• Index: Business

At the start of the eighteenth century Louis XIV needed to remit huge sums of money abroad to support his armies during the War of the Spanish Succession. This book explains how international bankers moved French money across Europe, and how the foreign exchange system was so overloaded by the demands of war that a massive banking crash resulted.

Part I

France, Foreign Exchange and the Logistics of International Remitting

1

The French Monarchy and the Foreign Exchange System in the Era of Louis XIV

If the financial and administrative arrangements inside the treasury of the Extraordinaire des Guerres and surrounding the other fisco-financiers were fairly secretive, they were at least under some degree of ministerial supervision and scrutiny. Accounts, though sometimes presented years after the duty-year, were scrutinised in an effort to suppress excessive profiteering, while intendants and generals directed and maintained a watching brief over the fisco-financiers and their agents. Moreover, the first rank of fisco-financiers needed the continued support and patronage of the contrôleur général des finances, in spite of enjoying a degree of autonomy in the management of their ongoing operations. Their operations may not have been wonderfully clear to accounting experts, and they may have been able to manipulate financial instruments in their own favour, but it was far easier to keep these men in check than it was to control the international bankers upon whom the French monarchy came to depend for fuelling its continent-wide war effort during the Spanish Succession conflict. To appreciate why this was so first requires an understanding of the fundamentals and framework of the foreign exchange system in the era of Louis XIV.

The Development of International Banking to c.1700

In the seventeenth and very early eighteenth century bankers in western and central Europe could offer a variety of services, acting most notably as lenders, giro processors, deposit holders, paper emitters, paper and specie discounters, and remitters.¹ Most bankers tended to avoid the giro business, most tended to act as lenders in one way or another, and most were willing to purchase commercial instruments at a discount from their nominal value prior to their maturity. Most importantly, although the banking community offered a variety of services, bankers specialised in the remitting of money from one location to another, at the request of clients. A banker, indeed, was considered synonymous with a ‘cambiste’ and was defined by one of the leading contemporary experts in the field as someone ‘who does Change from place to place, and who makes circulate funds by means of drafts and remittances. The Cambistes have commissioners in foreign lands who receive their orders, and who draw and remit Bills of Exchange on diverse places on their account.’² How this world came into being is worth brief consideration.

By the early sixteenth century merchant banking was becoming solidly established in central and western Europe, having grown up since the thirteenth century in association with annual rounds of regional and even continental trade fairs. Because it would be too difficult and dangerous to transport large quantities of specie to conclude transactions, techniques were developed for the settling of accounts over large distances, most notably the bill of exchange, and in the second half of the fifteenth and first half of the sixteenth centuries financial fairs became essential for the interplay between bills and specie.³ The exchange system in the sixteenth century lacked extensive interconnection between financial/commercial centres, with few such places practising direct exchange on all or even on most of the others, but the links slowly developed, especially in the seventeenth century. Networks of correspondents gradually emerged, propagated particularly by Tuscan and German merchants, and as their capital grew they made more and more loans to princes and republics, or acted as remitters for state funds. Particularly notable were the Strozzi working for the Medici popes, and the Fuggers of Augsburg and great Genoese merchant-banking houses providing services for Emperor Charles V and his descendants Philip II, Philip III and Philip IV of Spain.⁴ However, there was always a risk the bankers would be overstretched, either through their own recklessness or because princes would make excessive demands for loans that they were increasingly unlikely to pay off, or even, as the load mounted, pay the interest on. Through such bad faith had the Medici bank been heavily bruised in the 1470s and 1480s and the Fugger family been brought low in the 1560s, while the Genoese suffered similarly in the years 1607–09 and 1627–29.

Recent work has, however, argued that pre-modern sovereign debt defaulting was not always the reason for the crash of international financiers. This was especially the case when financiers based their operations on commodities trading and commercial monopolies granted by princes whose revenues they collected, for back in the early fourteenth century international financier networks were qualitatively different from later bankers, in that they ran widely spread trading operations based on sourcing and marketing goods, deriving large profits from this more than from interest on loans.⁵ By contrast, the great banking houses that emerged in the fifteenth century invested in manufacture and mining, loaned large sums at interest and were concerned, by the mid-sixteenth century, with remitting on a grand scale, even if they also received payments in the form of monopolies and privileges like earlier financiers. By the later sixteenth century, bond flotations, currency provision across Europe, straightforward lending and interest payments had assumed a much bigger place in sovereign debt arrangements involving international bankers. A century later, in the era of Louis XIV, bankers were certainly heavily involved in trade, as we shall see, but their principal service to governments was the provision of foreign exchange and the remitting of funds.

