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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.

Inhaltsverzeichnis

Frontmatter

Introduction

Introduction

In the English-speaking world most of the disastrous episodes of French financial history are little known. The one great exception is the Mississippi Bubble of 1719–20, but while it is often referred to by historians, economists and political commentators, the longer-term developments and crises that helped to make it possible remain shrouded in obscurity. Yet John Law’s System of those years was both thinkable and deemed necessary because of the War of the Spanish Succession, the great conflict for the Spanish Habsburg inheritance that raged across much of western and southern Europe between 1701 and 1714. During this war the British ‘financial revolution’, for all its limitations, was reaching a degree of solidity and stability that allowed it to power not only Queen Anne’s war effort but make significant contributions to those of several of her allies. Less happily, on the other side of the divide Louis XIV’s France — the goliath of the international stage — was burdened with the crippling task of defending the Spanish lands acquired by Louis’s grandson, Philippe, duc d’Anjou, while the financial machinery at the service of the Bourbon kings to support their defensive endeavours was considerably less efficient than that across the Channel. Primarily, what France had going for it was its demographic and economic size, and its enormous trading and financial links with other European countries.
Guy Rowlands

France, Foreign Exchange and the Logistics of International Remitting

Frontmatter

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.
Guy Rowlands

2. The Logistical Geography of French Remitting

International exchange and remitting in the seventeenth and eighteenth centuries was not so much a matter of country-to-country transfers and currency swaps as deals between people in different cities and towns. Remittances could be inland, that is, involve the transfer of funds by bill of exchange from one city to another within the same currency zone; or be international, between two cities in different currency zones. This was a reflection of how the exchange system had developed around bulk trading, luxury goods trading and wholesale merchant activity, all of which were centred overwhelmingly in the bigger towns and cities of Europe. Nevertheless, while big traders functioned mainly in urban locations, armies abroad campaigned over larger territories, and their sovereign commanders needed to send money from home cities to a changing variety of urban centres in multiple theatres of conflict. This chapter will therefore lay out the key locations for French war-related remitting, the nodal points in and outside France from which further onward financing of the armies could occur. It will then look more closely at the ‘remittance corridors’ (to use the modern expression) down which French money travelled, and identify some of the most important individuals based in other countries for providing money for Louis XIV’s military machine. What is remarkable is the use of urban centres across not only western and southern Europe, but also further afield in the east.
Guy Rowlands

3. The Price of Foreign Exchange

During the seventeenth and eighteenth centuries setting exchange rates, and particularly setting the price of ‘forward exchange’ contracts, was an inexact science, if not a capricious matter, based on subjective judgements about a range of relevant factors. It was also a very opaque business that threatened to ramp up charges upon remitters. Even in the present day The Economist magazine, referring to foreign remitting, stated baldly that ‘Margins are so fat because pricing is far from transparent.’1 Given that bankers 300 years ago operated under far less scrutiny and regulation from the state, and the single most important determiners of prevailing exchange rates were the secretive currency brokers with their unrivalled knowledge of financial flows, it is hardly surprising that exchange prices could be extortionate and that margins for Louis XIV’s bankers were at times morbidly obese. A lot of the margin was necessary to provide protection against severe risks or as compensation for losses — supposed losses, at any rate. But large profits do seem to have been made. Despite the limited evidence still available, the pages ahead will try to explain why foreign remitting cost the Sun King so much during the War of the Spanish Succession. Many places in Europe published exchange rates, in some cities on a daily basis, but what really mattered for remitters — and for the French state — was not the published trading price of currencies but the settlement price that was agreed upon and often raised in the course of the remitting process.
Guy Rowlands

The Road to Ruin: French Remittance Banking in the War of the Spanish Succession

Frontmatter

4. The Gathering Storm: The Development of a Remittance System, 1700–06

When Philip V ascended to the Spanish throne in November 1700 the French government needed to move swiftly to ensure it could remit funds to support French forces that were, within a few months, deploying across the Spanish Monarchy’s lands. This was not going to be a matter of spasmodic, ad hoc transfers of money abroad, as it had been in the Nine Years’ War, although nobody at first was sure of the volume of remittances that would be needed. By spring 1702 it was, however, abundantly clear that huge sums were required and Louis XIV and his ministers would need to work very closely, year on year, with the strongest bankers, securing their services in a planned manner to ensure that his strategic goals — largely defensive ones — would be achieved. Part II of this book will therefore consider how the king and his ministers interacted with the leading bankers, what means the bankers used to support their operations, and how the pressures placed upon the banking system both by the king’s demands and by the manipulations of the bankers brought the French state’s entire remittance edifice crashing down in 1709.
Guy Rowlands

5. Overloading Atlas: Samuel Bernard and the Crisis of French Banking

In the immediate aftermath of the Huguetan affair Bernard was so overextended, thanks to the crisis and the deterioration of government revenue streams, that he came to fear his bills of exchange would be protested. He was operating in advance of payment by some 33 million livres in the summer of 1705, and his correspondents were demanding either more solid guarantees or payment up to three months in advance. This was a structural gap in war-effort-related remitting that would not shrink significantly for as long as funds needed to be sent abroad on a large scale. Bernard faced a dire situation. By the end of the year Venetian, Genoese and Milanese military officers were willing to provide one million livres to the French army of Lombardy, but were refusing to have anything to do with Bernard. In March 1706 Bernard was forced to give up his contract to supply money to French forces in Spain, and he explicitly grieved that he was being treated with far less confidence than in his previous five years of service. His lamentations that he was no longer getting the revenue instruments he wanted continued into 1707, when he exclaimed, ‘I would not have been able to imagine that after five years of service I would have attracted less confidence than that which Monseigneur [Chamillart] had in me from the start, and notably in 1702.’
Guy Rowlands

Conclusion

Conclusion

For most French people it touched, the War of the Spanish Succession was a disaster, or at least it blighted more than a decade of their lives. But there were some men who did rather well out of the war, to borrow an expression. What form did this take? Much of the money made by Samuel Bernard and the other bankers who escaped the wreckage of Lyon was invested in financial instruments, which were vulnerable to fluctuations in value. But the paper-related world of the financiers and bankers was not so clearly demarcated from that of the land-based fortunes of the French greater nobility by the end of Louis XIV’s reign as it had been at the beginning. And the extreme pressures and opportunities of the War of the Spanish Succession had greatly accelerated this process. As part of their drive to enhance, protect and embed their fortunes, bankers like Bernard invested a great deal not just in more solid trading ventures but also in acquiring respectability. For those who had converted to Catholicism it was especially important that their choice of religion should be accompanied by greater social acceptance. It is not surprising, therefore, that these men — like foreigners who had come to France to seek their fortune in the service of great families or the king — were ambitious social climbers who bought into the culture of the court and the high aristocracy.1
Guy Rowlands

Backmatter

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