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Author: 
 
 Liesse, Andre 
 
 Title: 
 
 Evolution of credit and 
 banks in France from.. 
 
 Place: 
 
 Washington, D.C. 
 
 Date: 
 
 1909 [1910] 
 
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 Liesse, Andre, 1854- 
 
 ... Evolution of credit and banks in France from the 
 founding of the Bank of France to the present time, by 
 Andre Liesse . . . Washington, Govt, print, off., 1909 [1910] 
 
 267 p. fold. tab. 23"". (U. S. 61st Cong., 2d sess. Senate. Doc. 522) 
 
 At head of title : National monetary commission. 
 
 Issued also, 1911, in Publications of National monetary commission, 
 vol. XV. [no. li 
 
 1. Banks and banking — France. 2. Credit — France. 
 I. U. S. National monetary commission, ii. Title. 
 
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 SENATE 
 
 / Dccj z.r r 
 \ No. 522 
 
 NATIONAL MONETARY COMMISSION 
 
 .■^ 
 
 Evolution of Credit and Banks 
 
 in France 
 
 From the Founding): of the Bank of 1 nnce 
 to the Present Time 
 
 BY 
 
 ANDRE LIESSE 
 
 PROFESSOR AT THE CONSERVATOIRE NATIONAL Dt: . H ET MF/'JfeRS 
 ANU AT L'ECOLE DES SClENChS POLITIQUES.— MEj\. - ' R OF T 
 INSTITUT ;NTtRNAllONAL Dr STA'I ISTluUt , h IC 
 
 Washington : Government Printing Office : 1909 
 
 #^ 
 
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 ^W 
 
 // 
 
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 Columbia (Hnitoe wftp 
 
 mtfteCilpofUrtogdtk 
 
 LIBRARY 
 
 School of Business 
 
 I 
 
61ST Congress ) 
 2d Session } 
 
 SENATE 
 
 f Document 
 \ No. 522 
 
 NATIONAL MONETARY COMMISSION 
 
 Evolution of Credit and Banks 
 
 in France ^ 
 
 From the Founding of the Bank of France 
 to the Present Time 
 
 BY 
 
 ANDRE LIESSE 
 
 PROFESSOR AT THE CONSERVATOIRE NATIONAL DES ARTS ET METIERS 
 
 AND AT L'ECOLE DES SCIENCES POLITIQUES.— MEMBER OF THE 
 
 INSTITUT INTERNATIONAL DE STATISTIQUE. ETC. 
 
 Washington : Government Printing Office : 1909 
 
_iiu-5. 
 
 5 
 
 d 
 
 TABLE OF CONTENTS. 
 
 NATIONAL MONETARY COMMISSION. 
 
 Nelson W. Aldrich, Rhode Island Chairman. 
 Edward B. Vrbbi«and, New York, Vice-Chairman. 
 
 Julius C. Burrows, Michigan. 
 EuGBNB Halb, Maine. 
 Philander C. Knox, Pennsylvania. 
 Thbodore E. Burton, Ohio. 
 John W. Daniel, Virginia. 
 Henry M. Tbllbr, Colorado. 
 Hernando D. Money, Mississippi. 
 JosBPH W. Bailey, Texas. 
 
 Jesse Ovrrstreet, Indiana. 
 John W. Weeks, Massachusetts. 
 Robert W. Bonynge, Colorado. 
 Sylvester C. Smith, California. 
 Lemuel P. Padgett, Tennessee. 
 George F. Burgess, Texas. 
 Ars&nb p. Pujo, Louisiana. 
 Arthur B. Shelton, Secretary. 
 
 A. Piatt Andrew, Special Assistant to Commission. 
 
 Lex 
 
 Page. 
 Preface : Purpose and arrangement of this study 5 
 
 Part. I. 
 
 THE BANK OF FRANCE AND THE DEVELOPMENT OF CREDIT, 1800 
 
 TO 1848. 
 
 Introductory y 
 
 Chapter I. — Founding of the Bank of France 16 
 
 II. — The charter or privilege of the Bank of France — Crisis 
 
 of 1805 26 
 
 III. — The fundamental statutes of the Bank of France — It 
 comes into closer relations with the State, 1806- 
 1814 — Panic of 1814 ^ 32 
 
 IV. — ^The Bank under the Restoration — ^Founding of depart- 
 mental banks _ 43 
 
 V. — ^The Bank under the Monarchy of July — Founding of 
 comptoirs or branch offices, and the competition with 
 departmental banks 47 
 
 VI. — ^The beginnings of th^ railroad industry — The panics of 
 1846, 1847, 1848 — The departmental banks of issue 
 are incorporated with the Bank of France, which 
 
 becomes the sole bank of issue 54 
 
 VII. — A brief survey of the general course of business in the 
 first half of the nineteenth century in France — 
 Credit and industrial beginnings 66 
 
 Part II. 
 
 THE BANK OF FRANCE— THE CREDIT MOBILIER— THE FIRST COMP- 
 
 TOIR D'ESCOMPTE. 
 
 Introductory gj 
 
 Chapter I. — The Bank of France, sole bank of issue — Its operations 
 with the State — Founding of establishments called 
 "Haute Banque" — Industrial loans and speculation. 83 
 II.— The Soci6t^ G^n^rale du Credit Mobilier and the Pereires, 
 
 i853-i866__ _ 96 
 
 III. — ^The first Comptoir d'Escompte and the development of 
 commerce — The laws of May 23-29 and July 24, 
 
 1867, on companies 109 
 
 IV. — ^The Bank of France from 1 860-1 875: 
 
 I. Before the Franco-Prussian war 125 
 
 II. The Franco-Prussian war and its results 137 
 
 III. The great loans and the payment of the war 
 
 indemnity 150 
 
 3 
 
 ^'k^ 
 
 V 
 
National Monetary Commission 
 
 Part III. 
 
 FROM 1875 TO THE PRESENT TIME. 
 
 Page. 
 
 Introductory - — i6i 
 
 Chapter I. — The situation of France after the war — A glance at the 
 
 development of saving and savings institutions 165 
 
 II. — ^The crises of 1882 and 1889 — A brief outline of the 
 operations of the Bank of France, 1 875-1 889 — The 
 
 Comptoir d'Escompte 170 
 
 III. — ^The crisis of 1890-91 — Intervention of the Bank of 
 
 France in behalf of the Bank of England _ 187 
 
 IV. — ^The credit companies and their development — Ex- 
 tension of their operations — ^Their general method — 
 
 Their present situation 193 
 
 V. — ^The credit companies and the local banks 217 
 
 VI. — ^The Bank of France — Renewal of its privilege — Present 
 
 situation — Its r61e in the crisis of 1906-7 224 
 
 General conclusions __ — - - 235 
 
 Appendices. 
 
 I. — Note on the Credit Foncier de France 241 
 
 II. — Note on the Credit Agricole Mutuel _. 255 
 
 PREFACE. 
 
 The object of this study is to afford a connected view 
 of the basic facts and most noticeable features of the 
 credit system and banks in France from the year 1800 to 
 the present time. It is designed, therefore, not as a history 
 in which multipUcity of detail is apt to obscure a view of 
 the subject as a whole, but as a coordinated outline of the 
 successive stages in the development of credit and of the 
 institutions which distribute it. 
 
 This outline is divided into three very unequal periods: 
 
 The first — a period of beginnings, of slow growth, Of 
 formation, during which the Bank of France succeeds 
 in gaining a complete monopoly — extends from the foun- 
 dation of that establishment until about 1848. 
 
 The second and shorter period is a time of transition. 
 It extends from 1848 to about 1875. During these 
 twenty-five years new institutions and new forms of credit 
 associations make their appearance. Better laws facili- 
 tate the organization of these credit associations as well 
 as of all kinds of associations, both industrial and com- 
 mercial. It includes the war of 1870-71 and its immedi- 
 ate results. This event seems to have hastened the 
 development of the credit system or at least to have 
 given it a stimulus, arising from the consequent reaction 
 against the misfortunes which had overwhelmed the 
 country. France begins to recover and finds, in her sturdy 
 
National Monetary Commission 
 
 spirit of economy and her ability to save, the elements 
 productive of new vigor and potency. 
 
 The third period, which might be called the period of 
 full maturity, extends from 1875 to the present time. In 
 this interval the organization of the credit system is put 
 on a firm footing as the result of a centiuy's evolution. 
 
 In this evolution the various critical movements are 
 described and explained — the political, economic, and 
 financial crises — constituting, as it were, the pathological 
 growth of the credit system and banks in France. 
 
 The study is supplemented by the addition of two 
 appendices, of which the first portrays the development of 
 the Credit Foncier and its results, while the second out- 
 lines the rather recent organization of the Credit Agricole; 
 thus completing a series of observations, impartially set 
 forth, and designed to assist speciaHsts seeking the solu- 
 tions of problems along these lines. 
 
 Andr6 I/IESSE. 
 
 Paris, March jo, igog. 
 
 EVOLUTION OF CREDIT AND BANKS 
 IN FRANCE FROM THE FOUND- 
 ING OF THE BANK OF FRANCE 
 TO THE PRESENT TIME. 
 
 Part I. 
 
 THE BANK OF FRANCE AND THE DEVELOPMENT 
 
 OF CREDIT, 1800 TO 1848. 
 
 EVOLUTION AND DEVELOPMENT OF CREDIT AND CREDIT 
 INSTITUTIONS IN FRANCE FROM THE YEAR 1800. 
 
 INTRODUCTORY. 
 
 Law's bank.— The bank compromised in certain undertakings.— Failure of Law's 
 bank and "system."— The liberty of issuing bank notes in France from 1721 on.— 
 The Caisse d'Escompte.— Dangerous relations of the Caisse d'Escompte with the 
 State.— Its difficult situation.— Its liquidation.— Commercial banks during the Rev- 
 olution.— Prudence of the commercial bankers.— Founding of free banks of issue, 
 1796-1800.— The Caisse des Comptes Courants, 1796.— Conditions of discount.— 
 Its issues.— A difficulty overcome.— The Caisse d'Escompte Commercial, 1797.— 
 Origin and nature of this establishment.— Capital.— Issue.— The Comptoir Com- 
 mercial, 1800.— General Commercial Association of Rouen, 1798.— Services per- 
 formed by these banks of jssue during the last few years of the eighteenth 
 century. 
 
 The son of a Scotch banker named Law succeeded in 
 obtaining from the Regent on May 2, 1716, permission to 
 organize a bank of issue. It was called the Banque 
 Generate, and was opened the following month. If 
 Law, the president of the bank, had kept within 
 the normal bounds of operations of banks of this 
 kind, it is probable that he would have rendered a 
 real service to commerce and industry. Instead of this, 
 he soon associated the bank with vast and uncertain 
 
National Monetary Commission 
 
 enterprises aimed at the exploitation of the colonies; 
 and presently the Banque G^n^rale was brought into 
 closer relations with the State, and on Jime 4, 1718, took 
 the name of the Banque Royale. All the departments 
 of private and public finance fell into Law's hands. The 
 issue of bank notes by the bank and the issue of shares 
 by the different companies that he founded soon became 
 an abuse. Neither bank notes nor shares represented in 
 reality any certain value. Stock-jobbing and wild specu- 
 lation hastened the downfall of what was called Law's 
 system. The Banque Royale closed its doors in 1 721, and 
 the various companies founded by Law were liquidated at 
 great loss. It was a disaster which caused the ruin of a 
 large number of people. The memory of this failure 
 remained fresh in the minds of all classes of people, even 
 the poorest, during the whole of the eighteenth centtuy, 
 and it was a long time before any one dared to found 
 another bank of issue. 
 
 Although the monopoly which Law had obtained from 
 the Regent in 1716, namely the exclusive right to issue 
 bank notes, had been abolished in 1721 by an edict which 
 gave the right of free issue. 
 
 Not until fifty-five years later did anyone try to organize 
 a bank of issue; even then the establishment was not 
 called a bank, so closely was the name associated with 
 Law's failure. On March 24, 1776, when Turgot <» was 
 Minister of Finance, Planchaud and Clouard, the first a 
 Swiss, the second a Scotchman, founded a bank of issue 
 
 o In 1767 an attempt was made to found a bank of issue to which the 
 name of Caisse (TEscompte was already given, but as a matter of fact it 
 did not go into operation. 
 
 Evolution of Credit and Banks 
 
 imder the name of Caisse d'Escompte, This concern 
 was chartered as a limited liability partnership {sous 
 forme de commandite), and, after some difficulties at the 
 start, succeeded in doing a moderately good business. 
 However, it was not long before the Comptrollers of Fi- 
 nance, d'Ormesson first and afterwards Calonne, being 
 short of money, borrowed from it. From this moment 
 dates the first blow to the soundness of the credit of the 
 Caisse d'Escompte. Except for these dangerous rela- 
 tions with the State, the Caisse d'Escompte engaged in 
 a normal and regular banking business, including the 
 issuance of bank notes. But repeated state loans and 
 government interference in its management completely 
 altered its character. Yet the directors were men 
 of ability and worth; Lavoisier, the celebrated chemist, 
 was one of them. The National Assembly, which had 
 just convened, spent much time discussing the imder- 
 taking. Mirabeau was always unfriendly to it, while, on 
 the other hand, Dupont de Nemours tried to defend the 
 true principle of banks of issue, asserting that a bank with- 
 out a privilege, not involved in business relations with a 
 debt-ridden and needy State, without the prerogative of 
 forced currency, can not do otherwise than pay in coin on 
 demand the value of every note issued. 
 
 Soon the Caisse d'Escompte, as a result of closer and 
 closer relations with the State, became nothing more 
 than a branch of the pubUc administration of finance, 
 until, deprived of the resources it had been counting on, 
 it appealed to the Government to take its affairs in hand 
 and offered to give the Minister of Finance a statement 
 of its assets and liabilities. Apart from the one error 
 
 9 
 
National Monetary Commission 
 
 of forming an alliance with the Government, the Caisse 
 d'Escompte had made every possible effort to protect the 
 interests of its chents. For some time the State had been 
 issuing assignats or paper money through the emergency 
 bureau (Caisse de V Extraordinaire). Issues of bank 
 notes and assignats were in competition. The paroxysms 
 of the Revolution completed the disorganization of the 
 Caisse d'Escompte. Several of its administrators — La- 
 voisier, Vandemier, and others — mounted the scaffold, and 
 lastly Cambon issued a decree suppressing the institution 
 altogether. Its liquidation, begim in 1793, was not fin- 
 ished until the time of the First Empire. It is needless 
 to add that the stockholders lost the greater part of their 
 investment. The Caisse d'Escompte lasted seventeen 
 
 years. ^ 
 
 The cause of its downfall is to be sought in the abnor- 
 mal political events which succeeded each other at that 
 time. However, in all that concerns proper banking op- 
 erations, the Caisse d'Escompte was wisely administered, 
 and would have been of real service to commerce if it 
 had not allowed itself to become the State's banker, 
 lending money to the State without sufficient security, 
 and receiving nothing in return but privileges which 
 could not fail to be disastrous to it. 
 
 The revolutionary disturbances gradually subsided. A 
 reaction set in, vigorous in proportion to the violence of 
 the political and social upheaval which had gone before 
 it. Although France emerged from this long ordeal ex- 
 hausted and disorganized, business had not been utterly 
 destroyed. The transactions necessary for the barest sub- 
 
 to 
 
 Evolution of Credit and Banks 
 
 sistence of the citizens gave employment to commerce and 
 industry, and made some sort of credit necessary. Com- 
 mercial banks, engaging only in discount operations, collec- 
 tions, and running accounts (comptes courants) , had quietly 
 and steadily kept on in spite of the Reign of Terror, the 
 ordeal of the wars, and the dangerous and ruinous flood 
 of assignats. Many of these banking houses were very old. 
 That of the Mallets, which is still in existence, was founded 
 in 1723. These bankers were, for the most part, Protes- 
 tants whose famines had taken refuge in Switzerland after 
 the revocation of the edict of Nantes. Among them was 
 Perregaux, of Neufchdtel, who employed as a clerk Jacques 
 Laffitte, and made him his successor; then too there was 
 Vernes, who toward 1772 had in his employ Necker, after- 
 ward Minister of Finance. These bankers had learned the 
 art of credit and the handling of capital in Switzerland, 
 chiefly at Geneva, where banks had always been pros- 
 perous. They maintained the course of current business, 
 and, as we shall see, were always extremely prudent, even 
 in dealing with Napoleon. They did not allow themselves 
 to be cajoled into granting the State favors of credit which 
 would have cost them dear. 
 
 When order was reestabUshed and the State had ceased 
 issuing worthless paper money, commercial banks under- 
 took to found on discount the issue of bank notes. The 
 first was the Caisse des Comptes Courants, established 
 June 29, 1796, with headquarters in Paris at the Place 
 des Victoires. The capital stock was moderate, amount- 
 ing to 5,000,000 francs, divided into 1,000 shares of 5,000 
 francs each. This institution was the work of a great 
 
 II 
 
National Monetary Commission 
 
 number of Paris bankers," who joined together in this 
 way to make their collections, etc. The Caisse kept 
 the funds of these individual banks, and, moreover, re- 
 discounted their commercial paper. This bank was called 
 "caisse," for, as we have said, the word bank, recaUing 
 that of Law, still terrified the public. This Caisse des 
 Comptes Courants was therefore a bankers' bank. We 
 shall see presently that the first regulations of the Bank 
 of France were copied from it, and, in short, that the 
 Caisse des Comptes Courants was transformed later into 
 the Bank of France. It discounted commercial paper at 
 a maximum time Umit of ninety days, three indorse- 
 ments being required. 
 
 The Caisse caused interest or discoimt rates to fall 
 from 9 per cent to 6 per cent. It made handsome profits, 
 which fact encouraged the setting up of other banks of 
 the same kind. Its circulation, including bank notes in 
 the coffers, amounted to 20,000,000 francs. The only 
 notes issued were of denominations of 1,000 and 500 
 francs. It encountered no difficulties, except perhaps 
 the following circumstance, which was, however, quite 
 accidental: About seventeen months after its foimding, 
 in November, 1797, the bank was robbed of some 2,500,000 
 francs, which was rather a large sum for the Caisse des 
 Comptes Covuants. The news spread rapidly. Bearers 
 of bank notes became alarmed and appeared in crowds at 
 the doors. But the bankers who had founded the Caisse 
 des Comptes Coiurants immediately united and declared 
 themselves personally responsible for the liabilities of the 
 Caisse. Although at that period the form known as a 
 
 o Several of them had gained experience in administering the affairs 
 of the Caisse d'Escompte. 
 
 13 
 
 Evolution of Credit and Banks 
 
 limited liability partnership {commandite) had not been 
 estabHshed by law, it was already in existence. The 
 stockholders of the Caisse showed on this occasion that 
 they knew how to make a decision and assume responsi- 
 bilities. The Caisse did an excellent business ; its situation 
 therefore was strong, and the panic proved momentary. 
 
 Another establishment was organized in 1797 shortly 
 after the forming of the Caisse des Comptes Courants. 
 This time the scheme was not promoted by bankers but 
 by merchants, who wished to procure in this way faciHties 
 for their own business, rather than to seek profits directly 
 from banking operations. The institution was called the 
 Caisse d'Escompte du Commerce. The origin of the 
 Caisse des Comptes Courants was sufficiently indicated 
 by its name, and the entirely commercial character of 
 the Caisse d'Escompte du Commerce is shown in the 
 same way. This will explain the bitter resistance of 
 the latter concern to being merged in the Bank of France, 
 while on the other hand the Caisse des Comptes Cou- 
 rants joined forces with it willingly and at once. The 
 Caisse du Commerce (as it was called for convenience) 
 seems indeed to have yielded only to force. The Bank 
 of France, in spite of all Napoleon could do, was destined 
 to remain in reality a bankers' bank. Now, the interests 
 of the Caisse du Commerce were entirely different. 
 
 The nominal capital of the Caisse du Commerce 
 amounted to 24,000,000 francs, represented by 2,400 shares 
 of 10,000 francs each. But the shareholders had not paid 
 in more than a quarter of this sum— that is to say, 6,000,000 
 francs. Its board of directors was made up of merchants 
 of all kinds, grocers, haberdashers, cloth merchants, silk 
 
 13 
 
National Monetary Commission 
 
 merchants, etc. The undertaking was successful. Its 
 issue never exceeded 2o,ocx),cxx) francs. 
 
 It may be well to mention another bank, foimded at 
 this time, as a result of the success of the two estab- 
 lishments whose origins and workings we have just 
 described briefly. It was called the Comptoir Commer- 
 cial, and was founded in 1800. It was usually known as 
 the Caisse Jabach. In comparison with the others this 
 bank had one interesting pecuHarity : In addition to notes 
 of the denominations of 1,000 and 500 francs, it issued 
 notes for 250 francs. The Caisse Jabach carried on a dis- 
 coimting business, the only one, of course, which justifies 
 the issue of bank notes redeemable at sight. 
 
 Lastly must be mentioned the founding at Rouen in 
 April, 1798, of a bank of issue, which also made discounts. 
 It took securities with two names, with a maximum ma- 
 ttirity of one hundred and eighty days. It is seen that 
 in the matter of maturities it departed from the custom 
 of the Caisse des Comptes Courants, which took paper of 
 not over ninety days, or just half as long. This bank 
 issued notes of the denominations of 1,000, 500, 250 and 
 100 francs. No note as small as 100 francs was issued 
 by any Paris bank. It is not probable that this house 
 did a large business, or that it had deposits of any great 
 amount with which to make discounts (as a matter of fact 
 it allowed interest to its time depositors) , for the issue did 
 not go beyond the very moderate sinn of 200,000 francs. 
 
 It can not be denied that after the terrible years of the 
 Revolution, in the midst of the confusion and anarchy of 
 the Directory, these credit estabUshments, in spite of 
 difl&cult conditions, survived, maintained their credit, and 
 
 «4 
 
 Evolution of Credit and Banks 
 
 were of real service to the commerce and bankers of Paris. 
 They gave not the sUghtest occasion for complaint or 
 interference on the part of the public authorities. With- 
 out any sort of privilege, having no connection with the 
 Government, they were able to meet their obligations even 
 in the midst of serious panics. 
 
 How does it happen, then, that this most satisfactory 
 state of freedom came to an end and that in the course 
 of a few years there was organized in Paris a bank with 
 the exclusive privilege of issue? Is it due to a series of 
 natural causes? No. Not one of the Caisses just de- 
 scribed had occasioned disaster or invited suppression. 
 The new state of things came from the idea of credit 
 which existed in the mind of General Bonaparte, as well 
 as from his tendency to centraHze everything, and because 
 the Government at that moment was in great need of 
 money. By following logically the development of the 
 facts we shall see that the prime motive was the all- 
 powerful will of Napoleon. 
 
 It was necessary to make these few introductory remarks 
 in order to show the conditions which existed at the time 
 of the founding of the Bank of France— a bank which was 
 to possess later the sole right of issue for the whole of 
 France, influencing at the same time the general organiza- 
 tion of the credit system of that country. It is at the 
 present moment the center and pivot of the system. And 
 yet, it is not through the Bank of France, through its own 
 action, but independently of it— making of course due 
 allowance for the r61e that circumstances have bestowed 
 upon it— that this evolution of credit institutions has 
 taken place. 
 
 15 
 
Chapter I. — The founding of the Bank of France. 
 
 Reasons for founding the Bank of Prance.— Napoleon wanted a bank of his own.— 
 Preparation for founding the Bank.— Capital of the Bank of France.— Its transac- 
 Hons.-Its organization.-Difflculties in the way of raising the Bank's capital of 
 30,000,000 francs.— The intervention of the sinking fund.— The Bank's first re- 
 sources.- Delay in disposing of the first shares.— The first subscribers.— The 
 assistance of the National Lottery.— First charges of the Bank.— Obligatory rela- 
 tions between the Bank and the State.— The bank notes of the Caisse des Comptes 
 Courants.— The first operations of the Bank.— Tendency toward a single bank of 
 issue.— The First Consul's schemes of centralization.— First conference with the 
 Caisse d'Escompte du Commerce.— Resistance of the Caisse d'Escompte du Com- 
 merce—Manoeuvres against the Caisse d'Escompte.— The final agreement with 
 the Caisse d'Escompte. 
 
 At the time when the foundations of the Bank of 
 France were laid, as well as during the whole period of 
 the Empire, the press and writers in general had so 
 Uttle freedom that it is impossible to obtain, either 
 through books or other authentic documents, trustworthy 
 details or exact information concerning the circumstances 
 which led to the creation of the Bank. 
 
 Baron Pelet (de la Loz^re) , who was admitted when a 
 very young man to Napoleon's Council of State, pubHshed 
 in i833« the notes he had collected while he was a mem- 
 ber of that great body. He tells us on the subject of the 
 founding of the Bank of France (p. 248): "The rate of 
 interest on money was then 3 per cent a month. It was 
 determined to lower this rate, and especially to have an 
 establishment which would take the government's paper 
 and help its operations." This means that the credit 
 concerns were not willing to take government paper or 
 the drafts of the government contractors, because they 
 
 <^ opinions de NapoUon sur divers sujets de Politique et d' administration 
 recueillies par un membre de son Conseil d'Etat. Paris, 1833. 
 
 16 
 
 Evolution of Credit and Banks 
 
 lacked confidence in the Government. Further proof 
 of this fact is given by the same author (p. 249, same 
 volume). Here he sets forth the difficulties which arose 
 in 1804 between Napoleon and the Bank of France. " He 
 (the Emperor) in the year 1804 bitterly reproached a 
 deputation from the Bank because there was, right in its 
 midst, an opposition party which kept the obUgations of 
 the collectors-general from being discounted and also re- 
 fused to give commerce the necessary accommodations. 
 The truth of the matter is that the Bank already held 
 government obligations to the amount of 25,000,000 or 
 30,000,000 francs, and that the aUeged commercial eflfects 
 which it had refused were those of Hervas, Michel, and 
 other contractors, whose paper was nothing more nor less 
 than government paper. The Bank had in circulation 
 bills for 75,000,000 francs, and must of necessity be pre- 
 pared to honor them on demand. Napoleon wanted the 
 Bank to increase the issue to 100,000,000 or 150,000,000, 
 at the risk of not being able to satisfy the bearers." 
 
 All the facts so far as known tend to prove that 
 First Consul Bonaparte took the initial steps toward 
 founding the Bank of France. He could not get what 
 he wanted from the free banks. On the other hand, he 
 felt that the Treasury needed money, and wanted to 
 have under his hand an establishment which he could 
 compel to meet his wishes. It appears indeed from this 
 extract from the notes of Baron Pelet that nearly three 
 years after the founding of the Bank, Napoleon, 
 then Emperor and undisputed master of France, did 
 not hesitate to speak sharply to the directors of the 
 
 I97I — 10- 
 
 17 
 
National Monetary Commission 
 
 Bank, who were little inclined to discount the paper of 
 the government contractors. 
 
 It is very likely that he broached the subject more in 
 particular to certain bankers who were near him, espe- 
 cially Perr^gaux, who had come from Neufchatel several 
 years before the Revolution and founded at Paris a very 
 prosperous banking house. The directors of the Caisse 
 des Comptes Courants, among whom was Perregaux, were 
 probably notified, for they came together and drew up 
 the plan of a new establishment which was to take over 
 the Caisse des Comptes Courants. 
 
 It would certainly seem that here originated the idea of 
 creating a new bank of issue. However, public opinion, 
 as represented by merchants and citizens of all classes, 
 was brought into play. A certain number of these men 
 met and prepared a petition addressed to the Directory, 
 in which the signers requested the formation of a new 
 credit institution. This occurred toward the end of 1 799 
 and the first days of January, 1800. 
 
 Previous to this manifestation the first plan of the 
 general statutes of the projected bank had been submitted 
 to the Minister of Finance. On January 6, 1800, the re- 
 gents, but recently elected, MM. Lecoulteux-Canteleu, 
 Mallet, Perregaux, Nautort, Perrier, and Perr^, went to 
 the Minister of Finance and laid before him "the princi- 
 pal features of the protection " which they asked of the 
 Government. 
 
 The plan was to create a bank of discount, circulation, 
 and issue with a capital of 30,000,000 francs. The figure 
 was large for the time. How was this capital to be 
 
 If 
 
 Evolution of Credit and Banks 
 
 raised? This difficulty had been foreseen. To solve 
 it they had prepared to merge the Caisse des 
 Comptes Courants and the new bank, which was to be 
 called the Bank of France. On January 18, 1800, the 
 general assembly of the stockholders of the Caisse des 
 Comptes Courants voted to dissolve this company and 
 enter the new combination. 
 
 The capital stock was fixed at 30,000,000 francs 
 and divided into 30,000 personal shares of 1,000 
 francs each. The Bank of France, according to its 
 first statutes, was to engage in the following transac- 
 tions: Discounts, collections, running accounts, the issue 
 of notes payable to bearer on demand, and commerce in 
 gold and silver bulHon. It was also to open a sort of 
 savings department called the savings and investment 
 • bureau, allowing interest to depositors. But for some 
 reason this department was Httle patronized, and was 
 aboHshed in 1808. At first it paid 5 per cent on deposits; 
 later 4 per cent. 
 
 A regents' council of 15 members was to administer the 
 affairs of the Bank of France; its direct management was 
 entrusted to a committee of three regents, and its super- 
 vision was committed to a council of three censors. A 
 general assembly consistmg of the 200 largest stock- 
 holders represented the whole body of stockholders. Five 
 shares were enough to give the holder a vote, and he had 
 as many votes as he had multiples of five shares, not 
 exceeding a maximum of four. 
 
 The very day on which the Caisse des Comptes Courants 
 was dissolved, a decree of the consuls authorized the 
 
 19 
 
National Monetary Commission 
 
 Minister of Finance to lease for the Bank the state building 
 known as the "Oratory," and "the former church which 
 makes a part of it." And there the Bank was installed, 
 in property belonging to the State, which showed already 
 what close relations existed between the new estabUsh- 
 ment and the Government. 
 
 All this was effected without obstacles. Not so the 
 getting together of the capital of the Bank. The great 
 difficulties which were encountered here are officially 
 stated in the report laid before the stockholders of the 
 Bank on October 17, 1800. Here is the passage: 
 
 "The regents who were in charge of the Bank being 
 convinced, owing to the scattered state of capital, that it 
 would be useless to expect that the 30,000,000 francs 
 which were to serve as banking capital would be sub- 
 scribed promptly, simply by calling together stockholders, • 
 their first care was to call to the attention of the Gov- 
 ernment the protection and cooperation necessary to 
 insure the success of the proposed estabUshment. 
 
 "The very day of their election, the directors addressed 
 a petition to the Minister of Finance requesting him to ob- 
 tain from the consuls the permission to deposit in the 
 Bank of France the funds accruing from the bonds fiu:- 
 nished by the collectors-general of the departments, and 
 destined by the law of the sixth Frimaire preceding to the 
 paying off of the pubUc debt, and also to guarantee the 
 payments of these ame collectors-general. An order of 
 July 18, 1800, granted the request, and 5,000,000 francs 
 were deposited in the Bank in return for 5,000 shares reg- 
 istered to the credit of the sinking fund. 
 
 Evolution of Credit and Bank 
 
 "The Bank having got its first start through this fund 
 could now commence operations in competition with the 
 Caisse des Comptes Courants, which was then doing busi- 
 ness; but for fear of disturbing the money market by this 
 division of resources, the regents determined to make 
 every effort to unite the two establishments whose com- 
 petition might prove dangerous." 
 
 Even in this official report, which was intended to 
 disguise some of the difficulties encountered in raising 
 the capital stock of the Bank, it is perfectly clear through 
 the very testimony of the founders that this establishment 
 got its first start by official order, from the sinking fund 
 of the state debt. That amount, however, made only one- 
 sixth of the capital. Subscribers for shares had not ap- 
 peared in great numbers. During the first year (1800). 
 only 7,447 shares « were taken, and this only after uniting 
 with the Caisse des Comptes Courants. Among the earli- 
 est subscribers are found the following: First Consul 
 Bonaparte, his brother Joseph Bonaparte, J. Murat, 
 Hortense Beauhamais, then aides-de-camp such as Duroc 
 and Lemarois, and finally. Senator Siey^s and several 
 other members of Napoleon's immediate circle, including 
 Barb^-Marbois, Cr^et, Cambac^r^s, etc. 
 
 In the early part of March, 1800, a new decree of the 
 consuls directed that the reserve fund of the national lot- 
 
 o Only 7,590 shares received the dividend at the end of the second half 
 year of 1800; 12,348 shares received the dividend of the first half of 1801; 
 14,705 that of the second half of the same year. It was only for the fiscal 
 year 1802 that the number 30,000 was reached, and even then because a 
 subscnption took place in October and November, 1801. It was on this 
 occasion that the shares of the Bank commenced to be quoted on the 
 Paris Bourse (October 27, 1801). 
 
 30 
 
 21 
 
National Monetary Commission 
 
 tery should be deposited at the Bank. Little by little 
 they succeeded in this way in disposing of 15,000 out of 
 the 30,000 shares — that is, half of the capital stock stipu- 
 lated in the statutes. 
 
 The Government had been in reality the first subscriber, 
 through the agency of the sinking fund, but it had made 
 the condition that in return for this first cooperation the 
 unpaid obligations of the collectors-general should be met 
 in full by the Bank of France to the amount not only 
 of the sums standing to the credit of the sinking fund 
 (which had deposited at the^Bank funds proceeding from 
 the bonds furnished by the collectors-general) but also 
 an amount equivalent to the total of the shares bought 
 by the Government, which, as we know, amounted to 
 5,000,000 francs. 
 
 So the State gave with one hand and took away with 
 the other. Having been placed at the very beginning 
 imder the protection of the Government, the Bank was 
 forced Httle by little to tighten the bonds from which 
 it could no longer escape. Although Perregaux, president 
 of the Bank, declared in his report of October 17, 1800, 
 that the Bank "negotiates with the Government only 
 when it finds it advantageous to do so and receives all 
 its usual securities," the new institution of issue was not 
 as free as Perregaux declared, as was proved by the 
 sequel. At any rate, the State had sold without scruple 
 the greater part of its shares. In 1 801-2 (in the year X), 
 ■of the 5,000 shares that the sinking ftmd had bought in 
 the beginning, all but 500 had been sold. 
 
 It was with the bank notes of the Caisse des Comptes 
 Courants that the Bank of France began operations. At 
 
 22 
 
 Evolution of Credit and Bank 
 
 the time it was incorporated with the Bank of France 
 this establishment brought the following resources: 
 
 „ . Francs. 
 
 Specie 
 
 ^ 5,000,000 
 
 Commercial paper 6,000,000 
 
 It had in addition, either in circulation or in its coffers, 
 20,780,327 francs in bank notes. It brought also a very 
 substantial credit, and the technical experience of its 
 administrators. So the notes of the Caisse des Comptes 
 Courants became the first fiduciary money of the Bank. 
 
 It was in 1808 that the notes of the Caisse des Comptes 
 Courants disappeared entirely from circulation. They 
 were probably withdrawn in 1807. 
 
 In the first year's activity (1801, year IX) the Bank 
 discounted commercial paper to the amount of about 
 89,000,000 francs. The following year its discounts 
 doubled, reaching in round numbers 180,000,000 francs, 
 while its circulation during the second year amounted to 
 30,000,000 francs. 
 
 Besides the Bank of France, several other banks of 
 issue which we have mentioned above were still in oper- 
 ation. The most important among them was the Caisse 
 d'Escompte du Commerce. The idea of the First Consul 
 from the start was to make of the new concern an institu- 
 tion which he could have under his control. This appears 
 in the very beginning, when a deputation from the bank 
 council, accompanied by M. Cr^tet, Councillor of State, 
 who had an important share in these events, asked him 
 for government protection. Not being famihar with 
 financial questions, and especially with questions of bank- 
 ing and credit, he simply appUed to this matter his ideas 
 of centralization. It may be surmised from the opinions 
 
 23 -*-. 
 
National Monetary Commission 
 
 Evolution of Credit and Banks 
 
 he expressed afterwards in public that he was already 
 turning over in his mind the plan for a single bank of issue, 
 with a view of using it to further his projects and ambition. 
 
 To attain this end the first method tried was diplomacy. 
 Negotiations were opened in April, 1802, to induce the 
 Caisse d'Escompte du Commerce to carry out of its own 
 accord its fusion with the Bank. They were from the 
 start exceedingly difficult. The Caisse d'Escompte re- 
 fused to be merged in the Bank. When the directors 
 were assured that in the matter of the issue of bank notes 
 the unity of the issuing establishment was a necessity and 
 an advantage to the public, they answered, on May 14, 
 1802, "that the Caisse d'Escompte with 6,000,000 francs 
 of capital issued bank notes to the value of 20,000,000 
 francs, while the Bank with a capital of 30,000,000 francs 
 had a circulation of only 30,000,000 francs." The argu- 
 ment was good, for the aim of issuing bank notes is to keep 
 in circulation, in the form of bank notes payable to the 
 bearer on demand, paper money with a real value, easy to 
 handle and representing commercial paper which is held 
 until maturity in the safe of the bank which makes the issue. 
 The capital is there only to make good the non-payment of 
 commercial paper on maturity. Now, discount intelli- 
 gently handled ought to suffer only small losses ; a reserve 
 of specie in the coffers should suffice to cover these losses 
 and redeem the bank notes which have been issued on 
 the basis of unpaid effects. Credit by issue does not 
 mean circulation in the form of paper money of specie, 
 but of short-dated commercial bills. 
 
 The Caisse d'Escompte was slow in being persuaded, 
 and held out for a long time. What happened finally has 
 never been cleared up. The press, as we have said, was 
 
 not free, and there is no trace of the methods (probably 
 despotic) which were resorted to at the moment to con- 
 vert the administrators of the Caisse d'Escompte. An 
 EngHsh newspaper, the London Courier, which published 
 letters from France, received one dated October 9, 1802, 
 in which it was said that the State had applied several 
 times to the Caisse d'Escompte to discount its obligations 
 and had been refused. Then, as it was alleged, a well- 
 known expedient had been resorted to— that of collecting 
 a great quantity of bank notes of the Caisse d'Escompte 
 and presenting them all at once one fine morning for 
 redemption. The establishment paid them. The Caisse 
 went through the same ordeal a second time and held out 
 successfully against the Government. At last, still ac- 
 cording to this English correspondence, the Government, 
 being weary of the struggle, sent an armed force to close 
 the offices of the Caisse d'Escompte. 
 
 But, let it be repeated, there is in existence no authen- 
 tic document proving these facts. However, even if they 
 are not to be considered as certain, it is possible to assert 
 that the directors of the Caisse d'Escompte du Commerce 
 consented to unite with the Bank only because they saw 
 that further resistance would be useless. The final agree- 
 ment with the Bank was not signed until August 25, 1803, 
 more than four months after the Bank of France had 
 been invested with the exclusive privilege of issuing bank 
 notes in Paris. 
 
 Naturally, the Factorerie and the Comptoir Commercial 
 and the Comptoir Jabach disappeared likewise, or at least 
 were incorporated with the Bank. 
 
 24 
 
 25 
 
Evolution of Credit and Banks 
 
 ill 
 
 Chapter II.— The charter or privilege of the Bank 
 
 of France. 
 
 The Bank of France is given the exclusive right to issue bank notes in Paris.- 
 The law of April 14, 1803, 24 Germinal, Year XI.-Duration of the pnvilege.-In- 
 r^^Tf capiLh-T^e riiht to discounts extended-Fixing the dividends -Per- 
 S^el of the regents' councU.-The real situation.-The balance was not ^. 
 tatoed between the circulation and the convertible resources.-The criste of 1805.- 
 The Emperor's departure for Germany. Rumors that were <^«*^^t«d.-Reduc. 
 ttT of amount of discounts.-Limiting the redemption of ;°t««:-N°/7^JP^, 
 to the provincial banks.-The mistakes that had been made.-The bad effect of 
 reUtkms between the State and the Bank. 
 
 From the facts that have just been stated it will not 
 be difficult to foresee their only possible outcome. It is 
 obvious that the Bank of France was destined to receive 
 the sole right of issue. And what is more, this was noth- 
 ing but a stopping place on the way to the final goal, 
 namely, handing over the establishment to the head of 
 
 the State. 
 
 Although the event was planned beforehand, a slight 
 panic which made itself felt in the course of 1802 (the 
 year XI) was seized upon as a pretext for carrying out the 
 idea of a single bank of issue. The pretext was a suffi- 
 ciently flimsy one, for the banks of issue, including the 
 Caisse d'Escompte du Commerce, had given no occasion 
 
 for complaint. 
 
 It was the law of April 14, 1803, which radically changed 
 the statutes of the Bank. As the president of the stock- 
 holders said in his report of the year XII (1804), it 
 was not so much a commercial as it was a political law. 
 Its underlying provisions were as follows: The Bank of 
 France was henceforth to have the exclusive privilege of 
 issuing bank notes. The Caisse d'Escompte du Com- 
 
 26 
 
 merce, the Factorerie, and other companies which issued 
 notes in Paris, ceased to have the right to issue new 
 ones from the date of pubUcation of the law of Germi- 
 nal. They were to withdraw all notes from circulation 
 within the very short period of six months or there- 
 abouts. No bank could be organized in the provinces 
 without the consent of the Government. The Govern- 
 ment reserved the right to grant the privilege of issue, 
 and to fix the maximum of notes issued, declaring at 
 the same time that these notes could not be manufac- 
 tured elsewhere than at Paris. The privilege was to 
 last fifteen years, from the first Venddmiaire, year XII 
 (September 24, 1803). The capital of the Bank was 
 raised to 45,000,000 francs by creating 15,000 new shares. 
 The smallest denomination for Bank of France notes was 
 to be 500 francs, and 250 francs for any departmental 
 banks that might be founded. In the statutes of the 
 year VIII, the shareholders alone had special rights to 
 discount; in future, they were no longer to enjoy this 
 privilege; every merchant, manufacturer, banker, etc., 
 on satisfying the general requirements, could be admitted 
 to discount his paper at this establishment. The annual 
 dividend was fixed at 6 per cent, not including the income 
 on the surplus capital invested in government stock, which 
 could be distributed in addition to the 6 per cent. Seven 
 regents out of fifteen and the three censors were to be 
 chosen from the manufacturers, mill owners, or trades- 
 men who were shareholders in the Bank. Every member 
 of the company could have but one vote, whatever the 
 number of shares he held. 
 
 27 
 
National Monetary Commission 
 
 Let us note at this point that the capital stock was 
 raised from 30,000,000 to 45,000,000 francs without the 
 slightest commercial necessity. 
 
 To all appearances, from the year VIII to the year XII, 
 the Bank had increased in rather large proportions its 
 ** portfolio" of commercial paper — in other words, its dis- 
 coimts. Here are the comparative figures (maximum and 
 minimum) relative to the reserve, the commercial dis- 
 coimts, and the circulation of bank notes for the )rears 
 VIII and XII: 
 
 [Million francs.] 
 
 
 Reserve. 
 
 Commercial dis- 
 counts. 
 
 Cirailatiou. 
 
 
 Maxi- 
 mum. 
 
 Mini- 
 mum. 
 
 Maxi- 
 mum. 
 
 Mini- 
 mum. 
 
 Maxi- 
 mum. 
 
 Mini- 
 mum. 
 
 Year VIII, second half year 
 (1800) 
 
 II 
 
 2S 
 
 6 
 5 
 
 31 
 
 76 
 
 5 
 
 S3 
 
 23 
 70 
 
 9 
 
 Year XII (1803-4)--- 
 
 54 
 
 Average rate of interest, 6 per cent. 
 
 But, according to the opinion of MoUien, who was not 
 unfriendly to the Bank of France, there was in what was 
 called the commercial "portfolio" only a very small per 
 cent of real commercial values. These large figures were 
 mostly made up of government paper or that of the 
 
 contractors. 
 
 In reality, they were not liquid values, capable of being 
 reaUzed in specie quickly or on short notice, making it 
 possible to redeem bank notes without nmning the risk 
 of bankruptcy in case of a panic. M. Gautier, who was 
 afterwards deputy governor of the Bank, states positively 
 in his study on the institutions of issue in France and 
 
 a8 
 
 Evolution of Credit and Banks 
 
 America, that out of 97,000,000 francs of paper discoimted 
 there was as much as 80,000,000 which represented obU- 
 gations of the collectors -general taken at 6 per cent, and 
 which the Bank would not have been able to rediscount, 
 even at 12 per cent. On the other hand, from the year 
 VIII to the year XIII, the Bank had advanced to the 
 public Treasury 722,000,000 francs; the total of all 
 discounts during this period of six years was scarcely 
 three times this amount. Now, in the year XIII, the 
 circulation of bank notes had reached nearly 80,000,000 
 francs. The maximum reserve had not gone beyond 
 24,000,000 francs, and the ''portfolio" contained not 
 more than 17 per cent^ of real commercial paper, that 
 is, of negotiable paper or paper convertible into 
 specie. Notice that we have spoken of the maximum 
 reserve; the minimum fell the same years (1804-5) below 
 2,000,000 francs. At the slightest economic disaster, the 
 Bank, placed in this abnormal situation, must necessarily 
 get into difficulties. 
 
 We will not describe in detail the transactions with 
 the Merchants' Association, conducted by the celebrated 
 army contractor, Ouvrard. This company had deaUngs 
 with the Treasury. It discounted effects at the Bank, in 
 return for which the latter gave bank notes, increasing by 
 that much the circulation. Now, these effects were 
 credit paper, and the Bank had taken them only to obHge 
 the Government, then represented by Baron Marbois, 
 Minister of the Treastuy. In addition to this, after the 
 Emperor had set out for Germany, the rumor was circu- 
 lated in Paris that he had carried away the metallic 
 
 29 
 
% 
 
 National Mone tary Commission 
 
 reserve from the Bank to fill his army coffers. The 
 statement was not true. To be sure many soldiers had 
 come to draw money from their accounts at the Bank in 
 order to take the field. As a result of the working of all 
 of these causes, a real panic arose. Bank notes were 
 presented in great numbers at the doors of the Bank of 
 France. The directors of this establishment made the 
 mistake of restricting their discounts— a disastrous pro- 
 ceeding at such a moment. The bank notes depreciated 
 lo and 15 per cent. The Bank was reduced to a partial 
 suspension of payments; it limited the redemption of 
 notes to 600,000 francs a day. The Bank acted more 
 wisely in sending to the provincial bankers paper on their 
 own localities, asking them to send back the value of 
 this paper in specie. 
 