The remitting system developed as the banking world evolved. Lyon dominated international remitting and settlement for much of the sixteenth century, but it encountered severe difficulties from the early 1570s, while Piacenza – whose fairs were known by the name of ‘Bisenzone’, reflecting their earlier incarnation in Besançon – became more important up to the early 1620s in terms of volume of money moved. The seventeenth century would see an acceleration and expansion of foreign exchange activity, as the banking cartels that had so dominated operations in the previous century faded,⁶ and as the number of bills of exchange issued greatly increased. Partly in consequence, the remitters working on behalf of states after c.1630 were much less concerned with the movement of actual coins.⁷ Furthermore, international remitters in the second half of the seventeenth century did not emulate the earlier Genoese practice of placing the swapping of gold and silver at the heart of their acquisition and movement of money for the Spanish monarchy through ‘Bisenzone’ and Antwerp. The banking landscape by the mid-seventeenth century had, in any case, been much altered from a century earlier. Between the 1580s and 1620s state, or publicly chartered, banks sprang up in Venice, Genoa, Milan, Hamburg and Nuremberg, all intended to act as clearing banks for bills of exchange, thereby mitigating the problem of weaknesses in the quantity and quality of coinage. In time they also came to assist in the management of the debt of their host cities.⁸

Easily the most important such institution set up to stabilise monetary affairs was the Wisselbank, established in 1609 in Amsterdam, a city that became increasingly important from the middle of the Thirty Years’ War as the centre for European merchant banking. As it played an important (though obscure) role in channelling French money during the 1700s, a few words on this bank are needed. From its foundation, bills of exchange payable in Amsterdam and worth over 600 florins (reduced to 300 florins by 1700) had to be settled through the Wisselbank and the accounts it kept for people. Deposit accounts held by individuals were denominated in bank money known as florins banco or bankgulden (guilders), which were usually worth more than the ‘current’ coin money, florins. The premium on bank money over current money, the ‘agio’, was historically anywhere between 1.5 and 13 per cent, and usually around 4.5 to 5 per cent, so anyone wanting to withdraw coin from the Wisselbank had to accept this small loss. However, important transactions would be carried out more and more by means of giro transfers between accounts on its books. Indeed, international flows of funds were at the core of the bank’s activities. Bills of exchange were credited in the books in bank money, and the Wisselbank acted as a moneychanger for any currency or bullion. Private cashiers and moneychangers would station themselves outside the bank – which was located in the Amsterdam city hall – for negotiating the agios and swapping bank money for cash, and they seem to have been among the big traders in bills of exchange before a purchaser finally deposited them in the Wisselbank. As the century wore on a growing number of transactions not linked to the Low Countries were also settled by bills of exchange payable at the Wisselbank, and the volume of such settlements and giro transfers only increased as foreigners opened accounts.⁹ By 1688 the reputation of the Wisselbank as a rock-solid institution, confirmed by its solvency during the 1672 French invasion that reached almost to the walls of Amsterdam, was so great that one could always find people across Europe willing to accept a bill of exchange drawn in Dutch guilders. The specie reserves rose from an average level of 4.5 million guilders in 1676–80 to some 11.4 million in 1696–1700, and the number of depositors grew by around one-third from 1671 to 1701, in part at least because of the Huguenot diaspora trickling out of France. It also greatly helped Amsterdam to achieve preponderance in European foreign exchange that the city maintained freedom in the import and export of bullion and specie, unlike almost anywhere else, and that information was much more freely available here than elsewhere.¹⁰

As a natural consequence, over the course of the seventeenth century the increasingly secure framework of Amsterdam’s finances encouraged merchants to develop large-scale private deposit and giro banking, as well as to offer brokering and the discounting of commercial paper, especially bills of exchange. What greatly assisted governments and their financial contractors in the 1700s was the emergence in Amsterdam at the end of the seventeenth century of international ‘acceptance credit’. ‘Acceptance houses’ were financial firms specialising in the acceptance and discounting of foreign bills of exchange. They granted permission to a client to issue bills of exchange with a guarantee that the acceptance house would pay the bill, if necessary. In other words, until the client covered the bill, the acceptance house was providing him with credit. This ‘acceptance finance’ could spring up in Amsterdam also because merchants and bankers there were often wealthier (or had access to more money at a cheaper rate) than the people living elsewhere for whom they acted.¹¹

Although Amsterdam was dominant in European foreign exchange by 1700, it was not overwhelmingly so. In fact, Amsterdam’s supremacy could be said to have lasted for only a generation, between c.1670 and 1700, when Lyon was relatively somnolent and before London became a significant challenger. Furthermore, as trading connections had developed over the course of the seventeenth century, and especially after 1650, Europe entered a world of multilateral foreign exchange dealing and settlement. For traders this made it much easier for balance-of-payment problems to be resolved, as debts were settled in one place by drawing on one’s own debtors in another place and charging them with paying outstanding balances. For governments, as Adam Smith noted, the growth in exports that helped stimulate multilateral settlement systems had one benefit in particular: foreign exchange could be more easily found for remitting funds abroad for military and diplomatic purposes – and to locations much nearer to where such sums needed to end up than had previously been possible.¹²

What did all this mean for France and the French state during the seventeenth century? Worth considering briefly is the matter of foreign remitting before Louis XIV’s ‘personal rule’. In the course of the Thirty Years’ War (1618–48) and the Franco–Spanish War (1635–59) the French monarchy was able to make use of the developing banking scene, most notably for transmissions of subsidies to allies like the Swedes fighting in Germany. But, although there was a need for remitting to French forces in northern Italy, in the period after 1635 there seems to have been much less international remitting than there would be in the 1700s. This was in part because French armies were operating quite close to or on France’s frontiers for the most part, and campaigning and garrison armies abroad were much smaller than in the early eighteenth century. The most important bankers for France were Jan Hoeufft, a naturalised French subject from the Spanish Netherlands, who was critically important for getting French money to Amsterdam, for passing on to armies and allies abroad in 1635–45, notably to the great German condottiere, Duke Bernhard of Sachsen-Weimar. Also vital for funding Bernhard was Barthélemy Hervart, a Lyon banker of Augsburg origin who played upon the extensive trading relations between these two cities. After Bernhard’s demise Hervart continued to be important for sending funds into Germany in the 1640s, though his role was more of an unofficial military paymaster and obtainer of foreign loans than a remittance banker. He continued to provide massive loans to Cardinal Mazarin’s government in the 1650s but the volume of money he channelled for the crown was much less than the bankers moved in the 1700s. Moreover, much of Hervart’s credit-raising took place in a hurry, while the contracts agreed by France’s principal remittance bankers in the War of the Spanish Succession were, as we shall see, better planned and contracted for.¹³ Of equal if not greater importance for Mazarin was Thomas Cantarini, of Lucchese origin, the most significant banker of the Frondes era, the period between 1648 and 1654 when France was rocked by civil war. With Cantarini we see an early and tight association of a banker with the treasury of the Extraordinaire des Guerres, a foretaste of the 1700s. As it happens, Mazarin himself was one of the formal associates of Cantarini, possessing a 50 per cent share in his business, reflecting the cardinal’s role as the biggest ever entrepreneurial contractor for the French state.¹⁴ Half a century later bankers may have remitted more money for the state but they were not so directly linked with ministers. After the Franco–Spanish War ended in the Peace of the Pyrenees France certainly exported funds, generally in the shape of subsidies to German princes, Sweden and England, especially to purchase neutrality in the 1660s to 1680s, but the sums were small beer compared to those of the 1700s.

In the second half of Louis XIV’s ‘personal rule’ the state’s ability to get foreign exchange greatly increased, in part reflecting the growth in French domestic banking and its foreign correspondences. Ironically this owed a good deal to Louis’s persecution of his Huguenot subjects, culminating when he finally withdrew all religious rights from Calvinist dissenters through revoking the edict of Nantes in 1685. By that time Huguenots were no longer allowed to be major receivers of royal revenues, or traitants, so they had either converted, gone into exile or devoted their energies to trade and merchant-banking. The king was aware that the revocation of the edict of Nantes threatened to ruin trade and drive Huguenot merchants and bankers abroad, so he had ordered his officials to tread carefully with them, but even so, enough of them found the new situation so intolerable that they fled F...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• Preface and Acknowledgements
• List of Abbreviations
• Maps
• A Note on the French Coinage
• Introduction
• Part I France, Foreign Exchange and the Logistics of International Remitting
• Part II The Road to Ruin: French Remittance Banking in the War of the Spanish Succession
• Appendix Principal Patterns of Bill of Exchange Transmission and Settlement
• Notes
• Select Bibliography
• Index