 What mistake had been made? Issuing more bank 
 notes than the needs of commerce justified. And m 
 exchange for what securities had the Bank made this issue? 
 In exchange for the credit paper of the government con- 
 tractors; in exchange for the obligations of collectors- 
 general which could not be paid, because the directors of 
 the Merchants' Association had aheady received the money 
 that these obhgations represented. At the critical moment 
 the specie in the coffers fell to 782,000 francs on September 
 24, 1805, in the face of a circulation of 63,000,000 francs. 
 Order was reestablished by the end of a month. The 
 victory of Austerlitz helped, and also the more or less 
 regular measures that had been adopted pell-mell, good 
 and bad together. It was certainly, too, the opinion 
 people had of the relations of the Bank with the State 
 
 Evolution of Credit and Banks 
 
 that had aggravated this crisis. It is moreover a typical 
 example of the mistakes that may be committed by a 
 bank of issue, both in becoming involved in a difficult 
 situation and in trying to escape from it by expedients 
 which are for the most part more harmful than efficacious. 
 Napoleon, on returning from Germany, was much 
 alarmed at this crisis, the real causes of which he did not 
 clearly grasp. He wanted to have the Bank "more in 
 his hands," and, with this in view, prepared a new consti- 
 tution for the establishment. It was the decree of Jan- 
 uary 16, 1808, which sanctioned these modifications. 
 
 30 
 
 31 
 
Evolution of Credit and Banks 
 
 Chapter III.— The fundamental statutes of the Bank— 
 It comes into closer relation with the State, 1806-1814. 
 
 The law of April 22, 1806.-Decree of January 16, 1808, ratifying the law of April 
 22 1808 -The Bank creates branch offices in the provinces.-Limited transactions 
 of 'these Comptoirs.-Their disappearance.-The Bank of France from 1808 to the 
 faU of the Empire.-lndustry hi France at the end of the eighteenth century and the 
 beginning of the ntoeteenth-National expositions at Paris under the Emplre.- 
 The efforts of learned men.-Political obstacles.-Napoleon's anxiety for his Bank. 
 His study of the question.-Napoleon asks MoUien to explahi the nature of a bank 
 of i8sue.-The Havre note.-Masterly statement of the true mechanism of a bank 
 of issue.-Eitract8 from the Havre note. May 29, I810.-The opinion of MoUien on 
 the nature of the operations of a bank of issue.-The last years of the Empire.- 
 Danger of holding state paper in panic times.-Cri8is of 1814. Panic of holders of 
 notes. 
 
 According to the law of April 22, 1806, the committee 
 of three which had been chosen from the regents named 
 by the stockholders to govern the Bank, was replaced by 
 a governor and two deputy governors, named by the head 
 of the State. The first governor was M. Crdtet, Councillor 
 of State. He assumed his duties April 25, 1806. This 
 governor was nothing more than a functionary, subject 
 to the dictates of the State. The privilege was prolonged 
 twenty-five years beyond the fifteen years granted by 
 the law of the year XI. The capital was doubled by the 
 issue of 45,000 new shares and raised, consequently, to 
 90,000,000 francs. The regents' council, still composed 
 of 15 members, was to include 5 manufacturers, merchants, 
 or mill owners, and 3 collectors-general. This introduc- 
 tion of manufacturers, tradesmen, and collectors-general 
 mto the board of directors came from Napoleon's notion 
 that the crisis was caused by the bankers themselves. 
 He was not overfond of them, especially smce the Consu- 
 
 late, when they had refused him money, and he distrusted 
 them because he saw that they made use of the Bank to 
 advance their own interests. 
 
 In placing Cr^tet at the head of this establishment, 
 Napoleon, knowing the tendencies of the governor and 
 his administrative skill, transformed the Bank of France 
 in reality into a state bank whose capital was furnished 
 by private individuals. 
 
 The annual dividend was composed, first, of a distribu- 
 tion not to exceed 6 per cent of the original capital; sec- 
 ond, of a second distribution equal to two-thirds of the 
 remaining profits. The other third was kept in reserve. 
 
 The imperial decree of January 16, igo8, ratified the law 
 of April 22, 1806. It was there specified that the Bank 
 should create in the principal provincial towns branch 
 offices, chiefly in places where they would serve the needs 
 of commerce. Several months later, a decree of May 18, 
 1808, regulated the organization of these branches. The 
 rate of discount was fixed at 5 per cent. Once a year the 
 Minister of Finance was to make a report on the transac- 
 tions of each branch office, and propose, if it were judged 
 necessary, a lowering of this rate. In obedience to this 
 order, branches were created on June 24, 1808, at Lyons 
 and Rouen. The Bank had the exclusive right of issue only 
 in the towns where it had branch offices. The State could 
 therefore give this privilege to other establishments in other 
 places. A third branch was founded at Lille May 29, 1810. 
 This latter was not successful, and closed its doors in 18 13. 
 It had been very little patronized, and its aiffairs were not 
 difficult to liquidate. The branch at Rouen had a rather 
 
 32 
 
 1971— It 
 
 33 
 
National Monetary Commission 
 
 brisk business for several years. People in Rouen were 
 already used to banks of issue and to bank notes. We 
 have seen above that in that town there existed a very 
 prosperous institution of issue when the founding of the 
 Bank of France and the suppression of the right of free 
 issue of bank notes were decreed by the Directory. The 
 Lyons and Rouen branches each lasted nine years, and 
 were closed in 1817. The latter had discounted m this 
 time commercial bills to the amount of 160,000,000 francs, 
 or an average of 17,500,000 francs a year. The profits 
 had not been large. The Lyons branch had been a little 
 more active, as the location was more favorable to busi- 
 ness than Rouen.. The first few years were fairly good. 
 It was not until 1810 that the Bank sent to its branch 
 offices notes of the denomination of 250 francs. On this 
 occasion the rate of discount, which had been 5 per cent, 
 was lowered to 4 per cent. But the foreign invasions and 
 the slackness of business which marked the downfall of the 
 Empire brought about the closing of the branches. In 
 reality, the Bank had not become much involved in this 
 scheme. If these establishments made some profits m the 
 first years, they saw them disappear and even change to 
 losses in 181 7, when they ran short 100,000 francs. 
 
 The law of 1806 and the decrees of 1808, which con- 
 firmed and at the same time aggravated it, had, as we 
 have seen, brought the Government and the Bank closer 
 together. At that period the Bank was chiefly a state 
 concern. For four years, until 1812, no difficulties were 
 encountered. To be sure, business was dull, the poHtical 
 situation was uncertam; continual wars interfered with 
 
 Evolution of Credit and Banks 
 
 the setting up of industrial and commercial enterprises. 
 Capital was abundant and idle. The year 18 10 was the 
 only one which can be reckoned in any degree active; the 
 Bank made discounts amounting to a total of 715,000,000 
 francs, and that thanks to the lowering of the interest rate 
 to 4 per cent. But at the beginning of the year 181 2 it 
 had in the coffers 1 14,000,000 francs in specie, and in cir- 
 culation 117,000,000 francs in bank notes; commercial dis- 
 coimts amounted to only 15,000,000 francs; in the course 
 of the year they even fell as low as 10,000,000 francs. It 
 was the Treasury which furnished bills for discount. 
 Thus in 181 1 the Bank discounted state obligations to the 
 value of about 15,000,000 francs. These obligations went 
 under the name of excise duties {droits reunis), and had 
 to do with the tax or octroi on goods brought into the city. 
 In 181 2 the same kind of obligations were discoimted 
 again for the stmi of 2,000,000 francs. In addition, an 
 advance of 40,000,000 francs had been made to the State 
 in the preceding years on the obligations of the collectors- 
 general. At this moment, therefore, the principal client 
 of the Bank was the Treasury, and the Bank was neglecting 
 for the Treasury the interests of its clients in industry 
 and commerce. 
 
 However, it was not the elements of economic progress 
 that were lacking in France. In spite of the Revolution, 
 in spite of the anarchy of the Directory and the grave 
 financial disturbances resulting from it, a renewal of in- 
 dustry, a veritable revival of the arts, business, and inven- 
 tions had taken place. This is proved by the number of 
 expositions held at that time. 
 
 34 
 
 35 
 
■11(1 
 
 I > 
 
 National Monetary Commission 
 
 The first exposition which was opened in Europe was 
 organized by France. It was held in the Champ de Mars, 
 and lasted a week, but was not a very brilliant affair 
 There were no exhibitors, of whom lo or 12 received 
 prizes The expositions of 1801 and 1802 were more suc- 
 cessful. Carcel received a prize for his lamps, Jacquart 
 for his machine loom, Temaux for woolen stuffs, Mont- 
 golfier of the town of Annonay, for his paper, Fauler for 
 his morocco leather. At the exposition of 1 802 were seen 
 cashmere shawls, imitating those of India, Sallandrouze 
 carpets, and Sfevres porcelain. After the victory of Aus- 
 terUtz a new exposition was planned, and the buildings 
 erected on the parade ground of the Invalides. Twenty- 
 seven gold medals were distributed, 146 silver medals, 326 
 honorable mentions, etc. The following table will give 
 an idea of the increasing importance of these expositions: 
 
 \ 
 
 Date. 
 
 Exhib- 
 itors. 
 
 
 1798 
 1801 
 
 l803 
 
 1806 
 
 no 
 
 First exposition - 
 
 330 
 
 Second exposition --- - 
 
 540 
 
 Third exposition- 
 
 i.4aa 
 
 Fourth exposition -- 
 
 
 The discoveries in chemistry which revolutionized at 
 that time certain industries, as, for example, the manu- 
 facture of artificial soda, the improvements in the paper 
 industry, and, finally, mechanical inventions for spinnmg 
 and weaving-all these were the vanguard of the one 
 supreme invention most marvelous of all, namely, the 
 steam engine. Chaptal, BerthoUet, Conte, Vauquelm, 
 Th^iard, Jacquart, and others were working to brmg out 
 
 36 
 
 Evolution of Credit and Banks 
 
 of science new industries. But political obstacles arose, 
 hindering economic progress. Even though the nearly 
 continual wars supported themselves, and though they in- 
 volved the manufacture of arms and munitions, and so 
 furnished employment to the industries connected with 
 the equipment and maintenance of armies, they took away 
 many hands from agriculture, manufactures, and com- 
 merce. Peace is the first necessity of business prosperity. 
 Business enterprises can not be launched without a fair 
 certainty that no unforeseen event will bring them to 
 grief. This explains the very slight commercial activity 
 of the Bank during these years, but the years to follow 
 are still more unfavorable and more filled with trials for 
 this institution. 
 
 Napoleon was solicitous for all that concerned the 
 Bank — his Bank as he called it in discussions in the Coun- 
 cil of State. He lu-ged his ministers to study the subject. 
 Among them was Mollien, Minister of the Treasury ,« a 
 highly educated man, very learned both in economic 
 theory and practice. Napoleon was attached to him not 
 because of any liking for him, but because he was useful. 
 Mollien dared tell the truth to the Emperor; he was never 
 a courtier. Napoleon had asked him his opinion on the 
 Bank of France. The Emperor was (May, 1810) at Havre, 
 and in correspondence with Mollien in regard to foimd- 
 ing a branch office of the Bank at UUe. In a letter 
 dated May 20 he said to his Minister of the Treasury, 
 after speaking of discount at Rouen: " Make me a report 
 
 o There were at that time, and during the whole period of the Empire, 
 two Ministers of Finance: The first, Gaudin, Minister of Finance, or 
 Receipts; the second, MoUien, Minister of the Treasury, or Expenditures. 
 
 37 
 
National Monetary jComi^^ 
 
 which will help tne to understand the nature of the deposit 
 of the Bank of France. Who issues the bank notes? 
 Who receives the profits? Who furnishes the funds?" 
 MoUien rephed in the celebrated memorandum called the 
 Havre note, in which he makes clear the true theory of 
 banks of issue. This was called the Havre note, because 
 the Emperor was still at Havre, and wrote to Mollien on 
 receiving it: ''This is the first thing I have ever read on 
 the subject that is perfectly clear, well thought out, and 
 without abstractions; I had an idea of having it printed, 
 but I should Uke to know first if there would be any 
 objection. Take this memorandum to the Bank as coming 
 from me and give them a chance to attack it in your 
 
 presence." 
 
 . We will give the most important points of this document. 
 The question is adimrably stated, and it is here that must 
 be sought trustworthy information as to the true mechan- 
 ism of a bank of issue. It is, let u§ note in passing, suffi- 
 ciently surprising that Napoleon adopted so readily such 
 daring ideas: "The purpose of this capital (the 30,000,000 
 francs decreed by the law of the year VHI) was not to 
 give the bank the funds necessary to exploit its privilege; 
 this capital is not the instrument of its discounts, and 
 can not be used for discounts. The privilege of the Bank 
 consists in the right to create and manufacture special 
 money for its discounts. If a bank used its capital for 
 discounts, it would not need any privilege. * * * It 
 is independently of its capital that it creates by its notes 
 its true and only discounting medium. * * * The 
 necessity of furnishing capital is imposed on the founders 
 
 Evolution of Credit and Banks 
 
 of a bank only in order to provide those who accept its 
 notes as real money with a pledge and guaranty against 
 the errors and imprudences that this Bank may commit 
 in the use of its notes, or against any losses it may suffer 
 from admitting doubtful bills to discount; in a word (to 
 use the technical expression of commerce), against its bad 
 paper (avaries de son portefeuille) . 
 
 "Since a bank issues and must issue notes only against 
 good and valid bills of exchange, having two or three 
 months to run at the outside, it should have on hand in its 
 'portfolio' in bills of exchange a sum at least equal to 
 the notes issued; the bank is then in a position to with- 
 draw all its notes from circulation within the space of 
 three months, simply as a result of the successive falling 
 due of the loans, and this without involving any part of 
 its capital." 
 
 Mollien shows next that a bank of issue must be a 
 bank engaging only in operations of commercial credit; 
 that its administrators must refrain from all participa- 
 tion, direct or indirect, in industrial or commercial enter- 
 prises; and he expresses himself very clearly on this point 
 as follows: "Discount, as it is practiced by a bank on 
 everything discountable in a particular place, is such an 
 important and deHcate operation, demanding so much 
 attention, so much foresight, so much care, such minute 
 observation of the methods used by each tradesman, and 
 the adjustment of supply and demand in each locaUty, 
 of the circumstances which may lessen or increase day 
 by day the credit of each signer of a bill of exchange- 
 all these duties are such that the operation does not 
 
 39 
 
National Monetary Commission 
 
 Evolution of Credit and Banks 
 
 admit the intrusion of any other interest. Those who 
 decide on discounts are the judges of trade; they ought 
 not to descend into the arena of commerce." 
 
 It should be noted here that MoUien advocated the 
 privilege of the Bank, but for Paris only. He did not 
 advise extending it to the whole of France, nor did he 
 think that discoimts of provincial banks could be profit- 
 ably managed from Paris. He admitted, however, the 
 feasibiUty of branch offices, knowing that Napoleon was 
 in favor of them; but the Minister of the Treasviry in no 
 way disguised his belief as to the precautions necessary 
 in such a case. Let us say that the fears of MoUien were 
 not justified. What explains his timidity on this point 
 is that the railroads and telegraph were not yet in exist- 
 ence, and commtmication between Paris and the provinces 
 was slow and difficult and often uncertain. 
 
 Having made this digression to show the economic 
 situation of that time, and the attitude of Napoleon and 
 his minister, MoUien, toward the Bank of France, let us 
 resume the account of the progress of the Bank, which 
 we left at the end of 1812. 
 
 The year 181 3 was unfavorable. The Empire was vis- 
 ibly beginning to decline. The loans of the Bank to the 
 Treasury exceeded 340,000,000 francs. The discounts fell 
 to a total of less than 30,000,000 francs. It is true that 
 the circulation of bank notes diminished as weU. After 
 being at 134,000,000 francs maximum and 82,000,000 
 francs minimum in 181 2, it fell to a maximum of 
 95,000,000 francs in 1813. 
 
 At this moment the Bank was creditor of the State for 
 the amoimt of 54,000,000 francs (40,000,000 francs direct 
 
 40 
 
 loan and 14,000,000 francs on the excises), without count- 
 ing the advances on the obligations of the collectors- 
 general. But, in addition, the Bank possessed a capital of 
 35,000,000 francs invested in goverimient stock {rentes 
 d'&tat) . How was this capital to be reaHzed on at such a 
 critical moment? For the Bank had not sufficient avail- 
 able funds to meet its engagements payable at sight. 
 If we examine the maxima we shall see that the Bank 
 had in its coffers 39,000,000 francs in specie, but it owed 
 at sight 95,000,000 francs on bank notes in circulation 
 and 23,000,000 francs on current accoimts of depositors; in 
 a word, 39,000,000 francs versus 118,000,000 francs. Its 
 "portfoHo" was not easy to rediscount, composed as it 
 was of state paper. A part of the capital, of course, was 
 in the 35,000,000 francs invested in government stock. 
 But how was this stock to be sold off? At the price to 
 which it had then fallen the Bank would have lost on the 
 purchase price. It would have forced the price of this 
 stock stiU lower if such a quantity of it had been put on 
 the market. Finally, the State, which had so much 
 influence on the Bank, would not have allowed this 
 operation to be carried through, because of the depres- 
 sion which it would have caused on the Bourse. In the 
 month of December the Bank redeemed notes for about 
 40,000,000 francs. But as the crisis grew more acute the 
 general councU of the Bank asked to restrict redemptions 
 to 500,000 francs a day, beginning with January 20, 18 14. 
 This state of things lasted until April 14, 1814. Toward 
 January 20, at the height of the panic, at the moment of 
 the invasion, the Bank borrowed 6,000,000 francs, with- 
 
 41 
 
National Monetary Co mmission 
 
 out which it would have been obUged to suspend pay- 
 ments entirely. This loan, in all probability, was made 
 by one or more private bankers in Paris. 
 
 As soon as the political crisis was over, the affairs of 
 the Bank resimied their normal course. Nothing was 
 modified in its organization, although Laffitte and the 
 general council had proposed to bring the Bank back to 
 its original purpose before it had become a ward of the 
 State. It was proposed also to keep the exclusive privi- 
 lege of issue only for Paris, to give up provincial branches, 
 and to leave the election of the governor to the stock- 
 holders. But these plans could not come up for discus- 
 sion. The Ministers of Finance were perplexed with too 
 many grave problems at that moment,- and when Gaudin, 
 former Minister of Fmance under the Empire, was nomi- 
 nated governor in 1820, all hope of Hberal reform took 
 flight. Two motions had been laid before the Chambers 
 of Deputies in that interval (1814-1820), one on Novem- 
 ber 16, 1814, the other on April 13, 1818; both aimed at 
 a reaction against the imperial decrees which had reduced 
 the Bank to a state dependency. These two plans came 
 to nothing. 
 
 49 
 
 Chapter IV. — The Bank under the Restoration — Founding 
 
 of departmental hanks. 
 
 Several banks have the privilege of issue In France. The departmental banks. — 
 Conditions of issue imposed on these three banks.— Difllculty of founding 
 departmental banks. — Crisis of 1818. — From 1818 to 1830. 
 
 The liberal ideas of Laffitte and his friends, though they / 
 had not succeeded in modifying the despotic constitution 
 imposed on the Bank by the Empire, resulted at least in 
 several liberal measiu*es in another quarter. The most 
 important was the establishing of departmental banks. 
 These banks also had the privilege of issue in the centers I 
 where they were established and even in a little wider 
 circle. 
 
 They were of real service to the towns and districts! 
 where they were situated. The need of them was all 
 the greater because, as we have seen, the Bank of France, 
 after opening a number of branch offices, had closed them 
 following several years of poor returns. 
 
 Three departmental banks were founded under the Res- 
 toration; they were, let it be remembered, banks of issue. 
 Here is a short account of each of them : 
 
 The Bank of Rou^en (May 17, 181 7). — Capital, 1,000,000^ 
 francs; charter to last nine years; right of discount for 
 Rouen, Havre, Paris; right of paying interest on deposits, 
 even sight deposits (it exercised this right) ; right of issue; 
 its charter was renewed in 1826; the bank increased its 
 capital at intervals and when it disappeared in 1848, for 
 reasons that we shall explain later, the capital was 
 3,000,000 francs. 
 
 43 
 
National Monetary Commission 
 
 Bank of ATantej.— Chartered May i8, 1818; did not 
 begin operations until January i, 1822; original capital, 
 600,000 francs; right to pay interest on deposits; right 
 to discount paper on all the markets in France ; right of 
 issue; this bank, too, increased its capital at intervals; in 
 1840 it was 3,000,000 francs. It restricted its privileges 
 of discotmt to Nantes, Paris, and Bordeaux. 
 
 Bank of ^ordeam.— Chartered by royal decree Novem- 
 ber 23, 1818; original capital, 3,000,000 francs; same rights 
 as the two preceding banks. The Bank of Bordeaux went 
 through more acute crises than those of Rouen and Nantes. 
 Its capital was not increased, properly speaking, since 
 in 1843 it was still 3,150,000 francs. In the beginning 
 it had great difficulty in getting the pubHc to accept its 
 notes. People gradually got used to them, however. 
 
 As we know, the Bank of France had submitted in its 
 statutes to no special conditions for the issue of bank 
 notes. Not so the departmental banks. In the first 
 place, they had the privilege of issuing notes only for 
 their headquarters and several other towns mentioned in 
 their statutes. Then the total of their engagements pay-| 
 able at sight could in no case be more than three times 
 the metaUic reserve. But these banks, contrary to the 
 condition imposed on the Bank of France, could choose 
 their own directors, at least until 1840. 
 
 In order to estabhsh a departmental bank under the 
 Restoration, it was necessary to obtain the consent of the 
 government offices and the council of state. In the 
 offices, as well as in the council of state, there still pre- 
 vailed the formalism, slowness, and red tape by which 
 
 44 
 
 Evolution of Credit and Banks 
 
 France had been governed despotically during the Empire. 
 On the other hand, the Bank of France, although it had 
 closed its branch offices, did not see these new establish- 
 ments foimded without a certain anxiety. It used its 
 influence on the central government to delay their 
 creation. So there were many obstacles to overcome in 
 obtaining permission to foimd a departmental bank. 
 And, even when the permission was granted, the bank 
 was obliged to work within rather narrow limits. Con- 
 ditions were imposed on the directors in banking stat- 
 utes which were not of the least use in protecting the 
 interests of the public, and yet were a hindrance to the 
 extension of business. In spite of this, these concerns 
 prospered. As we shall see further on, they increased in 
 number under the Monarchy of July. The Bank of 
 France, alarmed by this competition, began anew to 
 found branch offices after the Revolution of 1830. 
 
 In 1818 the Bank suffered a crisis, caused by the demand 
 for capital, made first by France, to pay the indemnity to 
 the Allies, then by other countries, such as Austria, Prussia, 
 Russia, etc. These loans diminished the supply of specie, 
 especially in the Paris market. The cash in the coffers 
 of the Bank fell to 34,000,000 francs at a moment when 
 the sight liabilities amounted to more than 160,000,000 
 francs. This time the Bank did not ask to Hmit payments, 
 but resorted to the expedient of refusing to discount all 
 paper having more than forty-five days to run. The 
 object of this was to avoid increasing the discount rate, 
 but the proceeding is open to severe criticism. It would 
 have been better if the Bank had obeyed the law of supply 
 
 45 
 
National Monet a ry Com mjs sion^ 
 
 and demand. In Umiting discounts to short-dated bills, 
 it embarrassed merchants, who needed money all the 
 more, in that they had on hand nothing but sixty and 
 ninety day paper. They would willingly have paid a 
 higher rate for the credit they needed. On the other hand, 
 in maintaining discount at the same rate as formerly 
 during a crisis caused by a scarcity of specie, the Bank 
 gave an undue advantage to holders of short-dated paper, 
 and yet this paper was not to fall due until a month and 
 a half later. In our opinion, it is a great mistake for a 
 bank of issue not to vary the rate of discount according 
 to the fluctuations of the money market. 
 
 The history of the Bank from 1818 to 1830 offers no 
 feature sufficiently noteworthy to serve as a subject of 
 study. The total of its issue showed a tendency to in- 
 crease. In 1 8 1 8 its maximum reached 1 26,000,000 francs ; 
 in 1830, 239,000,000 francs. Its minimum was 87,000,000 
 francs in 1818, and 214,000,000 francs in 1830. From 
 1820 to 1830 the minimum of circulation or issue 
 approached the maximum. There was a Uke tendency 
 in the specie reserve. As for the commercial discounts, 
 they underwent fluctuations by periods lasting several 
 years; they diminished from 1819 to 1824, and increased 
 until' 1829, at which time there was a depression. 
 Excepting for the year 1830, this depression was some- 
 what visible until 1835. 
 
 Ill i!i' 
 
 46 
 
 Chapter V. — The Bank of France under the Monarchy of 
 July — Founding of comptoirs or branch offices — Renewal 
 of the privilege, and competition with departmental banks. 
 
 Discount crisis of 1830.— Political causes of the crisis.— Lack of intermediary 
 bankers. — Necessary evolution of credit with a single bank of issue regulated in 
 its operations.— Loans on securities, 1 834.— Formation of new departmental banks. — 
 Plurality of banks of issue. — Branch offices of the Bank of France. — Crisis of 
 1836-37.— Renewal of the privilege of the Bank. It is prepared in 1840.— The 
 representatives of the departmental banks lay a request before the authorities. — 
 The law of May 21, 1840. Extension of privilege.— The privilege is confined to 
 Paris. — The balance sheet must be published every three months. — The State 
 ceases chartering departmental banks.— The Bank keeps the rate of discount 
 at 4 per cent. Too high a rate. — Capital is cheap. 
 
 The Revolution of 1830 did not injure in the least the 
 particular credit of the Bank. Government stock did not 
 even pass through the fluctuations usual in such circum- 
 stances. But this is not true of commerce and industry 
 in general. To reHeve the embarrassment of several local 
 markets it was necessary to adopt unusual measures. 
 
 As the Bank took paper only with three signatures, the 
 Government used its influence and had a credit of 
 30,000,000 francs voted by the Chambers on October 17, 
 1830, to be applied to discounting commercial paper with 
 two signatures. A provisional establishment was opened 
 a few days after the voting of this credit to handle these 
 loans. It bore the name of Comptoir d'Escompte, and 
 lasted from October 26, 1830, to September 30, 1832, or 
 twenty-three months. It had received from the State 
 1,760,000 francs out of the appropriation of 30,000,000 
 francs. The city of Paris was authorized furthermore to 
 go security for this provisional bank with the Bank of 
 
 47 
 
m 
 
 National Monetary Commission 
 
 France to the amount of 4,000,000 francs. It was an 
 intermediary between commerce and the Bank; it fur- 
 nished the third name, and rediscounted its paper at that 
 estabUshment of issue. In these twenty-three months 
 it discounted more than 37,ooo bills, valued at over 
 20,000,000 francs. This Comptoir discounted paper on 
 pjris at 4 per cent; on the provinces at 5 per cent. 
 
 Banks of the same nature were organized in answer to 
 the same needs in certain maritime centers or ports, such 
 as Rouen, Nantes, Rochefort, and in certain manufac- 
 turing towns, such as Reims, Troyes, and a few others. 
 
 This was not a monetary crisis, like the one of 1818, 
 when France had to pay the foreign armies camped on her 
 soil, and also the war indemnity exacted by the allies. 
 The crisis of 183(1^31, which lasted until about the middle 
 of 1832, had a political cause. The Government of July 
 was not thought to be firmly estabUshed, and the ease with 
 which the Revolution of 1830 had been accompbshed 
 aroused continual fears of a new change of rule. 
 
 The Bank suffered much from this state of things. In 
 1832 the maximum figure of its commercial discounts did 
 not amount to more than 30,000,000 francs. Its reserve, 
 however, was very high, and reached a maximum of 
 282,000,000 francs, and a minimum of 217,000.000. The 
 maximum circulation in 1832 was 258,000,000 francs, and 
 the minimum 202,000,000 francs. Therefore its bank- 
 notes in circulation represented for the most part the 
 metaUic reserve. If the Bank was not of more service 
 then it is because intermediaries were lacking-that is 
 to siy, bankers who by adding their own names to the 
 
 48 
 
 Evolution of Credit and Banks 
 
 bills discounted by them, and akeady bearing two names, 
 could rediscount this paper at the Bank of France. With 
 a system in which a single bank has the exclusive privi- 
 lege of issue, accepting for discount paper with three names 
 only, or with two names accompanied by collateral secu- 
 rity, intermediary banks of discount are necessary. We 
 shall see this inevitable tendency develop little by little 
 in the organization of French banks. Even at the very 
 beginning, the Bank of France was a bankers' bank. 
 Later, we shall see it become the bank patronized by the 
 credit associations when its privilege had been extended 
 to the whole of France. As business expanded, the general 
 activity of banking operations naturally expanded also 
 We shall see, too, that the Bank of France became in thii 
 way the pivot on which revolves the whole credit system 
 of the country. 
 
 The statutes of the Bank had permitted it heretofore 
 to make loans only on short-dated state securities- the 
 law of May 17, 1834, authorized loans on all state securi- 
 ties without stipulation as to maturity. From this time 
 on the Bank made loans against deposits of French 
 government stocks. 
 
 After 1835 new departmental banks were created. In 
 1835 a departmental bank was founded at Lyons with a 
 capital of 2,000,000 francs, and a twenty-year privilege of 
 issue. The Bank of Marseilles, with a capital of 4,000,000 
 francs, was chartered the same year, and was very success- 
 ful- Ini837 another one was opened at Lille, with a capital 
 of 2,000,000 francs. The same year that of Havre was 
 chartered and in 1838 the Bank of Toulouse, with a 
 
 I97I-— 10- 
 
 49 
 
National Monetary Commission 
 
 capital of 120,000 francs, and the Bank of Orleans, with 
 a capital of 1,000,000 francs. 
 
 This was the last to be created, as the Government 
 refused to charter any others. We have already said 
 that the Bank of France was naturally suspicious of the 
 founding of these establishments, although its own 
 privilege was limited to Paris. In the beginning, how- 
 ever, the Bank was incHned to be favorable to the open- 
 ing of these departmental institutions of issue, but 
 afterwards it tried to keep them from multiplying, and 
 set about organizing branch offices in the departments. 
 
 These nine departmental banks were well administered 
 and performed much useful service. It has been ascer- 
 tained that in the very unfavorable year of 1847 these 
 banks, with a total capital of 23,400,000 francs, discounted 
 commercial paper to the amount of 850,000,000 francs — 
 in other words, thirty-two times their capital, whereas the 
 discounts of the Bank were only twenty-seven times its 
 capital. 
 
 These departmental banks, therefore, subsisted under 
 very nearly normal conditions, by virtue of rendering 
 services. They might have come to an agreement to 
 make their bank notes interchangeable, but no such 
 thing came about. 
 
 The Bank of France, from 1835 on, opened branch 
 offices in certain towns, and kept on increasing their num- 
 ber, always with the sanction of the State. They soon 
 came vmder the provision of the law of March 25, 1841. 
 Branch offices could not be formed without a state 
 charter. They were under the direction of the Bank. 
 
 50 
 
 \ 
 
 
 fv 
 
 ^ 
 
 Ev olution of Credit and Banks 
 
 The general cotmcil of the Bank fixed the rate of discount. 
 The Bank had the exclusive privilege of issue in the 
 towns where branches were established. The notes had 
 to be manufactured at Paris and furnished by the Bank 
 in denominations of not less than 250 francs. Each 
 branch office had to redeem its own notes; but the 
 redemption of a note from the central Bank in Paris by 
 a branch was optional; the same was true for Paris 
 regarding the effects of the branches. The directors and 
 censors were named by the Bank; the governor by the 
 State. As a result of this law, 15 branches were opened 
 between 1841 and 1848. 
 
 The crisis of 183^7 was caused by events in the United 
 States. President Jackson was engaged in a bitter 
 struggle with the Bank of the United States, a central- 
 ized and single bank of issue. A business disturbance 
 resulted, which made itself felt in France and England. 
 It was a monetary crisis. The coin which had left the 
 country during the last months of 1836 returned grad- 
 ually toward the end of 1837. The crisis was not a 
 serious one, and was met without much difficulty by the 
 French credit institutions. 
 
 The privilege of the Bank of France, granted at first 
 for fifteen years, was extended by the law of April 22, 
 1806, to twenty-five years, making forty years in all. 
 The Bank began in 1838 to ask for renewal, but the 
 question was not taken up in the Chambers until 1840. 
 The departmental banks, profiting by the fact that a law 
 for the Bank of France was under consideration, tried to 
 get more latitude for their own transactions. They were 
 
 51 
 
National Monetary Commission 
 
 subjected to very narrow regulations, which cramped 
 them and made it impossible for them to perform the 
 services which might normally be expected. No heed 
 was paid to the representatives of these banks or to the 
 protest that they made. 
 
 The law of May 21, 1840, continued until December 31, 
 1867, the privilege of the Bank, which was to expire in 
 1843. This extension was granted with the reservation 
 that the privilege could be changed or even withdrawn 
 on December 31, 1855, if a law passed in one of the 
 two preceding sessions of the Chamber of Deputies should 
 so decide. The capital of 67,900,000 francs was officially 
 recognized; this sum could neither be increased nor 
 diminished except by law. The Bank was authorized 
 to make loans on French Government effects of any 
 kind whatsoever. 
 
 The question of complete privilege, extending to the 
 whole of France, it is seen, does not figure in the law of 
 May 21, 1840. It was understood that the privilege was 
 renewed for Paris only, and when the Bank wished to 
 foimd branch offices it must obtain special permission 
 from the Government. That question was avoided; it 
 was not mentioned in the discussions carried on in the 
 Chambers. 
 
 Strangely enough, the necessity of pubhshing quarterly 
 reports was made a matter of debate, though it would 
 nattually seem that the first duty of a credit establish- 
 ment, especially one enjoying a privilege, is to keep the 
 public informed of its operations. It was decided, then, 
 that the Minister of Finance should publish every three 
 
 52 
 
 , J^ 
 
 ..^ 
 
 \ 
 
 Evolution of Credit and Banks 
 
 months the statement of the Bank averages for the pre- 
 ceding trimester, and every six months the result of 
 operations for the half year, including the dividend rate. 
 
 It should be mentioned that from this day on the 
 State issued no more charters for departmental banks. 
 The Bank of France, on the other hand, increased its 
 branch offices. A certain number were opened each 
 year from 1841 until 1846. 
 
 During the whole period from 1 840-1 846 there were 
 no disturbances or difficulties of any kind. The busi- 
 ness of the Bank prospered, its credit extended. The 
 departmental banks, in spite of the requests of their 
 representatives, failed entirely in their attempt to get 
 more liberty in their operations. 
 
 The circulation of the Bank continued to increase 
 from 1840 to 1846. In the latter year it reached a 
 maximum of 311,000,000 francs and a minimum of 
 243,000,000 francs. But, on the other hand, the com- 
 mercial discoimts were not on the increase. As for the 
 specie reserve, it amounted in 1846 to a maximum of 
 252,000,000 francs and a minimtun of 150,000,000 francs. 
 
 It is true that there was at that time a dearth of 
 business transactions, but there is no doubt that the 
 Bank held its discount rate at too high a figure, con- 
 sidering the abundance of capital from 1840 to 1846. 
 Even the State, finding it cheaper to borrow elsewhere, 
 did little business with the Bank from 1837 to 1846. 
 
 However, in spite of this calm, France was about to 
 be visited by a succession of panics, which had various 
 causes, in the midst of which the Monarchy of July was 
 destined to go under. 
 
 S3 
 
 1 
 
\ f 
 
 Chapter VI. — The beginnings of the railroad industry — 
 Panics of 1846, 184'/, 1848 — The departmental banks of 
 issue are incorporated with the Bank of France, which 
 becomes the sole bank of issue. 
 
 Delay in constructing railroads in France. The period from 1823 to 1839. — The 
 extension of the railway system in France. The law of June 11, 1842.— Call for 
 credit for the construction of the railroads. — Bad crops in 1846. Wheat famine 
 in France. — The panic of 1846-47. — Measures adopted by the Bank.— Error of the 
 Bank. — End of the financial crisis of 1847. — The Bank resumes the 4 per cent 
 discount rate December, 1847.— Bills for 200 francs.— Political crisis of 1848. 
 Panic.— Able and courageous attitude of the administration of the Bank of France 
 (1848).— Forced currency. Decree of March 15, 1848.— Notes of small denomina- 
 tions. Their advantages and disadvantages.— Comparison of the crisis of 1848 
 with that of 1846-47.— Elements of time and place which must be considered.— 
 Several departmental banks issue bills for 25 and 50 francs.— Duty of a bank of 
 Issue in panic times.— Weekly publication of the Bank balance sheet, hitherto 
 published only once in three months. — No clearing house {chambre de com- 
 pensation) in Paris at that time.— Departmental banks.— Difficulties experienced 
 by departmental banks. Possible solutions of these difficulties. — Incorporating of 
 the departmental banks of issue with the Bank of France on April 27 and May 2, 
 1848. 
 
 Capital was abundant and idle in France from 1 840 to 
 1846; the rate of interest had consequently lowered. On 
 the other hand, the construction of the new means of 
 transportation — railroads — had not gone on as rapidly in 
 France as in certain other coiuitries. From February 26, 
 1823, when the first grant was made, until 1840, a little 
 over 100,000,000 francs had been used for building rail- 
 ways. In 1837 there were in France only about 149 
 kilometers of railroad of general utility and 27 kilometers 
 of industrial railroads. At the end of 1841 the Govern- 
 ment had issued concessions for 805 kilometers of indus- 
 trial railroads; it had itself built 78 kilometers. In 
 reality, at the end of 1841 there were only 575 kilometers 
 of lines of general utility being operated and 65 kilometers 
 of the industrial lines. 
 
 54 
 
 I 
 
 #*\ 
 
 ir:* 
 
 ^t:"? 
 
 Evolution of Credit and Banks 
 
 The critics in the Chambers who blamed the Govern- 
 ment for not favoring and making easy the construction 
 of the railways, added to the fact that money was cheap, 
 induced the Government to take action. The law of June 
 II, 1842, was made for the purpose of hastening the ex- 
 tension of railways in France. It should be mentioned that 
 the State intervened as the associate of the companies. 
 
 In 1842 the number of miles of railroad for which grants 
 had been made was 947 kilometers, and 4,133 kilometers 
 at the end of 1847. The lines in operation had risen from 
 665 kilometers at the end of 1842 to 1,927 kilometers at 
 the end of 1847. 
 
 After going too slowly at first there was now a tendency 
 to go too fast. The obligations resulting from grants 
 made, added to the sums already spent, amounted to a 
 total of nearly 2,000,000,000 francs at the end of 1846. 
 
 The companies had appealed for large sums, and peo- 
 ple gradually got used to loans that would not have been 
 thought so easy to carry through a few years before. 
 And it was at this moment above all that the real char- 
 acter of the French people was revealed ; in a word, their 
 resolute love of economy, which may be best summed up 
 by the word prudence. This has been the mainstay of 
 France for the last fifty years or more, and that is why 
 recovery came quickly after the disasters of the war of 
 1870-71. But if the spirit of prudence is a useful factor 
 in the wealth of a country, it has one disadvantage when 
 it is an only factor: It destroys or lessens initiative; to 
 a certain degree it paralyzes action ; it does not dispose to 
 boldness in industrial and commercial enterprises. 
 
 55 
 
 \ 
 
»l 
 
 National Monetary Commission 
 
 The call for capital had lessened the supply in the French 
 market. Another cause of hard times arose, too, in 1846. 
 That year the crop of cereals was poor in most of the 
 European coimtries, especially in France and England. 
 These two countries were obUged to purchase foreign 
 grain. The piu-chase of this product abroad increased the 
 figiu'e of current imports and had to be paid for in specie. 
 The Bank of France would, therefore, have to be prepared 
 to see its metallic reserve diminish. 
 
 The extent of the famine was imderstood and foreseen 
 as early as the spring. From that time commerce set 
 about making foreign purchases. However, the Bank did 
 not feel the effect of these operations until July. From 
 1846 imtil the end of January, 1847, the reserve dimin- 
 ished by 173,000,000 francs. On December 31, 1846, 
 the specie in the coffers was scarcely 71,000,000 francs. 
 During the preceding month of October 53,000,000 francs 
 had been paid out at the Bank, in November more than 
 43,000,000 francs; or nearly 100,000,000 francs in two 
 months. This demand for specie ceased at the end of 
 January, because that was the time of the annual return 
 of specie, caused by the falling due of payments on sales 
 made by exporters. 
 
 The Bank then resorted to unusual means. It collected 
 at great expense about 2,000,000 francs in specie from the 
 departments, and sacrificed its government stock to make 
 the purchase of about 45,000,000 francs' worth of bullion. 
 These meastu*es were excellent in principle and due to 
 the prudence of the Bank's management, but they were 
 not all equally useful. At any rate the surrender of 
 
 56 
 
 
 Evolution of Credit and Banks 
 
 50,000,000 francs capital in the form of government 5 
 and 3 per cents, payable in Russia, was not necessary, 
 for at that moment the reserve had gone up again to 
 110,000,000 francs. This transaction with the Russian 
 Empire resulted, however, in making a better rate of 
 exchange for the French importers. 
 
 The Bank made the mistake of increasing too late the 
 rate of discount. It had maintained it at 4 per cent for 
 a long time, when the current rate was less. Then the 
 Bank kept the rate at 4 per cent during the whole time 
 of the panic and put it up to 5 per cent January 14, 1847. 
 It should have raised it sooner and not at the time when 
 all the metallic deposits were commencing to flow in. 
 Without any question, a privileged bank, for the very 
 reason that it is privileged, ought not in time of crisis to 
 limit discounts in order to save its reserve at all costs. 
 It ought to serve commerce and not tend to restrict its 
 issue. It should supply credit abundantly; the privilege 
 makes this a duty. This being the case, the Bank came 
 to the rescue too late. 
 
 The failiu-e of three railroad companies lessened the 
 expenditures on great pubUc works. 
 
 All the operations of the Bank at the time of the panic 
 just described, together with the slackening of work on 
 the railroads (and also the gradual disappearance of the 
 difficulties coming from the grain famine of 1846), helped 
 to restore business to its normal course. At the end of 
 December, 1847, the Bank resumed the 4 per cent dis- 
 coimt rate that it had always maintained since 1822. 
 This stabiHty may well seem strange, because in the space 
 
 57 
 

 
 National Monetary Commission 
 
 of twenty-five years the price of capital, even in a 
 calm market, must necessarily vary. A fixed discoimt 
 rate has certain important advantages; it enables com- 
 merce to calculate the price of discount in advance 
 and to make a very nearly exact forecast of costs in its 
 plans. But, on the other hand, a bank of issue, placed 
 in a position to see the fluctuations of capital and the needs 
 of commerce, should warn the merchants, its patrons, 
 and the whole body of people having business interests, of 
 the change in the state of credit. It should signal any 
 degree of scarcity by raising the rate of discount. At 
 times this increase is nothing more than a warning, in 
 which case it should be slight. In certain other cases, 
 when money is easier, the Bank must not hesitate to 
 lower the rate of discount. In fact, the discount rate 
 of a bank of issue, especially if it is the only one and with 
 a privilege, is a sort of official barometer which private 
 banks consult in fixing their own disount rate. * As these 
 private banks may rediscount their commercial paper at 
 the bank of issue, they usually follow its discount rate. 
 This was especially the case until the great credit com- 
 panies began to make discounts on a vast scale with the 
 large deposits that the public gradually entrusted to them. 
 
 The law of June lo, 1847, reduced the denomination of 
 the smallest bill issued by the Bank of France to 200 
 francs. These bills were not put in circulation until the 
 28th of the following October. 
 
 If the Bank of France was no longer seriously disturbed 
 by the crisis, the trouble was not entirely at an end for com- 
 merce, which was still straightening out business entangle- 
 
 I 
 
 Evolution of Credit and Banks 
 
 ments and asking for credit and specie from the private 
 
 banks. 
 
 When the revolution of 1848 broke out, on February 24, 
 these private bankers lost their heads completely. They 
 wrote to their correspondents in the provinces that they 
 were obliged to stop business and go into Hquidation. 
 This decision increased the panic in Paris, and caused it 
 to spread to the departments, where commerce and the 
 banks had been disposed to stand up against the shock. 
 
 The Paris merchants, seeing this defection, appUed to 
 the new government for aid. The latter decreed on 
 March 7, 1848, the formation of the discount bank {Comp- 
 toir d'Escompte) which we shall study later. 
 
 Meanwhile, the Bank of France alone was left standing 
 to bear the brunt of the crisis. It faced the situation 
 with courage and abiUty. The Paris bankers, we have 
 said, were overcome by fear, and having already rashly 
 engaged their resources, could not come to the aid of com- 
 merce. The Bank, well advised at this conjuncttue, did 
 not restrict discoimt and did not increase the discount 
 rate, which still remained at 4 per cent. In sixteen week 
 days, from February 26 to March 15, the Bank discounted 
 bills for 1 10,000,000 francs. The Treasury happened to 
 need money and withdrew the sum of 77,000,000 francs 
 from its current account, where it had a credit balance of 
 125,000,000 francs. The provincial branches followed the 
 same course. In the same space of time they discounted 
 commercial bills for 43,000,000 francs, and in addition put 
 1 1 ,000,000 francs at the disposal of the public services for 
 the most urgent needs. 
 
 58 
 
 59 
 
! 
 
 National Monetary Commission 
 
 Meanwhile, the Bank of France found itself in the 
 presence of a political panic which no argument could 
 calm. It resisted the shock without flinching. Between 
 February 26 and the evening of March 14 the metallic 
 reserve fell from 140,000,000 francs to 70,000,000 francs; on 
 the evening of the 15th it had fallen to 59,000,000 francs. 
 
 Under these conditions the general council of the Bank 
 asked the Government (i) that the bank notes should 
 have forced currency (or forced rating) — that is to say, 
 that the Bank should no longer be obliged to redeem 
 them in specie; then, that they should be considered legal 
 tender throughout the whole country — in other words, 
 that every creditor should be obliged to receive them in 
 payment of a debt, private individuals as well as the 
 financial agents of the state; (2) that the Bank of France 
 be permitted to issue loo-franc notes (200-franc notes had 
 already been authorized, as we have seen, by the law of 
 June 10, 1847). In panic times when coin is either scarce 
 or hoarded the advantage of small notes is considerable, 
 since they make it possible to settle small transactions. 
 
 It was even proposed to issue bills of still smaller de- 
 nominations, such as 50 and 2 5 -franc notes. But the 
 general council of the Bank objected, saying that the issue 
 of bills for 50 and 25 francs would send the metallic 
 money out of the country, causing it to be exported. 
 This problem can not be solved a priori. It is important 
 to know in time of crisis whether the scarcity of coin is 
 caused by a serious lessening of the national metallic 
 supply, brought about, for example, by unfavorable ex- 
 changes over a considerable space of time, or by an excess 
 
 60 
 
 Evolution of Credit and Banks 
 
 of speculation. In the latter case the supply of metallic 
 money may not have diminished, but as transactions can 
 no longer be settled except in coin in a large measure, 
 coin is more in demand and becomes scarce. But 
 if the scarcity of coin is due to a political panic, as in 
 1848, when everyone was afraid of being dispossessed of 
 his property, then it is a question of hoarding. The hold- 
 ers of coin hide as much precious metal as they can, judg- 
 ing that this is wealth par excellence, the wealth that can 
 be taken along in case of flight to a foreign country. 
 
 In 1848, the crisis was political rather than commercial. 
 It had not the same causes as the one of 1846 and 1847, 
 which was produced by the flow of coin abroad to pay 
 for wheat bought in Russia and elsewhere as a result of 
 the grain famine in France. The famine extended to 
 England, so that both the Paris and London markets were 
 deprived at the same time of their supply of metallic 
 money for their foreign payments. In 1848 it was the 
 political panic that made people hide crowns and gold 
 pieces. . 
 
 But in a land where the memory of assignats was barely 
 50 years old, people were terrified, and it would have been 
 useless to issue 50 and 2 5 -franc notes; in any case, can we 
 reproach the Bank for not consenting to the issue of small 
 notes ? We do not think so. At this time the Bank had not 
 yet the privilege of issue for the whole of France ; it was face 
 to face with a provisional government ; the existing means 
 of information and communication did not make it possi- 
 ble to keep precise track of affairs in provincial France and 
 in foreign countries. The members of the general council 
 thought that the loo-franc notes were probably small 
 
 61 
 
II 
 
 /' 
 
 \ 
 
 National Monetary Commission 
 
 enough, for the reason that they viewed bank notes pri- 
 marily as paper money for the use of bankers or merchants, 
 while bills of the denominations of 50 and 25 francs were 
 intended for private individuals — for the small trade which 
 was not friendly to credit paper and was more easily agi- 
 tated and thrown into a panic. However, it should be 
 pointed out that in 1848 it was the biggest bankers in 
 Paris who took fright and suspended payments. 
 
 Questions of credit, both in normal and abnormal times, 
 involve psychological elements peculiar to each nation, 
 and these must be carefully taken into accoimt. The 
 compass of credit which normally points due north runs 
 wild and is no longer a guide in panic times. 
 
 However, it is worthy of note that the representatives 
 of the Government in the provinces, having been invested 
 in some sort with dictatorial powers, gave the depart- 
 mental banks permission to issue notes for 50 francs, and 
 even for 25. These bills were circulated, especially at 
 Marseilles, not only in banking and commercial circles, 
 but also among the public. But if the Bank did not 
 consent to issue small bills, it had nevertheless the good 
 sense to give specie for the payment of workingmen and 
 employees, as well as for the purchase of provisions. It 
 made use of its notes for current commercial needs, for 
 settling accounts, for credit transactions. 
 
 The general cotmcil of the Bank asked permission, 
 besides, to increase the issues to a maximum of 
 350,000,000 francs. This was the necessary complement 
 of the first two measures. Moreover, it is not in panic 
 times that the total of the issues of a bank of circulation 
 
 62 
 
 
 Evolution of Credit and Banks 
 
 should be reduced or rendered stationary. Its function 
 is more useful at this moment than at any other; the 
 bank should create credit with its notes, being careful to 
 discount nothing but substantial commercial paper. In 
 this way commercial houses which are worthy of credit 
 are saved from sudden liquidation. 
 
 The Bank reaUzed the necessity of not cutting off 
 supplies from commerce and industry at the critical 
 moment. It came to the rescue inteUigently, and had no 
 occasion to regret it. In this time of general confusion 
 the Bank was ably directed. 
 
 Nothing is more calculated to inspire confidence in a 
 credit establishment than the frequent publication of its 
 true situation. This is its bill of health, and it ought 
 to state its condition with great accuracy. For if the 
 balance sheet indicates a falling off in one general direc- 
 tion, or an unusual increase in another, the public is fore- 
 warned, and this estabhshment may be justified by these 
 facts in adopting measures which the pubhc would not 
 otherwise understand. 
 
 There was no clearing house in Paris at that time. 
 The one which exists to-day was not founded until 1872. 
 Checks were used little or not at all ; their clearly defined 
 legal existence hardly antedates the law of August 14, 
 1865. The departmental banks, being also affected by 
 the panic of 1848, asked for a forced currency for their 
 notes and an increase in the total of their issues, which 
 had been fixed by law without regard to their capital. 
 
 These measures were a mistake, because these depart- 
 mental banks could not circulate their notes except in the 
 
 63 
 
 •:| 
 
i 
 
 V 
 
 } 
 
 National Monetary C ommission 
 
 towns where they were severally located. These notes 
 were nothing but local currency; forced currency, there- 
 fore, of no use in bringing about a transfer of specie from 
 one town to another. The financial agents of the State 
 could not take these notes, since they were not cturent in 
 Paris; they could not send them to the Minister of Finance. 
 The Bank of France, on the other hand, through its branch 
 offices, which used its notes, could make these moves. 
 For the departmental banks they were disastrous; they 
 created difficulties which brought about their disappear- 
 ance and their merging with the Bank of France. The 
 mistake of the departmental banks in asking for a forced 
 currency was in not asking at the same time for the 
 unification or uniformity of their notes. Inasmuch as 
 their currency became forced and their maximum issue 
 was fixed by the State, and inasmuch as bills were noth- 
 ing but paper money, it would have been necessary to 
 make them identical for all the banks. But the best 
 operation of all would have been to have their commer- 
 cial paper rediscotmted by the Bank of France in return 
 for its bills. Then, when depositors came to these estab- 
 lishments to ask back their ftmds, they could have been 
 reimbursed in money which was legal tender everywhere. 
 There was an imdoubted error and lack of foresight on 
 the part of the departmental banks. They had failed to 
 use the most elementary prudence in not arranging 
 among themselves for the exchange on demand of their 
 notes. 
 
 This fusion was accomplished by two decrees. The first 
 authorized the merging with the Bank of France of the 
 
 64 
 
 I 
 
 Evolution of Credit and Banks 
 
 banks of Rouen, I^yons, Havre, I^ille, Orleans, Toulouse, 
 and Marseilles, and the decree of May 2 merged the banks 
 of Nantes and Bordeaux. 
 
 Here are a few figures relating to these nine banks to 
 show their importance as a whole. Their total capital 
 amounted to 23,350,000 francs. 
 
 [Million francs.] 
 
 Year. 
 
 1840 
 1843 
 Z844 
 1846 
 
 1847 
 
 Average 
 
 of 
 metallic 
 
 Average 
 discounts. 
 
 reserve. 
 
 
 23.9 
 
 50.0 
 
 32-4 
 
 55.8 
 
 36.6 
 
 64. a 
 
 43-7 
 
 77- a 
 
 41.7 
 
 85.0 
 
 * 
 
 
 Average 
 circulation. 
 
 54.7 
 
 66.9 
 74-3 
 86. s 
 90. I 
 
 They had all made profits for shareholders. The bank 
 of Lyons yielded a dividend of nearly 29 per cent in 1847. 
 
 The crisis led to their disappearance, and estabUshed, 
 in fact, the monopoly of the Bank of France as a bank 
 of issue. The latter owed this advantage to the ability 
 of its administrators, to the lack of cooperation among 
 the departmental banks, and, finally, to the tendency of 
 the French to centralize everything. 
 
 1971 — 10 
 
 65 
 
 k'.!ii 
 
 
Chapter VII.— A brief survey of the general course of busi- 
 ness during the first half of the nineteenth century— Credit 
 and industrial beginnings. 
 
 Influence of individual directors in the administration of a bank.-The influence of 
 M T KGautier, deputy-governor of the Bank, on the preceding events.-A glance 
 
 baikward.-Comparison of French foreign conunerce before the Revolution and 
 during the first thirty years of the nineteenth century.-Railroad beginnings -Eco- 
 nomic movement created by railroads.-Foreign trade develops.-It doubles in 
 seventeen years.-Progressive increase of the operations of the Bank of France.- 
 Kind of credit to be given by a bank of issue. Commercial credit.-Loans on secu- 
 rities -The kind of credit a bank of issue should not give. Industrial loans.-Dan- 
 Eers of certain inconvertible funds for banks of issue. -Foundation o^ industrial 
 foan banks (comman<i*/e).-TheCaisse G6n6raledu Commerce etdel Industrie, 
 founded by Laffitte.-Issue of sight biUs to bearer and to order by J. Laffltte.-Inevi- 
 table disappearance of this concern in the panic of 1847.-Services rendered by 
 Laffitte's bank.-Other establishments, modeled after the Caisse Laffitte.-These 
 establishments disappear.-Causes of their failure.-Panic of 1848. Joimdhig of 
 Comptoirs d'Escompte by the provisional government of 1848.-The Comptoir 
 d'Escompte of Paris and the provincial Comptoirs. Their basis.-Loans on 
 collateral. Creation of surety companies. {Sous -com ptmrs de oaranti^) 
 Beginnings of the Comptoir d'Escompte from March 4 to August 31, 1848.- 
 Provincial Comptoirs.-Important fact. The general warehouses. 
 
 The Bank of France became a sole bank of issue, 
 much more as a resuh of unforeseen circumstances than by 
 reason of any consistent plan or fixed poUcy. Singularly 
 enough, it was a revolutionary government which in actual 
 fact was largely responsible for handing over to the Bank of 
 France its complete monopoly. It was during a poHtical 
 crisis when the theories most subversive to capital were 
 put forward that the directors of the Bank showed the 
 most decision and daring. To be sure, the directors had 
 before them the example of past panics. However, it is 
 important, too, to take into account the moral and tech- 
 nical worth of the men who direct an establishment. At 
 the time of the panics of 1846, 1847, and 1848 the gov- 
 ernor of the Bank was Count d'Argout, who had been 
 
 66 
 
 i " I k 
 
 % '«. 
 
 Evolution of Credit and Banks 
 
 nominated September 5, 1836, and remained in oflSce 
 until June 10, 1857. It would seem that this personage 
 was not remarkable, at least in a business way. But he 
 had with him a deputy governor named J. E. Gautier, 
 who had formerly been a deputy from la Gironde and a 
 peer of France. Gautier was very well up in affairs of 
 credit. He had been nominated first deputy governor in 
 1833, and held the post until August, 1857. He published 
 astudyof the first order entitled: "Banks and Credit Insti- 
 tutions in America and Europe,"^ in which are found the 
 true qualities of a banker who is thoroughly well informed 
 in the proper duties of a bank of issue. J. E. Gautier 
 published this study in 1839, six years after entering the 
 Bank; without any doubt he had a predominating influ- 
 ence on the conduct of affairs at difficult moments. 
 
 The French Revolution was the bankruptcy of royalty 
 much more than the bankruptcy of France itself. The 
 state finances were in a disastrous situation, but French 
 society, considered in its economic elements, was flourish- 
 ing, although hampered by narrow and antiquated legis- 
 lation. These obstacles, imposed by the ancient mould 
 of a decrepit organization, were all the more felt because 
 France experienced the same need of expansion that was 
 beginning to torment the other great civilized nations of 
 the world at that time. 
 
 As for foreign commerce, according to trustworthy esti- 
 mates, it might be fixed at the end of the reign of Louis 
 XVI at about 1,000,000,000 francs, probably even a little 
 more. Under the First Empire, with boundaries much 
 
 ^Des Banques et des institutions de credit en Amerique et en Europe, pub- 
 lished in the EncyclopSdie du Droit, Vol. II. • 
 
 67 
 
National Monetary Commission 
 
 ^^^ • _ 
 
 Evolution of Credit and Banks 
 
 wider, it amounted to only 933,000,000 francs. Under 
 the Restoration, if general commerce is considered, it 
 reached that figure only in 1825.'' At any rate during the 
 whole Restoration period special commerce did not reach 
 a biUion. Its highest figure was 987,000,000 francs in 
 
 1829. 
 
 Let us note that the imports which furnished the 
 country raw materials for manufacttires did not equal 
 until 1830 the total of imports of 1788 ; that is, 573,000,000 
 
 francs. 
 
 So it took France forty years to regain the ground 
 that it had lost in the world's market. It is enough to 
 tell briefly why this recovery was so slow and tedious 
 after the terrible years of the Revolution. The reasons 
 
 are: 
 
 The wars of the Constdate and the Empire, which gave 
 little opportunity for estabUshing lasting international 
 
 relations. 
 
 The restrictive measures adopted by Napoleon against 
 foreign commerce (continental blockade, etc.). 
 
 The changes of government and the two invasions of 
 
 1814 and 1815. 
 
 The payment of indemnities to the allies, and the 
 process of recovery of the country after the defeat and 
 the struggles of the various political parties. 
 
 The ultra-protectionist measures adopted by the 
 Restoration. 
 
 o General commerce {commerce geniral) includes: (i) Special com- 
 merce; (2) transitory commerce — that is, merchandise which merely 
 passes through the country. The precious metals are not included in 
 these figures. 
 
 In 1830 the usefulness of railroads begins to dawn 
 and, the possibilities of the steam engine. In France the 
 new method of transportation foimd many opponents. 
 It was not until 1841 that the railroads began to 
 have an economic effect on transportation and trade. 
 Here is a table which shows their slow advance until 
 1847: 
 
 Year 
 
 1841 
 Z843 
 1843 
 X844 
 184s 
 1846 
 
 1847 
 
 Number of 
 kilometers 
 in opera- 
 tion. 
 
 Gross re- 
 ceipts, in 
 million 
 francs. 
 
 Net re- 
 ceipts per 
 kilometer, 
 in thousand 
 francs. 
 
 Number of 
 passengers, 
 in millions. 
 
 573 
 
 13.9 
 
 9.3 
 
 6.3 
 
 600 
 
 14. 3 
 
 8.8 
 
 6.3 
 
 839 
 
 31. 
 
 13-4 
 
 7.3 
 
 831 
 
 38.3 
 
 17.3 
 
 8.1 
 
 880 
 
 31.9 
 
 18.8 
 
 8.8 
 
 1.322 
 
 41. 1 
 
 30. 6 
 
 10.4 
 
 1.832 
 
 65. 2 
 
 32. 4 
 
 13.8 
 
 Tons of 
 merchan- 
 dise, in mil" 
 lion tons. 
 
 It is plain that the influence of the new transportation 
 upon the movement of merchandise was very slight, since 
 in 1847 these railwavs had transported only 3,500,000 
 tons.* 
 
 But the construction of these lines had brought about 
 great business activity in the matter of borrowing capital 
 and piu-chasing the raw materials necessary for the 
 building as well as for the purchase or construction of 
 equipment. The railroad was not only a stimulus for 
 commerce and industry, but it was itself an industry, and 
 one of the largest, even, in each country by virtue of 
 the capital engaged and the horsepower of its locomo- 
 tives. In other directions, through new inventions, 
 
 o The French ton is 1,000 kilograms. 
 
 68 
 
 69 
 
National Monetary Commission 
 
 through the increase of comfort under the Government 
 of July (1830- 1 848), domestic trade was developed at 
 the same time as foreign trade. Industry was influenced 
 by this fact; it became concentrated; large enterprises 
 were founded; moderate-sized enterprises consolidated 
 in response to the new conditions of the manufacturing 
 industry in which steam engines and power looms were 
 henceforth the chief factors. 
 
 Here are figures giving the increase of our foreign com- 
 merce from 1830 to 1847: 
 
 [Million francs.] 
 
 Evolution of Credit and Banks 
 
 Year. 
 
 1830 
 
 1835 
 1840 
 
 1845 
 1846 
 
 1847 
 
 General 
 commerce. 
 
 Special commerce. 
 
 Exports. 
 
 Imports. 
 
 I. 311 
 
 489 
 
 453 
 
 I. 595 
 
 520 
 
 577 
 
 2,063 
 
 747 
 
 695 
 
 2.428 
 
 856 
 
 848 
 
 2.437 
 
 9ao 
 
 852 
 
 2.339 
 
 956 
 
 720 
 
 Total. 
 
 94 a 
 
 1.097 
 1,442 
 
 1,704 
 1,772 
 1.676 
 
 Commerce, then, doubled in seventeen years — general 
 commerce as well as special commerce ; there was a falling 
 off in 1847 only because of the crisis. However, the im- 
 portations in 1847 and in 1846 increased because of the 
 purchase of foreign grains during the famine. What were 
 the principal transactions of the Bank of France dviring 
 these seventeen years ? The interesting point is to see the 
 total of its yearly discounts and the discount rate. We 
 will give merely the figures for each five years, except for 
 the last two years, 1846 and 1847 — at the panic time. 
 
 Discount of commercial paper. 
 [Million francs.] 
 
 Year. 
 
 1830 
 
 1835 
 1840 
 
 184s 
 1846 
 
 1847 
 
 Paris. 
 
 909 
 
 485 
 
 932 
 
 1.007 
 
 1. 194 
 
 I. 136 
 
 Branches. 
 
 179 
 396 
 
 431 
 481 
 
 Total. 
 
 909 
 
 485 
 
 1. 112 
 
 1.403 
 1,62s 
 
 1. 817 
 
 Rate of 
 discount. 
 
 Per cent. 
 
 4 
 4 
 4 
 4 
 
 4 
 
 The total of discounts in 1848 was, however, less than 
 that of 1847, and amounted to only 1,544,000,000 francs. 
 The average reserve, which was 145,000,000 francs in 
 1830, was in 1840 nearly 247,000,000 francs; in 1846, 
 210,000,000 francs, and fell in 1847 to 122,000,000 francs, 
 then went up in 1848 to an average of 176,000,000 francs. 
 
 As for notes in circulation, their averages were : In 1830, 
 223,500,000 francs; in 1840, 223,500,000 francs (the same 
 figure); in 1846, 271,000,000 francs; in 1847, 251,000,000 
 francs; in 1848, 342,000,000 francs. 
 
 The signs of an increasing economic movement were not 
 lacking. However, the Bank of France, a bank of issue, 
 gave and could give in that period of industrial and com- 
 mercial growth nothing but so-called commercial credit, 
 discounting commercial paper having a maximum matu- 
 rity of three months. A bank of issue, which must always 
 redeem its notes on demand, would be taking risks if it 
 immobilized or rendered inconvertible its capital in other 
 imcertain operations. There is, indeed, one other opera- 
 tion, that of loans on securities, but here everything de- 
 pends on the nature of the securities and the sum loaned 
 
 n 
 
 70 
 
 71 
 
National Monetary Commission 
 
 Evolution of Credit and Banks 
 
 U 
 
 in relation to the quoted value of the security on the 
 Bourse. This operation may be a good one, or it may 
 serve as a pretext for very risky transactions, for there is 
 a tendency here to tie up capital if the security deposited 
 as collateral has not a current value on the stock market 
 and can not be easily sold or realized on if need be. 
 
 Therefore, a bank of issue can only make advances on 
 securities of recognized value, which are not hkely to 
 depreciate easily. In reality, a bank of issue must not 
 and can not finance {commandite) industrial enterprises; 
 that is to say, lend capital, in any form whatsoever, to 
 \ create or transform an industry. This kind of operation 
 demands many months and even years, usually, to give 
 results. Meanwhile, the capital is tied up, and can not 
 be used in case of need to redeem the bank notes, which 
 should above all represent (i) either specie in the vaults, 
 (2) or commercial discounts which can be speedily con- 
 verted into money, or, finally, (3) negotiable securities, but 
 for small sums only. 
 
 Also, when banks of issue hold government securities 
 to represent their notes, they have in reality nothing but 
 inconvertible funds. For, in case of a panic, they would 
 hesitate to flood the market with a quantity of these 
 securities all at one time; seciu-ities or government stock 
 would depreciate as a result of being offered suddenly, 
 thus diminishing the credit of this particular Government, 
 most probably, too, at a moment of poHtical crisis or war, 
 exactly when the State needed all its credit. 
 
 The Bank of France did not depart from this line of 
 conduct. If in 1848 it helped industry to some extent 
 during the panic, it was with prudence. 
 
 72 
 
 There was a lack, therefore, of credit concerns in France 
 to aid the progress of industry in general, and the railroad 
 industry in particular. 
 
 Several of these concerns were founded under the pres- 
 sure of stUTOunding circumstances. People began to 
 reaUze vaguely that new economic conditions were de- 
 manding new forms of credit. But it will be seen that 
 these estabHshments, although they were useful, were not 
 fitted for the part they were supposed to play. 
 
 One of the most important of them was the one called 
 the Caisse Ginhale du Commerce et de VIndustrie, founded 
 by Jacques Ivaffitte, who for a long time had had a com- 
 mercial bank, and then had been ruined by engaging in 
 politics. He then gave up pubhc affairs and worked to 
 found a bank of a new kind, intended to aid industrial 
 development. 
 
 Like all the concerns of this kind founded then, it was 
 chartered under the form of a limited Uabihty stock com- 
 pany {sociHe en commandite par actions) , since the Council 
 of State was unwilling to charter banking concerns under 
 the form of joint-stock companies. The Caisse Genkrale 
 du Commerce et de V Industrie opened its offices October 
 7, 1837. Its nominal capital was 55,000,000 francs; the 
 capital paid in was only 15,000,000 francs, itself a very 
 large sum for that time. The foundations of this credit 
 concern were very broad, too broad even, for it was 
 to engage in all kinds of financial operations, take all 
 kinds of risks. This was a new idea, and demanded a 
 well-defined and rigorous method of procedure — the use 
 of its own capital to the exclusion of deposits in running 
 
 73 
 
• 
 
 National Monetary Commission 
 
 accounts, which are too mobile to be used for backing 
 up and financing industries. This house made discounts 
 and collections, received nmning accounts, made loans 
 on securities, and advanced funds for silent partner- 
 ships in industrial enterprises, handled state loans, etc. 
 In spite of the monopoly of the Bank of France, Laffitte 
 also wanted to issue a sort of credit paper of his own, 
 with a view to aiding the operations of his house. To get 
 aroimd the difficulty, he decided to issue sight bills to 
 bearer and to order. As for time of maturity, there were 
 several kinds, such as five, fifteen, and thirty-day notes. 
 These bills bore an increasing interest, according to the 
 length of time of matiuity. They could not circulate ex- 
 cept with an indorsement in blank. For interest-bearing 
 notes, the interest to date was added at each transfer. 
 
 This circulation was neither as simple nor as quick as 
 that of the bank note proper, but because the notes were 
 interest-bearing they were readily accepted. In 1837-38 
 the total issue of this paper went beyond 60,000,000 francs " 
 It fluctuated afterwards, until 1843, between 35,000,000 
 and 58,000,000 francs. Laffitte died in 1844 and was 
 replaced by three managers. From this time the issue 
 rose to 80,000,000 francs. In 1847 the Caisse Gen^rale 
 du Commerce et de T Industrie ceased operations, being 
 ruined by the panic. This was a natural result, given 
 the method pursued and the multiplicity of risks incurred 
 by the bank. 
 
 Nevertheless, it had been useful. In 1 837-38 the number 
 of bills discounted was 220,000, representing a sum of 
 more than 276,000,000 francs. These figures grew larger 
 
 oThe average circulation was about 15,000,000 francs. 
 
 74 
 
 
 J ,,.: 
 
 Evolution of Credit and Banks 
 
 and in 1844, the year when Laffitte died, the number of 
 bills discounted was 476,000, making a total of 358,000,000 
 francs. 
 
 The Comptoir GSnSral du Commerce, called the Caisse 
 Gartner on, was founded April 17, 1843; then the Caisse 
 Centrale du Commerce et des Chemins de fer was organized 
 with a capital of 7,500,000 francs, under the management 
 of M. Baudon. Still others, the houses of B^chet, Dethomas 
 & Co., with a capital of 15,000,000 francs, and Cusin, 
 Legendre & Co., with 2,000,000 francs capital, followed this 
 movement, etc. All these banks suspended payments in 
 the crisis of 1847. We have told what a panic burst out 
 in Paris and the provinces as a result of their sudden 
 decision to close their doors. 
 
 In reality these banks, some of which negotiated 
 railroad securities, should not have made discounts, 
 received deposits from merchants, or consented to open 
 running accounts; they had another mission to fulfil 
 with the capital belonging to them. The crisis would 
 scarcely have affected them at all if they had kept within 
 the limits of the functions for which they were intended, 
 and which were to be especially assigned to them later. 
 
 We have said above that the greater number of the 
 Paris bankers had suspended payments during the panic 
 of 1848, so that there was no longer any intermediary 
 between the Bank of France, which accepted only securi- 
 ties with three names, and the commercial public. Now, 
 the third name had been added by the intermediary banks. 
 The provisional government, ten days after the revolu- 
 tion of February 24 had put it in power, hit upon the 
 idea of founding a Comptoir d'Escompte in Paris. The 
 
 75 
 
H 
 
 K 
 
 National Monetary Commission 
 
 decree establishing the Comptoir is dated March 4. This 
 concern was to be called the Dotation du Petit Commerce. 
 On March 7 a decreee was passed creating discount banks 
 (comptoir s d'escompte) in all the industrial towns of France. 
 
 The basis of all the comptoirs d*escompte established 
 in France in 1848-49 is the same. Their capital was to 
 be formed by the cooperation (i) of private individuals, 
 (2) of the State, (3) of the municipalities; each to furnish 
 a third of the required capital. The first third was to 
 be entirely paid by private individuals (shareholders) ; the 
 second third, furnished by the State, was represented by 
 Treasury notes; the completing third by mimicipal obliga- 
 tions. In addition the State gave the greater part of these 
 comptoirs a loan of specie, which was to bear interest at 
 4 per cent. As a matter of fact, these loans were mostly 
 paid back by the end of three years. The comptoirs ac- 
 cepted bills on longer time than the Bank of France; they 
 had a maximum maturity of one hundred and five days;* 
 the comptoir at Lyons allowed only forty-five days. 
 
 As may be seen, the State and the municipalities fur- 
 nished guaranties by their securities : Treasury notes and 
 town obligations; the State even loaned funds; and yet 
 the State stipulated no profits either for itself or for the 
 towns. The profits were to accrue implicitly and entirely 
 to the shareholders — a singular proceeding, truly, for a 
 popular Government which had come into power for the 
 express purpose of combating the financial oHgarchy of 
 the Government of July. This may well seem a paradox. 
 
 o This extreme limit, fixed by the decree of March 7, was disregarded by 
 certain comptoirs; the one at Metz went so far as to accept 150-day paper, 
 and the one at Nancy 180-day paper. 
 
 76 
 
 Evolution of Credit and Banks 
 
 The duration of the Paris Comptoir was limited, it is 
 true, to three years. It was, according to the intention 
 of the Government, a transition measure. 
 
 The capital of the Comptoir de Paris — capital paid in 
 by shareholders — was got together with difficulty in the 
 midst of the panic. People bought the shares as they 
 would lottery tickets, and the first shareholders were 
 insurance companies, the association of notaries and attor- 
 neys, and charity organizations. Only about 1,587,000 
 francs could be collected, and the State gave a subsidy 
 of 1,000,000 in addition to its third, making a little more 
 than 2,500,000. 
 
 But it soon became necessary to extend the operations 
 of the Comptoir which, according to its principle, was to 
 make discoimts and collections only. The crisis was acute 
 and there was a demand for loans on collateral also. 
 
 By the decree of March 24 this sort of loan was intelU- 
 gently organized. Sous-comptoirs de garantie were insti- 
 tuted. These sous-comptoirs loaned on pledges of mer- 
 chandise, on storehouse warrants, and finally on certifi- 
 cates and securities. Their capital was furnished entirely 
 by private industry. There were seven of these sous- 
 comptoirs in Paris, as follows: (i) The Comptoir of the 
 Book Trade; (2) the Comptoir of Metals; (3) the Comp- 
 toir of Builders and Contractors; (4) Comptoir of Colonial 
 Commodities; (5) Comptoir of Dry Goods; (6) Comptoir 
 of Textiles; (7) Comptoir of Railroads (founded 1850). 
 
 Until August 31, 1848, these sous-comptoirs had pre- 
 sented to the Comptoir d'Escompte bills valued at only 
 a little more than 58,000,000 francs. 
 
 77 
 
NaHonal Monetary Commission 
 
 As for the Comptoir itself, it had made the following 
 transactions up to August 31 : 
 
 Discounts on bills go''™'"' 
 
 Discounts on warrants for merchandise /:' ^it 
 
 Collections 6,924,166 
 
 Rediscount of commercial pape/at "the" Bank oVFran^.^^^" 59! ^9! 2^5 
 
 In the provices the number of comptoirs was 67 in the 
 beginning, with a total nominal capital of 130,500,000 
 francs. In reality, the capital subscribed and paid was 
 somewhat more than 25,000,000 francs. The State sub- 
 sidies amounted to a little over 10,000,000 francs, giving 
 an actual working capital of 35,000,000 francs. 
 
 These comptoirs, with this limited capital, did in three 
 years the following business: 
 
 Year. 
 
 Number of 
 comptoirs. 
 
 Total 
 
 amount 
 
 of bills 
 
 discounted 
 
 (million 
 
 francs). 
 
 1848 
 
 6s 
 63 
 61 
 
 
 1849 
 
 343-6 
 
 1850 _ " "■ 
 
 346.3 
 
 
 371.8 
 
 These comptoirs came into existence through special 
 circumstances. They had been established in an abnor- 
 mal way, with particular advantages. These advantages 
 were destined to disappear together with the needs which 
 had caused them to be granted. In June, 1853, a decree 
 brought the comptoirs under the common law. Twelve 
 of them in the provinces were reorganized either as joint- 
 stock or as limited liabiUty companies (sous forme de 
 commandite). The Comptoir d'Escompte of Paris was 
 reorganized in 1854. We shall study it later. It is, in 
 
 7« 
 
 V 
 
 Evolution of Credit and Banks 
 
 fact, through the development and various phases of 
 this institution that we shall follow the evolution of credit 
 in France. 
 
 It was to the provisional government of 1848 that was 
 due the establishing of general warehouses in Paris and the 
 principal cities of France. (Resolution of March 26, 1848, 
 confirmed by the decree of August 23, following.) For 
 the first time the French Government took measures 
 relating to those institutions which were to make easier 
 in the future collateral loans, by means of warrants or 
 receipts of goods in storage. This was a measure fertile 
 in advantages for the commercial credit of France. 
 
 79 
 
m 
 
 ! 
 
 < 
 
 
 I 
 
 Part II. 
 
 THE BANK OF FRANCE— THE CREDIT MOBILIER^ 
 THE FIRST COMPTOIR D'ESCOMPTE, 1848-1875. 
 
 INTRODUCTORY. 
 
 We now enter upon a new phase of credit in France. 
 Industrial progress, especially that in railroad construc- 
 tion; the extension of commerce, in spite of political 
 events; the future so full of promise from the economic 
 point of view, thanks to new discoveries; the ease with 
 which capital has already been collected for railroad con- 
 struction; the fact of the existence of a single bank of 
 issue which recommends itself to the majority of people of 
 the period; the trend of pubHc opinion toward industrial 
 and commercial enterprises under the impulse of certain 
 new theories, especially the doctrines derived from St. 
 Simon; the attainment of universal suffrage, which, it 
 was believed, would be the end of all revolutions; this 
 sum of financial, economic, and political events created 
 a new atmosphere, a new environment. 
 
 The Bank of France continued its rdle as a bank of 
 issue in a prudent enough manner; it fortunately con- 
 tinued to be much more a bankers' bank than a state 
 bank, although it had frequent relations with the State 
 and rendered it real services. In spite of its being on a 
 smaller scale and having much less importance than it 
 was to have later (i. e., a few years after 1870, when credit 
 
 1971 — 10 6 81 
 
N ational Monetary Commission 
 
 societies are widening their scope), it was already the 
 center of reHef in case of panic, and the support on which 
 rested the whole system of French credit. Circumstances 
 made it thus, without any preconceived theory; and it 
 turned out to be the point of departure for the present 
 organization of credit in France. You might conceive of 
 another organization perhaps better; this one is the result 
 of the historical evolution which we are trying to set forth. 
 Furthermore, during this period, between 1848 and 1870, 
 the Bank of France did not deviate too far from its fun- 
 damental attributes as a bank of discount. Although it 
 allows collateral loans, which began to increase very per- 
 ceptibly from 1852 on, it did not enter into the danger- 
 ous path of either the direct or indirect commandite of 
 industries. Hence came as its reward in 1867 the re- 
 newal of its privilege almost up to the end of the century 
 (end of December, 1897). 
 
 But in this function which it ought not to fulfil, which 
 it does not fulfil, of entering as a silent partner into 
 industries or of favoring their creation, other institutions 
 are going to take its place. These will not undertake, as 
 did Laffitte or Ganneron or certain others (whose attempts 
 and relative success we have already seen), to practice 
 all kinds of banking operations together — discount, col- 
 lections, silent partnerships, etc. ; but they will involve 
 themselves in speculation without preliminary study, 
 without taking into account the true vital conditions, 
 which banks of this kind should conform to in order to 
 live. So v:e are going to witness the collapse of the bank 
 which sums up their aspirations and faults: the Credit 
 Mohilier. 
 
 82 
 
 Chapter I. — The Bank of France the sole hank of issue — Its 
 operations with the State — The founding of institutions 
 called '^ Haute Banque'' — Industrial loans and specula- 
 tion — The Credit Mohilier and the Pereires. 
 
 Liquidation of the panic of 1848.— Tlie credit of the Banlc's notes.— Renewal of the 
 privilege of the Bank up to 1867.— Widening out of the list of securities admissible 
 as collateral on loans.— The Bank widens the scope of its operations.— Changes in 
 the rate of discount.— Revival of business under the influence of four reasons. — 
 The Crimean war interrupts this boom, 1855. Rise in the discount rate.— The 
 right remedy.— A wise measure.— Buying of specie by the Bank, 1855-1856.— Re- 
 newal of the charter of the Bank of France (law of June 9, 1857). New conditions.— 
 Increase of capital.— Loan to the State.— Fifty-franc notes.— The result of small 
 bank notes.— The Bank's freedom in regard to discount rate.— Establishment of 
 branch banks.— The great panic of 1857.— Measures taken by the Bank.— Dis- 
 count rate proportioned to the length of terms of payment.— Reaction after the 
 panic— Operation called "high finance."— Loans on securities previous to sale. — 
 Ample credit of France at this time.— The creation of capital by saving.— Character- 
 istic facts regarding the elements of French finance.— Number of issues of rail- 
 road bonds sold by the Bank.— Dangers of such precedents. 
 
 After the great crisis of 1848, which was above all, 
 a political crisis — although the political situation still 
 gave some cause for alarm — public opinion, on top of this 
 rough shaking up, as often happens under similar condi- 
 tions, looked on the future with greater confidence. 
 When order was reestablished after the days of June, a 
 reaction set in. There was indeed a panic in 185 1 at the 
 time of the coup d'etat, but it was not, as in 1848, a sud- 
 den and unexpected change. The event, besides, had 
 been discounted by the business world. 
 
 Meanwhile, business was slack in consequence of the 
 panic which had followed the economic crisis of 1847. 
 The Bank was anxious to carry on business, and all the 
 more because its capital, on account of its absorption of 
 
 83 
 
National Monetary Commission 
 
 the departmental banks, had increased from 67,900,000 
 francs to 93,250,000 francs. Because of this, too, its max- 
 imum Hmit of circulation, which was 350,000,000 francs, 
 was raised to 452,000,000 francs. It liquidated its dis- 
 honored bills rather successfully. 
 
 During the year 1848 it lent rather large sums to the 
 State, directly by opening subscriptions for the loan, like- 
 wise to the cities of Paris and Marseilles, to the Department 
 of the Seine, to the hospitals and asylums of Paris and of 
 Lyons. Here are the figures: 
 
 Mar. 31: Lent to the State without interest on treasury cer- Francs. 
 
 tificates 50,000,000 
 
 May 5 : Lent to the Bank of Deposits and Consignments on 
 
 transfer of government securities 3°. 000, 000 
 
 June 3: Opening to the State of a credit of 150,000,000 of 
 
 which the State took :.-- - 50.000,000 
 
 July 24: Subscription to the state loan - 22,000,000 
 
 Lent to the city of Paris, to Lyons, to the Depart- 
 ment of the Seine, etc 20,000,000 
 
 Finally, the Bank going beyond its usual functions, 
 had lent to different metal works about 34,000,000 francs 
 on mortgages in order to enable them to execute the orders 
 given them by the railroad companies. For all these 
 operations, the Bank issued a much larger number of 
 notes, especially in 200 and 100 franc denominations. 
 Soon commercial discounts worked easier in private banks, 
 and calm succeeded this storm in which panic — an evil 
 cotmselor in this special case— had been the chief cause of 
 
 the trouble. 
 
 To sum up, the Bank of France managed very skilfully 
 in this difficult time, and was able to clear up this situa- 
 tion most honorably. Its notes suffered no deprecia- 
 tion during these disastrous months. 
 
 84 
 
 < I 
 
 Evolution of Credit and Banks 
 
 It may be said that on this occasion the notes of the 
 Bank went through the test of fire, and so from that 
 moment forth they enjoyed unquestioned credit; and to 
 such a degree that when quiet was restored, and when 
 coin minted in large quantity that year was very plentiful 
 and the Bank's reserve was very high, the public preferred 
 the notes — although they had forced currency — to specie, 
 and that toward the end of 1848. This explains why a 
 law authorized an increase in the amount of issue from 
 452,000,000 to 525,000,000 francs. The Bank, besides, 
 had very skilfully resumed specie payment as soon as it 
 could at the end of 1848. Forced currency was sup- 
 pressed by law on August 6, 1850. 
 
 The following years can scarcely be said to have any 
 history. 
 
 Here are the average figures relating to reserves, issues, 
 and the figures relating to the total discounts during the 
 years from 1849 to 1853: 
 
 [Million francs.] 
 
 Year. 
 
 1849 
 
 1850 
 1851 
 1852 
 1853 
 
 Reserve 
 (average). 
 
 350.4 
 457.8 
 596.6 
 584.8 
 452.8 
 
 Notes in 
 circulation 
 (average). 
 
 421.7 
 485.6 
 
 530.3 
 621. a 
 659.8 
 
 Total 
 discounts 
 (average). 
 
 1,028.3 
 1, 171. 1 
 1.247-4 
 1.840. 1 
 2.854. a 
 
 The average reserve, therefore, increased from 1849 to 
 1852, then it decreased, and we have to wait until 1859 for 
 it to reach 570,000,000 francs. As to issue, it had a general 
 tendency to increase without much fluctuation. The 
 average of notes issued in 1851 was less than the reserve. 
 
 85 
 
N ational Monetary Commission 
 
 At one time in that year, October 2, the reserve 
 reached 626,000,000 francs, and for a few days it exceeded 
 the circulation by 110,000,000 francs. 
 
 On March 3, 1852, a decree renewed the charter of the 
 Bank up to 1867, and this same decree authorized it to 
 make loans on the shares and bonds of French railroads. 
 A few days after, the decree of March 22 gave it the same 
 authorization for the bonds of the city of Paris. 
 
 That was necessary, for the Bank needed to extend its 
 operations in order to utilize its power of issue. Besides, 
 it had a large reserve; indeed, the average reached in 1852 
 nearly 585,000,000 francs. Furthermore, railroad securi- 
 ties had become widely distributed in the hands of the 
 public. 
 
 The Bank, or at least its directors, understood that 
 new times require new methods. They changed the rate 
 of discount, which had remained fixed for thirty years, 
 except in 1848, when it was raised to 5 per cent. They 
 lowered it for a certain time in 1852 and in 1853 to 3 per 
 cent. They made it vary oftener, according to the needs 
 of the money market, and they showed themselves alive 
 to the real spirit of banking. But they became really 
 free in their movements in this matter only when, as a 
 result of the law of June 9, 1857, there disappeared, as 
 far as the Bank was concerned, the absurd limitations on 
 the rate of interest fixed by the laws against usury. 
 
 Business picked up at this time for several reasons: (i) 
 Because, the form of government in France being defi- 
 nitely settled since 1852, public opinion was reassured; 
 
 (2) because the Bank of France had made the conduct of 
 
 4i 
 
 W'd^ ; 
 
 Evolution of Credit and Banks 
 
 its affairs more flexible; (3) because at that time two in- 
 stitutions were founded destined to give a stimulus to 
 business — the Credit Mobilier, which we are going to take 
 up, and the Credit Fonder, the development of which we 
 shall examine in another section of this work; (4) finally, 
 because the Comptoir d'Escompte de Paris, which was 
 destined to be merely provisional, because it was founded 
 during the crisis of 1848 to take the place of the banks 
 whose failures had left such a great void, now gradually 
 freed itself from state control, rendered real services to the 
 middle-sized and small trade, and became an important 
 banking house, devoting itself especially to so-called com- 
 mercial operations. It is important, furthermore, to keep 
 in mind a cause that had been active for the past twelve 
 years — the extension of railroads. At that time, in 1853, 
 more than 4,000 kilometers of railroads were in operation, 
 supplied with more than 1,200 locomotives. Now, these 
 railroads were destined to double in seven or eight years. 
 It seemed as if business would go on growing in this 
 way, when the Crimean war broke out. This war necessi- 
 tated large loans, which rose to about 1,540,000,000 francs. 
 That diminished capital on which industry and commerce 
 were making urgent demands. The Bank raised the dis- 
 count rate to 5 per cent, then to 6 per cent. Its reserve 
 fell in November to 211,000,000 francs, while its discounts 
 were in October 480,000,000 francs — that is to say, double 
 what they had been at the same time in 1854. 'The Bank 
 then lowered to seventy-five days the limit for payment 
 of the bills it discounted. In 1856 it extended the limit 
 to ninety days and lowered the discount rate to 5 per 
 
 «7 
 
II 
 
 National Monetary Co 
 
 mmtsston 
 
 cent ; but these measures were not kept up in the face of 
 the events that followed. 
 
 Matters were hastening to a climax. Precious metals 
 became more and more scarce. In November, 1856, the 
 reserve fell to 164,000,000 francs, and discounts rose to 
 520,000,000 francs. The cause was the war, which in pay 
 and food for the army had absorbed specie estimated at 
 about 800,000,000 francs. Adding to this other causes for 
 the exodus of capital, we find that at least 1,000,000,000 
 francs went out of the country. 
 
 Was the remedy to raise the rate of discount and 
 shorten the time of maturity on bills? To a certain 
 extent, yes. But as in this case a sudden export of 
 about a third of our metallic stock had taken place, the 
 Bank should have turned its attention to getting back this 
 lost stock. And it did. It bought 254,500,000 francs 
 in specie, which cost it, with the premium and transporta- 
 tion, iK per cent. This happened in 1855. In 1856 it 
 imported 560,000,000 in specie, which cost it i>^ per 
 cent. 
 
 It was easy to foresee that the privilege of the Bank 
 of France would be renewed. It was to expire in 1867, 
 and the law of June 9, 1857, prolonged this privilege 
 to December 31, 1897. This law doubled the Bank's 
 capital by the issue of 91,250 new shares, which 
 were assigned to the holders of the old shares. This 
 doubling of the capital, which had become too small for 
 the Bank's increasing business, was a safeguard. The 
 capital then reached 182,500,000 francs. 
 
 88 
 
 ^ 
 
 Evolution of Credit and Banks 
 
 But out of the increased capital, 100,000,000 francs dur- 
 ing the year 1857 had to be turned into the public treasury, 
 which gave the Bank in return government 3 per cents 
 at the very high price of 75 francs. The State made a 
 good thing by it. In reality these 100,000,000 francs were 
 used to diminish the debit balances of the Treasury and 
 helped reduce the figure (which was very high, as it hap- 
 pened) of the floating debt. 
 
 The Bank was authorized to issue 50-franc notes. An 
 excellent innovation in principle, but the Bank only used 
 this privilege in 1864, seven years later. Now, in times 
 of panic this kind of notes, like those of 100 francs, econo- 
 mizes coin in current transactions; and in prosperous 
 times, as they are easier to handle than specie, these small 
 bills tend to replace specie in circulation and force it 
 back into the coffers of the bank of issue. Scotch banks 
 which have issued and are still issuing notes for one 
 pound sterling have seen all the metallic money of the 
 country flow into their coffers. 
 
 This law of June 9, 1857, gave the Bank the right of 
 raising the interest rate as much as it judged necessary, 
 whereas before it could not exceed 6 per cent. It took 
 advantage of this liberty soon after. But the Bank of 
 France alone had this advantage by law; other banks 
 were not authorized to do likewise. It is true they went 
 beyond their right without being disturbed. 
 
 Finally, ten years after the law of 1857, the Bank could 
 be compelled to establish branches in the departments 
 where they did not exist. The Bank was in no hurry to 
 
 89 
 
i 
 
 National Monetary Co 
 
 mmtsston 
 
 found these branches. In 1867, although ten years after 
 the law, 25 departments were still improvided for. 
 
 The panic of 1857 began in the United States. We 
 shall not enter into the details of its origin and develop- 
 ment, but content ourselves with merely indicating two 
 of its causes — one has to do with our subject, the other 
 with the commercial relations of North America and 
 Europe in 1857. 
 
 The first of these causes is that many American bankers 
 had advanced money, made loans to industries, especially 
 to railroads, out of their deposits. They had thus tied 
 up capital, and when the panic came they did not 
 have the free funds that they would have had if they 
 had used their capital in short-term business, such as 
 commercial discount. The truth is there was over- 
 speculation. 
 
 The second of these causes— for panics, especially large 
 ones, always have several causes— was that Europe in 
 1857, thanks to an excellent harvest, did not buy grain 
 of America. So the United States did not export any to 
 the Old World. Hence the rate of exchange was unfavor- 
 able to America, and the United States was obliged to 
 send specie over to pay for its importations, from Lon- 
 don, Germany, etc. 
 
 The panic was terrible in September. Its reaction was 
 felt most of all in England, then in Germany, and to 
 some small extent in France. In this latter country 
 especially people felt the hard times, which affected 
 London and the principal business centers of northern 
 Germany. 
 
 90 
 
 \ 
 
 Evolution of Credit and Banks 
 
 Now we have to concern ourselves here only with what 
 happened in France and with what the Bank did to meet 
 the crisis. 
 
 The Bank of France took the standard method ; it raised 
 the discount rate. At the beginning of October it raised 
 the rate to 6 per cent; on October 13 it raised it to 6.5 
 per cent; on October 21 it raised it to 7.5 per cent; finally, 
 on November 1 1, it was fixed at 10 per cent. 
 
 The Bank of England had reached that figure on 
 November 10. The Bank of France devised a rather 
 ingenious plan. It made a scale of three rates i per cent 
 apart, in proportion to the time to run until maturity, 
 and it continued to apply this system until December 20. 
 It did not try by other means to diminish discounts, and 
 from the very start it calculated what the extent and 
 the duration of the crisis in France would be. So, as 
 early as December 21, it returned to the 6 per cent rate 
 established at the beginning of October. 
 
 As usually happens in like cases, there was much 
 unemployed capital after the panic — business was slack. 
 In 1858 the average reserve in the Bank rose to 
 460,000,000 francs, a figure which had not been reached 
 since 1853. ^'^ 1859 and i860 the same thing was true, 
 as appears from the fact that the average figure of the 
 reserve went up to 570,000,000 francs in 1859 and in i860 
 to 513,500,000 francs; the average balances due to individ- 
 uals on running accounts, which before had been fluctuat- 
 ing around 150,000,000 francs, rose, during these two years, 
 to 237,000,000 and 209,000,000 francs, respectively, a sign 
 of business depression. The same phenomenon may be 
 
 91 
 
National Monetary Co 
 
 mmtssion 
 
 observed on the eve of crises. Capitalists, witnessing 
 great speculations and large business enterprises and fore- 
 seeing a setback, keep their capital in reserve. This takes 
 place especially in France. 
 
 the; bank of FRANCE DISPOSES OF SECURITIES (1858-1861). 
 
 Up to this time we have seen the Bank for the most 
 part occupied only in commercial banking— discount, loans 
 on conservative securities, transfers, and of course the 
 issue of bank notes. When it has engaged in making 
 advances or loans which did not really enter into the 
 business of commercial banks, it has been because it was 
 dealing with the State, to which it owed its charter. But 
 at the time we have now reached the great railroad 
 enterprises had got well under way ; they saw how bright 
 their prospects were for the future. So they began looking 
 around for capital to extend the half-finished systems, 
 to finish the important lines, to better their equipment 
 
 and organization. This very busy period in France 
 
 which was busy, too, in other countries — extended from 
 the revolution of 1848, or rather from the election of 
 Prince Napoleon as President of the Republic, almost to 
 the end of the Empire. 
 
 There was no lack of capital for railroad undertakings in 
 France at this time. France, which has been called the 
 land of the "woolen stocking, "« because of its character- 
 istic thrift, could easily furnish all the resources needed for 
 railroad construction and operation. However, the com- 
 panies did not then, as now, call upon the public directly; 
 
 oThis expression comes from the use made of woolen stockings as purses 
 for hoarding money in the country. 
 
 Evolution of Credit and Banks 
 
 and they did not sell bonds at all their ticket offices. They 
 had recourse to intermediaries. For five years past the 
 Socidt^ G^n^rale du Credit Mobilier (founded in 1853 by 
 the Pereire Brothers and which we shall discuss later) 
 had already been undertaking operations in "high 
 finance" — marketing of securities, silent partnerships 
 in industrial companies etc. Was it the example of 
 this company which induced the Bank of France at that 
 time to follow the same course? It is rather difficult to 
 say. It really issued securities in 1858, either in its cen- 
 tral establishment in Paris or in its branch banks. And it 
 did not do so cautiously in its capacity as simple inter- 
 mediary, contenting itself with being only an interme- 
 diary, selling on commission; it advanced before any sale a 
 rather large sum on the obligations it was to dispose of. 
 This advance amounted to 100,000,000 francs at a time 
 when the proceeds of the marketing of bonds of eight 
 companies — the Mediterranean, Dauphine, Midi, Geneva, 
 Orleans, West, East, and Ardennes — were to amount to 
 about 246,000,000 francs. 
 
 In 1858 it sold in this way 617,766 bonds at an average 
 price of 276.60 francs. It had left 272,769 bonds, which 
 it disposed of by subscription and with great success. 
 They rose in Paris to 562,298 and in the provinces to 
 424,589, making a total of 986,887. 
 
 The price of issue was 274.50 francs. During the 
 remainder of the year 1853 the Bank adopted the method 
 of selling which it had used at first and began to sell a 
 great many bonds over its own counters and those of 
 its branches; but the price of these bonds had gone up 
 more than 10 or 12 francs. 
 
 93 
 
N ational Monetary Commission 
 
 Evolution of Credit and Banks 
 
 It disposed in this way of 881,952 bonds for 287.50 
 and 288.75 francs. 
 
 New sales, this time by subscription, were made in i860 
 and 1 86 1. This method facihtated the sale and the rise 
 in price of the bonds. One can estimate from what then 
 happened France's power to save and accumulate capital. 
 Thus in i860 the Bank offered to subscribers a much 
 larger number of bonds than formerly, no less than 
 1,023,000. The subscription rose to 1,627,817 bonds. 
 
 They were issued at the price of 292.75 francs. In 
 1861 there was a new offer by subscription of 786,000 
 bonds. The pubHc rushed in; the issue was subscribed 
 for almost four times over. More precisely, bids were 
 sent in for 2,972,449 bonds. 
 
 These facts show what are the elements at the basis of 
 French credit to-day, and how, by the very nature of 
 things, France has been led to adopt it. 
 
 Indeed, not only did large capitalists take up these 
 bond issues, but the mass of middle-sized savers. And 
 it is because of these middle-sized and, later, small savers, 
 who create and supply the great bulk of capital in this 
 country, that the institutions of credit have been obliged 
 to regulate their progress in a conservative way, because 
 their depositors and a large number of their clients have 
 themselves the inborn prudence of all those who, pos- 
 sessing only a little capital, do not wish to run any risks 
 with it. 
 
 At any rate, during these four years the Bank of France 
 invested in this way for the benefit of the eight companies 
 which we have mentioned an actual, fully paid cash 
 capital of more than 1,200,000,000 francs. 
 
 \ 
 
 This sum, a large one at that period, did not bring 
 about a lower price for the bonds. The pubHc had from 
 that time forth a field for its investments. The Bank of 
 France reaUzed splendid profits in these operations. 
 People have asked if it ought to have done so, if it con- 
 formed to its statutes in thus engaging in the business 
 of marketing securities. There were, even among its 
 directors, men who criticised, while excusing, these 
 operations in high finance. In order to explain the 
 conduct of the Bank of France at this time, people have 
 said that the circumstances were exceptional; then the 
 convention of 1859 with the raihoad companies had 
 given them the special help and warrant of the State. 
 The Bank was on too good terms with the Government 
 not to allow itself to indulge in operations which were 
 unusual, but profitable, to it. Nevertheless it is best not 
 to let a bank of issue create a precedent of this sort; for 
 taking its point of departure in this first evasion of its 
 statutes, it might later give itself up to operations of that 
 kind, dangerous and uncertain to the last degree for a 
 bank of issue. 
 
 94 
 
 95 
 
Ml 
 
 Chapter II. — The Societe Generate du Credit Mohilier and 
 
 the Pereires {i8 53-1866) . 
 
 St. Simon's teaching. Its influence on developing business in France.— The 
 Pereire brothers. The part they took in creating the French railroad systems.— 
 Creation of the Credit Mobilier 1852. Its right to issue bonds. Useless restric- 
 tions. No censorship.— Aim of the Cr6dit Mobilier. Its contemplated scheme.— 
 The principle of action of an investment and speculative bank.— What the Credit 
 Mobilier did during its first years. Services rendered. Its aid in railroad con- 
 struction.— Large profits.- Difficulties caused by an enormous dividend.— Decline 
 after 1855.— Grandiose and dangerous ideas of its founders.— The plan of issuing 
 a single type of bonds.— Uncertain guaranties of the issues.— Spread of the system 
 to foreign countries.— No relations between the issues of bank notes and the issues 
 of credit mobilier bonds.— Note on the institution of M. Mirfts.— Trial of strength 
 against the Credit Mobilier.— The Soci6t6 G€n6rale pour favoriser le d6veloppe- 
 ment du Commerce et de I'lndustrie en France. 
 
 The year 1852 was a remarkable one in the development 
 of a credit organization in France because of the found- 
 ing of two dissimilar institutions, each answering to dis- 
 tinct needs : the Credit Fancier — ^which made a specialty of 
 giving credit on mortgages — and the Societe Generate du 
 Credit Mobilier Frangais. 
 
 This latter institution of credit was founded by Emile 
 and Isaac Pereire. They were brothers from Bordeaux 
 and came when quite young to Paris. The elder was a 
 stockbroker at first, the other an accountant in a bank. 
 Isaac got acquainted with St. Simon, the famous head of 
 the school to which has been given his name, and was a dis- 
 ciple of the master. He influenced his brother Emile who, 
 in 1830, went into the offices of the Globe, a newspaper of 
 St. Simon's. In 1831 both brothers went over to the 
 National, and soon separated from St. Simon. But from 
 their connection with him they imbibed the general ideas 
 of his school regarding the future and development of 
 industries. 
 
 96 
 
 Evolution of Credit and Banks 
 
 The ideas on an industrial civilization destined to take 
 the place of warlike and priestly civilization opened up 
 new paths to many thoughtful young men. Many of 
 them gave up the theoretic and in some sort religious side 
 of St. Simon's teachings to enter into business. Most of 
 them were successful. They went especially into the new 
 industry of railroading. One of them, Talabot, succeeded 
 another St. Simonian named Enfantin, as director of the 
 Paris-Lyons-Mediterranean Company. The first enter- 
 prise undertaken by the Pereire brothers was the rail- 
 road from Paris to St. Germain, begun in 1833. The 
 capital of 5,000,000 francs was furnished by the houses 
 of Rothschild, d'Eichthal, Davillier, etc. Later the two 
 brothers started the Northern Railroad. Soon after 
 Emile Pereire became manager of the Paris-Lyons Rail- 
 road. He obtained the concession for the railroads 
 of the south, together with the canal parallel with the 
 Garonne River. In, brief, the Pereire brothers played a 
 very important part in the creation of French raikoads. 
 But their most famous achievement was the Credit 
 Mohilier FranQais, whose firm name was Societe Generate 
 du Credit Mohilier FranQais. Since that time it has been 
 called simply Credit Mobilier. 
 
 The Credit Mobilier was founded with a capital of 
 60,000,000 francs, divided into shares of 500 francs each. 
 The charter of its foundation is dated November 18, 1852. 
 The subscription for shares was made by series of 400,000. 
 The first subscription gave the right to the second, share 
 for share; in the third subscription the subscribers to the 
 first two series benefited in the proportion of one new 
 share for two old ones; these two old shares could belong 
 1971— 10 7 97 
 
N ational Monetary Commission 
 
 either to the first or second series or to both. This scheme 
 was not a new one, having been used by Law. 
 
 This society had obtained the right to create obUgations 
 for a sum equal to ten times its capital, namely, for 
 600,000,000 francs. Only one restriction was imposed, 
 and that, moreover, a rather hard one to enforce. The 
 society was not allowed to have in its liabiHties a total 
 sum of more than 120,000,000 francs, that is, double its 
 capital, in the form of deposits in current accounts and 
 of obligations payable in less than a year. An important 
 fact to note is that no ''coimcil of censorship" was 
 created for this joint stock company. There was no 
 general supervision. Why ? Perhaps they had purposely 
 forgotten this machinery, which might have been con- 
 sidered as an awkward check, if it really worked, and 
 as a useless device if it merely registered tamely the 
 wishes of the board of directors. Now, in a joint stock 
 company, supervision is indispensable and it must be 
 exercised as far as possible by independent men, without 
 hindering the progress of the company. What, then, did 
 the founders of this new institution of credit aim at? Its 
 principal founder, Isaac Pereire, defined its object thus: 
 The CrMit Mobilier is at one and the same time (i) a 
 society engaging in commandites ; (2) a financial society; 
 (3) an investment bank for lending and borrowing; (4) a 
 bank of issue. 
 
 As a society engaging in commandites it had to put its 
 resources and its credit at the disposal of important indus- 
 tries and use them to promote large enterprises which it 
 backed and helped to direct. 
 
 98 
 
 > W^ 
 
 Evolution of Credit and Banks 
 
 As an investment bank for lending and borrowing, it 
 had to negotiate loans and investments, whether in regard 
 to public credit or industrial credit; it made its interven- 
 tion felt whether by opening subscriptions for loans or by 
 lending directly, or else by marketing the obligations of 
 different companies, or by operations on the Bourse: 
 "Carry-overs," purchases, sales, etc. 
 
 As bank of issue, it had to issue its own obligations 
 representing securities of every kind: state funds, bonds 
 of industrial companies, etc., in which it was authorized 
 to trade. 
 
 It was a delicate matter to undertake these operations. 
 Speculation is useful, and banks of this sort are indispen- 
 sable in the modern credit organization of a country. But 
 it is of great importance for these operations to be carried 
 on with the private capital of the bank that undertakes 
 them. To issue bonds representing securities in the bank's 
 possession is to call upon the general public to put 
 money into enterprises difficult to learn about and judge 
 wisely. Such capital is the vanguard in industrial enter- 
 prises and it runs great risks. It is true that because of 
 these risks it makes large profits possible. Then, too, this ^ 
 credit society with its speculative operations, and founded 
 as it was without any adequate system of supervision, was 
 absolutely sure to make mistakes. 
 
 During the first year, 1853, it carried through the fol- 
 lowing transactions: 
 
 1. Subscriptions to the state loan of 250,000,000 francs 
 for the Crimean war. 
 
 2. Marketing of bonds of the railroad companies of the 
 South, the East, and the Grand Central. 
 
 99 
 
 ; m\ 
 
N atton al Monetary Commission 
 
 3. Marketing of the bonds of the Credit Foncier. 
 
 4. Loans on " contangos " on the Bourse which made the 
 interest rate on these " contangos " drop from 12 per cent 
 to 3 per cent. 
 
 That year it declared dividends equal to 13.4 per cent 
 on the paid-in capital. 
 
 The second year, 1854, it continued its business as a 
 financial society; it offered to take up a quarter of the 
 state loan of 500,000,000 francs for the Crimean war; it 
 advanced to the stockholders of the railroad companies 
 (who were to pay for their shares in instalments) the 
 sums needed to meet the successive payments. It also 
 marketed railroad bonds. But it began to play on a very 
 large scale its part as a society engaging as silent part- 
 ner in great industrial enterprises. 
 
 It patronized a real estate construction company — 
 the Compagnie Immohiliere de Paris — especially founded 
 to lengthen the Rue de Rivoli, and to cooperate, while 
 making profits, in beautifying Paris. 
 
 It created a maritime or navigation company, with 
 schemes for foreign commerce, colonization, and arma- 
 ment, t 
 
 Its directors founded the Austrian Railroad Company. 
 France began from this time on to carry its credit and 
 some of its capital to foreign countries. 
 
 The year 1855 marked the summit of success and power 
 of the Credit Mobilier. It continued to give very sub- 
 stantial help to French railroad companies. It marketed 
 their bonds; but also underwrote their loans, advancing 
 in this way 18,000,000 francs in return for 65,000 bonds to 
 the Western Company, which had been formed by a merger 
 
 xoo 
 
 Evolution of Credit and Banks 
 
 with several small roads. In 1854 it had helped to 
 incorporate into one company several different companies 
 which managed the omnibuses in Paris. In the same 
 way it brought about the merging of all the gas-lighting 
 companies of Paris. 
 
 The part the company played in regard to railroads 
 was excellent. Thanks to the Credit Mobilier, the rail- 
 roads during the years from 1855 to 1857 were able to 
 go on with their construction work, in spite of the latent 
 crisis caused by the Crimean war, and the constant calls 
 on pubHc credit made by the State, which in 1855 nego- 
 tiated a third war loan of 750,000,000 francs. 
 
 This year, 1855, was very productive, and one might 
 say very prosperous for the Credit Mobilier. The profits 
 amounted to no less than 28,000,000 francs. The direct- 
 ors tried to use a portion of the dividend, and instead 
 of paying it all, to give only a fraction of it to the share- 
 holders in order to avoid an unusual rise in the price of 
 shares. But this arrangement had to be abandoned on 
 the advice of the Government, and 40 per cent on the 
 shares was distributed as dividends. 
 
 In 1856 the Credit Mobilier turned its efforts to foreign 
 countries, especially to railroad enterprises. It was inter- 
 ested in Austrian, Russian, and Spanish railroads. 
 
 From 1855 on, the reports of the Soci^t^ du Credit 
 Mobilier became much less detailed and expHcit. Its 
 decline was beginning. This society sought too much 
 after concessions and monopolies and only rarely took 
 part in affairs which had no political connections. It 
 turned its attention especially to privileged companies, 
 such as railroading, navigation, or general transportation 
 
 lOZ 
 
 T-lt 
 
Il 
 
 \¥ 
 
 National Monetary Commission 
 
 in cities. From another point of view it was too anxious 
 to subscribe to state loans. Its head men, it seems, were, 
 moreover, on excellent terms with the public authorities. 
 That led the Credit Mobilier to take part in the operations 
 we have already mentioned, of a real-estate company 
 working to beautify Paris. The Credit Mobilier tied up 
 a lot of capital in this undertaking. In its balance sheet 
 of October 31, 1857, it carried a credit in its favor of 
 80,000,000 francs against that real estate company. 
 
 The Credit Mobilier was not able to carry out the first 
 intention of its founders in regard to issuing notes as 
 they had wished. Their desire would have been to issue 
 a single type of bonds representing all the securities 
 quoted on the Bourse. This special type of bonds 
 would have presented only a difference relating to the 
 terms of payment. Some, short dated, w^ould have cor- 
 responded to the temporary investments of the society ; 
 the others, long dated, would have been equivalent to 
 the securities which the society had successively acquired 
 and which had no set terms of payment, such as state 
 funds and industrial shares. The single type of bonds 
 was to have the advantage of facihtating business on the 
 Bourse, and was to "assume the characteristics and 
 play the role of paper money," as the founders of this 
 institution expressed it. 
 
 The danger of such operations is patent. It is issuing on 
 an issue. In such an emergency how could the public 
 be assured that the industrial or other values represented 
 by the Credit Mobilier bonds really stood for industrial 
 wealth, such as raw materials, machinery, factories, mer- 
 
 Evolution of Credit and Banks 
 
 chandise? How could this same public know if these 
 industrial values would earn revenues to pay interest to 
 the holder of Credit Mobilier bonds? Further, admitting 
 that the very difficult management of such an institution, 
 working under such risky conditions, had been the best 
 possible, it would have been necessary that the capital 
 securing these operations should amount to more than 
 that of the Credit Mobilier, which was 60,000,000 francs. 
 Now, as we know, its founders would have liked to issue 
 600,000,000 francs in bonds. A capital of one-tenth of 
 that, certainly, was not enough to cover the risks of 
 decline and especially of intrinsic loss in the securities 
 owned by the society. In any case this capital ought to 
 have been invested safely and in such a way that it could 
 be available on the first alarm and when needed. 
 
 This was not all. Its founders hoped to spread to 
 other countries their idea of the mobilizing of securities 
 by the one kind of bond. They tried to fotmd a credit 
 mobilier in Austria and succeeded in establishing one in 
 Spain. They had ambitious aims, and thought that they 
 could unify the circulation of securities, not only in 
 France, but also in Europe. In this way they thought 
 no capital would remain unproductive. 
 
 But in matters relating to credit, and especially credit 
 tied up in silent partnerships, ''there's many a slip 
 'twixt cup and lip." The risks in industries and also in 
 stock-exchange speculations are too great to allow of such 
 hopes. If the issue of a bank note, properly so called, 
 offers every security, it is because it represents short- 
 dated commercial pap^r, bills which are the result of 
 
 102 
 
 A 
 
 103 
 
National Monetary Commission 
 
 Evolution of Credit and Banks 
 
 operations already transacted, the real security of which 
 (although not acknowledged) is merchandise of current 
 sale and consumption. Short terms of payment (fifteen 
 days, one, two, or three months) give continual assur- 
 ance of available ftmds; the certain operation of the sale 
 of a piece of merchandise, which sale will allow the pay- 
 ment of a bill falling due, is likewise safe, when the dis- 
 coimt of paper is submitted to an enlightened examina- 
 tion. There is then no connection between the issue of a 
 bank note, which represents bills of commerce, or cash, 
 and the issue of bonds representing state securities, or indus- 
 trial securities, the safety of which is not of a kind to allow 
 their circulation to such a wide extent. To be siue, these 
 bonds were to be paid on maturity, whereas the bank note 
 must be paid on sight. Nevertheless these bonds were sub- 
 ject to the ups and downs of the market, and at the times 
 they were due, they had to be paid, and, what is more, to 
 have their interest guaranteed each year. With what? 
 With the income on industrial shares and state funds, and, 
 even then, it was necessary to allow these bonds a higher 
 interest than that on state funds . Otherwise how could the 
 public be expected to prefer the bonds? As to industrial 
 shares, their dividends were destined to be an important 
 resource. But in that case it is dangerous to enter as a 
 partner into a new industry the fate of which you can not 
 foresee. You should therefore become a partner only in 
 those enterprises already on the road to success, but then 
 partnership banks (banques commanditaires) were not 
 established for such enterprises which find credit easily 
 enough in commercial banks, since their capital is already 
 
 A 
 
 raised, and they need funds only for running expenses. 
 Hence it follows that partnership banks, useful and nec- 
 essary in industrial countries, are not destined to follow 
 the methods devised by the founders of the Credit 
 MobiUer. 
 
 Besides, this method fortunately was not applied on a 
 large scale by the founders of the Credit Mobilier. Never- 
 theless the speculations carried on by it and under its 
 influence caused many failures. The growth of specula- 
 tion in France dates from this time. 
 
 Finally, the first condition for a partnership and invest- 
 ment bank {banqtie commanditaire et de placement) is to 
 have enHghtened directors, acquainted with industrial 
 conditions in such a way that they will not be carried off 
 their feet by the enthusiastic reports of engineers or in- 
 ventors, and risk capital in impossible enterprises or those 
 predestined to failm-e. To this end there is needed a staff 
 of business men, both well informed and practical, with 
 no pretensions to being universal or ubiquitous. Now, 
 these were not the particular qualities sought after by the 
 Credit MobiHer in choosing the directors for its industrial 
 companies. The fact may be cited that in 1863 one of 
 these directors belonged to the administrative board of 19 
 companies, engaged in almost as many different kinds of 
 business, and calHng for very wide and different apti- 
 tudes. The capital of these companies represented three 
 biUion and a half francs. 
 
 After having tried in vain to have the Bank of Savoy 
 continued (Savoy was annexed to France in 1865); con- 
 sidering that they would not be able to use this bank, as 
 
 104 
 
 105 
 
National Monetary Commission 
 
 Evolution of Credit and Banks 
 
 fl 
 
 they hoped, for issuing bank notes ; and having need then 
 of capital, they doubled their capital, raising it in 1866 
 from 60,000,000 to 1 20,000,000 francs. But that was a 
 bad year. The fiscal year of the Credit Mobilier showed 
 a net loss of nearly 8,000,000 francs. In 1867 there was 
 great embarrassment and growing difficulties. The found- 
 ers retired. On November 30, 1867, their successors 
 stated that the losses then amounted to 47,500,000 francs. 
 ' From that time on the Credit MobiHer virtually entered 
 into liquidation. 
 
 Since that period no houses of that kind have been 
 founded on those same principles in France. Many small 
 banking houses meanwhile have done business in disposing 
 of securities, but they have not had the ambitions or the 
 importance of the Credit Mobilier. Since then a large 
 estabhshment, the Banque de Paris et des Pays-Bas, car- 
 ries on this business of an investment bank, and of helping 
 to create new industries, chiefly those on a large scale; 
 it also negotiates public loans. But this bank has not 
 attempted, any more than the Banque de V Union Parisi- 
 enne (which carries on the same operations) to take up 
 again the system of issuing bonds representing the 
 securities it possesses. 
 
 The three successive institutions established by M. Mir^s 
 all rested, almost exclusively, on the idea of speculation. 
 Hence the operations consisted in buying and seUing on the 
 Bourse public securities, industrial and railroad shares, etc. 
 M. Mires's first establishment was called Caisse des Actions 
 Reunies. It was founded on the principle of the commandite. 
 Its original capital was 5,000,000 francs, in 1,000-franc 
 
 / 
 
 shares, which could be subdivided into share coupons of 500 
 francs. Its success was rather marked during its early 
 years. M. Mir^s wanted to extend its field of operations, and 
 under the name of Caisse et Journal des Chemins defer,'^ he 
 enlarged his first house, increasing the capital to 1 2 ,000,000 
 francs. This time he tried to imitate the Credit MobiHer, 
 which had just increased its capital. He wanted soon to 
 be as large as the Credit MobiHer and increased his capital 
 to 50,000,000 francs. The estabhshment was called Caisse 
 Generale des Chemins de fer. M. Mir^s had not, Hke 
 Messrs. Pereire, any very firm friends in the Government 
 at that time; the higher administration did not favor his 
 operations. He was active in outside schemes and took 
 part in the Spanish loan of 800,000,000 reals; he under- 
 took to float the Roman railroad company, and the Turk- 
 ish loan, etc. Soon his institution went under. He was 
 an energetic man, but had founded banks on a false idea 
 of industrial credit. He did not render any services, but 
 rather helped to spread the taste for gambling and specu- 
 lating in France. 
 
 Here I must mention another establishment founded in 
 1862 after the disappearance of the Caisse Generale des 
 Chemins de fer. The lucrative workings of the Credit 
 MobiHer, which had up to that time revolutionized the 
 methods of capitalists and acquired a real vogue, forced 
 a certain number of Paris bankers and large capitaHsts to 
 found a house on the model of that established by the 
 Pereire brothers. It could not start out as a joint-stock 
 company. It needed an authorization which it could not 
 
 oHe had founded in 1842 the Journal des Chemins de fer, a financial 
 paper. 
 
 106 
 
 107 
 
hii 
 
 National Monetary Commission 
 
 get, because the Credit Mobilier stcxxi in its way. It 
 ended by getting its authorization in 1864. '^h^ Govern- 
 ment had become more liberal in this respect, and the law 
 of May 23, 1863, on limited liability companies, was the 
 beginning of hoped-for legislation still wider in scope. The 
 statutes of the Societe pour le Developpement du Commerce 
 et de r Industrie en France were then approved. The nomi- 
 nal capital was 1 20,000,000 francs, and the actual capital 
 60,000,000 francs. A fact to remember is that this bank, 
 aiming to be a partnership and investment bank, also car- 
 ried on all the other operations of commercial banks. It 
 did not practice the division of risks; on the contrary, it 
 mixed them up just as did the Maison Laffitte-Gouin, of 
 which we have spoken. This point of departiu'e needed 
 to be dwelt on to show the evolution followed later on by 
 the French credit societies. 
 
 108 
 
 Chapter III. — The first Comptoir d'Escompte and the de- 
 velopment of commerce — The laws of May 23-2^, and July 
 24, i86y^ on companies. 
 
 Review of the chief reasons for creating the Comptoir d'Escompte at the time of the 
 panic of 1848.— Certain comptoirs d'escompte continued to exist after the panic of 
 1848. That in Paris develops.— The interesting study of the Paris Comptoir d'Es- 
 compte in its relation to the history of French credit.— The Comptoir d'Escompte 
 de Paris. Lengthening the existence of this society to 1857.— The increase of the 
 orighial capital hi 1853.— The Comptoir d'Escompte of Paris gradually loosens its 
 ties with the State and the city of Paris.— Lengthening the existence of the Comp- 
 toir d'Escompte. It pays baclc the State and becomes freer.— The Comptoir d'Es- 
 compte is authorized to advance money on titles and subscriptions.— Development 
 of the Bank.— The treaties of 1860 with England. Extension of commerce.— Special 
 commerce of France with foreign countries before and after the treaties of I860.— 
 Widening the field of operation of the Comptoir d'Escompte.— It is allowed to start 
 agencies in France, in the French colonies, and in foreign countries.— Facilities 
 and guaranties for new operations.- Founding of agencies in Asia.— Its capital 
 doubles.— State guardianship of credit companies.— The Comptoir d'Escompte 
 helps the colonial banks.— Services rendered by the Comptoir in Asia.— It starts 
 other agencies in Asia.— Increase in business.— The capital, doubled again, 
 reaches 80,000,000 francs.— The laws of May 23 and 29, 1863, and of July 24, 1867.— 
 Lawof 1863.— Law of 1867(Soci6t6s en Commanditepar Actions).— These laws were 
 Indispensable in view of the evolution of hidustries and the growth of important 
 enterprises.— Growth of savings in France. Capital is created there.— The Comp- 
 toir d'Escompte enlarges its business. 
 
 We have just described the founding, the working, and 
 the decline followed by the disappearance of the Credit 
 Mobilier, an institution of the so-called partnership and 
 investment type. We have seen the causes of its fall; the 
 mistakes it committed, and also to a certain extent the 
 services it rendered. Now we are going to trace the evo- 
 lution of a bank of commerce, properly speaking, prac- 
 ticing the fundamental business of that kind of bank, 
 namely, discount. Besides, it is the origin of the large 
 credit companies, which appear in embryonic form, with 
 the Comptoir d'Escompte. 
 
 log 
 
y' 
 
 National Monetary Co 
 
 mmtss ton 
 
 II 
 
 ft 
 
 In 1830 there had been an ephemeral Comptoir 
 d'Escompte, which a crisis at the close of 1830 and 1831 
 had caused to be founded under almost the same condi- 
 tions as the one we are going to talk about. Its capital 
 had been furnished by the State. Its operations lasted 
 two years. Its creation had been agreed upon so that it 
 could serve as intermediary between merchants, manu- 
 facturers, etc., and the Bank of France. Other private 
 banks had raised the rate of discount. Now, the Bank of 
 France accepted only paper or commercial effects with 
 three signatures ; it was rather expensive to get the third 
 signature. This establishment, then, was started for the 
 purpose of making the third signature cheaper. 
 
 The Comptoir d'Escompte, founded in 1848, in the 
 midst of a panic more serious than that of 1830-31, 
 grew out of conditions not unlike those which gave birth 
 to the ephemeral Comptoir d'Escompte of 1830. 
 
 We have, moreover, traced above the facts which led to 
 the organizing of comptoirs d'escompte by the provisional 
 government of 1848. We have seen what services they 
 rendered. It was supposed that, like the Comptoir d'Es- 
 compte of 1830-31, they were destined to disappear when 
 the panic was over. Now, to note a rather curious fact, 
 this creation of the State's, which had received its first 
 modest capital like a sort of charity collection, which had 
 above all owed its organization and earliest resources to 
 the State and to the city of Paris, did not disappear, nor 
 did certain other Comptoirs in the provinces founded 
 under the same conditions. The Bank in Paris was 
 destined little by little to rise and free itself from its 
 
 / 
 
 Evolution of Credit and Banks 
 
 connections with the State and city of Paris which had 
 been necessary at the start; then to overcome many 
 prejudices in order to improve its statutes, and to have 
 these improvements accepted by the public authorities. 
 
 It is an interesting subject for study because it was the 
 opening wedge, if one may so express it, for those insti- 
 tutions which later on, under the name of Grandes So- 
 cietes de Credit, modified so fundamentally the general 
 organization of credit in France. Better still, it has served 
 to a certain extent as a guide in this evolution. Several 
 of these credit societies, indeed, started by being banks 
 more given to speculation and investment than to com- 
 mercial operations. The Comptoir d'Escompte, on the 
 contrary, has always fulfilled the functions which its firm 
 name indicated and its origin had given it. Though it 
 happened to deviate momentarily from this line of 
 conduct in order to speculate in the most dangerous 
 way imaginable for a credit company, and though 
 it disappeared in the storm it had started, the new 
 and reorganized Comptoir d'Escompte took up again 
 the good traditions of the old one, and was able at its 
 organization to apply all the improvements necessitated 
 by the needs of modern commerce and industry. So the 
 Comptoir d'Escompte is the type of the French credit 
 institution. It stands all through the latter half of the 
 nineteenth century to the present day as the sign post on 
 the road followed by credit institutions in France. 
 
 In 1850 the first lengthening of the term of existence of 
 the Comptoir d'Escompte de Paris was made to extend 
 to March 18, 1857. Its capital was still about the same 
 
 no 
 
 III 
 
; 
 
 II 
 
 N ational Monetary Commiss ion 
 
 as at the start — ^that is, very unimportant — and rose 
 to 4,200,000 francs. But it had at its disposal about 
 8,000,000 francs in deposits and current accounts, and 
 the Treasury continued its subsidiary loan of 3,000,000 
 francs. Bills of all kinds discoimted in 1850 rose to a 
 total of nearly 128,000,000 francs. That year the share- 
 holders felt that they had achieved something not only 
 for the public good, but also very profitable for them- 
 selves, since they received a dividend of 7 per cent of 
 the nominal capital. Success increased in the years 
 following. 
 
 In 1853 the capital was increased to 20,000,000 francs. 
 Why? Because the original capital of 6,500,000 was too 
 small to offer a sufficient guaranty, since the business of 
 the Discount Bank had increased very greatly. In 1852 
 the discount of bills with two signatures, that of war- 
 rants or receipts of merchandise, bills coming from branch 
 banks, made up a total which, with the addition of foreign 
 securities, rose to more than 248,000,000 francs; and the 
 Comptoir d'Escompte had, according to the statement of 
 Jime 30, 1852, 15,000,000 francs in ciurent credit ac- 
 counts — that is to say, 15,000,000 francs in deposits. 
 Adding the non-negotiable guaranteed capital to these 
 20,000,000 of accumulated capital — capital furnished by 
 the State and the city of Paris— the whole capital reached 
 33»333»ooo francs. 
 
 But this gradual transformation of an institution sup- 
 ported by the State which, as it grew, was freeing 
 itself httle by little from this protection, was destined 
 to bring about a lessening of the guaranties sanctioned 
 by the State and the City of Paris. The share capital 
 
 Evolution of Credit and Banks 
 
 increased at the same time that the guaranteed capital 
 remained stationary. It was then decided to reduce the 
 guaranty of the State and the City of Paris from a thu-d 
 to a fifth of the total capital. Moreover, the Government 
 announced to the directors of the Comptoir d'Escompte 
 that the issue of share capital was to be carried out before 
 December 31, 1854, so as to allow the cancellation at 
 that date of the guaranties and the repayment of the 
 3,000,000 francs loaned by the State. 
 
 This decision took on a general character in the law 
 of June 10, 1853, for it was appHed to the Comptoir 
 d'Escompte of Paris and those of the departments. 
 
 These measures were necessary because in 1853 the 
 discounts reached more than double what they had been 
 in 1852— that is to say, 500,000,000 francs. 
 
 While taking back its guaranty, the State prolonged 
 for a term of thirty years, beginning March 18, 1857, the 
 duration of the Soci^td du Comptoir d'Escompte. Thus 
 the Comptoir d'Escompte became free. Formerly, indeed, 
 the directors nominated by the Minister of Finance repre- 
 sented the State's interests. They supervised all opera- 
 tions, since these could not be carried on without their 
 authorization. The Minister himself alone authorized the 
 sending out of dividends to the shareholders. Three 
 delegates of the Paris municipal council represented the 
 interests of that city and took part in the meetings of 
 the council of administration and the general meetings 
 of shareholders. 
 
 New statutes were drawn up and approved by the 
 decree of July 28, 1854. The directors were in future to 
 
 1971— 1< 
 
 -8 
 
 112 
 
 "3 
 
ifi 
 III 
 
 National Mone tary Commission 
 
 be nominated by the general* meeting of shareholders. 
 The Mmister of Finance had nevertheless reserved for 
 himself the right of approval. Its operations became 
 more extended. To all those which it was accustomed 
 to carry on were added others, such as advances on 
 government securities, on shares, and bonds; the 
 opening for a third party, and at a commission agreed 
 upon, of subscriptions to public loans, or to loans issued 
 for the capital needs of all joint stock companies, always 
 subject to the authorization of the Minister of Fmance. 
 
 In spite of this interference the Bank, which from that 
 time forth was called the Comptoir d'Escompte de Paris, 
 carries on its business imder its new statutes. 
 
 Here, finally, is a table of the operations in discount of 
 this institution from 1853-54 to 1859-60: 
 
 Financial year. 
 
 Total number 
 
 of bills 
 
 discounted. 
 
 Sum total 
 
 of 
 
 discounts 
 
 in million 
 
 francs. 
 
 1853-54- 
 1854-55- 
 1855-56. 
 1856-57- 
 1857-58- 
 1858-59. 
 1859-60. 
 
 837.000 
 877.000 
 936,000 
 942, 000 
 985,000 
 999, 000 
 , 000, 000 
 
 638 
 653 
 704 
 683 
 
 66s 
 663 
 680 
 
 Average 
 of current 
 
 credit 
 
 accounts, 
 
 in million 
 
 francs. 
 
 aa 
 
 30 
 
 Z9 
 x8 
 x8 
 ao 
 ao 
 
 The number of commercial bills discoimted increased, 
 but the sum total in million francs, after having 
 increased, too, until 1855-56, went down in 1856-57. 
 You see, nevertheless, what services the Comptoir rendered 
 to trade; the average of each bill in 1856-57 was found 
 to be 723 francs in round numbers. The falling off of 
 
 114 
 
 Evolution of Credit and Banks 
 
 the sum total of discounts during the last year has to 
 do with the crisis of 1857. The crisis lasted until 1859, 
 for we see the figure representing the total of discounts 
 going down to 665,000,000 francs in 1857-58, and to 
 663,000,000 francs in 1858-59. The rise began again 
 in 1859-60. The current credit accounts did not in- 
 crease and show rather a falling off from 1853-54 to 
 1858-59. It has been said that at that time capital 
 was being absorbed by public loans and by loans 
 to large railroad companies. We must also note that 
 the Bank was not allowed to accept in current accounts 
 a sum more than one and a half times the net cash 
 capital. This clause prevented the current accounts 
 from increasing, and at bottom this measure favored 
 the Bank of France. In any case this restriction dimin- 
 ished public confidence. 
 
 COMMERCIAI. TREATIES OF 1860. 
 
 We have seen the movement of high finance set in mo- 
 tion in France between the years 1849 and 1865 by the 
 public loans for wars or needs of the budget, and loans 
 made by the railroad companies. The review of the 
 Credit Mobilier has enabled us to trace in its development 
 the important part played by these two chief causes in 
 the accumulation of capital and its circulation in France 
 during this period of fifteen to eighteen years. These 
 facts emphasize the phenomenon of the creation of capital 
 by saving, and it is a striking point that France, even 
 at that time, was sending money out of the country to 
 finance industrial enterprises, especially railroads. 
 
 115 
 
National Monetary Co 
 
 mmtsston 
 
 But if these elements of productive power were the 
 cause of a general economic activity in France, they 
 did not have such an immediate effect on commerce and 
 international exchanges as the treaty with England, con- 
 cluded on January 23, i860. France giving up the narrow 
 protective system followed until then, threw wide open its 
 frontiers to English trade. The country did not have to 
 repent it. The following table shows the movement of 
 special commerce during the five years before the com- 
 mercial treaties of i860 and the years which followed until 
 the war of 1870-71: 
 
 [Million francs.] 
 
 Year. 
 
 Imports. 
 
 Exports. 
 
 Total. 
 
 I8S5 
 
 1.594 
 1.989 
 1.873 
 1.563 
 
 1. 640 
 
 1.897 
 2.442 
 2,199 
 
 2, 426 
 2.528 
 2.641 
 
 2.793 
 3.026 
 
 3.304 
 3.153 
 
 1.558 
 
 1.893 
 1.866 
 1.887 
 2. 266 
 2.277 
 1,926 
 
 2. 242 
 
 2, 642 
 2.924 
 3.088 
 
 3. 180 
 2,826 
 2.790 
 3.07S 
 
 
 1856 
 
 3.152 
 
 1857 
 
 3.882 
 
 1858.. 
 
 3.739 
 
 1859 
 
 3. 450 
 
 i860.. 
 
 3.906 
 
 1861 
 
 4.174 
 
 1862 
 
 4.368 
 
 1863 
 
 4.441 
 
 1864 
 
 5,068 
 
 186s -- 
 
 5.452 
 
 1866 
 
 5.729 
 
 1867 
 
 5.973 
 
 1868 
 
 5.852 
 
 1869 
 
 6.094 
 
 
 6. 228 
 
 Now, here are some statistics showing the general com- 
 mercial development of railroads between the years 1855 
 and 1869. We have not given the figures for every year, 
 thinking that those given are enough to show the enor- 
 mous growth of length of lines and of the movement of 
 traffic during this period. 
 
 116 
 
 Evolution of Credit and Banks 
 
 French raUroads. 
 
 Year 
 
 1855- 
 i860. 
 
 1865. 
 1869. 
 
 Length of 
 
 roads, in 
 
 kilometers 
 
 5.037 
 
 9, 167 
 
 13.227 
 
 16,465 
 
 Total net 
 
 Net )si\o- 
 
 proceeds.in^!Sf?!?- 
 
 million 
 francs. 
 
 155 
 230 
 310 
 38s 
 
 ceeds, in 
 
 thousand 
 
 francs. 
 
 310 
 25.0 
 23- 5 
 23.3 
 
 Number of I Number of 
 passengers.l ^^s of 
 by mil- 
 
 lions 
 
 330 
 56. 5 
 
 81. 5 
 
 III. o 
 
 merchan- 
 dise, in mil- 
 lion tons. 
 
 10. 6 
 23.0 
 34- o 
 44- o 
 
 The Comptoir d'Escompte of Paris did its best to profit 
 by the revival of trade destined to follow the conclusion 
 of the treaties of January 23, i860, with England, and 
 helped on by the development of French railroads. 
 
 First of all, it was important to extend the workings 
 of this credit estabhshment both at home and abroad. 
 So it had to win a little more Hberty, and not remain 
 under too narrow a charter. The State, indeed, had 
 only conceded under restricted conditions its right to 
 become a stock bank imder the title of Comptoir 
 d'Escompte de Paris. This time the Government 
 did not refuse to back up the plans of the institu- 
 tion. The decree of May 25, i860, approved the modi- 
 fications of the statutes put forward by the directors. 
 These modifications were the authorization to start 
 agencies in France, in the French colonies, and abroad, 
 with the approval of the Minister of Finance. Further, 
 in order to carry on operations made necessary by these 
 agencies, the Bank was authorized to accept orders, drafts, 
 and letters of exchange which should be secured by trans- 
 fers of bills of lading and bottomry; to discount up to a 
 term of one hundred and eighty days sight commercial 
 bills backed up by bills of lading. 
 
 117 
 
National Monetary Commission 
 
 A few days later two agencies were founded, one in 
 Shanghai, China, the other in Calcutta. India. 
 
 On August 30, i860, the Comptoir d'Escompte was 
 authorized to double its capital from 20,000,000 to 
 40,000,000 francs. The issue of 40,000 new shares was 
 entirely successful. 
 
 Let us point out here this fact, that an institution of 
 credit must be authorized, as we have just seen, in order 
 to increase its capital. The management of institutions 
 of credit founded as joint stock companies, or even in 
 the form of silent partnerships, was imder the pro- 
 tection of the State. So it is not to be wondered at 
 that a greater munber of important credit companies 
 are not fotmded. Except for the unexpected revolution 
 of 1848 and the panic which resulted from it the Comptoir 
 would probably never have existed. It was, indeed, the 
 first credit society in France which attained its defini- 
 tive form from the start, that of a bank of commerce — 
 that is to say, of discount with all the operations that 
 
 go with it. 
 
 About the same time, in i860, the Comptoir d'Escompte 
 helped with loans of money certain colonial banks 
 (those of Martinique, of Reunion, and Guadeloupe). 
 These banks of issue were obUged to put their capital 
 into government sectirities as a guaranty for issuing 
 their notes for equivalent sums. Now, their power of 
 credit was soon spent. After having turned into money 
 the securities which they held— that is to say, put into 
 circulation that part of the state debt which they pos- 
 sessed—nothing was left them to do business with. The 
 
 X18 
 
 Evolution of Credit and Banks 
 
 Comptoir d'Escompte guaranteed credits for them or 
 loaned them money, and later it extended this opera- 
 tion to the banks of Guiana and Senegal. 
 
 And so the Comptoir was established in the Far East, 
 and its influence was felt in our colonies. It soon showed 
 that its agencies were useful. The one in Shanghai, 
 besides its current business, collected the war indemnity 
 due the French Government after our Chinese expedi- 
 tion. Moreover, the new treaty gave French merchants 
 the right of opening up relations with the Chinese Empire. 
 So it was a valuable help to our countrymen. In Cal- 
 cutta the economic movement took on all the greater 
 importance because the civil war in the United States 
 made India the center of the cotton supply for Europe. 
 
 These first successes caused new Asiatic agencies to be 
 founded in 1861 and 1862 in Bombay, India; Saifeon, 
 Indo-China; and Hongkong. 
 
 During this time the business of the Comptoir was 
 spreading and taking on an importance little in keeping 
 with its capital. It had extended greatly its activities 
 in the provinces, in the principal French cities, having 
 accoimts with the bankers of these cities and keeping 
 their accounts in turn. Profits were good. For the 
 financial year 1 865-66 the dividend was 12.7 per cent 
 on the capital. It is true that the discotmt and banking 
 operations had been 1,000,800,000 francs for that year 
 and that in Indo-China business had amounted to more 
 than 700,000,000 francs. 
 
 The capital then was increased to 80,000,000 francs. 
 The subscription succeeded admirably, which was not 
 surprising. 
 
 1Z9 
 
•II 
 
 
 I 
 
 , 
 
 1 
 
 National Monetary Commission 
 
 THE INFLUENCE OF MORE LIBERAL LEGISLATION ON 
 BUSINESS IN GENERAL AND ON CREDIT IN PARTICULAR. 
 
 In the period from 1863 to 1867 new laws were passed 
 which have had a very great influence on the develop- 
 ment of large industries and credit institutions. We 
 shall take these laws into account only so far as they 
 concern the latter. 
 
 Before the law of May 23-29, 1863, no joint stock com- 
 pany could be founded without the authorization of the 
 ruler and without his approval of the act which consti- 
 tuted the society. This law did away with this authori- 
 zation, but stipulated that the capital of the society 
 could not be more than 20,000,000 francs. The shares 
 forming the capital fixed on by the foimders were to be 
 completely subscribed for, but the law required that only 
 a quarter of the capital issued be paid in. The direct- 
 ors nominated by the general assembly of shareholders 
 (which approves the statutes) must own in equal lots 
 one-twentieth of the society's capital, and the shares 
 forming this twentieth were not to be sold. They were 
 personal and untransferable. One article of this law 
 stipulated with reference to supervision that the general 
 assembly of shareholders should pick out one or more 
 special commissioners to report to the general assembly 
 on the condition of the society. Then certain measures 
 for publicity were enacted (the registering of the statutes 
 and amendments of these statutes in the court record 
 office) and other measures of order and procedure for the 
 general assembly of shareholders. 
 
 Evolution of Credit and Banks 
 
 The law of July 24, 1867, repealed the law of June 23, 
 1863. This law of 1867 treated with limited liability 
 partnerships issuing shares (societes en commandite par 
 actions) and joint-stock companies. It no longer limited 
 the capital stock of companies and it increased the pub- 
 licity by requiring the statutes or changes of statutes to 
 be inserted in at least one newspaper, specified for receiv- 
 ing legal notices. As in the law of 1863, the directors 
 were to be chosen for six years, but they were eligible for 
 reelection. The number of shares which they may own 
 was determined by statute. Finally this law, while organ- 
 izing a sort of parhamentary system for joint-stock 
 companies, of which the general assembly of shareholders 
 was the foundation, gave real freedom, a more flexible 
 instrument than the law of 1863, to industry, trade, and 
 banking. 
 
 The law was indispensable because of the growth of 
 large industries, and the natural concentration of capital. 
 The old mould had to be broken in order to keep up with 
 the general economic movement marked by the control- 
 ling influence of new scientific inventions and their appli- 
 cation to industry. The steam engine, the locomotive, 
 the beginnings of electricity— all revolutionized the condi- 
 tions of industry. Concentration of capital was becom- 
 ing necessary even then, and a mathematical function, as 
 it were, of the tendency of industries to concentrate. 
 
 Besides, this capital did not belong to large capitalists; 
 capital was being collected also in the middle classes and 
 all ranks of society. 
 
 120 
 
 121 
 
National Monetary Commission 
 
 Here is an indication of this fact, as shown in the 
 development of savings banks. 
 
 Year. 
 
 183s- 
 1841. 
 1851. 
 1861. 
 1865. 
 1867- 
 
 Number 
 
 of savings 
 
 banks. 
 
 159 
 301 
 366 
 459 
 497 
 513 
 
 Number 
 
 of branch 
 
 banks. 
 
 55 
 159 
 159 
 243 
 47S 
 564 
 
 Balance 
 due de- 
 positors 
 (million 
 francs). 
 
 62 
 
 249 
 0158 
 401 
 493 
 571 
 
 Private 
 
 property 
 
 of the 
 
 banks 
 
 (million 
 
 francs). 
 
 S 
 
 10 
 tj 
 14 
 
 «This low figure is due to the panics of 1847. 1848. 1849. and also to the political 
 crisis of that period. 
 
 In the year 1869, preceding the Franco-Prussian war, 
 the balance due to depositors rose to 711,000,000 francs. 
 
 That was only an indication. The middle classes 
 were investing their money in railroad and city bonds 
 and in government securities. The Credit MobiHer and 
 the other institutions of that kind did not create the 
 taste for saving money in France; they only directed it 
 toward transferable securities. It is even a fortunate 
 accident that the Credit Mobilier gradually disappeared, 
 succumbing imder mistakes which opened the eyes of 
 the least farseeing to the danger of speculative crazes. 
 We in France have not always been immune from these 
 crazes since then, but the attacks for most of the savers 
 have been only temporary. The great majority of the 
 very numerous persons who accumulate capital has 
 always after the storm taken up again the patient, per- 
 sistent work of saving. 
 
 122 
 
 Evolution of Credit and Banks 
 
 Now that we have set forth these reflections and these 
 facts to show in what surroimdings the French credit 
 institutions developed and what laws helped in this de- 
 velopment, we may return to the Comptoir d'Escompte. 
 
 The Comptoir d'Escompte had in its general meeting 
 of December 8, 1866, raised its capital to 80,000,000 francs 
 and established a reserve fund of 20,000,000 francs. 
 
 In 1867 it enlarged its sphere of action by establishing 
 new agencies. In France it founded one at Nantes (1867) , 
 at Lyons (1868), and at Marseilles (1869). Abroad it 
 estabHshed those at London (1867), Yokohama, Japan, 
 and Alexandria, Egypt. The Comptoir had as wide inter- 
 ests in foreign countries as in France. 
 
 Its agencies at Nantes and Marseilles, both seaports, 
 put it in touch with firms having business with otu* colo- 
 nies, or with those numerous and often rich firms which 
 had business with Egypt, India, and the Far East. Finally, 
 the agency at Lyons was very efficacious because of the 
 accommodations it gave silk merchants for extending in 
 that city the silk market which it had succeeded in wrest- 
 ing from London a few years before. 
 
 In 1869-70, on the eve of the Franco-Prussian war, 
 the total business of the Comptoir reached 3,086,000,000 
 francs, an enormous sum for that time, and this business 
 was made up as follows: 
 
 Francs. 
 
 Discounts __ _ i, 187,000,000 
 
 Foreign agencies _ __ 1,096,000,000 
 
 Home agencies _ .__ __ 438, 000, 000 
 
 Other operations... _ 365,000,000 
 
 Total _ 3,086,000,000 
 
 The dividend that year rose to 9 per cent. 
 
 123 
 
N ational Monetary Commission 
 
 We are far from the modest beginnings of the Comp- 
 toir; indeed, we have seen its first capital formed Hke a 
 charity collection, at the most distressing time of the 
 panic of 1848, when it was started. It had always been 
 true to its pmpose of a discount bank, and soon found 
 itself brought into business relations with the most dis- 
 tant foreign cotmtries. Circumstances forced this, as, for 
 instance, the first war with China and the difficulty at 
 that time of competing with the provincial banks which, 
 since the increase in the number of branches of the Bank 
 of France, fovmd help in this great issuing establishment, 
 which rediscounted their commercial bills for them. 
 Nevertheless, in the last period we have gone over, it 
 founded agencies in the most important French cities. It 
 is none the less the pioneer in the founding of foreign 
 agencies. 
 
 Chapter IV. — The Bank of France from i860 to 1875. 
 
 Tendency of the Bank to have a large cash reserve.— Unproductive circulation.— 
 Difference in the evolution of the Bank of England and the Bank of France.— The 
 Bank of France gradually becomes the depository of French specie.— Gold pur- 
 chases as a means of increasing the reserve.— The panic of 1864.— Its causes.— 
 First symptoms.— Acute period of the crisis.— The Bank buys gold.— The interest 
 on loans on securities becomes different from the rate of discount.— The law of 
 March 3, 1852, in regard to loans on railroad securities.— Its consequences.— Panic 
 of 1856-57.— Panic of 1862-64.— The interest on loans on securities was the same as 
 the discount rate.— The Bank establishes an increase in interest on loans on securi- 
 ties as compared with the discount rate.— The issue of bank notes representing 
 loans on securities. Dangers of its exaggeration.— Issues and discounts of the 
 Bank from 1864 to 1870.— Note on a fact seemingly paradoxical; differences in 
 1865-66 of 6 per cent between the discount rate of the Bank of England and the 
 Bank of France.— The panic of 1865-66 in London m its relation to the Paris money 
 market.— Moral obligations of the Bank toward the Government. Its financial 
 help in war time.— Legal currency and forced currency (August 12, 1870).— The 
 right to hicrease the issue.— Bank's loans to the State.— Loan to the city of Paris.— 
 Precautions taken by the Bank.— Disadvantages of a state bank m time of war.— 
 Forced payments to the Paris Commune.— Increase in discounts.— Services ren- 
 dered by bank notes.— Growth in economic activity after the war of 1870-71.— Col- 
 lection of bills the time of payment of which had been extended.— The loss m the col- 
 lection of extended biUs is very small.— Deep lying causes of commercial customs.— 
 Increase in the Ihnit of issue for the Bank of France.— FlexibUity of the system 
 subject to the intelligent action of the public authorities.— Comparisons with the 
 Bank of England.— Terms of payment of the war indemnity.— Method of pay- 
 ment.— Interest in explaining these operations.— Secondary conditions.— Loan of 
 2,000,000,000 francs in June, 1871.— Loan of 3,000,000,000 francs hi July, 1872.— 
 Success of the loan of 1872.— Loan by the Bank of France to the State.— Agreement 
 with a syndicate of bankers.— France's progress hi the knowledge of the conditions 
 of credit. 
 
 I. — Before the Franco-Prussian War. 
 
 Let us return to the Bank of France, which we left in 
 i860 after its operations of marketing railroad securities. 
 We know that it had already increased the number of its 
 branch banks. 
 
 The following table shows the development of its op- 
 erations; it will help us on several points to make the 
 observations which certain figures call for; we divide the 
 interval before the war into periods of two years each. 
 
 124 
 
 "5 
 
National Monetary Commission 
 
 Evolution of Credit and Banks 
 
 [MilUon francs.] 
 
 Year. 
 
 Average 
 reserve. 
 
 Average 
 circula- 
 tion. 
 
 Number 
 
 of bills 
 
 discounted. 
 
 1859 
 
 1861 
 
 1863 
 
 1864 
 
 186s 
 
 1867 
 
 1869 
 
 570.0 
 368.6 
 305 o 
 252. 1 
 439-6 
 84s o 
 I, 190.0 
 
 716.4 
 745. o 
 796.0 
 
 761 
 
 839 
 I. 081 
 
 1.354 
 
 3.395.163 
 4. 188,471 
 4. 280,378 
 4,698,437 
 4. 734-997 
 S, 001, 881 
 5.656,600 
 
 Sum 
 total of 
 bills dis- 
 counted. 
 
 4.7M 
 5.307 
 5. 706 
 6,546 
 6.039 
 5.723 
 6.635 
 
 Average 
 of com- 
 mercial 
 "port- 
 foHo." 
 
 Rates of discoimt. 
 
 Maxi- 
 mum. 
 
 484.0 
 531-3 
 568.7 
 635 o 
 595.8 
 
 530.7 
 568.0 
 
 Percent 
 4.5 
 7 
 
 7 
 8 
 
 5 
 3 
 
 2 
 
 Mini- 
 mum. 
 
 Per cent. 
 3-0 
 5 
 3 
 3 
 3 
 2 
 2 
 
 w 
 
 We see first of all that the reserve has risen in this 
 space of time from 368,000,000 to nearly 1,200,000,000 
 francs— that is, it has more than tripled. The circula- 
 tion of bank notes has also increased, but has not quite 
 doubled. The discounts have not increased, as is shown 
 m the column containing the average total of the com- 
 mercial "portfolio," which in 1869 was the same as in 
 1863—568,000,000 francs. The notes in circulation, then, 
 in large part represent specie— that is, the reserve. 
 
 If we deduct from the average total of circulation the 
 average total of commercial bills, we have left 786,500,000 
 francs, which are an important part of the circulation 
 representing specie and having nothing in common with 
 the credit through issue; this is called unproductive cir- 
 culation in institutions of issue. To be sure, we must 
 take into accoimt advances on securities; but during 
 these nine years the average total of collateral loans, 
 which reached nearly 181,000,000 francs in 1861 and 
 166,000,000 francs in 1862, fluctuated after that between 
 75,000,000 and 85,000,000 francs. 
 
 It is a strange thing, and at first sight almost para- 
 doxical, that when the very strict law of 1844 forced the 
 Bank of England not to issue, over and above a certain 
 figure, anything but gold certificates, the Bank of France, 
 without the intervention of any law, but simply by the 
 course of events and the spirit of economy among the 
 French people, saw this very idea of the law of 1844 
 carried out without any government interference. In- 
 deed, not only were the French as a nation saving money, 
 but their savings flooded the money market because they 
 were not being used either in industries at home or in 
 the colonies, as was the case at that time in England. 
 
 To be sure, the Credit Mobilier sent French capital to 
 Austria, Spain, Russia, etc., to build railroads; in France, 
 too, the railroads had already required several biUion 
 francs for their construction; but our capacity for accu- 
 mulating capital gives us an extra amount of cash capital, 
 of which the Bank of France gradually becomes the deposi- 
 tory. Aside from the great and far-reaching panic caused 
 by the Franco-Prussian war, in proportion as the Bank 
 spread its influence through France by means of its 
 branches this phenomenon took place more and more. 
 The consequence was that the Bank tried means different 
 from those it had appUed before to protect its reserve. 
 
 In former panics in 1847 and 1855-1857 the Bank of 
 France bought gold to keep up an adequate reserve. In 
 this last panic it had recoiurse to this method to the sum 
 of almost 1 ,300,000,000 francs, purchases which cost it a 
 little over i per cent. Henceforth it no longer needed to 
 
 126 
 
 127 
 
■•I 
 
 If 
 
 N ational Monetary Commission 
 
 use this method to any extent except during the panic of 
 1864. 
 
 Where did this panic start ? It started in America. The 
 War of Secession was the immediate cause. The panic, as 
 is always the case, was first felt in England because of its 
 important relations with the United States, and then in 
 France. 
 
 The War of Secession greatly disturbed the supply of 
 certain products which Europe got from America. The 
 American cotton merchants called in at the beginning of 
 the war the money due them and foimd themselves 
 obliged to refuse the orders which had been given them, 
 and it was impossible for them to deliver those which they 
 had already accepted. In order not to shut down, the 
 European factories had to buy cotton in India. All this 
 caused great changes. 
 
 The beginnings of the panic were felt as early as 1861. 
 The preceding table shows that in comparison with 1859 
 the average reserve went down from 570,000,000 francs 
 to 368,600,000 francs; the discount went to 7 per cent, 
 with a minimum of 5 per cent. In 1865 there was a still 
 greater falHng off in the average reserve. It went down to 
 305,000,000 francs. The minimum in November was even 
 as low as 200,000,000 francs. It did not drop lower than 
 that figure during the worst period of the panic, but the 
 discount rate went to 7 per cent, as in 1861. 
 
 In 1864 the panic was at its worst at the time of foreign 
 payments, the end of April to May, and September to 
 October. During the first period the reserve fell below 
 160,000,000 francs in spite of a rise in the discount rate to 
 
 128 
 
 Evolution of Credit and Banks 
 
 8 per cent. In the face of a greater and greater number 
 of bills presented for discount, the Bank directors, because 
 of the growing demand for coin, decided again to buy gold. 
 Thus the Bank purchased gold abroad to the sum of a 
 little less than 240,000,000 francs. In September and 
 October the discount rate, which had been lowered for 
 some time, was raised to 7 per cent, then to 8 per cent, 
 with a special view to reestablishing the reserve. At the 
 end of the year the discount rate fell back to 4X per cent. 
 The Bank had been authorized since 1834 to make ad- 
 vances on securities to private individuals. Up to about 
 185 1 these operations were not very important, because 
 this kind of securities was limited to those of the State or 
 of cities. From the moment when the Bank could con- 
 sent to advance money on a larger variety of certificates — 
 that is to say, transferable securities — when it could lend 
 money on stocks and bonds of railroads, of the Credit 
 Foncier, etc., this side of its business took on large pro- 
 portions. The following table shows this progress. We 
 give only five-year intervals from 1834 to 1851, and after 
 that every year up to 1870: 
 
 Year. 
 
 1834 
 
 1840 
 
 184s - 
 
 X850 : 
 
 x8si __. 
 
 185a 
 
 X853 - 
 
 X8S4 
 
 1971 — lO-^ — 9 129 
 
 Loans on securities. 
 
 Total sums 
 advanced. 
 
 Average 
 portfolio. 
 
 Francs. 
 
 37,600, 000 
 
 70, 500, 000 
 
 52,300,000 
 
 76, 700.000 
 
 51,900,000 
 
 533*500,000 
 
 773.900,000 
 
 471,400,000 
 
 Francs. 
 7, 700,000 
 10. 500,000 
 II, 300, 000 
 18.800, 000 
 10, 800, 000 
 68,300,000 
 139,500,000 
 89. 500. 000 
 
i 
 
 National Monetary Commission 
 
 Year. 
 
 Loans on securities. 
 
 Total sums 
 advanced. 
 
 Francs. 
 
 185s 671. 700, 000 
 
 1856 - -- 83 4. 800 , 000 
 
 1857 - - 353,600.000 
 
 1858. --- 599. 500. 000 
 
 1859 - I 684, 200, 000 
 
 i860 - - I 651, 600, oco 
 
 1861 1 472. 500, 000 
 
 1862 II, 303 , 600, 000 
 
 999. 200. 000 
 4*3.300,000 
 401, 800, 000 
 420. 400, 000 
 
 1863 - - - --- 
 
 1864 -- - - -- 
 
 1865 -. - 
 
 1866 -_- - - - 
 
 1867 - 445. 700,000 
 
 1 868 -- - - 433. 400 , 000 
 
 1869 480, 000, 000 
 
 1870 — 542. 000, 000 
 
 Average, 
 portfolio. 
 
 Francs. 
 
 105, 200, 000 
 
 81, 200, 000 
 
 52, 500, 000 
 
 97, 000, 000 
 
 117, TOO, 000 
 122, 800, 000 
 
 88, 200, 000 
 
 180, 600, 000 
 
 166, 100, 000 
 
 84, 200, 000 
 
 74. 000, 000 
 
 77, 400, 000 
 
 85, 800, 000 
 
 84, 100, 000 
 
 94, 200, 000 
 
 121, 600, 000 
 
 Let us remark again before drawing conclusions from 
 these figures that the law of Jime 30, 1840, had allowed 
 ail pubHc seciuities as guaranty for commercial bills 
 presented for discoimt with two signatures. 
 
 First of all we note that in 1852 the total loans for 
 the year rose to 523,500,000 francs, whereas they were 
 only 51,900,000 francs in 1851; in the same way the 
 average of the "portfolio" went from 10,800,000 francs 
 to 68,300,000 francs. The movement went on and 
 increased in 1853. The reason for this was the law of 
 March 3, 1852, which extended the loan operations of the 
 Bank to railroad stocks and bonds, whereas by the 
 terms of the law of May 17, 1834, the Bank could make 
 loans only on French government sectuities. After 
 dropping in 1854 these figvues rose, and during the panic 
 of 1856 reached almost 835,000,000 francs for the total 
 
 130 
 
 Evoluti on of Credit and Banks 
 
 loans and 81,000,000 francs for the average during that 
 year. The panic had caused a call for loans to be made by 
 the holders of securities who needed cash capital or bank 
 notes. Next we see a falling off in the total and average 
 loans in 1857, then they went up in 1858 and reached 
 a total of nearly 600,000,000 francs and an average of 
 97,000,000 francs. In 1 862 the total of collateral loans went 
 up to a figure unheard of till then, almost 1,304,000,000 
 francs, and the average to 180,500,000 francs; the fol- 
 lowing year we find respectively almost 1,000,000,000 
 francs in one column and 166,000,000 francs in the other; 
 it was another panic— the cotton panic brought about by 
 the War of Secession— which called forth this demand for 
 cash or bank notes. It was also the time when the Credit 
 Mobilier started out to market railroad securities. Every- 
 one used what means he had to obtain credit and bor- 
 rowed on securities when the discount on commercial bills 
 was not enough, railroad securities having become very 
 numerous on account of repeated borrowings. 
 
 Now, the Bank of France made its loans at the same 
 rate as that which it fixed for discount. In view of the 
 numerous demands for loans during these two years, 1862 
 and 1863, the Bank understood that it was necessary to 
 establish a higher rate for the interest on collateral loans. 
 Its directors saw rather late the usefulness of this measure. 
 In reality, transferable securities, stocks or bonds de- 
 posited as collateral for promissory notes, are not easy 
 to reaHze on by the depositor even when the need is 
 urgent. Too many obstacles prevent their being quickly 
 negotiable, even assuming that the loan has fallen due. 
 
 131 
 
 % 
 
National Monetary Commission 
 
 It is understood that the margin between the market 
 quotation of the security at the moment of the loan and 
 the value below the quotation which the banker fixes for 
 the loan, guaranties the banker against all risk if this 
 margin has been cautiously worked out. But here one 
 might say that the sureness of the guaranty is in inverse 
 ratio to the availability of the capital loaned. Granting, 
 then, that payment has fallen due, you will call upon the 
 debtor to pay his debt. But he may fail to obey this call, 
 especially in a panic. Here you can not use the rapid 
 methods of procedure thought out for bills of commerce. 
 It is a collateral loan, so you have to reach the point of 
 using the right to sell the collateral. Now, selUng govern- 
 ment and railroad sectuities, etc., in time of panic, throw- 
 ing great quantities of them on the market, necessarily 
 causes a decline in these securities and others of the kind 
 allowed as collateral on loans. To issue bank notes 
 against securities that can not be quickly realized on is 
 something a bank of issue ought not to do without cau- 
 tion. The problem was new at that time, and it was only 
 the heavy loans of 1862 and 1863 that began to alarm the 
 bank directors. 
 
 The method to employ was simple; it consisted in rais- 
 ing the interest on loans in comparison with the discount 
 rate. This is what the Bank did. The effects of this 
 measure were immediately felt; the total of loans re- 
 mained aroimd 400,000,000 to 450,000,000 francs. Here, 
 as a document that bears on this measure, is a table of 
 the differences in favor of discount demanded by the Bank 
 up to 1870. 
 
 132 
 
 Evolution of Credit and Banks 
 
 Extra ifUerest on loans as compared with discount rate. 
 [Discount rate and interest on loans the same before March 24, 1864.] 
 
 Per cent. 
 
 From March 24, 1864, to May 5, 1864 i 
 
 From May 6, 1864, to May 25, 1864 o 
 
 From May 26, 1864, to September 8, 1864 i 
 
 From September 9, 1864, to November 2, 1864 o 
 
 From November 3, 1864, to March 8, 1865 i 
 
 From March 9, 1865, to May 31, i865__ ^ 
 
 From June i, 1865, to October 8, 1865 i 
 
 From October 9, 1865, to November i, 1871 y^ 
 
 If we go back now to the table before this one, we see 
 that during the years which follow the panic of 1863-64 
 the metaUic reserve rose by degrees. In 1869, on the eve 
 of the Franco-Prussian war, it rose on an average to about 
 ' 1,190,000,000 francs, or, more precisely, 1,189,800,000 
 francs; the circulation of bank notes exceeded on the 
 average 1,354,000,000 francs. In 1868, moreover, the 
 average reserve aheady reached 1,174,000,000 francs, 
 and the circulation rose to 1,233,000,000 francs. The 
 amount of the reserve almost equalled the circulation. 
 The difference was less than 60,000,000 francs. But is 
 that a sign of prosperity? To prove that this sign is 
 fallacious it suffices to follow the fluctuations of the fig- 
 lu-es relating to discounts collected in the following table: 
 
 Year. 
 
 Average 
 discounts. 
 
 Average 
 
 rate of 
 
 discount. 
 
 1856 
 
 Francs. 
 493.000,000 
 493.300,000 
 63s. 000, 000 
 595.800,000 
 656, 600, 000 
 530, 700,000 
 458, 500,000 
 568,000,000 
 738,000,000 
 
 Per cent. 
 
 i86o_ 
 
 5.51 
 3.63 
 6.50 
 
 1864 
 
 1865-- 
 
 1866 t 
 
 3- 73 
 3.67 
 
 1867 
 
 1868. _ 
 
 2. 71 
 
 1869 
 
 2.50 
 
 1870 
 
 3. 50 
 
 
 3-99 
 
 133 
 
 f! 
 
Illi<(* 
 
 ♦ 
 
 I 
 
 I 
 
 :im ' 
 
 National Monetary Commission 
 
 Hence beginning with 1856, the year when the average 
 discounts reached a figure till then unknown, we see the 
 discounts rising in a few years to figures which fluctuate 
 around 600,000,000 francs. Then from 1867 this average 
 goes down to only 458,500,000 francs in 1868; at one 
 time even the discounts showed in that year a minimum 
 of 410,000,000 francs. The falling off in business pre- 
 vious to 1870 was directly connected with fear for the 
 political situation in Europe. Since 1866, since Sadowa, 
 war was thought to be probable between France and 
 Prussia, and this fear checked business transactions; 
 people did not dare to invest capital in industrial concerns. 
 You notice this in looking over the average balance of 
 individual current accounts at the Bank of France. 
 After having exceeded 200,000,000 francs in 1859 and 
 i860, it had fluctuated from 1861 to 1865 between 
 165,000,000 and 185,000,000 francs. But from 1866 
 it went up as shown by the following table: 
 
 Average balance of individual current accounts. 
 
 Francs. 
 
 1861 164, 2CX), 000 
 
 1 862 186, 100, 000 
 
 1863 170, ScK), 000 
 
 1864 - 146, 500, 000 
 
 1865 176, 800, 000 
 
 1 866 267, 600, 000 
 
 1867 311,300,000 
 
 1868 - 407,300,000 
 
 1 869 — 348, 600, 000 
 
 1870 — 402 , 600, 000 
 
 REMARKS. 
 
 London experienced in 1865-66 a financial crisis in the 
 form of a money shortage, which was one of the most 
 severe that market ever had. There were several reasons 
 for it; one fimdamental cause was the heavv demand for 
 
 134 
 
 Evolution of Credit and Banks 
 
 gold in India; another cause of weakness was in the 
 mechanism of the Bank of England, which, beyond its 
 loan to the State, can not issue notes without having their 
 value in gold in its treastuy; finally, an unprecedented 
 public panic forced the closing of the most trustworthy 
 credit firms which operated only in the most conserva- 
 tive way, like the joint-stock banks. The curious thing 
 is that the discount rate went up to 10 per cent at the 
 Bank of England; it stayed three months at that level, 
 whereas that of the Bank of France did not exceed 4 
 per cent during this period, and even fell to 3.5 per cent. 
 This shows that gold was not being exported to England 
 from France. How can we explain that these two mar- 
 kets so near to each other should be so little subject to 
 the regulative law of supply and demand, while no 
 restrictive law in France opposed at that time the trans- 
 portation or sale of gold to foreign coimtries? 
 
 Let us retrace first the fluctuations in the discount rate 
 at the Bank of England and the Bank of France from 
 October, 1865, to July, 1866. 
 
 
 Date. 
 
 Discount rate. 
 
 
 Bank of 
 England. 
 
 Bank of 
 France. 
 
 1865 — October 2 _ 
 
 Per cent. 
 
 5 
 6 
 
 ' 
 7 
 
 8 
 6 
 
 f 
 8 
 
 9 
 10 
 
 zo 
 
 Per cent. 
 
 October s 
 
 3 
 
 November 12 
 
 4 
 
 December 28. 
 
 5 
 
 1866 — ^January 4 
 
 4 
 
 March 15 
 
 5 
 
 May 3 
 
 J 
 
 Mays 
 
 3 
 
 May II 
 
 3' S 
 
 May I a . . 
 
 4- 
 
 July 16 
 
 4.0 
 
 
 3.5 
 
 135 
 
 i I. 
 
National Monetary Commission 
 
 Evolution of Credit and Banks 
 
 111 I 
 
 ill 
 
 The reason for this state of affairs seemingly so abnor- 
 mal is that the panic of 1866 in London was purely local. 
 The English public greatly exaggerated the shipments of 
 gold to India. Passing troubles, which at other times 
 would not have been noticed, made depositors in certain 
 joint-stock banks lose confidence. The public made a 
 mad rush, and the result was that some of these houses 
 suspended payment. It was a genuine panic, which 
 brought about what we call to-day a run on the bank. 
 What happened next? These joint-stock banks, like all 
 London banks, helped to make at the clearing house, for 
 their own account and that of their clients, compensatory 
 payments and balancings of checks. These substitutes 
 for coin failing suddenly so far as these banks were con- 
 cerned, a money scarcity followed. The machinery of 
 the clearing house is really very delicate and sensitive. 
 If it has just sufifered a slackening or a sudden jerk, 
 the whole mechanism of London credit is affected. So 
 the Bank of England was called upon. Thanks to the 
 suspension of the act of 1844, this bank could issue an 
 extra allowance of notes amounting to £6,000,000, and 
 save its situation by gradually raising the discotmt to 
 10 per cent. Its reserve, which was £14,000,000, went 
 down to only £11,800,000 on May 23, being a diminu- 
 tion of £2,200,000. As for London exchange on Paris, 
 which varied then from 25.12 to 25.30, it went down 
 during the worst of the panic to 25.10. The exchange, 
 then, showed that it was rather more advantageous for 
 Paris to buy gold in London. In reality, the 10 per cent 
 rate of discoimt maintained by the Bank of England was 
 
 136 
 
 kept up perhaps a little longer than necessary. In any 
 case London's rate of exchange at that time was not dis- 
 advantageous relatively to Paris and other European 
 markets, such as Amsterdam, Hamburg, etc. The rate 
 of exchange went up only on Calcutta. 
 
 At that time the intercommunication between the 
 European money markets was not as finely adjusted as 
 it is to-day. At the present time and under the same 
 conditions the rise in exchange would have been momen- 
 tary, but it would have been felt just the same. There 
 are sympathetic crises, just as there are sympathetic 
 pains, which the delicate sensitiveness of the organisms 
 explains. Thus the crisis of 1866 had for its chief cause 
 the pains aroused by a slightly abnormal demand for gold 
 in India and especially by the increase in the needs for 
 actual cash caused by the suspension of the banks of 
 which we have spoken. On the other hand, the other 
 European markets had either a silver standard or bimet- 
 allism; so it is likewise easy to understand why they 
 thought so little of protecting themselves and showed 
 so little anxiety, since the London panic in its worst 
 period was characterized by a demand for gold. We 
 have seen that this demand was not very great, since 
 the continental markets did not have to export gold, 
 and the Bank of England itself had only a little over 
 £2,000,000 less than its normal reserve. 
 
 II. — ^Thb Franco-Prussian War and its Consequences. 
 
 The Bank of France, bound to the State and holding 
 its privilege from the State, was naturally destined to 
 play a very active part in connection with it during the 
 
 137 
 
BB 
 
 li ill 
 
 II 
 
 niiH 
 
 National Monetary Commission 
 
 war. The war that broke out in July, 1870 — it was 
 declared by the legislative body on the night of July 
 14-15 — was to show what an important financial machine 
 this establishment was for the Government, as well as 
 the aid it was to give it. 
 
 At the beginning of hostiUties the Government had 
 recourse to it, and as early as July 18 borrowed 50,000,000 
 francs. 
 
 On August 12 a law decreed that the notes of the Bank 
 should have legal ciurency and forced currency — that is 
 to say, that every creditor should be obUged to accept the 
 notes instead of coin and at the same value as current 
 coin; and by forced currency it is scarcely necessary for 
 us to explain that we mean the right of the Bank which 
 issues the notes not to redeem them in specie. The 
 same law raised the maximum of bank-note issue to 
 1,800,000,000 francs; then it authorized the circulation of 
 2 5 -franc notes. 
 
 On August 14 the total issue was increased to 
 2,400,000,000 francs, and later to 2,800,000,000 (Decem- 
 ber 29, 1871). 
 
 The first defeats of the French armies brought about 
 the fall of the Imperial Government. A provisional gov- 
 ernment formed by the Paris deputies followed. As 
 it was composed of well-known poUtical men, and as 
 prominent men of several parties gave it their support 
 in order to preserve domestic order, in the presence of an 
 invading enemy, the Government of September 4 was 
 accepted and obeyed. The Bank continued to act in its 
 relations with it as it had toward the regular govern- 
 ment. 
 
 138 
 
 |!|!i' 
 
 Evolution of Credit and Banks 
 
 This new Government sent a delegation into the prov- 
 inces to organize armies. Most of its members lived in 
 Paris, which was occupied a few days later (September 19, 
 1870) by the Germans. 
 
 The Bank followed a similar course. M. Rouland, the 
 governor, remained at Paris with Deputy Governor M. 
 de Ploem; and M. Cuvier, the other deputy governor, 
 accompanied by M. O'Quin, went to Tours, where the 
 delegation of the provisional government was sitting. 
 
 During this terrible period the Bank helped the State, 
 both in Paris and in the provinces, by means of loans. 
 Here we give the list : 
 
 Advances of the Bank of France to the State at the time of the Franco-Prussian 
 
 war, iSyo-yi. 
 
 » . Francs. 
 
 i870-Julyi8 _ 50,000,000 
 
 August 18 50,000,000 
 
 August 19 40.000,000 
 
 September 24 75.000. ooo 
 
 December 5 (Paris) 100,000,000 
 
 December 5 (Tours) 100,000,000 
 
 1871-Januaryii 400,000,000 
 
 March 13 50.000,000 
 
 April 15 ...__ 75,000,000 
 
 May 17 150,000,000 
 
 May 30 90,000,000 
 
 June 10 50,000,000 
 
 Receivers-general of Metz and Strasburg 30' 000,' 000 
 
 July 210,000,000 
 
 Total « 
 
 xuidi 1,470,000,000 
 
 Almost 1,500,000,000 francs. 
 
 "The Bank also paid into the Treasury in 1873, 150,000,000 francs in 
 gold. (Treaty of June 2, 1873.) 
 
 139 
 
 I 
 
Il 
 
 
 
 National Monetary Commission 
 
 The interest on these loans was fixed at first at 6 per 
 cent, which was the discount rate at that time. After 
 January 22, 1 871, the interest rate was lowered to 3 per 
 cent. The guaranties of these loans were treasury notes. 
 First of all in the treaty of January 22, 187 1 , it was agreed 
 between the Government and the Bank that the Govern- 
 ment should reimburse the sums loaned it out of its first 
 available resources, either ordinary or extraordinary. But 
 circumstances were such that these sums were paid back 
 only at the end of a certain time. 
 
 In the same way the Bank advanced a sum of 
 200,000,000 francs to the city of Paris (after its surren- 
 der on January 28, 1871) to pay the war contribution 
 due according to the terms of the sturender. This loan 
 which, together with the expenses incurred in negotiating 
 it, rose to 210,000,000 francs, was arranged at the dis- 
 count rate, and the sum was to be redeemed by the city 
 of Paris in six months. This debt was really cancelled 
 only in 1875. 
 
 These facts show that the Bank was able to play its 
 part in these difficult times and to act effectively to help 
 the public authorities in the hard and painful task they 
 had to perform. 
 
 As a precautionary measure, as soon as the occupation 
 of Paris was feared, the Bank had sent to the provinces 
 part of its cash, the plates for the bank notes, and the 
 new notes in a great many boxes which were labeled in 
 such a way as to disguise their contents. This measure 
 was far from being useless, both against the foreign enemy 
 
 Evolution of Credit and Banks 
 
 and the domestic mob. The foreign enemy, it is true, 
 could not, because of the private character of the Bank, 
 consider its wealth as spoils of war, without trampling 
 under foot international law. The case would have been 
 entirely different had the Bank been a State bank. This 
 is an advantage not to be neglected, and it is not taken 
 into account often enough when the other numerous 
 and certain disadvantages of a state bank are being 
 enumerated. 
 
 As to the insurrection which broke out in Paris on 
 March 18, 1871, which set up a government called the 
 "Commune of Paris," it turned for financial help to the 
 Bank. It was only because they were forced and con- 
 strained that the Bank directors, living then in Paris, 
 gave successively several million francs to the delegates 
 of the finances of the commune. The sum thus turned 
 over reached 16,000,000 francs. The city of Paris then 
 had a credit of 9,400,000 francs at the Bank. In the 
 end the State and the city of Paris made themselves 
 responsible for a part of the amoimt, and the Bank had 
 to charge the rest to profit and loss. At any rate the 
 Bank should consider itself rarely fortunate in not having 
 been systematically looted by the insurrectional govern- 
 ment of the commune. 
 
 But these are abnormal conditions and not to be too 
 much insisted on. They must simply be taken into 
 account for the moral prestige which they gave the Bank 
 and which it deserved in this circumstance 
 
 it 
 
 140 
 
 141 
 
N ational Monetary Commission 
 
 Evolution of Credit and Banks 
 
 J I 
 
 IP 
 
 }f\ 
 
 I 
 I 
 
 Let us now review as a whole the operations of this 
 institution during the "terrible year." To do this we 
 need only give the figures of the chief accounts during the 
 critical years; that is, until 1874, when the reserve at the 
 Bank went back to its average figiwe before the war. 
 This table will also help us to explain the panic of 1873. 
 In this period, too, the large war loans of June, 1871, and 
 July, 1872, were made. 
 
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 142 
 
 143 
 
National Monetary Commission 
 
 The two columns of the sum total of discounts and of 
 average discounts clearly show the role in j&nancial and 
 economic credit which the Bank then fulfilled. Before 
 1870, and during 1870 even (for the first quarter) , the sum 
 total of discoimts fluctuates between 6,000,000,000 and 
 6,500,000,000 francs; the average of discounts fluctuates 
 around 500,000,000 to 600,000,000 francs. After 1870 
 the sum total of discounts increased and reached over 
 14,500,000,000 francs in 1873 (^^ panic year) , and naturally, 
 too, the average discounts rose in the same proportions 
 and attained to almost 2,300,000,000 francs in 1873. ^^^ 
 average reserve went down on the contrary; in 1871 it was 
 half what it was in 1870. It reached the figure it attained 
 before the war only in 1874. ^^^ i^ contrast to it, the 
 circulation made rather rapid progress; in 1872 it reached 
 2,400,000,000 francs. This same year (1872) the law of 
 July 1 5 authorized the Bank to raise its maximum of issue 
 to 3,200,000,000 francs. That was a useful measure, be- 
 cause in 1873 the preceding limit of 2,800,000,000 francs 
 was found to be surpassed by the average amoimt of cir- 
 culation. During these difficult years the issue of bank 
 notes rendered great services both as a monetary measure, 
 properly so called, and as a means of discount: 
 
 As a monetary meastue in that the Bank had been 
 authorized by the law of August 12, 1870, to issue 25-franc 
 notes, and later by the law of December 29, 1871, to issue 
 10 and 5-franc notes. We were no longer at a time 
 when in the midst of a panic — as in 1847-48 — ^the Bank 
 was afraid of issuing 50-franc notes. These notes cir- 
 culated without difficulty; at the beginning of the war, 
 
 Evolution of Credit and Banks 
 
 it is true, when the law of August 14, 1870, raised the 
 maximum issue of the Bank to 2,400,000,000, there was 
 indeed a difference of 15 per cent between the notes and 
 coin, but that was not for long. The loss of the note in 
 comparison with gold quickly fell to i and even one-half 
 per cent. In reahty these notes, especially those of small 
 denominations — 25, 20, 10, and 5 francs — always circu- 
 lated at their face value. 
 
 The increase in discount is explained, moreover, by the 
 great activity in economic production which followed the 
 war. France had not lost her vitality. She had suffered 
 trials. Much capital had been destroyed in unproductive 
 ways. She had to fill up the void. It is a sort of natural 
 law of upbuilding which acts on occasions like this for 
 social organisms which are still healthy, just as it does 
 for physical organisms. 
 
 The following table shows the progress of our foreign 
 commerce during these years. It has to do with special 
 commerce. 
 
 [Million francs.] 
 
 1870. 
 1871. 
 1872. 
 1873- 
 1874- 
 
 Imports. 
 
 Exports. 
 
 2,867.4 
 
 3,802.0 
 
 3.566.7 
 
 2.872.5 
 
 ' 3.570.3 
 
 3.761.6 
 
 3.554.8 
 
 3.787.3 
 
 3.507.1 
 
 3.7040 
 
 Total. 
 
 5.669.0 
 6.439.2 
 7.331.9 
 7.342.1 
 7. 208. 1 
 
 This growth in our foreign commerce, which in 1873 was 
 nearly 1,700,000,000 in comparison with 1870 (a year 
 which shows about the average of the ten preceding 
 years) , is all the more significant in that France had lost 
 Alsace-Lorraine, and with Alsace some very important 
 industrial centers. 
 
 144 
 
 1971 — 10- 
 
 -10 
 
 145 
 
» 
 
 National Monetary Commission 
 
 This commercial progress, together with the investment 
 of French capital abroad (making France a creditor of 
 many foreign countries for the interest on very large 
 sums), explains how it was possible to meet the war 
 indemnity of 5,000,000,000 francs without paying more 
 than a small balance in actual coin and without depriv- 
 ing the country of specie. 
 
 The market at home was not less active than foreign 
 trade; the discoimts of the Bank are an evidence of this. 
 In spite of the terrible crisis the country had passed 
 through credit was not affected a single instant. An 
 example of this is in the Bank's almost complete collec- 
 tion of the commercial bills, the time of payment on 
 which had been extended, and which in the provinces, 
 as well as in Paris, amounted to a total of nearly 
 900,000,000 francs. The extending of the time of pay- 
 ment had been a necessity. When France was invaded 
 by the enemy, when all able-bodied men were in the 
 army, during the months when Paris was occupied, trade 
 and industries concentrated all their efforts in providing 
 for everybody in general and for the troops in particular. 
 So payments had to be postponed, and laws and decrees 
 were made to extend the rights of creditors up to the 
 ist of July, 1 87 1. The Bank of France seemed des- 
 tined to be affected by these measures and to run the 
 risk of heavy losses. The commercial bills, which were 
 part of its "portfolio," and payment of which was ex- 
 tended from August 13, 1870, to July 12, 1871, amounted 
 in Paris to 630,000,000 and in the provinces to 238,760,000 
 francs. 
 
 146 
 
 Evolution of Credit 
 
 and Banks 
 
 
 
 
 
 At Paris. 
 
 In the 
 provinces. 
 
 Repayments made before the expiration of the last ex- 
 tension. 
 
 361, 000, 000 
 
 234.673,500 
 
 
 Remaining due with additions in 1872 
 
 273.312.000 
 266,520,000 
 
 
 Repayments in 1872 
 
 
 
 3. 549. 500 
 
 Remaining to be collected ._ _ 
 
 6, 792,000 
 
 
 
 722, 500 
 
 There were other additions in 1873 and in 1874, but in 
 the end the Bank lost not more than 7,000,000 of the 
 868,000,000 francs of bills on which the time of payment 
 had been extended. That represents a loss of about 0.8 
 per cent which, under the circumstances, was very small. 
 
 Assuredly it is well to note that the Bank of France 
 discounts only first-class paper, with three signatures, or 
 two signatures with collateral security. Many of its 
 commercial bills were bills rediscounted for bankers. 
 Still, in view of the disasters France had then suffered, it 
 is evident that the sHght loss in discounts shows strict 
 regard for meeting payments in commercial and industrial 
 circles. Discount, moreover, in France is always a very 
 safe banking operation, provided it is carefully watched. 
 The material for discoimt is good; as a result of the qual- 
 ities of prudence inherent in the character of the people, 
 even the smallest shopkeepers are mindful of the bills they 
 have to meet and honor them. 
 
 The Bank of France — thanks to the successive extension 
 of its right of issue to 1,800,000,000 francs, then to 
 2,400,000,000 francs, soon after to 2,800,000,000, and 
 finally to 3,200,000,000 francs in July, 1872 — was able to 
 meet the monetary situation and the needs of credit. 
 
 147 
 
 II 
 
 i 
 
 '* 
 
Ill 
 
 II « 
 
 * 
 
 National Monetary Commission 
 
 The Government has never hesitated any more than the 
 chambers to raise the Hmit of issue higher and higher. We 
 may even ask what is the use of this legislative restriction 
 on the maximun of issue. In any case as needs arise, 
 the Bank has been able to fulfil its function of relieving 
 commercial discounts by its notes whenever necessary. 
 Placed under the same conditions, the Bank of England, 
 saddled with the law of 1844, could not have rendered 
 such services as has the Bank of France. It is true that 
 in times of panic in London they do not hesitate to loosen 
 the shackles which Robert Peel so unfortunately forged, 
 and so there comes about the curious paradox that the 
 law of 1844, established to safeguard the Bank of England 
 in times of panic, becomes during those very panics an 
 awkward check, from which the Bank is provisionally 
 freed only to have the check put on again when times are 
 normal and there is no use for it. 
 
 We can see by examining the table inserted above, in 
 which are given the average totals for the principal 
 accounts of the Bank, that the discount rate constantly 
 rose from the last months of 1870 to 1874. ^^ its maxi- 
 mum did not rise above 6 per cent, its minimum did not 
 go lower than 5 per cent dining the years 1871 and 1872. 
 In 1873, because of the crisis that took place at this time, 
 the maximum discount rate exceeded 7 per cent. The 
 fact to note here is that during the foiu* years from 1871 
 on, the average discount rate did not go below 4 per cent. 
 Now, in the years preceding the war of 1870-71, we must 
 go back to 1864, a year of acute panic, to find an average 
 higher than 4 per cent. The result is that from 1871 to 
 
 148 
 
 Evolution of Credit and Banks 
 
 1874, inclusive, the dividends sent out to shareholders of 
 the Bank reached figures unknown till then. 
 
 Here is a table giving the average rate of discount 
 and the net dividend per share. It allows us to make 
 a rapid comparison. 
 
 Average 
 
 discount 
 
 rate. 
 
 Net 
 dividend. 
 
 Percent. 
 
 Francs. 
 
 552 
 
 147 
 
 3-77 
 
 1S» 
 
 4.64 
 
 x6s 
 
 6.50 
 
 23s 
 
 3-7» 
 
 154 
 
 3.67 
 
 156 
 
 2.71 
 
 107 
 
 2. so 
 
 90 
 
 2.50 
 
 Z07 
 
 3-99 
 
 u 
 
 5. 71 
 
 300 
 
 5- IS 
 
 3»o 
 
 S-2S 
 
 3SO 
 
 4- 30 
 
 28s 
 
 4.00 
 
 300 
 
 3.40 
 
 X45 
 
 2.28 
 
 95 
 
 2.18 
 
 9S 
 
 2.S8 
 
 xxo 
 
 2.81 
 
 ISO 
 
 Only superficial minds could be astonished at the 
 contrast between the large profits realized by the Bank 
 in panic times and the general depression which panic 
 creates. The Bank, a house of refuge for credit, pro- 
 vided with the right of issue, but having to safeguard 
 the underlying supply of available funds constituted by 
 its metalHc reserve, intervenes, to be sure, in panics when 
 the case is urgent. Automatically it gets its services 
 paid for through the necessity of protecting its reserve. 
 
 149 
 
 
I 
 
 IN 
 
 {Hi 
 
 National Monetary Commission 
 
 When the cause of the panic is a long and costly war 
 like that of 1870-71; when people dread very serious, 
 imf oreseen events (and they happened in this case) , the 
 Bank with the sole right of issue must use but not abuse 
 its privilege. This is what the Bank did in 1870-71 
 and 1872. It covered the risk of having its reserve 
 depleted, and the risk which the extensions of payments 
 on bills might have brought about, by keeping its rate 
 of discount at an average rate, which does not seem to 
 have been too high, given the average rate of interest 
 on money at that time. So there is no occasion to be 
 surprised at the large dividends of the years 1871, 1872, 
 and 1873. Do we reproach doctors and apothecaries with 
 making more profits in tunes of an epidemic than in 
 normal times? 
 
 III. — The Large Loans and the Payment of the 
 
 War Indemnity. 
 
 When the preliminaries of peace were signed at Ver- 
 sailles in February, 1871, it was stipulated that France 
 should pay Germany a war indemnity of 5,000,000,000 
 francs. In article 7 of the treaty of Frankfort (May 10, 
 1 871) the payment of this indemnity was arranged on 
 the following terms: 
 
 Francs. 
 
 Thirty days after order is reestablished in Paris 50x5, ocx), 000 
 
 During the year 1871 i , 000, 000! cxx> 
 
 May I, 1872 500, OCX), OCX) 
 
 March 2, 1874 3, ocx), ocx), cxx) 
 
 Total _ __ 5, 000, OCX), 000 
 
 Besides this the French Government had to pay on 
 March 3 every year interest at 5 per cent on the last 
 3,000,000,000 francs, and at the same time it could (by 
 
 150 
 
 Evolution of Credit and Banks 
 
 giving three months' notice) make advance payments 
 on the final payment due March 2, 1874. 
 
 As to the method of payment, it could be paid in gold or 
 silver, in bank notes of the Bank of England, the Bank 
 of Prussia, the Royal Bank of the Netherlands, the 
 National Bank of Belgium, in bills to order, or in nego- 
 tiable bills of exchange of the highest character for the 
 full cash value on these same countries. 
 
 Here we have to do with banking operations, real bank- 
 ing operations, the foundations of which are both the 
 pubUc credit, regarding the money borrowed by the State 
 to pay off its debt, and private credit, taking into account 
 the situation of France in this respect both with refer- 
 ence to the domestic and the foreign money markets. 
 It seems to us that, in a treatise of this kind on the 
 evolution of credit and credit institutions in France, all 
 these operations should be reviewed in their essential 
 
 points. 
 
 The exchange for the thaler was fixed at 3.75 francs; 
 that of the German florin at 2.15 francs. It was also 
 arranged, after the treaty of May 10, that 125,000,000 
 francs could be paid in notes on the Bank of France; 
 then it was agreed that 98,400 francs still owed by Ger- 
 many to the city of Paris on the accounts of the payments 
 made by Paris on the 200,000,000 francs of the war in- 
 demnity should be carried over to the accotmt of the 
 French Government. Part of the railroad system of the 
 East comprised in the annexed provinces having been given 
 to Germany for the price of 325,000,000 francs, this sum 
 was also to be deducted from the 5,000,000,000 francs. 
 
 151 
 
I I 
 
 I 
 
 N ational Monetary Commission 
 
 The French Goverament remained in debt to the com- 
 pany for that sum. 
 
 The final amount to be paid to Germany may be shown 
 thus: 
 
 Francs. 
 
 War indemnity 5,000,000,000 
 
 Payments made on account: Francs. 
 
 Railroad Company of the East 325,000,000 
 
 City of Paris 98,400 
 
 325, 098, 400 
 Payments made in notes of the Bank of 
 
 France 125, 000, 000 
 
 450, 098, 400 
 
 DiflFerence 4,549,901,600 
 
 These 4,549,901,600 francs had then to be paid in Ger- 
 man money in a certain number of payments; that meant 
 that the payments made in Enghsh or Dutch money had 
 to be converted into German money. The exchange 
 therefore fell upon the French Government. We have 
 been deahng as yet only with the principal. We must add 
 the interest, which was 301,145,078 francs, and this, added 
 to the capital stated above, made a total of 4,851,046,678 
 francs. 
 
 On this basis let us give the results of the two loans made 
 by the French Government to pay the indemnity. 
 
 The first was authorized by the law of Jtme 20, 1871. 
 It was made in government 5 percents and by pubUc 
 subscriptions. The price of issue was 82.50 francs. 
 
 Whereas the State asked for subscription to 134,000,000 
 francs of rentes, representing an actual capital of 
 2,000,000,000 francs, 296,821,760 francs of rentes (or 
 nearly 297,000,000) were actually subscribed for, repre- 
 senting a capital of 4,897,500,000 francs. Please note 
 
 r 
 
 152 
 
 Evolution of Credit and Banks 
 
 that this result was obtained in June, 1 871, not long after 
 the civil war, and while the monuments of Paris were 
 still smoking from the fires set by the insurgents of the 
 commime. 
 
 About a year later another loan was authorized by the 
 law of July 15, 1872. The amount was for 3,000,000,000 
 francs at 5 per cent. It was issued at 84.50 francs. The 
 success was much greater than that of the first loan, the 
 results of which had smrprised more than one experienced 
 financier. 
 
 By the loan of July, 1872, France asked the public to 
 subscribe for 207,026,310 francs of rentes. The sub- 
 scribers called for the tremendous sum of 2,592,668,435 
 francs (almost 2,600,000,000 francs), which represented 
 a capital of nearly 44,000,000,000 francs. The share 
 of foreign coimtries in this enormous total was more 
 than 26,000,000,000 francs; France's share about 
 18,000,000,000 francs. 
 
 To be sure we must take into account here the inflation 
 of subscriptions through fear of having them cut down. 
 Already in the case of the first loan subscriptions had been 
 cut down more than half. Still, while making allow- 
 ances for this inflation, it is none the less true that the 
 anticipation which gave rise to it showed what confidence 
 financiers in all countries and the pubUc in general had 
 in the solvency and credit of France. 
 
 Now the reason why France had good public credit 
 was because its private credit — ^bank credit — ^had remained 
 so good; and because in a few months the country had re- 
 acted with steady, vigorous, economic activity against the 
 
 153 
 
V( \ 
 
 n 
 
 I 
 
 i 
 
 I 
 
 II 
 
 IM« 
 
 National Monetary Commission 
 
 disasters it had suffered. This was shown in its foreign 
 trade and the receipt of taxes. 
 
 The first loan produced 2,225,000,000 francs; and out 
 of this sum 1,561,000,000 (or 70 per cent) were turned in 
 to pay the war indemnity. 
 
 The second loan — of course, after the cutting down of 
 subscriptions — produced 3,500,000,000 francs, of which 
 3,002,000,000 francs were used in payment to Germany — 
 that is, 87 per cent of this loan. 
 
 The principal of the indemnity was paid by these two 
 loans as well as the expenses, which amounted to a little 
 more than 14,500,000 francs. As to the interest, that 
 was deducted from the general funds of the budget. We 
 are going to enter into some explanations relating to the 
 operations brought about by these payments; but first 
 of all we must review in a comprehensive table the 
 categories of payments, which are three in number. It 
 will then be easier to understand how France prevented 
 a large amount of specie from leaving the country, and 
 how it reduced the payments of this kind to a very 
 small sum. 
 
 method of paying the war indemnity. o 
 First Category. 
 
 compensations. 
 
 Money in account with the Railroad Company of the 
 
 East __ — .__ 325,000,000 
 
 Money in acco'ont with city of Paris. ___ 98,400 
 
 Total first category 325,098,400 
 
 o The payments which were to have been made during 187 1, then May i, 
 1873, then March 2, 1874 — as we have said above — were completed before 
 that date; the deposits for the payment of the last 3,000,000,000 francs 
 were made between August 29, 1872, and September 5, 1873. 
 
 154 
 
 Evolution of Credit and Banks 
 
 Second Category. 
 
 BANK notes; GERMAN COIN; SPECIE. 
 
 Francs. 
 
 Bank of France notes. 125,000,000.00 
 
 German notes and coin, brought in by the invasion 105, 039, 145. 18 
 
 French gold coin 273,003,058.10 
 
 French silver coin 239,291,875.75 
 
 Total second category 742,334.079.03 
 
 Third Category. 
 
 I^ETTERS of exchange. 
 
 German funds in discharge of indebtedness 2, 799, 514, 183. 72 
 
 Funds other than German, including the marks banco, i, 448, 812, 190. 54 
 
 Total third category - 4, 248, 326, 374. 26 
 
 General total of three categories 5. 3i5, 758, 853. 29 
 
 As we see, out of this enormous sum of more than 
 5,315,000,000 francs only a little more than 378,000,000 
 francs were paid in French coin. And in reality only 
 275,000,000 francs in French coin left our territory <» directly 
 for the indemnity, for France bought 93,000,000 francs 
 worth of silver bars from the reserve of the Hamburg Bank 
 and had them minted in France. These 378 ,000,000 francs 
 were paid in gold pieces and silver coined in 20, 10, and 
 5-franc pieces. You will notice that the number in 
 question is not an exact multiple of five. This anomaly is 
 explained by the fact that in this figure are counted the 
 prices of the money bags and sacks. ^ 
 
 The operation was conducted with skill and good judg- 
 ment. It would have been difficult to avoid a monetary 
 crisis in France if the method of payment of the third 
 
 o We shall see later that this operation caused nevertheless some rather 
 heavy gold exports. 
 
 6 The price of the money bags was fixed at o.io franc, and that of the 
 sacks at 1.65 francs. 
 
 155 
 
." I 'I 
 
 National Monetary Co 
 
 mmtsston 
 
 if 
 
 I 
 
 category had not been resorted to. Such a crisis would 
 have been especially fatal to trade since at that time dis- 
 counts were increasing in very large proportions. At this 
 point we shall recall the average figures for the years 
 1871-72 and 1873 of the reserve, the notes in circulation, 
 and the discounts of the Bank of France. 
 
 [Million francs.] 
 
 Year. 
 
 Average 
 reserve. 
 
 Average 
 of circu- 
 lation. 
 
 Average 
 of com- 
 mercial 
 discounts. 
 
 1871 _ 
 
 SSI-S 
 
 728.1 
 762.8 
 
 2,075-2 
 2, 400. 8 
 2,856.6 
 
 
 1872 
 
 1, 164.0 
 
 1873 
 
 2,089.4 
 
 
 2,299.4 
 
 In regard to gold, a few purchases were made on the 
 spot so successfully that the figure of 275,000,000 francs 
 indicated above has to be cut down again. Barely 
 250,000,000 francs were taken out of active circulation in 
 France. 
 
 On this occasion the Bank of France by an agreement 
 of May, 1873, lent 150,000,000 francs in gold to the State, 
 which formed the greater part of the sum paid in gold. 
 
 It was not the payment itself of the indemnity which at 
 this time made France lose a part of her metallic stock, a 
 part which seems to have far exceeded the sum of 250,. 
 000,000 francs. But we shall see that by its rebound the 
 payment of the indemnity mdirectly caused gold to leave 
 the country. 
 
 The third category of methods of payment is the most 
 interesting, because it touches most closely commercial 
 credit and banking operations. The method adopted was 
 simple; it is the one any bank or merchant would have 
 
 156 
 
 i 
 
 Evolution of Credit and Banks 
 
 i 
 
 followed in paying a debt contracted with a foreigner. 
 Moreover, the Government from the start was beset with 
 bankers and dealers in exchange, who came and offered 
 foreign paper. France sent as much capital as possible 
 abroad by buying all paper for exchange, and all the pos- 
 sible bills it could get, no matter on what country. Then 
 as soon as the capital was collected in the form of these 
 foreign bills, it sent them to Germany. For the first 
 2,000,000,000 francs Germany had the English, Dutch, 
 and other foreign paper converted into German paper at 
 France's expense. France finding the cost of exchange 
 too high — it was more than 1 1 ,000,000 francs — took this 
 business upon itself and gained by it. This conversion was 
 made easily enough at London, because Germany at that 
 time was in debt to England for loans made during the 
 war in the form of short-term notes, and also for supplies. 
 The number of foreign bills obtained by the French 
 Government rose to more than 1 20,000. To find so many 
 bills three means were used: 
 
 1. The payment in foreign funds of subscriptions made 
 in France as well as of the anticipatory payments made 
 at home or abroad was encouraged by the loans of 
 2,000,000,000 and 3,000,000,000 francs. 
 
 2. The second means consisted in an arrangement which 
 was made at the time of the borrowing of 3,000,000,000 
 francs from several banking houses: an exchange opera- 
 tion^ was combined with the underwriting of the subscrip- 
 
 v;i'tioii*to the lo^n by these banking houses. 
 
 3. The third means was to buy foreign bills directly on 
 the market. 
 
 157 
 
 t 
 
I; 
 
 i 
 
 ! 
 
 National Monetary Co 
 
 mmtsston 
 
 The first means (payment of the loan subscriptions in 
 foreign funds) gave the treasury a very large sum, viz, 
 1,773,000,000 francs. 
 
 The second method rested on the following agreement : 
 As in the case of the loan of 2,000,000,000 francs the Gov- 
 ernment turned to large banking houses which would have 
 been able, unassisted, to underwrite the loan. This was a 
 useless precaution, as we have seen; however, in such 
 troublous times and in spite of the success of the first 
 loan, recourse was had for the second loan to a group of 
 bankers. In the agreement signed with them it was 
 stipulated that they should furnish 700,000,000 francs in 
 foreign paper, which allowed them to receive a rather 
 large commission. It was also a way of interesting these 
 houses m the rate of exchange, since they had to buy ex- 
 change, and would not, therefore, force the price up. Fifty- 
 five banking houses belonging to all countries, some of which 
 were representing other houses, signed this agreement. 
 
 The first and second methods brought into the treasury 
 2,473,000,000 francs in foreign exchange. So i ,775,000,000 
 francs remained to complete the figtires given above. 
 
 This last sum was procured by the third method, 
 namely, direct purchase by the Government. 
 
 When we go to the bottom of the matter, we see that 
 what faciUtated these operations was the confidence which 
 the world at large had in France, a country rich in 
 capital, whose activity since the war was a sign of great 
 vitality and productive power. 
 
 This is the place to remark on the export of gold 
 indirectly caused by the payment of the indemnity. In 
 selling all the foreign paper they could to the French 
 
 158 
 
 Evolution of Credit and Banks 
 
 Treasury, the bankers were creating a scarcity of avail- 
 able French effects on foreign markets; the result was 
 that those who owed money abroad were obliged to pay 
 by sending gold, because exchange having been sold to 
 this large new cHent, the State, had become very dear. 
 
 It is not for us to dwell at this point on the arbitrage 
 "operations that the Government encouraged between cer- 
 tificates of rentes that were fully paid up and those that 
 were not; facts of this sort do not enter into the special 
 discussion of banking operations that we are engaged in 
 here. 
 
 A few quotations of exchange on London — London 
 exchange being the best index in judging money strin- 
 gency — will show the fluctuations which our metallic 
 stock underwent as a result of these operations: 
 
 Paris exchange on London. 
 
 Francs. 
 
 1871 — June 27 - 25.22 
 
 September 26 -- 1 25.45 
 
 October 17 - 26. 18^ 
 
 December 26 25. 73 
 
 March 26 _ 25. 26 
 
 November 12 -- 25. 68>^ 
 
 March 4 25.33 
 
 June io_-- - - 25.57K 
 
 The quotations given here are the highest and lowest 
 reached during this period. 
 
 The average price of government purchases on London 
 was 25.494 francs. The highest price quoted on London 
 was 26.i8J^ francs gold, and the price of 26 francs was 
 kept up for two months. From the close of the year 1872 
 exchange became more normal. This was a result of the 
 agreement made with the syndicate of bankers. 
 
 159 
 
 jiiii 
 

 I 
 
 Ini! 
 
 II 
 
 National Monetary Commission 
 
 Here is a short table showing the fluctuations of the 
 premium on gold, 20-franc pieces, and bullion: 
 
 [Premium per i.ooo.] 
 
 Year. 
 
 1871. 
 187a. 
 
 1873- 
 1874.- 
 
 ao-franc pieces. 
 
 Gold 
 
 Maximum. 
 
 Minimum. 
 
 Maximum. 
 
 i 
 
 1 'S 
 
 8K 
 
 29 
 
 1 
 
 Va 
 
 16 
 
 9K 
 
 H 
 
 12H 
 
 I)i 
 
 Par. 
 
 10 
 
 Minimum. 
 
 I- 
 
 3 
 8 
 
 Par. 
 
 Note. — In the loan which the Bank of France made to 
 the State, to make advance payments, it furnished the 
 200,000,000 francs of the loan in gold. It seemed pref- 
 erable, then, to ask the Bank for gold rather than notes. 
 The reason was that at that time the Bank had a reserve 
 of only 100,000,000 francs in notes before reaching the 
 Hmit of its issue. It did not care to raise this limit 
 for fear of causing the bank note to lose credit. It was 
 deemed better to leave the Bank in possession of its notes 
 to help it in making discoimts. If it had given bank 
 notes to the State and used gold for its discoimts, a part 
 of this gold would have been exported, and the case would 
 have been the same after all as giving gold to the State, 
 except, however, that the State gained gold thereby — dis- 
 charging indebtedness at par — and the bank note in the 
 meanwhile kept its credit. 
 
 It is important to emphasize here how much progress 
 France had made since the beginning of the centiuy in 
 the understanding and habits of credit in connection 
 with the issue of notes; for when in 1805 it was rmnored 
 that Napoleon had carried off gold from the Bank in order 
 to make war in Germany a mad panic broke out. 
 
 160 
 
 Part III. 
 
 THE BANK OF FRANCE AND THE DEVELOPMENT 
 OF CREDIT, 1875 TO THE PRESENT TIME. 
 
 INTRODUCTORY. 
 
 Extension of the credit companies.— The Bank of France remains the center of the 
 credit organization in France.— Its gold reserve increases.— The railroad panic. 
 The agreement of 1883.— Panics of 1882 and 1889.— The panic of the local banks. 
 
 This third part comprises the study as a whole of the 
 period between 1875 ^^^ ^^^ present time. 
 
 It is a period especially remarkable for the development 
 of the great credit companies, first in France, then abroad, 
 by means of branch offices. 
 
 As the companies expanded, they tended to become in- 
 stitutions somewhat resembling the English joint stock 
 banks. They were not, properly speaking, banks for 
 financing industrial enterprises. They continued to carry 
 on large operations in disposing of securities, but were 
 principally concerned with selling securities that might 
 be called official — state and town funds, etc. They suc- 
 ceeded in building up an extensive discount business. 
 Their deposits, in fact, grew to large proportions. The 
 nature of these deposits and the character of their clients, 
 influenced the nature of their operations in making them 
 avoid taking risks. It is through these companies that 
 the surplus capital, not used in France, is invested abroad. 
 
 The Bank of France still remains the center of the 
 credit organization in France. Even if it makes dis- 
 counts directly to clients, it is especially and above all 
 a bank of rediscount for bankers and credit companies. 
 
 1971 — 10- 
 
 ■II 
 
 161 
 
 
MP 
 
 r 
 
 
 ^ 
 
 N ational Monetary Commiss ion 
 
 Its r61e in this direction is becoming more and more 
 clearly defined, in proportion as the business of the 
 credit companies expands. As the savings of France 
 increase its wealth, part of this wealth is converted into 
 capital invested abroad, France becomes creditor of 
 foreign countries, through the interest money that its 
 citizens receive, and so shows a favorable rate of exchange. 
 The country's stock of coin increases; as a result of 
 this the Bank of France sees its gold reserve grow. Its 
 silver reserve, on the other hand, tends to diminish. In 
 fact, since France stopped coining silver, owing to the 
 depreciation of the white metal, it is bimetalHst on its 
 domestic, although gold monometallist on the foreign 
 market. Thus the gold reserve of the Bank of France 
 has lately gone beyond 3,600,000,000 francs. Its silver 
 reserve is lowered only by the use made of 5-franc pieces 
 to recoin fractional money. 
 
 This accumulation of gold has another cause. The 
 note of the Bank of France enjoys an unquestioned 
 credit; it is much in demand, and tends to replace gold 
 coin in circulation. It has, therefore, helped to bring 
 back to the coffers of the Bank a part of the stock of 
 gold in circulation. 
 
 This period witnesses, too, a still more marked decline 
 in the rate of interest. This is due to the abundance of 
 capital, and also to the ease with which it is placed at the 
 disposal of the public by means of the credit societies 
 and their mode of procedure, so different from that of 
 private banks. 
 
 Of course, this evolution did not take place without 
 crises and difficulties. Prosperous times, which always 
 
 162 
 
 Evolution of Credit and Banks 
 
 tend to produce excessive and risky speculation, are fol- 
 lowed by periods of liquidation — of reflection, one might 
 say, which in turn is nothing but the natural conse- 
 quence of the conditions brought about by such over- 
 speculation. 
 
 In this case, one of these periodic crises was complicated 
 by a crisis in the national finances caused by too great 
 haste in completing the railroad system of France. 
 Prospective results loomed too large in the distance, 
 and dwindled as they came near. The whole thing 
 ended by the State's making an arrangement with the 
 railroad companies, which was a sort of necessary liquida- 
 tion of affairs, and was called "the agreement of 1883." 
 
 However, in spite of many errors and useless State ex- 
 penditures, tax returns came in regularly, and more pros- 
 perous years produced a surplus and furnished abundant 
 resources to the growing budgets. The price of state 
 stock rose steadily, as a natural result of the general 
 lowering of the rate of interest on money, owing to the 
 abundance of capital. This rise lead the Ministers of 
 Finance to make conversions. The profits of these 
 conversions, however, were quickly swallowed up in the 
 rising tide of expenses. There was a dark side to the 
 picture. The economic evolution was not accomplished 
 without difficulties and friction. We shall mention the 
 panic of 1882, simple enough in its causes; then the one 
 of 1889, which contains valuable instruction. The 
 Comptoir d'Escompte was destroyed by it, but soon rose 
 from its ashes and resumed the work interrupted by the 
 ruinous mistakes of a bad management. Henceforth it 
 
 i 
 
 
 163 
 
National Monetary Commission 
 
 extended its activities by following a wise and profitable 
 plan of business. 
 
 The local or provincial banks suffered from the exten- 
 sion of the agencies of the credit companies, and up to a 
 certain point also from the increase of the branch offices 
 of the Bank of France, which has opened, especially of 
 late years, branches or suboffices and made "bankable" 
 many affiliated towns in numerous localities. Will the 
 local banks be able to adapt themselves to this new situa- 
 tion? Certain ones made the attempt, it seems, and were 
 changed to district credit companies; others disappeared; 
 still others remained, and confined themselves to certain 
 special functions. 
 
 Finally, we shall take occasion to explain the condi- 
 tions under which the State in 1897 renewed the privilege 
 of the Bank of France. It asked services of the Bank in 
 the shape of loans and a share in the profits. The Bank, 
 however, remained self-governing and independent of the 
 State. We shall have to express fears for the future in 
 what concerns both the Bank of France and the credit 
 companies, with regard to the restrictive measures that 
 are being planned against them by a certain political and 
 social faction. 
 
 Chapter I. — The situation of France after the war, A 
 glance at the development of saving and savings insti- 
 tutions. 
 
 Creating capital by economy is at the very foundation 
 of French finance. This particular characteristic be- 
 came still more marked after the war of 1870-71. There 
 was need of it, to be sure, to heal the country's wounds, 
 to restore its military equipment, to organize new indus- 
 trial undertakings or transform existing ones. The sav- 
 ings banks are an indication, especially in France, of the 
 development in the creation of capital. In the following 
 table we give for every five years the balance due depos- 
 itors on December 31 from the private savings banks, and 
 also, after 1885, the balances due depositors on the same 
 date from the National Savings Bank, adding to this the 
 independent means of the private savings banks. 
 
 [Million francs.] 
 
 Year 
 
 187s- 
 1880. 
 
 188s- 
 1890. 
 
 1895- 
 1900. 
 
 1905. 
 
 Private savings banks. 
 
 Balance 
 due depos- 
 itors De- 
 cember 3 1 
 
 660. 4 
 
 1. 280. 2 
 
 2. 211. 3 
 2. 911- 7 
 3.395-4 
 3.264.0 
 
 3.376.S 
 
 Independ- 
 ent means 
 
 of the 
 banks De- 
 cember 3 1 , 
 
 21. o 
 
 29.9 
 
 47-5 
 
 73-3 
 
 10S.9 
 
 138.3 
 
 166.5 
 
 Balance 
 due depos- 
 itors De- 
 cember 3 1 , 
 
 by Na- 
 tional sav- 
 ings Bank.o 
 
 154. I 
 
 413- 4 
 
 753-4 
 
 I, 010. o 
 
 I, 278. o 
 
 Grand 
 total. 
 
 681.4 
 
 1,309-4 
 2.412.9 
 
 3.398.4 
 4.254.7 
 4>4I2.3 
 4, 821. o 
 
 164 
 
 a Created by the law of April 9, 1881. under state guaranty. 
 
^i 
 
 N ational Monetary Commission 
 
 The quinquennial average of the years which preceded 
 the war of 1870-71 of the balance due depositors on De- 
 cember 31 was 615,000,000 francs. 
 
 It is seen, then, in the thirty years from 1875 to 1905 
 that the total funds of the French savings banks increased 
 from 681,000,000 to 4,821,000,000 francs, or nearly 
 5,000,000,000 francs, increasing sixfold. And, as we have 
 said, this is only one of the signs of the growth of capital. 
 
 In this interval the population had not increased to any 
 great extent; it was estimated in 1875 at 36,500,000, and 
 in 1905 at a little over 39,000,000 inhabitants. 
 
 And this progress in saving was made at a time when 
 the expenses of the budget were increasing. 
 
 Here is a list for the same years as in the previous table 
 of the resources put at the disposal of the Minister of 
 Finance through taxes and public revenues of all kinds. 
 The resources called extraordinary, which come from loans, 
 do not enter into the calculation. 
 
 Ordinary receipts of the budget. 
 
 Francs. 
 
 1875 2, 705, 300,000 
 
 1880 2,957,000,000 
 
 1885 3,056,600,000 
 
 1 890 3. 229, 400, 000 
 
 1 895 3f4i6, 000, 000 
 
 1900 3.814. 000, 000 
 
 1905 3.766,000,000 
 
 So, in thirty years the ordinary receipts of the budget 
 increased by 1,000,000,000 francs — no small additional 
 burden for the country. The quinquennial average of 
 ordinary receipts for the years preceding 1870 was 
 1,800,000,000 francs. The expenses of the war increased 
 the ordinary receipts by means of new taxes to 
 
 166 
 
 Evolution of Credit and Banks 
 
 2,406,000,000 francs in 1872, and to 2,679,500,000 francs 
 in 1873. 
 
 The free deposits of securities at the Bank of France 
 increased in large proportions (in spite of the competi- 
 tion of the great credit societies which organized an impor- 
 tant service for this operation). 
 
 For the ten years preceding the war of 1870-71 the 
 average number of depositors was about 25,000 and the 
 average value of securities on deposit was 1,300,000,000 
 francs. The following table will give an idea of this in- 
 crease : 
 
 [Million francs.] 
 
 Year. 
 
 Number 
 of deposi- 
 tors. 
 
 1871. 
 
 1875- 
 1880. 
 1890. 
 
 1895 
 1900. 
 
 190S 
 1906. 
 
 20.693 
 24.690 
 27, 168 
 39.899 
 55.975 
 73,620 
 
 89.979 
 92.508 
 
 Securities 
 on de- 
 posit. 
 Current 
 
 value on 
 Bourse 
 Decem- 
 ber 24. 
 
 937- S 
 1.456. a 
 I, 901. 3 
 
 3. "3- I 
 3.988.5 
 
 4.939 
 6.980 
 
 7.233 
 
 The increase of transferable securities in general has 
 been very large in France since the war. 
 
 L^on Say, in his remarkable report on the payment of 
 the war indemnity in 1875, estimated the value of foreign 
 securities owned by the French at from 10,000,000,000 to 
 12,000,000,000 francs. It is three times as much to-day. 
 It is not our intention to enlarge upon this question, 
 which must be treated by another author in another 
 
 167 
 
 ■ 
 
 >« 
 
:'t| 
 
 X) 
 
 
 National Monetary Commission 
 
 study. It will be enough for us to give these few figures, 
 the first one taken from M. Say, and the others from 
 M. Newmarck. 
 
 EstimcUe of foreign negotiable securities owned by the French. 
 
 Francs. 
 1875 -- 10, 000, 000, 000 to I2,OCX), 000, 000 
 
 1880 13, cxx), 000, 000 to 15,000,000,000 
 
 1890 18, 000, 000, 000 to 20,000,000,000 
 
 1900 25,000, 000, 000 to 27,000,000,000 
 
 1903 28, 000, 000, 000 to 30, 000, 000, 000 
 
 The securities listed on the official Paris Bourse (ac- 
 cording to the estimate of December 31, 1902) represent 
 the sum of 130,000,000,000 francs, divided into 
 64,000,000,000 francs in French securities and 
 66,000,000,000 in foreign securities. If to this are added 
 securities not officially quoted, and negotiable at the 
 bank, estimated at from seven to eight billion francs, we 
 have a total of nearly 140,000,000,000, of which about 
 90,000,000,000 are French still, according to statistical 
 estimates based partly on facts and partly on theory. 
 
 Without yielding too much to the magic of these figures, 
 it is certain that "movable wealth," to use a current ex- 
 pression, has been much increased in the last thirty years. 
 And this increase of capital in France is not the special 
 work of a group of capitalists but for the most part of the 
 middle-class citizens, as we have already had occasion to 
 point out. 
 
 But we will not insist further on the fact that a large 
 amount of capital was created in France by means of 
 economy; one need not be either an expert financier or a 
 professional statistician to discover it. There is no end 
 
 z68 
 
 Evolution of Credit and Banks 
 
 of evidence. Moreover, the consequences of this accumu- 
 lation of capital helped to emphasize still more the larger 
 supply of which it was the object. The rate of interest was 
 lowered, in general, and the discount rate in particular. 
 The State profited by this to make successive conversions 
 of its stock. The law of November 27, 1883, made the 
 conversion of 5 per cent stock to 4>^ per cent; that of 
 November 7, 1887, converted the 4K per cent and 4 per 
 cent stock to 3>^ per cent; then that of January 17, 1894, 
 converted the 4K percent to 3K per cent; and, finally, 
 that of July 9, 1902, converted the 3>^ per cent to 3 per 
 cent. These conversions involved a total capital of more 
 than 21,212,000,000 francs, and were all successful. 
 
 If we have called to mind these general points, it is 
 with a view to emphasizing one thing: The sources of the 
 accumulation of capital always end by influencing the 
 manner of organization and working method of the credit 
 institutions of a coimtry. It is in national habits and 
 character that these have their principal roots. This 
 will appear presently, when we reach the study of the 
 credit companies. But, first of all, we must describe 
 briefly the crisis of 1882, then that of 1889, outlining at 
 the same time the operations of the Bank of France 
 during this period. 
 
 » 
 
 169 
 
 ll 
 
)' If I 
 
 if 
 
 H( 
 
 I 
 
 ml 
 
 Chapter ll.—The crises of 1882 and i889~A brief 
 survey of the operations of the Bank of France from 1873 to 
 i88g — The Comptoir d'Escompte. 
 
 The construction of new lines of railroads after 1870-71.-The Freycinet pro- 
 gramme.-Too small estimate of expenses.-Creation of redeemable government 
 stock.-Capital borrowed on redeemable 3 per cents.-Extraordinary expenditures 
 for public works, 1878-1882.-The State in difficulties.-The agreement of 1883 - 
 Speculation from 1876 to 1882.-Investment banks float large issues.-Success of 
 toese issues.-The exaggerated rise in stocks.-The crash.-Intervention of the 
 Bank of France. -First effects of the panic. The rate of discount rises.-The credit 
 of the bank notes extends and increases.-Bank dividends resulting from the 
 panlc-The Comptoir. during the war. meets all obligations.-Precautions taken 
 to keep up relations between the foreign and home agencies.-The Comptoir con- 
 tinues its operations during the Commune.~It cooperates in 1871 in Issuing 5- 
 franc notes.-The Comptoir shares the loans made necessary by the war -The 
 deposits of the Comptoir after the war.-Fall in the price of sUver. Business hi 
 the Far East.-Convertfaig and unifyhig of the Egyptian debt. Rfile of the Comp- 
 toir.-Increase in total of discounts.-Founding of agencies in Australia and San 
 Francisco.-Public works undertaken.-Competition of the other credit compa- 
 ntes.-Contlnuation of the Comptoir for twenty years.-Conversion and loan opera- 
 tions.-Stagnation of bushiess hi 1887.-Political hicidents. foreign and domestic- 
 Idle deposits.-First loans to Metal Company.-Absurdity of this speculation— 
 The Comptoir contmues its loans.-Increased production of the copper mines.- 
 The Metal Company is unable to meet engagements.-Intervention of the Bank 
 of France.-Loan of 140.000,000 francs to the Comptoir.-How the loan was 
 made.-Advantages of the monopoly of issue for the Bank.-Guaranty of the 
 commercial paper of the Comptoir.-Good results of the liquidation of the 
 Comptok.— Reorganization of the Comptoir. 
 
 The period from 1875 to 1882 was a time of midoubted 
 prosperity. This prosperity was destined to end in a 
 panic brought about principally by two causes. One is 
 time-honored, and both paves the way for panics and 
 makes them more acute: it is over-speculation. The 
 other was special and may be termed accidental, although 
 it had a precedent: it was the too great and too hasty 
 extension of our railroad system. 
 
 We shall consider the second cause briefly, recalling 
 only the facts necessary to the present account. 
 
 170 
 
 Evolution of Credit and Banks 
 
 After the war, the need of completing the railroad sys- 
 tem was felt to be urgent. From 1871 to 1878 about 
 6,000 kilometers were put in operation. The railroad 
 lines of general utility, which counted, in fact, 15,632 
 kilometers in operation in 1871, had 21,435 in 1878. The 
 National Assembly had in its last sittings before adjourn- 
 ment approved an imprudent policy in this regard, and 
 the policy was continued. A first experiment which led 
 to the construction of a state system in 1878, one might 
 imagine, would have dampened the ardor of the megalo- 
 maniac and optimistic partisans of the construction of 
 many and extensive railroad lines. But nothing of the 
 kind. A plan was concocted to endow France, in the 
 course of a few years, with a complete railroad system, 
 covering the country with a closely woven network. 
 M. Freycinet prepared the outline of these great works, 
 which were to include not only railroads, but also canals, 
 harbor improvements, etc. This project was called after 
 the name of its originator, the Freycinet programme. 
 
 Altogether, the length of lines decided upon in 1875, 
 with those granted on the score of local utility, which were 
 made to pass into the class of lines of general utility, and 
 including the new lines, reached a total of very nearly 
 10,000 kilometers. 
 
 The first estimate placed expenses at about 4,000,000,- 
 000 francs. But it was soon clear that this figure would 
 need to be increased by 3,000,000,000 or 4,000,000,000, for 
 the originators of the scheme had counted without the un- 
 expected: they had made much too low an estimate of the 
 net cost, and had omitted to take into account that the 
 Chambers would enlarge the original plan to a degree 
 
 171 
 
 I 
 
■i 
 
 i 
 
 
 National Monetary Commission 
 
 bordering on lunacy. Political high bidding was ram- 
 pant also in the Senate, where it was usual to see more 
 prudence than in the Chamber. 
 
 France soon became a great railroad workshop. 
 
 In order to meet the enormous expenses made necessary 
 by this enlarging of the economic "plant" of France, 
 L^on Say, Minister of Finance, created a new government 
 stock— redeemable stock— the capital of which, divided 
 into a series of 75 payments, was reimbursable by means 
 of drawing lots for a period of seventy-five years. The 
 original law was passed June 11, 1878. This stock, 
 quoted at a par value of 100 francs, was sold in reality only 
 in 15-franc fractions. It therefore resembled railroad 
 obligations. 
 
 Up to December, 1880, the State had borrowed by this 
 means : 
 
 Sum total of interest on government stock 52, 530 360 
 
 Total nominal capital _ ___'_ i, 751' 012' 000 
 
 Total actually borrowed capital ^\ 439' g^^' ^j^ 
 
 Ten years later, on December 24, 1890, the loans in the 
 form of redeemable government stock had risen to 
 
 o t e ' Francs, 
 
 bum total ofmterest on government Stock. _ _ 127 624 395 
 
 Total nominal capital ^ 4, 254,' 146; 500 
 
 Total actually borrowed capital 3,459.359,545 " 
 
 And here are the extraordinary expenses of the budget 
 for public works from 1878 to 1882: 
 
 Francs. 
 
 ^J 557,000,000 
 
 l87Q__ 
 
 '^ 453,000,000 
 
 1880 ,^0 
 
 538,000,000 
 
 '00' -- 735,000,000 
 
 1882 g-t-^ 
 
 063,000,000 
 
 otal 2,946,000,000 
 
 17a 
 
 i 
 
 Evolution of Credit and Banks 
 
 The normal loans on the one hand, treasury loans on 
 the other, swelled our funded debt and our floating debt, 
 the latter to enormous proportions. The State had under- 
 taken the construction of a large number of scattered 
 and unconnected railroads. Those which were in oper- 
 ation were bound to give poor results. In fact, some of 
 them were administered by the State itself, others had 
 been put into the hands of a trustee responsible to the 
 State, and still others were farmed out to companies at 
 rather burdensome rates. 
 
 Everything indicated that before long the State would 
 be reduced to making terms with the great railroad com- 
 panies, in order to escape from a troublesome burden, 
 and to avoid also involving further the national finances. 
 Such were the causes of the agreement of 1883. 
 
 Our purpose here is not to describe what happened on 
 that occasion, but to show to what extent the public 
 authorities were responsible for the speculative fever that 
 seized upon France at that moment. 
 
 There were, too, other elements involved. Since 1876 
 certain banks which belonged rather to the category of 
 speculative and investment banks, such as the Union 
 Ginerale, the Cridit General Frangais, the Banque de Lyon 
 et de la Loire, etc., had begun to float stocks on the mar- 
 ket, which they issued with a bonus. The movement 
 spread. The public nibbled at the issues as if they were 
 forbidden frmt. Times were prosperous, which of course 
 helped greatly. The issues reached their highest point 
 after 1879 especially. They were made in competition 
 with the state loans. In spite of this avalanche, the 
 
 173 
 
 IF 
 
 » 
 
 t 
 
 
IH 
 
 I 
 
 N ational Monetary Commission 
 
 average level of all stock quotations steadily rose. As 
 may be seen by the table given below, the total sum of 
 issues made from 1876 to 1882, when the crash came, 
 rose to more than 9,000,000,000 francs. 
 
 Francs. 
 1876 266, 000, 000 
 
 1877 j^ 716,000,000 
 
 1878 605,000,000 
 
 1879 3,053,000,000 
 
 1880 1,568,000,000 
 
 1881 i^ 223,500,000 
 
 1882 524, 000, 000 
 
 Total 9,055.500,000 
 
 These heavy issues, far from cooling public ardor, 
 simply excited it. In 1881 the rise in stocks assumed 
 proportions which were disquieting to all business men 
 who kept their heads and were not carried away by the 
 current. The Union Gen^rale, which was the most 
 active in promoting the bull market, pushed its shares 
 so successfully, aided by the nameless complicity of the 
 general infatuation, that from being quoted at 1,000 
 francs, at which its shares were held in January, 1881, 
 they rose to nearly 2,900 francs at the end of the year. 
 The Suez Company followed the same movement. The 
 rise in stocks continued in spite of its exaggeration like 
 an irresistible nervous impulse. The speculators seemed 
 victims of a sort of St. Vitus's dance, inexpHcable to 
 anyone who is not famihar with the psychology of 
 crowds. The first days of 1882 opened with shares 
 of the Union Generale quoted at more than 3,000 francs 
 and Suez at 3,440 francs. However, the speculators were 
 beginning to be out of breath. There were no more 
 
 174 
 
 i^ 
 
 Evolution of Credit and Banks 
 
 purchasers for these securities, at least at this price. Then 
 all of a sudden came the crash. By the end of January 
 Union G^n^rale fell to 950 francs; a few days later the 
 company was declared insolvent. Suez, which repre- 
 sented a prosperous undertaking, did not go to pieces in 
 this way, but the stock dropped 500 francs in a very 
 short time. 
 
 With these facts as a starting point, we will now see 
 what part was played by the Bank of France under these 
 circumstances. 
 
 Let us give first the statement of the principal accounts 
 of the Bank of France from 1876 to 1882: 
 
 [Million francs.] 
 
 
 Average reserve. 
 
 Average 
 
 notes 
 
 in 
 
 circula- 
 tion. 
 
 Total 
 dis- 
 counts. 
 
 Rate of discount. 
 
 Collat- 
 eral 
 loans. 
 
 Running 
 ac- 
 
 Year. 
 
 Gold. 
 
 Silver. 
 
 Maxi- 
 mum. 
 
 Mini- 
 mum. 
 
 counts, 
 average 
 balance. 
 
 
 
 
 
 
 Per cent. 
 
 Percent. 
 
 
 
 1876 
 
 1.987-3 
 
 2,484.0 
 
 7.396.7 
 
 4.0 
 
 30 
 
 290. 
 
 360. 6 
 
 1877 
 
 3, 196.0 
 
 2,489.7 
 
 7.569.0 
 
 3 
 
 
 
 2 
 
 
 
 376.0 
 
 473 8 
 
 1878 
 
 2,072.7 
 
 2.3390 
 
 7.603.4 
 
 3 
 
 
 
 2 
 
 
 
 409.0 
 
 4II.O 
 
 1879 
 
 2, iiS-o 
 
 2, 199- 
 
 7, 261.0 
 
 3 
 
 
 
 2 
 
 
 
 402. 
 
 421. 
 
 1880 
 
 1,974.0 
 
 2.305.4 
 
 8,697.0 
 
 3 
 
 5 
 
 2 
 
 5 
 
 325.8 
 
 4". 5 
 
 1881 
 
 604. 5 
 
 I. 2195 
 
 2.576.4 
 
 11.3740 
 
 5 
 
 
 
 3 
 
 5 
 
 1.1235 
 
 468.2 
 
 1882 
 
 906. 6 
 
 I, 140. 
 
 2.732.3 
 
 11,322. 2 
 
 5 
 
 
 
 3 
 
 5 
 
 884. 1 
 
 493-1 
 
 1883 
 
 982.7 
 
 1,0450 
 
 2, 926. I 
 
 10,827.3 
 
 3 
 
 5 
 
 3 
 
 
 
 664.6 
 
 416. 
 
 1884 
 
 1,020. 9 
 
 I, 004. 
 
 2, 928. I 
 
 10,385.2 
 
 3 
 
 
 
 3 
 
 
 
 626. 5 
 
 387.0 
 
 A simple examination of the figures shows as early as 
 1880 and especially in 1881 the approach of the panic. 
 The reserve began to fall as soon as 1880 to 1,975,000,000 
 francs; in 1881 it was only 1,824,000,000 francs; these, 
 we must remember, are averages. But in 1881 the 
 gold reserve, which was 648,000,000 francs on June 30, 
 fell to 552,000,000 francs on December 31, showing a 
 
 175 
 
 ' 1 1 
 
 1^ 
 
I 
 
 ll' 
 
 IP 
 
 National Monetary Co 
 
 mmtsston 
 
 decrease of 96,000,000 francs. Because of this, the Bank 
 raised the discount rate to 5 per cent as early as October 
 20, which diminishd the drain upon the gold in its 
 coffers. In comparison, the discounts increased from 
 September to October; they rose from an average of 
 1,100,000,000 francs to a total of 1,320,000,000 francs. 
 Finally, another fact which shows plainly the intensity of 
 the speculative craze was that the total of loans on securi- 
 ties, which was 325,000,000 francs in 1880, rose in 1881 
 to 1,125,000,000 francs and after a decHne was maintained 
 at 884,000,000 francs. 
 
 However, raising the discount rate to 5 per cent on 
 October 20 effectually checked the drain of gold from the 
 coffers of the Bank, and on December 31, 1881, the 
 reserve reached about 646,000,000 francs, or nearly the 
 figure of the preceding June. 
 
 The Bank of France, therefore, was protected, or at 
 least ready to withstand the shock of the panic in its 
 acute stage. When the storm burst in January, the 
 stockbrokers of Paris and Lyons, who had not paid 
 sufficient attention to the consequences of this frantic 
 speculation, could not meet their engagements. The 
 Bank of France intervened at this moment and advanced 
 80,000,000 francs to the parquet of the Paris Bourse 
 and 100,000,000 to that of Lyons — all this being secured 
 by bills of exchange and collateral. These operations in 
 the last days of January raised the figtwe of the dis- 
 coimts, which on February 2 reached 1,646,000,000 francs. 
 
 It is important to point out here that as a result oi^ 
 the elasticity of issue, the Bank could make discoimts 
 
 176 
 
 Evolution of Credit and Banks 
 
 and loans with greater facility in proportion to the re- 
 serve; the maximum issue in 1881 was 2,825,000,000 
 francs, and in 1882, 2,953,000,000 francs. 
 
 It should be observed, too, that when the Bank, under 
 some accidental circumstance, such as a panic, for in- 
 stance, has been obliged to increase its issue, the figure 
 reached has almost always been maintained afterwards. 
 This was the case in 1883 and 1884. After a number 
 of small declines the average for 1890, rose above 
 3,000,000,000 francs. At the same time the gold reserve 
 tended to increase, showing that the bank note was ac- 
 cepted more and more as currency, replacing part of the 
 gold in circulation. This phenomenon, which is easy 
 enough to understand, began to be especially evident 
 after the crash of 1882. 
 
 Moreover, dividends increased, a thing that always 
 happens when the Bank intervenes in a panic to support 
 the credit of the money market. The dividends of 1881 
 and 1882 were respectively 250 and 290 francs. The 
 average of the precedmg five years had been about 125 
 francs. 
 
 I 
 
 THE COMPTOIR D*ESC0MPTE AND THE PANIC OF 1 889. 
 
 We left the Comptoir d'Escompte on the eve of the 
 war. During the terrible ordeal of the invasion this 
 establishment had to cope with many needs, and it ful- 
 filled its duties as a commercial bank most honorably at 
 this critical moment. It was at that time, next to the 
 Bank of France, the largest discount house in Paris. It 
 attempted to send for disposable funds from its foreign 
 
 1 
 
 I97I — 10 
 
 12 
 
 177 
 
National Monetary Commission 
 
 offices, but they did not arrive before the blockade of 
 Paris. Notwithstanding, thanks to its resources, it was 
 able to reimburse depositors for rather large sums. In a 
 single week it repaid 40,000,000 francs. In addition to 
 this the Comptoir served as an intermediary between 
 the merchants, certain bankers of Paris, and the Bank 
 of France. 
 
 In presence of the terrible situation of the capital just 
 before the siege, the Comptoir had taken certain precau- 
 tions, and likewise the Bank of France. The Comptoir 
 sent its provincial "portfolio" and some of its officials to 
 the Nantes agency. It transported to the London agency 
 its foreign "portfolio" and organized there a special serv- 
 ice to keep up the relations it had established with the 
 credit houses of all foreign countries, and to maintain 
 commtmication with the agencies across the Atlantic. As 
 for the Nantes agency, it became really a provisional 
 center for France and the other French branch offices. 
 
 During the insturection in Paris, known as the Com- 
 mtme, the Comptoir, after taking the precaution of sending 
 the greater part of its assets to Versailles, continued in 
 operation. The postal service being no longer carried on 
 by the regular public authorities, the Comptoir found a 
 way to send and receive mail by way of Versailles. So 
 the doors of the Comptoir remained open in Paris even 
 during the rioting. 
 
 In October, 1871, it joined with several other credit 
 companies in making an issue — authorized by the Gov- 
 ernment — of 5 -franc notes. These notes were of grekt 
 service to commerce, accepted as they were with great 
 
 Evolution of Credit and Banks 
 
 favor. Their circulation extended to the whole of France. 
 This concern of course had an important share in the 
 municipal loan of Paris in 1871; it received subscriptions 
 on that occasion which amounted to the total of the loan. 
 Finally it collected for the national loan of 3,000,000,000 
 francs, which we have mentioned, bids of 15,000 sub- 
 scribers that represented 60,000,000 francs interest, or 
 1,200,000,000 francs capital — more than one-third of the 
 loan. lyike the great French banks, it helped the Govern- 
 ment to effect the transportation or exchange of these 
 funds, which were applied to the payment of the German 
 war indemnity. 
 
 However, the Comptoir did not come through the terri- 
 ble ordeal of the war without suffering its effects. At 
 the time Paris was invested, it had been obHged to make 
 large reimbursements, paying out 40,000,000 francs or 
 more in a single week. Now, before the war it had 
 63,000,000 francs of deposits. It was a long time getting 
 back to this figure. In 1875 the deposits were still not 
 more than 54,000,000 francs. 
 
 It is true that the Comptoir had been entirely reor- 
 ganized in that interval. Then had come the fall in the 
 price of silver, which had already been foreseen, but 
 which actually happened very suddenly in 1875 ^^^ 1876. 
 As the Comptoir had agencies in the Far East, it hastened 
 to decrease transactions in that part of the world. On 
 the other hand, the Comptoir commenced at that time 
 to take part in operations known as "high finance." 
 It transacted successfully all the business connected 
 with the unification of the Egyptian debt. In 1876 
 
 178 
 
 179 
 

 National Monetary Commission 
 
 Eg)^t was not able to meet its engagements. French 
 and English capital was in great jeopardy there, and it 
 was necessary to bring pressure on the Egyptian Gov- 
 ernment in order to straighten out its affairs and safe- 
 guard the interests of the holders of the debt. After an 
 agreement with the viceroy of Egypt, the Comptoir was 
 given charge in London and Paris of operations connected 
 with the settlement of the above debt. In this way it 
 operated conversions involving 3,800,000 certificates. 
 
 Nevertheless, the Comptoir continued to be a com- 
 mercial bank of deposit and discount. Deposits came 
 in slowly after the war, but showed a rapid increase after 
 1876, when they rose to 72,000,000 francs. Two years 
 later this total exceeded 100,000,000 francs. Discounts 
 had increased from 1,200,000,000 francs in 1874 to 
 1,600,000,000 francs in 1878, the year of the World's 
 Fair in Paris, which was very successful. 
 
 About this time, this establishment, which saw its 
 business falling off in the Far East, because of the fluctua- 
 tions in the price of silver, began to restrict its operations 
 in that part of the world. It founded agencies in Sydney 
 and Melbourne, Australia, which gave accommodation to 
 the woolen trade, for French industry obtains from that 
 coimtry a large supply of raw material for its woolen 
 manufactures. An agency was opened also in San 
 Francisco, because of its commerce with the Far East, 
 and, also, because this port was the starting point for 
 a considerable export trade in wheat with France. 
 
 Meanwhile the Comptoir was considering two important 
 undertakings which were later carried out through its 
 
 x8o 
 
 ■J 
 
 Evolution of Credit and Banks 
 
 financial assistance: First, constructing the sea canal of 
 Corinth; second, building the Servian railroad. The 
 aim of the latter enterprise was to join the railroads of 
 Turkey with the European systems, and so open com- 
 munication between Paris and Saloniki. 
 
 Beginning with 1881, the competition of the other 
 credit companies was felt by the Comptoir. These com- 
 panies (the Credit Lyonnais and especially the Soci^te 
 G^n^rale) were to increase and develop their commercial 
 banking operations more and more. So the discounts 
 of the Comptoir, which amounted to i ,900,000,000 francs 
 in 188 1 , began to decrease and fell in 1885 to i ,580,000,000 
 francs. However, three of its most important agencies, 
 under able and wise management, at Marseilles, Nantes, 
 and Lyons, were successful on a large scale. 
 
 The charter of the Comptoir Company, which estab- 
 lished official relations between that company and the 
 Government, expired in 1887. After making inquiries, 
 and on the request of the Comptoir, the Government 
 decided to extend the charter of the company for twenty 
 years from March 18, 1887. In any case, these relations 
 with the State seemed rather useless, because the common 
 law of 1867 on joint stock companies would have been 
 quite sufficient for this concern. The government trade- 
 mark did not protect it from disastrous errors, which were 
 destined to bring it to a tragic end a few years later. 
 
 The Comptoir, still acting as official banker, effected 
 the conversion of the old Tunis debt in 1884. 'I'wo years 
 later it concluded a loan of 15,000,000 francs with the 
 Madagascar government, organized the customs service to 
 
 181 
 

 « 
 
 ,1 
 
 National Monetary Commission 
 
 insure its payment, and founded agencies at Tamatave 
 and Tananarive. 
 
 The year 1887 was a difficult one. Two events made 
 business slack. Frontier incidents, wantonly exaggerated, 
 provoked a tension between France and Germany. In 
 another direction, a poUtical crisis, raging among the high 
 officials of the Government, made it necessary for President 
 Grevy to resign, after a scandalous law suit and violent 
 polemics. 
 
 The Comptoir, Hke all the other credit concerns, suffered 
 from this state of things. The great confidence that it in- 
 spired had attracted to its coffers, both as deposits and 
 as running credit accounts, 200,000,000 francs (total for 
 December 31, 1887). It was difficult to find a way of 
 using this capital profitably, a fact which was responsible 
 for a gigantic error, destined to be fatal to the Comptoir. 
 
 Among its cHents at this time was the Me{al Company. 
 The Comptoir consented to make loans to this company on 
 the merchandise it bought. There was nothing abnormal 
 in this, provided these loans were made for a limited sum 
 and after prudent calculation of the risks of depreciation. 
 However, these first transactions whetted the appetite 
 of the Metal Company. The purchases it effected with 
 the aid of the Comptoir made the price of copper rise. 
 This first speculative success led the Metal Company to 
 attempt to form a regular trust for the purpose of corner- 
 ing copper. It negotiated with the principal companies 
 which engaged in copper mining, with a view to raising 
 the price by Hmiting production. To anyone who kneW 
 the copper-mining business from the point of view of the 
 
 ( /■ 
 
 Evolution of Credit and Banks 
 
 producer this combination was absurd. Both the di- 
 rectors of the Metal Company and those of the Comptoir, 
 though it had been claimed that they were informed of 
 the facts about the copper market, must have been blinded 
 by the chimerical hope of absorbing the copper product of 
 the whole world. 
 
 The president of the Comptoir, M. Denfert-Rochereau, 
 at first made loans to the Metal Company without con- 
 sulting his administrative board. Later, after considerable 
 capital had become involved, M. Denfert-Rochereau dis- 
 closed the state of affairs to the administrative council. 
 It was alleged that at this moment it was difficult to cease 
 supporting the speculation of the Metal Company. The 
 fact seems hardly admissible. The very absurdity of the 
 scheme should have produced a rupture, even though a 
 painful liquidation must have been the consequence. 
 
 The final scene in the drama was at hand. As might 
 easily have been foreseen in 1888, the copper mines, profit- 
 ing by the wild contracts made with them by the Metal 
 Company, increased their output enormously. On the 
 other hand, the price of copper being forced up very high, 
 artificially, consumers in every country refused to buy. 
 To keep on buying and paying and never selUng, to be 
 crushed under the piling up of a product that brings in 
 nothing, is a situation that can not last long. A sad and 
 unexpected incident gave the signal for the disaster. M. 
 Denfert-Rochereau committed suicide on March 5, 1889. 
 His death did not alter the catastrophe in any degree, nor, 
 any more than others of the same kind, could it serve as 
 an example. 
 
 183 
 
 II 
 
 
 182 
 
 II 
 
 I 
 
N ational Monetary Commission 
 
 -. 
 
 It precipitated a panic which led to an irresistible run 
 on the Comptoir by depositors and holders of running 
 credit accounts. In two days they drew out 70,000,000 
 francs. 
 
 We were on the eve of opening the exposition of 1889, 
 called the Centenary of the French Revolution. A dis- 
 organization of the Paris market at that time would have 
 been fatal to this international festival of commerce and 
 industry. At that juncture the Bank of France came 
 forward and loaned the Comptoir 140,000,000 francs on its 
 commercial paper or securities. The Bank was not 
 obliged to take this amount from the reserve, as the loan 
 was made almost entirely in bank notes. The circula- 
 tion, which on March 7, 1889, was 2,741,000,000 francs, 
 rose by degrees to 2,888,000,000 francs on April 4. The 
 discount rate was not and could not be changed. The 
 Bank had then, by the law of June 30, 1884, the right to 
 issue notes up to 3,500,000,000 francs; so there was still a 
 margin of 760,000,000 francs before reaching the extreme 
 limit of the privilege. Besides, every time the need has 
 been felt, the maximum figure of the issue has been 
 increased without question by Pariiament, so that this 
 maximum may always be considered as provisional. It 
 would even be simpler not to fix the maximum issue at all. 
 
 The Bank of France, then, helped by these operations 
 the liquidation of the Comptoir. It should be noted that 
 the latter was not exclusively a speculative bank. It 
 was, indeed, as the result of a very unusual combination 
 of circumstances that it made the mistake of supportuig 
 
 184 
 
 Evolution of Credit and Banks 
 
 \ 
 
 the speculations of the Metal Company. It was much 
 more a bank of commerce, holding a good line of com- 
 mercial paper; its main business, in short, was making 
 discounts. To be sure, the total of discounts had de- 
 creased latterly. After being i ,900,000,000 francs in 1 88 1 , 
 it had fallen to 1,385, 000,000 francs in 1887, and had weak- 
 ened still more in 1888 and 1889 as a result of the com- 
 petition with the other credit societies, which were ex- 
 tending their commercial banking operations. The 
 Bank of France had, therefore, in the line of commercial 
 paper of the Comptoir, guaranties which induced it to 
 make a transaction that was not without risk, of course, 
 but permitted this establishment to use its right of issue. 
 The liquidation of the Comptoir was made by friendly 
 agreement and was ably managed. The assets were 
 sufficient to settle in full all Habilities, including the loan 
 made by the Bank of France. After balancing accounts, 
 even the capital stock was found to be nearly intact. 
 
 These facts, which were anticipated from the beginning 
 of the liquidation, were such as to make it seem desirable 
 to found a credit establishment which could resume the 
 name and the traditions (such as were good) of the old 
 Comptoir. A group of financiers, at the head of which 
 was M. Denormandie, a former governor of the Bank of 
 France, who was much esteemed in the business world, 
 undertook to reorganize the Comptoir. 
 
 M. Denormandie, then, made terms with the liquidators 
 of the old company to obtain the cession of the title and 
 the clientele of the former Comptoir, as well as its build- 
 ings and furniture. 
 
 185 
 
National Monetary Commission 
 
 It is not our purpose here to dwell on the details of this 
 reconstruction, except to say that the new capital stock 
 was fixed at 40,000,000 francs. The issue of 80,000 
 shares at 500 francs took place May 15, 1889, and these 
 shares were bought by the shareholders of the former 
 Comptoir, who were given the preference. Additional 
 bids were made by other people who wished to subscribe; 
 these bids made a total of 85,000 shares, and had to be 
 
 refused. 
 
 It was with 20,000,000 francs, the quarter of the capital 
 paid in, that the new Comptoir began operations in June, 
 
 1889. 
 
 The offices of the old Comptoir had not been closed 
 during Uquidation, so that business went right on, as far 
 as the public was concerned. 
 
 186 
 
 4 
 
 $ 
 
 Chapter III. — The panic of 1890-91 — Intervention of the 
 Bank of France in behalf of the Bank of England — The 
 Societe des Depdts et Comptes Courants — The local crisis 
 caused by it. • 
 
 Two other examples of panics.— These examples may have had an influence on 
 the evolution of credit companies.— The Baring failure.— The Bank of England 
 is asked for assistance.— The reduction of the reserve and especially the lack of 
 freedom of issue hhider the Bank of England from playing its proper part. 
 
 The question of the extension of the credit companies, 
 which is the heart of this whole discussion, we shall leave 
 to the next chapter. Meanwhile, we must state briefly, 
 according to the plan we have adopted, the following 
 facts, which it is necessary to know in order to understand 
 the role of the Bank of France, in so far as it comes to the 
 rescue of credit during panics. And perhaps it will not 
 be without value to show that the same causes produce 
 the same effects, and that commercial banks always come 
 to grief when the rules of good management are disre- 
 garded. Just as the old Comptoir d'Escompte had com- 
 mitted itself to the grave error of violating its statutes, 
 and at the same time the principles of good administra- 
 tion, so the Society des D6p6ts et Comptes Courants chose 
 to indulge in operations that no commercial bank has a 
 right to touch. It went under. Although in the financial 
 world examples of disasters, coupled with the most tragic 
 incidents, are not always heeded, it must be admitted 
 that the two successive failures of the Comptoir in 1889 
 and the Depots et Comptes Courants in 1891 were some- 
 
 187 
 
 < 
 
> 
 
 National Monetary Commission 
 
 what enlightening to the cUents of this sort of estabUsh- 
 ments, for a time at least. On the part of administrators 
 of banks or credit companies there is a growing opinion 
 that the regular operations of commercial banking are 
 sufficiently profitable, and they are tending to lessen risks, 
 even in the tmderwriting and marketing of securities, 
 where the companies are often nothing more than inter- 
 mediaries selling on commission merchandise which it is 
 not well to accumulate in the warehouse. 
 
 I. 
 
 The crisis of 1890 was confined for the most part to the 
 London market, and was caused by the Baring failure. 
 This famous old concern, engaging in large operations in 
 loans, speculation, industrial financing, had opened far. 
 too extensive credits at a time when it was involved in 
 big speculations. Being on the verge of suspending pay- 
 ments, it appUed to the Bank of England, just as the 
 former Comptoir d'Escompte in France had applied to 
 the Bank of France. A syndicate of EngUsh bankers 
 went security for the request of Baring Brothers. But 
 the Bank of England has a constitution which does not 
 allow it the necessary elasticity of issue, in case of need. 
 In order to imdertake the discounts of Baring Brothers 
 or the Syndicate, it was obUged to diminish its reserve, 
 which decreased its issue by just so much. It raised 
 the discount rate to 6 per cent, but though that was 
 enough to protect the metallic reserve, it did not^ en- 
 able the Bank to procure the necessary specie to come 
 to the aid of the London market. In order to guard 
 
 188 
 
 ^ I ^ 
 
 Evolution of Credit and Banks 
 
 itself against the rebound of the London crisis, the Im- 
 perial Bank of Germany had already raised the rate of 
 discount to 5>^ per cent. 
 
 It was then that the Bank of England borrowed of 
 the Bank of France 75,000,000 francs in gold, with which 
 to relieve the stress of the English market. The Bank 
 of France was not affected at all by this exportation of 
 coin. The average reserve, in fact, in the year 1890 was 
 2,513,000,000 francs, composed almost equally of gold and 
 silver. In London, the reserve of the Bank of England 
 had fallen at the height of the crisis to a little less than 
 •500,000,000 francs. 
 
 The comparative merits of the systems of the Bank of 
 England and the Bank of France have been a subject of 
 much discussion, and the principal element of this dis- 
 cussion has been the state of the reserve of the two estab- 
 lishments. This is a secondary side of the question, in 
 the face of a local crisis such as that produced by the 
 Baring failure. The real defect of the English system is in 
 the limiting of issue. It has been seen that the Bank of 
 France was able in 1889 to come to the aid of the Comp- 
 toir d'Escompte without drawing on its specie, thanks 
 to its margin of issue. Since the crisis was local, the 
 remedy was there, close at hand. If the Bank of Eng- 
 land had been able to issue notes for 75,000,000 francs, 
 in order to meet the difficulties of the crisis, there would 
 not have been the slightest need of an appeal to the 
 credit of the Bank of France. For, since the Bank of 
 France was willing to give credit to this establishment, the 
 people of England would have done so equally by accept- 
 ing its notes. 
 
 189 
 
 i, 
 
^ 
 
 National Monetary Commission 
 
 II. 
 
 The second crisis which we must mention was confined 
 to Paris. It was caused by the failure of the Socidt^ des 
 D6p6ts et Comptes Courants. Because of consenting 
 to run risks of a kind that no bank of deposit has a right 
 to incur, this company was forced into inevitable bank- 
 ruptcy. It lost a lawsuit, a fact which attracted the 
 attention of its depositors, and soon aroused their sus- 
 picion. It experienced a panic, just as the Comptoir had 
 done, though a less serious one. This happened in the 
 beginning of March, 1891, almost exactly two years after 
 the nm on the Comptoir d'Escompte. In four days the 
 deposits withdrawn amounted to more than 19,000,000 
 
 francs. 
 
 A syndicate of bankers was formed to go security to 
 the amotmt of 15,000,000 francs for the D^p6ts et Comptes 
 Courants. The Bank of France came to the rescue again, 
 just as it had done two years before in the case of the 
 Comptoir, and advanced 60,000,000 francs for the reim- 
 bursement of the depositors and creditors of the com- 
 pany. It received as security the "portfolio" of this 
 company, and other assets. We will not inquire here if 
 the Bank was entirely disinterested in this advance, ar- 
 ranged for at 3 per cent, but what is perfectly certain is 
 that on this occasion the total of its discoimts was in- 
 creased. It rose that year to more than 10,000,000,000 
 francs, a figure that it had not reached since 1884. At 
 one moment, even, in 1891, the discoimts amounted to 
 1,361,000,000 francs. As for the reserve, it averaged 
 more than 2,553,000,000 francs, of which 1,279,000,000 
 
 190 
 
 \ 
 
 { 
 
 Evolution of Credit and Banks 
 
 were in gold. The following year the gold reserve went 
 beyond 1,547,000,000 francs. In this same year, 1891, 
 the discount rate was maintained at 3 per cent. 
 
 The sums needed for the liquidation of the Soci^td 
 des Depots et Comptes Courants were not so large as in 
 the crisis of the Metal Company and the Comptoir in 1889. 
 In that year the blow to credit had been much more 
 serious and far-reaching. However, it was by the same 
 procedure and with the same results that the Bank of 
 France intervened. In spite of their success, these 
 interventions have been criticised. Taking a general 
 point of view, it has been asked if the help supplied 
 so quickly by the Bank of France to insolvent credit 
 companies was not of a nature to diminish the prudence 
 of the administrators of these companies, and to give 
 the public the assurance that a tutelary establishment 
 would always come forward to protect the funds deposited 
 in these establishments. 
 
 The question is not unimportant. It seems to us that 
 the rule to be followed in such cases is perfectly simple. 
 The Bank should intervene only when its advances are 
 substantially secured. It acts then like a private indi- 
 vidual who aids without risk a neighbor in distress. 
 And, as it has the privilege of issue, it may do it for a 
 comparatively moderate price. The side of the problem 
 most difficult to solve is to make the general public 
 understand the conditions of this intervention. The 
 public is in need of being better informed of banking 
 processes. Now, many prominent tradesmen and manu- 
 facturers are entirely ignorant of the role and mechanism 
 
 191 
 
 I 
 
National Monetary Commission 
 
 of the various kinds of banks. It is a deep-rooted con- 
 viction with us that if this information were more wide- 
 spread, it would form a tradition in the commercial and 
 economic world which would exercise a salutary influence 
 on the banks; for this education would teach people not 
 to demand miracles, and at the same time would make 
 them watchful of the mistakes banks may be guilty of. 
 
 192 
 
 ^ 
 
 Chapter IV. — The credit companies and their develop- 
 ment — Extension of their operations — Their general 
 method — Their present situation. 
 
 The bank note.— Circulation in France and England.— The bank check.— Con- 
 ditions of its use.— Transfers of accounts.— Founding of the Soci6t6 du Crfedit 
 Industrial et Commercial.— Founding of the Soci6t6 GfenSrale pour Favoriser le 
 D6veloppement du Commerce et de I'lndustrie en France.— Founding of the Crfedit 
 Lyonnais Company (1863); of the Society Lyonnaise de D6pdts and the Socifitfi 
 Marseillaise (1865).— Definition of check by French law, June 14-20, 1865.— 
 Transformation in bank methods.-The banker of the large credit companies no 
 longer waits for his customer behind his window— he goes to him.— The credit 
 companies found branches in the principal cities of France.— The Bank of France 
 Increases the number of its branch offices.— Parallel development of branch 
 offices of the Bank of France and agencies of the credit companies.- The Bank 
 of France is the center of the system of the organization of the great credit com- 
 panies in France and of the banks in general.— The foreign agencies of the great 
 credit companies.— Financial activity of France abroad.— Analogy between the 
 organization of the credit companies and the centralization of the French Govern - 
 ment.-Advantages of centralization.- Ways of escapmg the disadvantages of 
 centralization.-Service for the publication of financial reports.-Sight deposits 
 and running credit accounts grow sixfold in twenty-four years.— The time 
 deposits show little or no increase.- Why sight deposits are preferable here to 
 time deposits.-Causes of the increase of sight deposits.-Remarks on the 
 preceding table.— The avaUability of discounts. The rfile of the Bank of France. 
 
 We have already seen the use of bank notes become 
 general in France in proportion as the need made itself 
 felt. I^ittle by little, the total issue of the Bank of France 
 increased. Every time the necessity arose the authori- 
 ties extended the Hmit of issue. Here is a table 
 recording the successive stages of the increase of circula- 
 tion of the Bank of France, and the dates of the laws 
 authorizing an increasingly large total of issue, especi- 
 ally after i860. 
 
 Francs. 
 g°7 _ 84,600.000 
 
 ' '° - 101,200,000 
 
 1820 f, 
 
 " - - 153,800,000 
 
 1830 _ 223,600,000 
 
 ^ ^^ "'"* "223,400,000 
 
 1850 _ 485.600,000 
 
 « Law of March 15, 1848, carrying the limit of issue to 350,000,000 
 irancs. Law of December 22, 1849, carrying it to 525,000,000 francs. Law 
 of August 6, 1850, annulling the limitation of the law of December, 1849. 
 1971—10 13 193 
 
 
ku 
 
 III 
 
 National Monetary Commission 
 
 Francs. 
 
 i860 0749,600,000 
 
 1870 1,544.300.000 
 
 1880 - 2.305,400,000 
 
 ,890 63,060,400,00c 
 
 1900 4.034. 100,000 
 
 1907 % 800, 400, 000 
 
 1908 d 4.853.400,000 
 
 In 1908 the circulation reached a maximum of 
 5,116,000,000 francs. It is probable that the circulation 
 will be extended still more; nevertheless, the Bank has 
 at present a sufficient margin. 
 
 If the circulation of the Bank of France is compared with 
 that of the Bank of England, it is very evident that that 
 of the Bank of England is much smaller. It ranges with- 
 out much variation between 700,000,000 and 800,000,000 
 francs — about one-seventh as large as that of the 
 Bank of France; and yet, England does an enormous 
 business. It is the most important place of exchange 
 in the whole world, a center of large financial operations. 
 It possesses, then, a substitute for the bank note, a tool 
 which takes its place; this substitue is the check, a kind 
 of bank money which plays an important part in Eng- 
 land,* and is a simple instrument for balancing payments, 
 ending in the clearing house. Here debts and credits 
 are balanced to the amount of hundreds of billions of 
 francs. The check has been used in England for a long 
 
 ©Laws of August 12 and 14, 1870, of December 29, 1871, of July 15, 
 1870, carrying limit of issue successively to 1,800,000,000, 2,400,000,000, 
 2,800,000,000, 3,200,000,000 francs. 
 
 6 Law of June 30, 1884, limit of issue 3,500,000,000. Law of January 
 28, 1893, limit of issue 4,000,000,000 francs. Law of November^ 7, 1897, 
 limit of issue, 5,000,000,000 francs. 
 
 c Law of February 9, 1906, limit of issue 5,800,000,000 francs. 
 
 <* The maximum circulation in 1908 was 5,1 16,000,000 francs. 
 
 194 
 
 L 
 
 Evolution of Credit and Banks 
 
 time. It presupposes a whole series of banks of deposits 
 in which a great number of capitalists, merchants, manu- 
 facturers, officials, etc., have deposits and accounts. 
 Furnished with check books, they draw on their bank, 
 and pay their creditors, tradesmen, etc., in this way. 
 The check saves coin; it is the complement of the mech- 
 anism of the joint stock banks; it explains how England 
 carries on such a large business with a very limited 
 metallic stock. It is certainly a rational economic organ- 
 ization. If the Bank of England had a less archaic and 
 more flexible machinery of issue, the system would be 
 perfect, and crises in the English market would be less 
 acute. 
 
 The Bank of France of course opened running accounts 
 with its clients at an early date; it gave them a chance to 
 make transfers from one account to another (pink order) , 
 or to pay a third person from the account of the drawer 
 (white order) . But it was not everyone who was allowed 
 formerly to open a running account at the Bank, and the 
 accounts were not yet sufficiently numerous toward 
 the end of the last century to permit making clearances 
 on a large scale. Moreover, one bank alone, or nearly 
 alone, practicing this kind of operations, scarcely gives 
 wide scope to the mechanism, which must be adopted by 
 a whole market in order to be completely effective. 
 
 The check has its bases, as we have seen, in a group of 
 banks of deposit organized after the plan of joint-stock 
 banks. 
 
 The example of England, as well as the forward move- 
 ment of events, often more or less unconscious, led cer- 
 
 195 
 
 
i: ' 
 
 National Monetary Commission 
 
 tain financiers in France to undertake the creation of 
 deposit concerns. In 1859 a company called the Credit 
 Industriel et Commercial was founded to perform this 
 function. The aim was clearly stated to the public as 
 extending deposit accounts with the use of checks and 
 using these deposits for safe short-date investments, in 
 such a way as always to have available funds to meet 
 the withdrawals of clients. The president of this new 
 credit establishment declared in so many words, more- 
 over, that the institution proposed to imitate the joint- 
 stock banks. To gather together scattered capital, which 
 is most often unproductive in the hands of its possessors, 
 to pay interest on it, and make it fruitful by using it in 
 safe short-date loans — such was the method adopted. Let 
 us remark here that the check had not yet been legally 
 naturalized in France. The law which sanctions it, in fact, 
 dates from June 14-20, 1865. 
 
 Several years later another company was founded in 
 Paris, called the Societe Generate pour Favor iser le Deve- 
 loppement du Commerce et de V Industrie en France. By its 
 title one may see at once the tendency of this company. 
 It was a sort of off-shoot of the plan originated by the 
 Credit Mobilier of the Pereires. This concern for the 
 "advancement of commerce and industry" proposed to 
 make industrial loans and investments and to speculate. 
 But besides these special fimctions it intended to engage 
 in all the operations of joint-stock banks, receiving depos- 
 its, opening running accounts, etc. Mixing together oper- 
 ations of ''credit mobilier'* with commercial banking was 
 to Unite risks of a very different nature and to court many 
 
 Evolution of Credit and Bank 
 
 ^% 
 
 { 
 
 dangers. For how could the department which advanced 
 funds for silent partnerships in industrial enterprises (an 
 operation involving large risks) be kept separate from 
 the department of discount and running accounts, with its 
 deposits payable on demand? No air-tight compart- 
 ment could keep them separated. This kind of bank is 
 a mixed type. 
 
 Other establishments were founded at this time in imi- 
 tation of the Credit Industriel et Commercial : the Credit 
 Lyonnais in 1863 at Lyons; and two years later (1865), 
 in the same town, the SociSte Lyonnaise de Depots, de Comp- 
 Us C our ants et de Credit Industriel] at Marseilles, the same 
 year, the Societe Marseillaise de Credit Industriel et Com- 
 mercial et de Depots. All these had for an object, if not a 
 sole object, at least a very definite one, to encourage in 
 these very important centers the use of running accounts 
 and check books. It was then between 1859 and 1865 
 that were founded the credit concerns which were later to 
 expand and become powerful, along with the Comptoir 
 d'Escompte created several years sooner, under circum- 
 stances that have already been described. But this latter 
 establishment had been organized after the old plan of 
 discount banks; it was not until afterwards that it followed 
 the lead of the new concerns and began to try to spread 
 the use of checks and running accounts. 
 
 As may be easily seen, all these companies were founded 
 either at a time when the existence and legal definition 
 of the check had not been settled, or very shortly after. 
 The law of June 14-20, 1865, defined a check as " a writing 
 which, in the form of an order for payment, allows the 
 
 196 
 
 197 
 
> 
 
 N ational Monetary Commission 
 
 drawer to effect the withdrawal in favor of himself or of 
 a third person of the whole or a part of the disposable 
 funds which remain to his credit with the drawee." "It 
 is signed by the drawer, and bears the date of the day 
 when it is drawn. It can not be drawn except for sight 
 payment. It may be made out payable to bearer or to 
 a specified person, and can be signed 'payable to the 
 order of ' and even transferred, by means of indorsement 
 in blank." 
 
 The check is preeminently the instrument of credit 
 companies. It is well known that under the name of 
 "crossed check" it plays an important part in England 
 However, in order that the check, which is only a tool, a 
 practical means of payment, may be of service, there 
 must be many deposits and accounts in banks which are 
 engaging in these operations. 
 
 With the exception of the Comptoir d'Escompte, these 
 banks did not develop greatly before the war. Several 
 of these banks, even after the war, at the time of the loan 
 for the payment of the 5,000,000,000 francs indemnity to 
 Germany, also for the restoration of our military equip- 
 ment, and later at the time of the loans for great public 
 works — several of them, we repeat, engaged in the sort of 
 operations known as "high finance" without the epithet 
 " high " being justified by the superiority of the operation. 
 
 Until 1 88 1, especially, they made large issues; We give 
 the figures in the following table: 
 
 Francs. 
 
 1876 _ 45,400, CXX) 
 
 1877 - 286, 600, 000 
 
 1878 - 35, 100,000 
 
 1879 2, 168, 800, 000 
 
 1880 880, 400, 000 
 
 1881 - - -- 631,000,000 
 
 198 
 
 4 
 
 I 
 
 < 
 
 Evolution of Credit and Banks 
 
 It is true they continued later to carry on operations in 
 disposing of loans, but from this moment forth they began 
 to widen their scope. Their mode of work was to be 
 modified little by little. They realized the advantage of 
 going to the public to solicit custom, to induce it to open 
 running accounts, and consequently to make deposits. 
 Afterwards they organized on a vast scale special services, 
 such as safety deposit, supervision of drawings, cashing of 
 coupons, loans on securities, etc. 
 
 And it was not only by printed circulars that the credit 
 societies infonned the public of the advantages they 
 offered; they instructed employees in the business of 
 soliciting patronage and making overtures {demarches)] 
 hence the name of demarcheurs was given to these em- 
 ployees. 
 
 Struck by the very obvious fact that France is every- 
 where a land of economy, some of these societies, such as 
 the Soci^te G^nerale, the Credit Lyonnais, and the Comp- 
 toir d'Escompte, founded agencies or branch offices in Paris 
 and the provinces. Gradually the number of these agen- 
 cies has increased and covered France with a close net- 
 work. In this way, they gather capital everywhere; 
 ever)rwhere they try to compete in certain transactions 
 with the local banks, which produces something of a crisis, 
 and brings about a slow transformation of some of the 
 local banks and the disappearance of others. 
 
 Side by side with the credit companies, the Bank of 
 France increased the number of its branch offices and 
 created auxiliary bureaus, increased very much the num- 
 
 199 
 
ll 
 
 I.I 
 
 National Monetary Commission 
 
 ber of affiliated towns, and so rendered the greater part of 
 commercial effects bankable — that is to say, capable of 
 being discounted by the Bank, which collects them at a 
 greater number of places. 
 
 It should be remarked that the parallel development of 
 branch offices and agencies of the Bank of France, and of 
 the agencies of the credit companies, greatly aided the 
 development of the latter. They have now near their 
 agencies a branch office or bureau of the Bank where they 
 can rediscount rapidly their commercial "portfolio" and 
 realize on negotiable securities in case of urgent need. 
 
 It is here that is seen the intimate connection that 
 exists in France in the organization of credit, such as 
 historical evolution has made it, between the Bank of 
 France and the credit companies. The first is powerful 
 because of its privilege of issue and its considerable metallic 
 reserve, which is due to two causes. First, the continuation 
 of favorable exchanges, resulting from our considerable 
 investments of capital abroad; second, the great credit 
 of the bank note. With these two advantages the Bank 
 of France becomes the pivot of the system ; it permits the 
 credit companies to keep a very small metallic reser^'^e; to 
 use constantly in making discounts the capital which is 
 confided to them. The commercial "portfolio," as we 
 shall see, ranks next to the metallic reserve among avail- 
 able resotuces, because it is easily rediscountable at the 
 Bank of France. It is obvious, then, that the parallel 
 development of the credit companies and the branch 
 offices and bureaus of the Bank of France is an interesting 
 study. 
 
 300 
 
 Evolution of Credit and Banks 
 
 { 
 
 Here are tables which sum up this development: 
 
 BANK OF FRANCE. 
 
 Year. 
 
 1890 
 1897 
 
 1903 
 
 X907 
 
 Number 
 
 of branch 
 
 offices. 
 
 94 
 
 94 
 
 Z26 
 
 137 
 
 Number of auxitiary 
 bureaus. 
 
 38 
 38 
 49 
 
 Provinces. 
 
 47 
 
 Suburbs. 
 
 Affiliated 
 towns. 
 
 I30 
 
 128 
 ai8 
 
 384 
 
 CREDIT LYONNAIS. 
 
 Year. 
 
 1880. 
 
 1900. 
 1907. 
 1908. 
 
 Number of agencies. 
 
 Paris. France. 
 
 33 
 33 
 53 
 
 55 
 
 28 
 I3S 
 173 
 173 
 
 Foreign. 
 
 9 
 17 
 ao 
 18 
 
 COMPTOIR D'ESCOMPTE. 
 
 z88o. 
 1900. 
 1907. 
 1908. 
 
 26 
 
 046 
 
 49 
 
 3 
 86 
 
 132 
 140 
 
 6 
 17 
 «3 
 23 
 
 SOClfiTfi GfiNfiRALE. 
 
 Total. 
 
 353 
 360 
 393 
 
 466 
 
 Total. 
 
 70 
 184 
 346 
 346 
 
 9 
 
 139 
 
 30X 
 
 3za 
 
 • Including branches in suburbs. 
 
 * Permanent. « Temporary. 
 
 aoi 
 
' I 
 
 N ational Monetary Commission 
 
 The Credit Industriel et Commercial has no provincial 
 agency; it possesses 34 in Paris and i in London. 
 
 We may, then, sum up for the four great companies we 
 have just been discussing the extent of their means of 
 work, in contact with the pubhc, by the number of their 
 agencies. (We do not coimt the occasional agencies of 
 the Soci^te G^nerale.) 
 
 Agencies in France in 1907: 
 
 Paris and suburbs 235 
 
 Provinces - - - - - 713 
 
 Total for France _ -- - -- 94^ 
 
 These 950 agencies, in round numbers, are like so many 
 branches springing from a central stem ; but each of them 
 has a kind of separate existence, a special character, 
 which permits it usually to adapt itself to the environ- 
 ment where it happens to be. 
 
 In 1908, the total number of the foreign agencies of the 
 credit companies (some of which are very large) was 43. 
 
 All foiu* of the companies which we are considering have 
 London agencies; the Comptoir d'Escompte has opened 
 branch offices, too. in Liverpool and Manchester. This 
 company and the Credit Lyonnais have estabUshed foreign 
 agencies in nearly every important commercial center in 
 the world. In Europe, the Credit Lyonnais has European 
 agencies at Brussels, St. Petersburg, Moscow, Odessa, 
 Constantinople, Geneva, Barcelona, Madrid, Valencia, Se- 
 ville, and the Comptoir d'Escompte at Brussels, Monte 
 Carlo, and St. Sebastian. 
 
 { 
 
 Evolution of Credit and Banks 
 
 Outside of Europe the Credit Lyonnais has established 
 agencies in Egypt at Alexandria, Cairo, Port Said ; also in 
 Smyrna, and Jerusalem and Jaffa in Palestine. 
 
 The Comptoir d'Escompte* likewise has agencies in 
 Alexandria and Cairo, but it has founded others in India 
 (it maintained the one at Bombay) , and finally, in Sydney 
 and Melbourne, Australia. 
 
 Moreover, this establishment, faithful to its traditions, 
 has opened a certain number of agencies in our colonies 
 and protectorates. In Madagascar and our Indian Ocean 
 possessions it has seven agencies, including those at 
 Tananarivo, Tamatave, Diego-Suarez, etc. In Tunis it 
 has four agencies — at Tunis, Bizerte, Sfax, and Sousse. 
 
 So the financial activity of France thus makes itself 
 felt in the most important centers of the world excepting 
 those of the United States of America. In 1892 the 
 Comptoir d'Escompte founded an agency in San Francisco 
 and a provisional one in Chicago; then in 1895 one in New 
 Orleans. But it closed the Chicago agency in 1900 and a 
 few years later those of San Francisco and New Orleans. 
 
 This is one of the advantages of the agency system; it 
 makes it possible to suppress very quickly the useless 
 branch which seemed to be called for, but which has not 
 been as successful as its founders hoped. The system of 
 affiliated banks is much less elastic. These have a sort of 
 independent existence — a personality — in which the large 
 establishments that helped to found them participate. 
 Their closing certainly involves more trouble, and the 
 moral effect is much greater, than when an agency is 
 abolished. We are alluding to the system of the great 
 
 202 
 
 203 
 
 I 
 
i 
 
 National Monetary Commission 
 
 German credit companies. This system has a historical 
 background which it is not om- purpose to dwell upon here, 
 and corresponds to conditions different from those of 
 France. 
 
 In France, the organization of the credit companies, so 
 far as concerns their expansion, is modeled, one might say, 
 on the political organization, which is above all centralized. 
 It is in the central seat of the credit companies that the 
 final authority rests. From there issue suggestions and 
 sometimes orders. It is by the central offices that the 
 agencies are supervised and audited. Treasury questions, 
 the placing of loans, the general movement of business, 
 everything is an object of study there. The system of 
 accounting centraHzes all operations and makes it pos- 
 sible for the head men to take in at a glance the general 
 business situation. These are the advantages of the sys- 
 tem; one might fear its drawbacks, dread administrative 
 red tape, the tendency to reduce everything to rules, 
 delay in acting, the restriction of the initiative of managers 
 of agencies. Now, the companies have escaped almost 
 entirely these disadvantages; the heads of agencies act 
 with a certain liberty; their vigilance is stimulated, as well 
 as their activity, by the method of remuneration which 
 makes their earnings depend largely on their skill and 
 prudence. Those who are placed at the head of foreign 
 agencies, sometimes far from the central office of the com- 
 pany, even though they have general instructions which 
 they must follow, are chosen from the most energetic, 
 superior, and experienced employees, because they are 
 often obliged to make quick decisions. 
 
 { 
 
 Evolution of Credit and Banks 
 
 The Credit Lyonnais and the Comptoir d'Escompte 
 have each organized a service for publishing financial 
 reports in which one can constantly follow the economic 
 facts that bear upon business: state credit and loans, 
 and their budgets; all kinds of industrial companies, 
 metallurgical, coal-mining, mechanical construction, spin- 
 ning, and weaving companies; trade in foodstuffs and 
 agriculture. Numerous documents and detailed studies 
 permit the heads of these establishments to gain a rapid 
 knov/ledge of the main lines of the finances of a country, 
 the situation of industrial, commercial, or transportation 
 companies, and of the other banks. Engineers or em- 
 ployees who have technical or expert knowledge are sent 
 out besides to examine on the spot questions that need 
 clearing up. 
 
 What is more, other services are devoted to studying 
 the risks either in what concerns discounting commer- 
 cial paper, or in ascertaining the value of transferable 
 securities. 
 
 However, it would be difficult to understand the work- 
 ings of these great credit concerns without knowing in 
 outline both the automatic control that results from a 
 very clear system of accounting and the factors which 
 enable the responsible men of the management to make 
 rapid and timely decisions. Granting that a mere glance 
 is enough for a banker operating on a given market, 
 imagine what a knowledge of details and comprehensive 
 view of the whole situation is needed by the head of one 
 of these great houses, whose experience, like the horizon 
 that he sweeps, must be as broad as the whole world. 
 
 204 
 
 205 
 
I 
 
 X '. 
 
 II 
 
 National Monetary Commission 
 
 THE EXTENSION OF OPERATIONS IN THE GREAT CREDIT 
 
 COMPANIES. 
 
 The credit companies, as we have said, commenced to 
 extend their Hne of discounts and to receive deposits of 
 increasing importance, beginning with 1885. 
 
 To show this progressive increase in deposits and dis- 
 counting operations, loans and "carry-overs" (contangos), 
 we can not do better than call attention to the table that 
 is given below. As may be seen, it includes the four great 
 companies that we are considering: The Credit Lyonnais, 
 the Comptoir d'Escompte, the Soci^t^ Gen^rale, the Credit 
 Indus triel et Commercial. Beside these appear the figures 
 for the Bank of France in what concerns deposits, dis- 
 counts, and loans on securities. 
 
 From 1885 we have given the figures only for every 
 five years, judging it unnecessary to draw up a complete 
 table of every year, which would have been cumbersome 
 and more difficult to understand. These statements all 
 refer to the same period, which is a necessary condition 
 in making clear the course of this development. 
 
 f 
 
 ^ 
 
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 } 
 
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 < 
 
 Evolution of Credit and Banks 
 
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 306 
 
 207 
 
 i 
 
r 
 
 I 
 
 National Mone tary Commission 
 
 In glancing at the columns of total sight deposits and 
 running credit accounts, one may see the ratio of the 
 increase; it was very nearly regular. From 660,000,000 
 francs the sight deposits and running credit accounts rose 
 to 3,970,500,000 francs in 1908; they grew sixfold in 
 twenty-four years. The increase is due, therefore, to 
 normal and deep-lying causes, since the upward course 
 of the deposits followed an even progression. 
 
 Consulting next the column of time deposits, an increase 
 is visible for the same period of time, but in proportion 
 it is not nearly so great, since the total of these deposits 
 was 130,000,000 francs in 1885 and is only 268,000,000 
 francs in 1908, so that this sort of deposit has merely 
 doubled. And, again, this doubUng is due chiefly to the 
 Society Generale, whose time deposits were 90,000,000 
 francs in 1885 and 168,000,000 francs in 1908, an increase 
 of 78,ooo,ooofrancs. On the other hand, the time depbsits 
 of the Credit Lyonnais, after increasing until toward 1895, 
 show a tendency afterwards to decrease; in 1908 the total 
 of this kind of deposits was the same as in 1885, 40,000,000 
 francs, while the sight deposits and running credit ac- 
 counts rose in one company from 320,000,000 francs in 
 1885 to 1,745,000,000 francs in 1908, or nearly half the 
 sight deposits and running credit accounts of the four 
 societies combined in 1908. 
 
 This tendency to prefer sight deposits to time deposits 
 proves that these credit companies generally use the 
 deposits for short-time operations such as discounts and 
 "carry-overs" (contangos). Moreover, they have ob- 
 served that having clients in every class of the population, 
 
 308 
 
 i 
 
 { 
 
 Evolution of Credit and Banks 
 
 and in every part of the country, large, medium or small 
 manufacturers and tradesmen, people living on their 
 income, officials, etc., the deposits and withdrawals 
 balance each other in such a way as to maintain, not an 
 even level, of course, but an average level, which, in 
 making it possible to count on an average length of 
 time for retaining deposits, gives the companies full 
 security to engage in their various operations. Since 
 the interest allowed on sight deposits is less than on 
 time deposits (which latter is i, 2, or 3 per cent according 
 to the number of years), it has been possible to lower 
 very appreciably the discount rate. 
 
 Whence comes this increase in sight deposits? From 
 several different kinds of causes. 
 
 In the first place, the increasing number of agencies 
 gather capital through the whole of France by offering 
 accommodations to depositors and by soliciting trades- 
 men of every kind, large or small, to open running ac- 
 counts. These various accommodations given to clients 
 come mostly from the very genuine competition of the 
 companies with one another. The small interest allowed 
 on sight deposits, even though it has been as low at 
 times as one-half per cent, is one of these advantages. 
 This rate, moreover, is not uniform for all clients, and 
 this is easy to understand in the case of those who 
 have opened running accounts. Here the agreement 
 made may change according to the state of the account, 
 which depends in turn on the kind of transactions the 
 tradesman or manufacturer engages in and the nature 
 of the service he asks of the credit company. 
 
 1971 — 10 14 
 
 209 
 
National Monetary Commission 
 
 It is useless to insist on this point. Every bank in the 
 world has solved it in the same way. The various people 
 who have argued that a banker should sell his services 
 at a fixed price are in the wrong as to discounts, loans, 
 collections, etc. The cUent who brings large business, 
 easy to transact, yielding quick profits, may be given 
 terms such as would not be granted to another customer, 
 whose more limited operations demand just as much 
 writing, offer more risks, etc. 
 
 Let us consider next the last column to the right of the 
 first part of our table; it relates to the Bank of France. 
 We see that the totals do not give the impression of very 
 great variation, and seem from 1895 on to remain sta- 
 tionary. In order to judge of these variations, let us 
 take the figures representing the average total of the 
 commercial discounts. We give ever>' other year here 
 in order not to make the table needlessly long. 
 
 Annual average of discounts of the Bank of France {Table B). 
 
 Francs. 
 
 1885 784,300,000 
 
 1887 577.900.000 
 
 1889 713,800,000 
 
 1891 760,700,000 
 
 1893 579.300,000 
 
 1895 543,600,000 
 
 1897 730,400,000 
 
 1899 828,300,000 
 
 19OI --- 592,400,000 
 
 IQ03 • 688, 000, 000 
 
 1905 - 640,500,000 
 
 1907 I. 125,700,000 
 
 1908 --- 897,000,000 
 
 As may be seen, the tendency indicated by the last 
 balance sheet of each year showed very clearly a stagna- 
 tion in the whole. The only large figure is the 1,125,700,000 
 
 210 
 
 Evolution of Credit and Banks 
 
 francs for the year 1907. This is due to the crisis which 
 had begun in 1906, and whose effects were still apparent in 
 1908 in the total of 897,000,000. This shows that even if 
 the commercial "portfolio" of the Bank of France has 
 risen slowly for thirty years, in comparison with that of 
 the credit companies, it increases distinctly during crises. 
 The bank is the place of refuge where the credit com- 
 panies and other banks come to rediscount their com- 
 mercial bills and turn them into ready resources. 
 
 In order to see this clearly, it will be enough to call to 
 mind the average figures of the commercial discounts 
 of the Bank of France during the serious crises that we 
 have experienced in France since the war. 
 
 Prancs. 
 1871 j^ 164,000,000 
 
 ^^72-- _ _ 2,089,400,000 
 
 1 873 2, 299, 400, 000 
 
 '^74 _ ___ I, 760,600,000 
 
 ^^75- 1,305, 200,000 
 
 ' °76 - — ^6^ 000, 000 
 
 1881 — j^ jg^^ 700,000 
 
 1882 _ _ j^ j^j^ 100,000 
 
 '^--- - - 1,027, 700,000 
 
 ' ^ - - - 996, 700,000 
 
 The crisis of 189 1 is marked by a slight increase which 
 is always shown in this way by the average total of dis- 
 counts. 
 
 Francs. 
 '^90-- 669,000,000 
 
 ^ 9^ - --- 760,700,000 
 
 9^ - 550,400,000 
 
 Although there is something like a regular increase in 
 the discounts of the Bank after 1897 (see Table B), there 
 are nevertheless very marked fluctuations up or down. 
 
 A 
 
 311 
 
National Monetary Commission 
 
 Evolution of Credit and Banks 
 
 i 
 
 In reality the Bank of France follows a different plan 
 from the credit companies and private banks in general 
 in the matter of discounts. Its rate is uniform, for the 
 most part, and is modified as little as possible. The 
 Bank can do this, thanks to a sufficient margin of issue 
 and an imposing reserve. But this state of affairs does 
 not give it the flexibility of the other credit estabHsh- 
 ments, which are quite right in not maintaining a fixed 
 discount rate. This is even a leading distinction between 
 the companies and the large department stores, to which 
 they are often compared. 
 
 Moreover, the credit companies, as we have said, solicit 
 patronage. They oiBfer interest on deposits, and if the 
 cUent is an important house and furnishes good paper 
 for large sums, they make special prices in his favor. 
 Finally, we will call to mind once more that the network 
 of their agencies, both in Paris and all of France and 
 abroad, extends the boundaries of their activity. 
 
 What is more, they keep in stock, one might say, a full 
 line of banking articles; they take foreign paper, deliver 
 letters of credit for all countries, make collections on all 
 markets, etc. Their agencies are so arranged as to give 
 the quotations on the different bourses as fast as they 
 are made. One may enter freely into these agencies, 
 which are not so awe inspiring as the old banking houses. 
 
 Thanks to numerous deposits, coming from an eco- 
 nomical country like France, they have also been able to 
 make discounts at rather reduced rates. Here is a table 
 which gives the average yearly rate of the discounts in 
 France and the principal foreign countries. 
 
 Average discount rates. 
 
 f 
 
 
 France. 
 
 Bncland. 
 
 Germany. 
 
 Austria 
 
 
 Year. 
 
 Outside 
 rate. 
 
 Bank of 
 France. 
 
 Belgivun. 
 
 1892 
 
 
 2. 70 
 2. 10 
 
 2. 20 
 3.00 
 3.00 
 3.00 
 3.00 
 
 3. 45 
 3- 05 
 
 2.52 
 2.00 
 3. 26 
 3.72 
 3.29 
 3-OI 
 4.27 
 4.92 
 3.00 
 
 2. 20 
 3.10 
 4.28 
 4. 10 
 4.22 
 3.82 
 
 5- IS 
 6.03 
 
 4.75 
 
 4.02 
 4- 30 
 4.16 
 4.08 
 3. so 
 3.70 
 4.33 
 4.89 
 4.2s 
 
 2. 70 
 2 60 
 
 1895.-- 
 
 1.38 
 2.06 
 2. 46 
 2.02 
 2.03 
 2.58 
 3.30 
 2.14 
 
 1898 
 
 3.04 
 3.28 
 3.00 
 3- 17 
 3.84 
 4.94 
 3. SO 
 
 1901 
 
 1904 
 
 190S 
 
 1906 
 
 1907 
 
 1908 
 
 
 THE METHODS WHICH THE GREAT CREDIT COMPANIES 
 USUAI^IvY FOIvUOW — ^THEIR PRESENT SITUATION. 
 
 We have seen on what the credit companies of France 
 base their operations. They derive their resotu-ces: 
 
 First, from third parties — depositors, holders of run- 
 ning credit accoimts. 
 
 Second, from their own capital and reserve. 
 
 We have noticed that the sight deposits and nmning 
 credit accounts had increased greatly with them, and 
 that on December 3, 1908, they were nearly 4,000,000,000 
 francs for the four following societies: Credit Lyonnais, 
 Comptoir d'Escompte, Soci^td G^n^rale, Credit Industriel 
 et Commercial. 
 
 We have also called attention to the tendency of several 
 of them not to increase their time deposits. If the total 
 of sight deposits and running credit accounts rose from 
 660,000,000 francs in 1885 to 3,970,500,000 francs on 
 December 31, 1908, it was because of the increase of these 
 deposits at the Societe G^n^rale. 
 
 % 
 
 212 
 
 ^1 
 
 213 
 
National Monetary Commission 
 
 ■y . 
 
 I' 
 
 I 
 
 To make clear how these societies employ their different 
 resources, it is not necessary to write at length. The 
 arrangement of the accompanying table will give a better 
 idea of the workings of these societies than long explana- 
 tions. Some explanations should be given perhaps as to 
 the arrangement of the table itself. It is a balance sheet 
 in fact, or at least a group of balance sheets of these four 
 companies on December 31, 1908. The assets are made 
 up after the usual fashion; the liabilities are divided 
 into two parts — one of them is called " Resources coming 
 from third parties," and the other, the "Companies' own 
 •resources." For, although the companies owe their capi- 
 tal and reserve, in the last analysis, to their stock- 
 holders, this capital and reserve are primarily to protect 
 clients, those third parties who have intrusted their funds 
 to the companies. It was necessary to distinguish this 
 part of the liabilities from the other, since, with regard to 
 cHents, it may be termed assets. 
 
 As may be seen, the total metallic reserve of these foiu* 
 companies is 401,500,000 francs. Compared with the 
 sight deposits and running credit accounts, payable at 
 any time, which amount together to 3,970,500,000 francs, 
 this reserve is foimd to represent about 10 per cent of 
 the debt of the companies payable at sight. 
 
 It will be noticed, too, that the collateral loans and 
 "carry-overs," which come to a total of a little over 
 898,000,000 francs, compared to the total of the compa- 
 nies' own resoiu-ces, which are 789,500,000 francs, shows 
 only a relatively small difference — that is, 898,000,000- 
 789,500,000=108,500,000, or one-eighth. Now, in these 
 898 ,000,000 francs are included " carry-overs " for an impor- 
 • 214 
 
Balance sheets for December ji, 1908, of the principal French credit companies. 
 
 [In thousand francs.] 
 
 
 Assets. 
 
 Liabilities. 
 
 
 Reserve 
 and cash 
 on hand. 
 
 Discounts. 
 
 Loans on 
 collaterals 
 and 
 "carry- 
 overs." 
 
 Running: 
 debit ac- 
 counts. 
 
 Govern- 
 ment se- 
 curities, 
 shares, 
 bonds. 
 
 Miscella- 
 neous 
 movable 
 and im- 
 movable 
 property. 
 
 Total. 
 
 Resources furnished by third parties. 
 
 Companies' own resources. 
 
 Hame of Gim. 
 
 Sight 
 deposits. 
 
 Running 
 
 credit 
 accounts 
 
 Accept- 
 ances and 
 sundries. 
 
 Bills of 
 fixed ma- 
 turities. 
 
 Total of 
 liabihties 
 
 with 
 regard to 
 
 third 
 parties. 
 
 Firm. 
 
 Various 
 reserves. 
 
 Profit and 
 loss (net 
 balance). 
 
 Total of 
 com- 
 panies' 
 own re- 
 sources. 
 
 Credit Lyonnais 
 
 153.710 
 
 101,847 
 119. 61S 
 
 26.. 189 
 
 1 
 
 1.187.81s 1 4q8. 70^ 
 
 549.600 
 
 331.045 
 324.677 
 
 34.30«» 
 
 8,594 
 
 17.874 
 
 113.546 
 
 10, 696 
 
 83.814 
 56.456 
 32.091 
 
 4.042 
 
 2,392,346 
 
 1.330,940 
 
 1,592, III 
 
 260,63s 
 
 756.328 
 
 571.734 
 
 389,606 
 
 94.310 
 
 988, 78s 
 
 343.248 
 
 728,070 
 
 98.913 
 
 231.723 
 
 185.034 
 
 107.979 
 
 21,851 
 
 40.510 
 
 60,356 
 
 168.066 
 
 2, 017. 346 
 
 r, 160,372 
 
 1.393. 721 
 
 215. 074 
 
 250,000 
 
 150. 000 
 
 150, 000 
 
 25.000 
 
 125,000 
 20.568 
 
 37.772 
 16, 000 
 
 
 375.000 
 
 170.568 
 
 198,390 
 
 45.561 
 
 Comptoir National d'Escompte 
 
 637.204 
 751.618 
 131. 776 
 
 186,514 
 250,564 
 
 «;2.437 
 
 
 Society G6n6rale 
 
 10.618 
 4.561 
 
 Credit Industriel et Commercial. 
 
 
 _._.l _.. 
 
 
 
 
 401,561 
 
 2,708,433 898,308 
 
 1.239.717 
 
 150. 710 
 
 177.303 
 
 5.576,032 
 
 I. 8x1. 978 
 
 2.159,0x6 546,587 
 
 268.932 
 
 4. 786.513 
 
 575.000 
 
 199.340 15.179 
 
 789.519 
 
 197 1 — lo. (To face page 214.) 
 
Evolution of Credit and Bank 
 
 » 
 
 ( 
 
 tant sum, at least one-third. These loans on securities, 
 which are not so easily realized on as the commercial dis- 
 counts, would then be amply covered by the private re- 
 sources of the credit companies (the capital and reserve). 
 The Credit Lyonnais even, which has nearly 409,000,000 
 francs in collateral loans and "carry-overs" (contangos), 
 can set off 375,000,000 francs against these less available 
 funds. The same proportion exists for the Comptoir 
 d'Escompte, and likewise the CrMit Industriel et Commer- 
 cial. As for securities held by these companies, they do not 
 amount in round numbers to more than 15 1,000,000 francs 
 in which the Social G^nerale figures for i i3,5oo,ooofrancs.' 
 This proves that these companies are not banks for invest- 
 ments involving risks, and speculating on negotiable securi- 
 ties. The Credit Lyonnais, holds securities only to the 
 amount of 10,500,000 francs; the Comptoir d'Escompte 
 for 17,800,000 francs; the Credit Industriel et Commercial 
 for 10,500,000 francs. These figures represent the total 
 amount of securities on deposit of the concerns we have just 
 mentioned. It is the natural course of the business of their 
 clients in operations on negotiable securities. 
 
 The commercial discounts are next in availability to the 
 metallic reserve, which, of course, is always available. If 
 the latter is the standing army of capital for these compa- 
 nies, the commercial discounts are the auxiliary corps of 
 the army which may be most quickly put in the field 
 These discounts for the four great companies amount to 
 2,708,000,000 francs, of which 1,187,000,000 francs are 
 for the Credit Lyonnais alone. Now, in France, thanks to 
 the Bank of France and its margin of issue, in panic times 
 
 215 
 
II' 
 
 r 
 
 National Monetary Commission 
 
 these companies can rediscount at this establishment a 
 part of their "portfolio." Although the EngUsh jomt- 
 stock banks take great precautions in their plan of pro- 
 cedure, they have not m the Bank of England the same 
 resource, for it is just at the moment when it ought to 
 increase its issue-that is to say, in panic times-that it 
 is bound by the act of 1844- Every system of bank issue 
 must, then, tend to give either to a single bank (if the 
 monopoly is established) or to the banks of issue (if a 
 number of banks have been decided on) the greatest pos- 
 sible elasticity of issue, in order to cope with crises. What, 
 in fact, is needed at these difficult moments? More cur- 
 rency than in normal times. Who can supply it? A 
 bank issuing bills against reliable securities, such as com- 
 mercial effects. It is these effects that must be coined mtp 
 money and made to circulate, until calmer days amve. 
 
 It must be added that in France the "portfolios" of 
 commercial biUs of the credit companies are composed of 
 good paper, giving very few losses. This is evidently 
 also one of the necessary conditions if the Bank of France 
 is to fulfil its r61e without risk and maintain its credit— 
 the credit of the bank note. 
 
 It may be easily seen that the Bank of France is the 
 center of the credit organization of France. It is its 
 special constitution such as a historical evolution has made 
 it which has in some sort determined the development 
 of the credit companies and of banks in France. If to 
 this is joined the peculiarly prudent and economical char- 
 acter of the French, their fondness for saving, it will be 
 easy to understand the influence of surroundings on the 
 workings and methods of the credit companies. 
 
 216 
 
 i 
 
 ^^- 
 
 ( 
 
 ( 
 
 / 
 
 Chapter V. — The credit companws and the local hanks. 
 
 The numerous agencies of the credit companies compete with the local banks.— 
 The Paris banks are little affected.— It is hard to estimate the eiact number of the 
 local banks and the importance of their affairs.— First grouping.— Advantages the 
 local banks claim to offer.— Unjust criticism.— The real crisis of the local banks.— 
 Solutions of the problem.— A central bank is established in Paris.— Sale of securi- 
 ties.— District banks.— The present moment is a period of transition for the local 
 banks. 
 
 The development of the credit companies, of their 
 agencies and operations, was not accompHshed without 
 creating a sort of latent crisis among the local banks. It 
 is a question here of the banks of provincial cities with 
 which the credit companies came to compete on their own 
 groimd. The Paris banks, having been long established, 
 were not particularly affected by the extension of the 
 agencies of the credit companies in the capital. Some 
 carry on transactions known as "high finance" — partici- 
 pation in state loans, issues of industrial securities, etc.; 
 others are banks of commerce, having each its own 
 patrons, answering needs and rendering services to which 
 they are adapted. In the first group may be mentioned 
 the Mallet Bank, which was founded in the first half of 
 the eighteenth century, the Hottinguer Bank, etc. 
 Among the second are the bank of Offron, Ginard & Co., 
 founded in 1817; the one imder the firm name of Henrotte 
 & Muller, created in 1823; the Lehideux Bank, which 
 goes back to 1835; the Claude, Lafontaiije, and Fouchet 
 banks, etc. 
 
 It is, then, the provincial banks which have really suffered 
 from competition with the credit companies. These owed 
 
 217 
 
W li 
 
 I 
 
 [ 
 
 Ul 
 
 
 National Monetary Commission 
 
 the depression they experienced to other concomitant 
 causes also, and to the necessity of making changes in 
 their mode of work. Improved means of communication, 
 the extension of the railroad system, the telegraph and 
 telephone, have contributed to make more efltective, even 
 in the most remote towns, the regulating and leveling 
 action of the law of supply and demand in the matter of 
 capital. 
 
 What is the number of these provincial banks? It is 
 rather difficult to tell. The only way of approximating 
 it is by the licence tax they pay. But here again one must 
 make distinctions — the tax is greater or less according as 
 they are bankers or discounters. The number of dis- 
 counters is probably greater. It may be estimated at 
 about 1,200; the number of private bankers is doubtless 
 slightly less — perhaps 1,000 or 1,100. The counting 
 houses and loan agencies may be estimated at something 
 like a hundred. Finally, other establishments make a 
 specialty of placing transferable securities. They seem 
 to have increased in number, and may be roughly esti- 
 mated at 400. There are, then, from 2,700 to 2,800 local 
 banks of varying importance, ranging from the little dis- 
 count bank of a small town to the large city banks with 
 big capital. 
 
 A certain number of these banks have formed a syndi- 
 cate or imion to protect their interests. They find them- 
 selves in competition, in fact, in two operations, one of 
 which has been much extended; the agencies of the 
 credit companies make collections at a much lower price 
 than that formerly charged by most of the local banks. 
 
 218 
 
 / 
 
 » 
 
 I 
 
 * 
 
 Evolution of Credit and Banks 
 
 especially the ones situated in third-class towns; thanks 
 to the central office in Paris, the credit companies are 
 better informed and better situated for all transactions 
 on the Bourse. The result is that the operations involv- 
 ing the most risk fall to the local banks — that is to say, 
 advancing funds for a silent partnership in industrial 
 enterprises {commandite). As for discount, the rate 
 charged by the agents of the credit companies has tended 
 to make it lower. 
 
 For the rest, we are summing up the grievances of the 
 local banks as expressed in the publications on the sub- 
 ject, and the reasons put forward in their favor by their 
 representatives : 
 
 The local banker belongs to the neighborhood; his 
 family, property, and interests are there. He cooper- 
 ates in aiding local commercial or industrial under- 
 takings. 
 
 He receives as time deposits the fimds of the land- 
 owners, who are the local capitalists, and pays them good 
 interest. This capital he can again use as a silent 
 partner {commandite) in local enterprises, which the 
 credit companies are not willing to do. 
 
 Knowing the local credit better than the manager of 
 an agency, who is often a stranger in the place, the local 
 banker can give personal credit. 
 
 In a local bank the management is permanent; the 
 son generally succeeds the father, or, if not, the son-in-law 
 or some other member of the family. 
 
 These local banks claim that they are able to save 
 expense for clients in the business they do with them, 
 
 219 
 
1 
 
 IF 
 
 ' I 
 
 p:- 
 
 '.Of 
 
 'i I 
 
 t*' f: 
 
 
 
 National Monetary Commission 
 
 because their profits consist of the difference between the 
 interest they pay depositors or clients who are their 
 creditors, and the interest they receive on discounts, 
 loans, etc. (This argument does not quite agree with 
 the facts, because in the case of many operations the 
 credit companies have brought rates down.) 
 
 In the terms relating to accounts they claim to offer 
 more stability than would be possible for the manager 
 of an agency, who receives instructions from the central 
 office of his company. 
 
 The credit companies centralize capital at Paris in order 
 to use it for "carry-overs" (contangos), etc. In this way 
 speculation in negotiable securities receives more encour- 
 agement than commerce and industry. 
 
 The local banks divide the risks; one of them may go 
 under or suspend payments without affecting anything 
 but the local market, while if a credit company should 
 fail, it would involve as many markets as it has agencies. 
 
 Finally, certain aggressive writers have accused the 
 credit companies of investing French capital in foreign 
 securities. Now, we have seen that this exodus was 
 made necessary by the large amount of unemployed 
 capital ; this use of French capital is besides of the greatest 
 economic and financial aid to our country. The income 
 on the thirty-odd billion francs that we hold in foreign 
 investments establishes a balance of exchange very 
 favorable to France. This makes it possible for the Bank 
 of France to possess and maintain, even in crises, a large 
 gold reserve — at this moment more than 3,500,000,000 
 francs — and, in short, it faciUtates commercial relations, 
 
 220 
 
 
 Evolution of Credit and Banks 
 
 extends French influence, and sometimes paves the way 
 for political understandings. 
 
 Nevertheless the crisis existed, and after criticisms 
 and recriminations came investigations of ways to meet 
 the difficulties. Naturally, too, by reason of the evolu- 
 tion of the organization of credit in France, certain solu- 
 tions were suggested by the facts. We shall state them 
 
 briefly. 
 
 In the beginning, a great number of local and pro- 
 vincial bankers came together and formed a union for 
 the purpose of considering means of defense. The first 
 aim was to bind together the various members of this 
 union in common business relations and to estabHsh in 
 Paris a credit concern which was to centralize provincial 
 operations on the capital at moderate rates, and was 
 also to try to procure its share in the great issues of securi- 
 ties, in order to give its provincial correspondents the 
 benefit of them and allot to each one his share of sectuities 
 to dispose of. 
 
 This solution resulted in practice in the founding at 
 Paris of the Societe Centrale du Syndicat des Banques 
 de Province, which now goes under the name of the 
 Societe Centrale des Banques de Province. It dates from 
 1905, and has a capital of 1,185,000 francs. Its provin- 
 cial correspondents are the members of the syndicate of 
 provincial banks, from 320 to 330 in number. Together 
 with the branch offices of certain of these banks, they 
 represent about 368 agencies open for issuing and market- 
 ing transferable securities. Among the operations in 
 which it engages, this one seems to be the most important. 
 
 221 
 

 I 
 
 pi J ■ I 
 
 
 i;, 
 
 I 
 
 National Monetary Commission 
 
 It has a safety -deposit service and transacts other bank- 
 ing operations, but is apparently for the most part an 
 investment bank. Will it persist in this course to the 
 point of entering as a silent partner into industrial 
 enterprises (commandite) ? Will it be an organ for trans- 
 forming or aiding the medium-sized or small local indus- 
 tries? It is difficult to give an opinion on this point, 
 because the association dates only from 1905. This last 
 function, relating to local industries, has been and still 
 is one of the data of the problems raised by the local or 
 provincial bankers. 
 
 A movement entirely different from this one has been 
 started in certain parts of the country. Several very 
 important local banks, which enjoy the confidence of the 
 region where they operate, have extended their radius of 
 activity and formed veritable district credit companies. 
 They, too, have agencies and branch offices and solicit 
 patronage. As the bankers or managers of these societies 
 live in the locality and are deeply rooted in it, they are 
 well acquainted with the geography of credit, the progress 
 of industries, and the trend of local business. During the 
 crisis which raged in the Lyons silk market in 1907-8 the 
 Lyons bankers were of great assistance to the merchants, 
 and saved many failures. Lyons, we should add, counts 
 many experienced bankers of the first order. 
 
 But it is especially in the north that the widening out 
 of local banks into district banks or agencies has taken 
 place. Among these should be named the bank of Verley 
 Decroix & Co., with headquarters at Lille, which possesses 
 27 branch offices in the Departments of Nord and Pas-de- 
 
 222 
 
 ( 
 
 Evolution of Credit and Banks 
 
 Calais; the Devilder bank, which has 9 branches and 
 is also located at Lille; the Varin-Bemier Bank at Bar-le- 
 Duc, which has 10 agencies. In these regions of the north 
 and east are grouped the metallurgic industries and 
 factories. In the southwest, too, at Bordeaux, must be 
 mentioned the Bank of Bordeaux, which has 7 agencies 
 in the region (Angouleme, Bergerac, Blaye, Libourne, 
 Royan, Ste. Foy la Grande, and Sarlat). Moreover, it 
 has an agency in Paris, 3 district offices in Bordeaux, and 
 18 auxiUary offices in the surrounding region. 
 
 The local or provincial banks in France are, then, in a 
 transition state. The most important of them will 
 probably develop into district banks; other still smaller 
 ones will gravitate around the Soci6t6 centrale des 
 Banques de Province; others still, licensed as discoimters, 
 will continue in a Hmited radius to discount paper for the 
 small trade, and rediscount it at the Bank of France if it 
 is "bankable." 
 
 223 
 
Evolution of Credit and Banks 
 
 r 
 
 Chapter VI. — The Bank of France — Renewal of its prim- 
 lege — Present situation — Its rdle in the crisis of 1906, 
 
 Renewal of the privQege, law of November 17, 1897.— New duration of the privi- 
 lege.— The agricultural syndicates and discount.— Incompatibility of the duties of 
 governor and deputy governor with all legislative authority.— Operations for the 
 benefit of the Treasury.— Extension of the number of branch offices.— Profits above 
 5 per cent shared with the State.— The maximum of issue is extended.— Falling off 
 In the commercial discounts of the Bank of France from 1880 to 1896.— The extension 
 of business in 1899-1900 and the demand for gold.— The Bank of France discounts 
 English commercial paper.— Necessity for a bank of issue to have the right to dis- 
 count foreign paper.— The solidarity between banks of issue of various countries 
 Is established naturally by the action of the law of supply and demand, and by the 
 course of international business affairs.— State royalties.— Royalties paid by the 
 Bank to the State.— Taxes on bank notes.— Remarks on the revenue of the Bank 
 of France.— The revenue from discounts is encumbered with heavy expenses. — 
 Advantages of revenue on loans.— Royalties and taxes compared to the total ex- 
 penses. 
 
 We left the Bank of France, above, at the moment when 
 it intervened in 189 1 in the matter of the suspension of the 
 Soci^te des Ddp6ts et Comptes Com-ants. From this time 
 on, imtil the renewing of its charter in 1897, nothing hap- 
 pened particularly worthy of note. It may be observed, 
 however, that the gold reserve had a tendency to increase, 
 and likewise the circulation of notes, as may be seen by the 
 following table, which gives the average totals of the com- 
 mercial discoimts and the loans: 
 
 [Million francs.] 
 
 Year. 
 
 X891 
 
 1892 
 
 1893 
 
 1894-*- 
 
 1895 
 
 1896 - 
 
 X897 
 
 Reserve. 
 
 Gold. 
 
 1,379. 1 
 1.5474 
 1.684.8 
 I, 831. o 
 
 2.047.9 
 1.978.0 
 1,962. 7 
 
 Silver. 
 
 i.aS4.7 
 
 1. 279. 1 
 
 1. 271. 2 
 I, 262. 7 
 1.243-7 
 1.244-4 
 I, 222. O 
 
 Total. 
 
 2,553-8 
 2.826.5 
 2.956.0 
 3.083.7 
 3.291.6 
 3.222.4 
 3,184.7 
 
 Circula- 
 tion of 
 bank 
 notes. 
 
 3.084.6 
 3.151-3 
 3.445-5 
 3.476.5 
 3.526.6 
 3.607.0 
 3.687.0 
 
 Dis- 
 counts. 
 
 760. 7 
 
 550.4 
 
 579 
 
 564 
 
 543 
 
 693 
 
 730 
 
 Loans 
 on secu- 
 rities. 
 
 298.4 
 296.9 
 302.8 
 290.8 
 312.0 
 
 363.7 
 358.0 
 
 224 
 
 ( 
 
 The rate of discount bears witness to the calm of this 
 period, and the cheapness of capital. The following table 
 shows this clearly : 
 
 Discount rate. 
 
 Year. 
 
 1891. 
 1892. 
 1893- 
 1894- 
 1895- 
 1896. 
 
 1897- 
 
 Maxi- 
 
 Mini- 
 
 mum. 
 
 mum. 
 
 Per cent. 
 
 Per cent. 
 
 3.0 
 
 3.0 
 
 3.0 
 
 2.5 
 
 2-5 
 
 2.5 
 
 2.5 
 
 2.5 
 
 2.5 
 
 3.0 
 
 2.0 
 
 2. 
 
 2.0 
 2. 
 
 Average. 
 
 Per cent. 
 3.00 
 
 2. 70 
 
 2. 50 
 
 2.5« 
 
 2. 10 
 
 3. 00 
 3. 00 
 
 The law of June 9, 1857, had renewed the privilege of 
 the Bank for thirty years, until December 31, 1897. This 
 law had been made more than ten years before the lapsing 
 of the privilege, which, by the law of June 30, 1840, had 
 been prolonged until 1867. This time they waited much 
 later, since the law renewing the privilege again was pro- 
 mulgated on November 17, 1897, not a month and a half 
 before the old privilege expired. 
 
 We will note here nothing but the special new points of 
 this law, the official text of which is, besides, a current 
 document. For this we will follow the order of its articles. 
 
 The privilege is prolonged for twenty-three years, end- 
 ing December 31, 1920; however, a law passed by both 
 Chambers may bring the privilege to an end on December 
 
 31, 1912. 
 
 The agricultural syndicates, whose legal existence dates 
 from the law of 1884, will be able henceforth to discount at 
 
 / 
 
 1971 — 10 15 
 
 225 
 
National Monetary Commission 
 
 Evolution of Credit and Banks 
 
 I ' 
 
 i: 
 
 the Bank paper at a maximum maturity of three months, 
 bearing the signatures of their representatives. 
 
 The duties of governor and deputy governor of the Bank 
 were becoming incompatible with a seat in the legislattu-e. 
 Senator Magnan had to resign. He was replaced by 
 M. Georges Pallain, who had been one of the most emi- 
 nent collaborators of L^on Say in the Ministry of Finance, 
 and left the post of Inspector-General of Customs to assume 
 the governorship of the Bank, which he still holds. 
 
 A change which was new in its tendency was that the 
 Bank from 1897 to 1920, inclusive, must hand over to the 
 State twice each year a royalty equal to the proceeds 
 of one-eighth of the discount rate multipUed by the total 
 productive circulation, without its ever being less than 
 2,000,000 francs. 
 
 The state loans granted by the Bank in those previous 
 agreements, one of 60,000,000 francs at 3 per cent, the 
 other of 80,000,000 francs at i per cent, or 140,000,000 in 
 all, ceased to pay interest to the Bank. Henceforth, these 
 1 40,000,000 francs advanced to the State cost the Treasury 
 nothing. 
 
 Moreover, the Bank engaged to put at the disposal of 
 the State, still without interest, and dining the whole 
 continuance of the privilege, an additional 40,000,000 
 francs. 
 
 The Bank was compelled to make gratuitously a certain 
 number of transactions for the benefit of the Treasury: 
 Payments of coupons, issues of French government 
 seciuities, collections of drafts drawn on the Treasury, 
 etc. 
 
 .j>. 
 
 ( 
 
 This law provided, besides, that branch ofi&ces should 
 be opened in all the departmental capitals not yet sup- 
 plied with them, and auxiUary btu-eaus were also to be 
 created. 
 
 In case the rate of discotmt rose above 5 per cent, the 
 resulting proceeds must be deducted from the sums to be 
 divided annually among the shareholders: A quarter is 
 added to the capital of the company; the rest reverts to 
 the State. This case has not arisen even in the crisis of 
 1906-7, the effects of which made themselves felt from 
 the United States upon England, and from England upon 
 France. 
 
 The limit of issues of the Bank, which the law of 
 January 28 had fixed at 4,000,000,000 francs, was carried 
 to 5,000,000,000 francs. 
 
 Finally, the Bank is bound to weigh in the reserves of its 
 branch offices and auxiliary agencies and to transport at 
 its own expense to the mint the light-weight gold pieces 
 that the Minister of Finance has ordered to be recoined. 
 
 Under the prudent and skilful direction of M. Georges 
 Pallain, the Bank has prospered since the renewal of its 
 privilege; it has performed with unfailing efficiency the 
 functions for which it has been fitted by historical events. 
 This is clearly proved by the following facts: 
 
 DISCOUNTS. 
 
 After 1885 the commercial discoimts of the Bank had 
 decreased. In 1894 the total discoimts of the Bank had 
 fallen off 40 per cent in comparison with those of 1880. 
 The extension of discounting operations by the great 
 
 226 
 
 227 
 
 1 
 
National Monetary Commission 
 
 credit societies has certainly exerted an influence on 
 this decrease, which was mentioned, besides, in the ofl&cial 
 report of the operations of the Bank for 1894. But since 
 1896, as we have aheady seen by the table given at the 
 beginning of this chapter, the average discounts increased 
 in 1896-97. But there was a drop in 190 1-2; then a 
 recovery in 1903, reaching in the panic years 1907 and 
 1908 the respective sums of 13,900,000,000 and 15,700,- 
 000,000 francs. 
 
 We give in the following table the siun total of annual 
 discounts, and their average total, beginning with 1897, 
 as well as the maximmn, minimum, and average rate of 
 discoimt : 
 
 [Million francs.] 
 
 Evolution of Credit and Banks 
 
 Year. 
 
 1897 
 1898 
 
 1899 
 1900 
 1901 
 1902 
 1903 
 1904 
 1905 
 Z906 
 1907 
 Z908 
 
 Sum total 
 discounts. 
 
 Average 
 discounts. 
 
 10,364.8 
 
 730.4 
 
 11.033. 1 
 
 797-8 
 
 II, 746.0 
 
 828.3 
 
 la, 347-6 
 
 875-3 
 
 9.936.3 
 
 592.4 
 
 9.SSS-9 
 
 546.3 
 
 II. 685.0 
 
 688.0 
 
 10,834.3 
 
 699.6 
 
 10,967.6 
 
 640. 6 
 
 13.980.9 
 
 897.7 
 
 15. 769.0 
 
 I. 135.7 
 
 za,8oo. 6 
 
 897.3 
 
 Rate of discount. 
 
 Maxi- 
 
 Mini- 
 
 mum. 
 
 mum. 
 
 Per ct. 
 
 Perct. 
 
 3.0 
 
 a 
 
 3 
 
 
 
 a 
 
 4 
 
 5 
 
 3 
 
 4 
 
 5 
 
 3 
 
 3 
 
 
 
 3 
 
 3 
 
 
 
 3 
 
 3 
 
 
 
 3 
 
 3 
 
 
 
 3 
 
 3 
 
 
 
 3 
 
 3 
 
 
 
 3 
 
 4 
 
 
 
 3 
 
 4 
 
 
 
 3 
 
 Aver- 
 age. 
 
 Per ct. 
 3. 00 
 
 3. 30 
 
 3.06 
 3-35 
 
 3 00 
 3.00 
 3.00 
 3.00 
 3- 00 
 3.00 
 
 3.45 
 3- 04 
 
 \ 
 
 The modifications of the rate of discount after 1898 
 may be seen more in detail in the following table. Added 
 to it are the rates on loans. 
 
 •;> 
 
 ? 
 
 T 
 
 \ 
 
 1898 — December 3_ 
 
 1899 — December 7. 
 December 2 1 . 
 
 1900 — ^January ii__ 
 January 25. _ 
 May 25 
 
 1907 — ^January 17-. 
 
 March 3 z 
 
 November 7. 
 
 1908 — ^January 9 
 
 January 23 . _ 
 May 29 
 
 Dis- 
 count. 
 
 Loans. 
 
 Per ct. 
 
 Perct. 
 
 3.0 
 
 3-S 
 
 3 
 
 5 
 
 4.0 
 
 4 
 
 5 
 
 5.0 
 
 4 
 
 
 
 4.5 
 
 3 
 
 5 
 
 4.0 
 
 3 
 
 
 
 35 
 
 3 
 
 
 
 4.0 
 
 3 
 
 5 
 
 40 
 
 4 
 
 
 
 4.5 
 
 3 
 
 S 
 
 4-5 
 
 3 
 
 
 
 4.0 
 
 3 
 
 
 
 35 
 
 It will be noticed that in 1899 the discount rate rose 
 to 3.5 per cent, then to 4.5 per cent, and the rate of loans 
 to 4 per cent and 5 per cent ; the 4 per cent discount rate 
 and that of 4.5 per cent for loans — which were still above 
 normal — were maintained until January 11, 1900. Now, 
 at the end of 1899, the discount rate was 7 per cent at 
 the Imperial Bank of Germany, and 6 per cent at the 
 Bank of England. Business had extended greatly since 
 1898. French capital was in demand abroad. The Bank 
 of France, in the presence of this increasing demand, 
 raised the discount rate to 4K P^^ cent, a rate that had 
 not been charged since 1888-89 at the time of the failure 
 of the first Comptoir d'Escompte. 
 
 The increase in the discount rate in March, and again in 
 November, 1907, was brought about by a crisis caused 
 by the tightness of money, originating in the New York 
 market. This crisis was first felt in 1906 in the United 
 States. A latent crisis, not very serious however, was 
 already making itself felt in the markets of Europe. That 
 
 338 
 
 229 
 
l1 
 
 1 
 
 National Monetary Commission 
 
 of the United States rendered it much more acute. 
 The London market, being in constant relations with 
 that of New York, was first affected by the situation. 
 The discount rate in London was raised to 6 per cent. 
 But this barrier was not enough to check the flow of gold 
 to places where it was needed, and greatly needed. 
 
 To defend its reserve the Bank of France could use 
 the normal expedient of raising the discount rate; it did 
 not do this in 1906, but had recourse to another equally 
 normal expedient which the situation clearly demanded; 
 it discotmted EngUsh paper, and so made it possible for 
 the London market to procure the capital necessary to 
 alleviate its current crisis. This is, in fact, a proceeding 
 which is much more economic, in the high sense of the 
 word, than the rather archaic one practiced formerly of 
 making discreet loans of gold to the Bank of England. 
 In the following year, 1907, the crisis grew worse. Dis- 
 count at the Bank of France went up again to 3X per 
 cent and then to 4 per cent. The Bank of France inter- 
 vened a second time, discounting English paper. The re- 
 port of the operations of the Bank for 1907 states that in 
 this way a ready capital of more than 80,000,000 francs in 
 American gold was furnished to the London market. In 
 another direction, the Bank of France opposed no obstacle 
 to the shipments of French gold to New York, which 
 were furthered by the Bank's making its normal com- 
 mercial discounts. Finally, the discoimt rate remained 
 3 per cent lower in France than in England or Germany. 
 
 In this way, the action of the Bank made itself felt, 
 not only on the French market but also on the inter- 
 
 I 
 
 f 
 
 { 
 
 Evolution of Credit and Banks 
 
 national, and particularly the English market. Making 
 discounts on foreign paper must be considered, to-day, 
 a very normal means of establishing useful relations 
 between the different markets, and of applying the law 
 of supply and demand of capital in an intelligent and 
 profitable manner for the country which furnishes its 
 capital. Not making foreign discounts is a deficiency 
 which the Bank of England adds to its lack of elasticity 
 of issue. The Reichsbank has a foreign "portfoUo" 
 which has increased in importance from year to year. 
 The Bank of France has the right to discount foreign 
 paper, and has used it very ably, thanks to the enlightened 
 direction of its governor, M. Georges Pallain. 
 
 This proves that the alliance of all the banks of issue 
 of Europe, which a former ItaUan minister proposed to 
 estabUsh some time ago, an alliance prepared by the 
 Governments with the idea of ending in a final consortitun 
 of these banks, is not only useless but dangerous. There 
 is no need of official intervention, of contracts with bind- 
 ing clauses, to create a soUdarity between these estab- 
 lishments. This solidarity is established when necessary, 
 either directly, if the banks of issue have the privilege 
 of discounting foreign commercial paper, or indirectly, 
 by the credit companies or the intermediary banks. 
 The intervention of one or another of the banks of issue 
 in favor of a foreign market is therefore free, and so 
 much the more useful on that account, because this 
 action is performed in response to a solidarity dictated 
 by the positive interest that the bank has in intervening, 
 since it derives profit from so doing. But it can not be 
 
 230 
 
 231 
 
 .^|i 
 
r 
 
 ■I 
 1] 
 
 i; 
 
 1* I 
 
 National Monetary Commission 
 
 repeated too often — the right of making foreign com- 
 mercial discounts is to-day imdeniably useful for a bank 
 of issue. 
 
 According to the law of November 17, 1897, renewing 
 the privilege of the Bank of France, this establishment 
 owed a royalty to the State equal to the proceeds of one- 
 eighth of the discount rate multiplied by the total of the 
 productive circulation, the payment not to amount to less 
 than 2,000,000 francs. The average of productive circula- 
 tion is calculated by the decree of June 24, 1878. In mak- 
 ing this estimate a statement is made out for each working 
 day, for Paris as well as the branches, of the debit bal- 
 ance under the following heads: Discounts; loans on 
 securities, on gold and silver bullion; notes payable to 
 order, and in circulation. This statement is added up 
 and then divided by the number of working days, thus 
 obtaining the average productive circulation of the Bank 
 for the year. Here is the table of royalties paid by the 
 Bank to the State since the law of 1897: 
 
 Francs. 
 
 1897 _ 2, 742, CXX) 
 
 1898 3.343.000 
 
 1899 4,857,000 
 
 1900 5.655.000 
 
 1901 4, 107,000 
 
 1902 3,777,000 
 
 1903 4,314,000 
 
 1904 _ __- 4,521,000 
 
 1905 4,225,000 
 
 1906 5.333.000 
 
 1907 7.357,000 
 
 1908 - --- 5.538.000 
 
 The Bank pays the State, in addition to this, a stamp 
 tax on the circulation of its notes. For the assessment 
 
 232 
 
 / 
 
 ^^ 
 
 Evolution of Credit and Banks 
 
 of this tax a distinction is made between the productive 
 and unproductive circulation. The first is subject to a 
 tax of 0.50 franc per 1,000, the second to a tax of 0.20 
 franc per i ,000. 
 
 This stamp tax, paid by installments, was 1,404,632 
 francs in 1908. The unproductive circulation of the 
 Bank is very high. About two-thirds of this circulation 
 represents metallic reserves of gold and silver. If to the 
 stamp tax on the notes are added printing and book- 
 keeping expenses for these notes, the total probably 
 exceeds 2,000,000 francs a year. 
 
 The Bank of France has three great sources of revenue: 
 
 (i) Revenue from discounts; (2) revenue from loans 
 on securities; (3) accrued interest on securities held by 
 the Bank. 
 
 In addition, certain other minor revenues are given under 
 the heading ** miscellaneous " in the following table: 
 
 Revenue. 
 
 1906. 
 
 1907. 
 
 1908. 
 
 Discounts 
 
 Francs. 
 27.998,000 
 
 18, 256, 000 
 
 10, 302, 000 
 
 4, 188,000 
 
 Francs. 
 39. 523.000 
 
 23.320,000 
 
 10,436,000 
 
 3,904, 000 
 
 Francs. 
 27. 935. 000 
 
 20,677.000 
 
 10,646,000 
 
 4,242,000 
 
 Loans on securities 
 
 Accrued interest 
 
 Miscellaneous 
 
 
 TotaL 
 
 60, 744, 000 
 
 77. 183,000 
 
 63.500,000 
 
 
 The importance of revenue from loans on securities 
 will be noticed here. This revenue entails much less 
 expense than the revenue from discoimt. Discount 
 requires a whole army of collecting clerks, in Paris as 
 well as in the branch offices and bureaus. In order to 
 collect bills the debtor has to be visited at his place of 
 
 233 
 
r.Ti 
 
 National Monetary Commission 
 
 business or residence. In the case of loans on securities 
 it is the debtor who brings what he owes to the windows 
 of the bank. If to the revenue of loans on sectu-ities are 
 added the accrued interest (arrerages) it will be seen 
 that these two represent very nearly half the revenue of 
 the Bank, and certainly more than half the profits, inas- 
 much as the accrued interest costs nothing but the safe- 
 keeping of these securities, and the expenses of loans on 
 securities are much less than on discotmts. 
 
 Here is the comparison of the expenses of the Bank 
 of France and the royalties and taxes paid to the State. 
 The taxes in the total given here include not only the 
 stamp tax on the bank notes, but also the stamp tax on 
 shares, and the 4 per cent tax on the interest on loans to 
 the companies, plus the direct taxes. 
 
 Royalties and taxes paid to State- 
 Total expenses 
 
 1906. 
 
 Francs. 
 8. 721,000 
 
 26.574,000 
 
 1907. 
 
 Francs. 
 11,083,000 
 
 30. 998,000 
 
 1908. 
 
 Francs. 
 
 9. 131,000 
 
 38, 604, 000 
 
 It is therefore about a third of the expenses that are 
 represented by the payments turned over to the profit of 
 the State by the Bank. 
 
 234 
 
 i 
 
 / 
 
 f 
 
 GENERAI. CONCLUSIONS. 
 
 First period: The slow and difficult conquest of its complete privilege by the Bank 
 of France.— Second period: Period of transition. Tbe beginnings of the credit 
 system.— The development of the credit companies and their increasing impor- 
 tance. Rapidadaptationtosurrotmdings.- RAleof theBank. It is the mainstay of 
 the credit organiiation of France. 
 
 The conclusions arising from this account, in which we 
 have tried to present the principal facts of the evolution 
 of the banks and credit in France since 1800, may be 
 svunmed up as follows: 
 
 In the first period, of which our first part treats, we see 
 the Bank of France modest, at its beginnings, in spite of 
 the determination of Napoleon I to make it a state bank, 
 gradually freeing itself from this compromising function. 
 The escape from this danger was due: First, to its regents, 
 who were experienced bankers or merchants; second, to 
 the wisdom of two of Napoleon's ministers, MoUien and 
 Gaudin. The Bank became in this way the bankers* 
 bank, the bank of rediscount which it has since remained. 
 It profited by the tendencies of its founder. Napoleon, to 
 obtain the exclusive privilege of issuing bank notes in 
 Paris. It passed successfully through formidable poHtical 
 crises; saw several changes of government. Little by 
 little new inventions, the steam engine especially, revo- 
 lutionized industry. Other banks of issue, called depart- 
 mental banks, were foimded. They lived and prospered in 
 spite of defective corporation laws ; they performed local 
 services in the places where they were established. Then 
 came the crisis of 1848. The Bank of France, which 
 
 235 
 
IM. 
 
 I*' 
 
 National Monetary Commission 
 
 tinderstood the usefulness of foimding provincial comp- 
 toirs, and already had several, desired to extend its 
 activity. The Revolution of 1848 made it possible to 
 realize this plan as a result of a series of rather unforeseen 
 circumstances. An unprecedented panic at Paris gave 
 the Bank an opportunity to make energetic and wise 
 decisions. The departmental banks disappeared shortly 
 after, much more as a result of this political accident than 
 of a concerted plan. A sole bank of issue was produced in 
 France as a result of a revolution whose programme was 
 to suppress privilege. 
 
 Until then the Bank of France had been especially a 
 local bank, the bank of issue for Paris. It owes to the 
 wise and prudent banking traditions of the Paris bankers, 
 its regents, the fact that it has remained a bank of redis- 
 count. All around it, industry, progressing rapidly, 
 brought into existence banks of speculation and invest- 
 ment. The Bank of France, however, joined in the gen- 
 eral movement in this direction only with prudence. 
 
 The second period, to which our second part is devoted, 
 
 was a time of transition. The Bank had won the exclusive 
 
 privilege of issue for the whole country; it was only from 
 
 this moment that it was properly called the "Bank of 
 
 France." It became the center and mainstay of the 
 
 credit system of France. The crises that it experienced 
 
 were less severe than in the first period. It grew because 
 
 wealth in general was increasing, because the railroads 
 
 encouraged the creation of capital, especially in a coimtry 
 
 so gifted with the spirit of economy. It shared the ideas 
 
 of prudence which in all that relates to saving are a part 
 
 of the French character. 
 
 236 
 
 
 Evolution of Credit and Banks 
 
 However, in these ten or twelve years, years of incuba- 
 tion, legislation on corporations became more liberal ; the 
 laws of 1863 and 1867 gave better facilities for founding 
 great industrial and commercial credit companies. The 
 concentration of capital must be made to correspond to the 
 concentration of industries that results from new inven- 
 tions. This is a mathematical function of an economic 
 movement. Then new credit companies were founded, 
 which felt their way for a while, at a time when one of 
 them, the Comptoir d'Escompte, produced by the events 
 of 1848, had in its origin the form of the credit companies 
 of the future. Founded for the purpose of acting as an 
 intermediary between merchants, manufacturers, etc., and 
 the Bank of France, it was the first bank which achieved 
 the aim of the Bank for the public. The war of 1 87 1 turned 
 aside this development for a time, or at any rate, pre- 
 cipitated it. The terrible events which took place — the 
 defeat of France, the payment of the war indemnity, the 
 great loans, the great works for the extension of the eco- 
 nomic plant of the country — produced still more credit 
 companies, which did not reach over a wide area, banks 
 which, although they engaged in operations of commercial 
 banking, also took part in loan operations, made invest- 
 ments, etc., and that extensively. 
 
 Finally, in the third period, the methods of the credit 
 companies became more clearly defined. They gradually 
 extended their activity in France by means of numerous 
 branch ofl&ces or agencies. The Bank of France followed 
 the same movement, either of its own accord or by 
 reason of conditions imposed by the Government. The 
 
 237 
 
1 
 
 11 '. 
 
 'I I 
 
 National Monetary Co 
 
 mmtsston 
 
 present organization of credit began to take shape; the 
 r61e of the credit companies grew in importance; they 
 adapted themselves to the temper of the country and of 
 their depositors ; they engaged preferably in discounting, in 
 short-date operations; they made every effort to render 
 available by means of suitable investments the capital 
 entrusted to them, which they received at sight in much 
 greater amounts than on time. Finally, they took root on 
 foreign soil and helped to invest French capital (which 
 would be idle in France) in foreign securities. France, 
 always economical, invested abroad in this way savings to 
 the amount of some thirty-odd billions. This situation 
 made France a creditor of many nations and gave it ahnost 
 constantly a favorable exchange rate. It made it possible 
 for the Bank of France, thanks to the prudent monetary 
 policy maugurated by I^on Say, to accumulate a for- 
 midable gold reserve. The Bank of France thus became 
 a center of supply, not only for the credit of France, but 
 for the important neighboring market of London. 
 
 Financial methods, too, had gradually been perfected. 
 The Bank no longer had recourse to the premium on gold; 
 although it lent the Bank of England directly a few 
 years ago a large sum in gold, it was able recently to come 
 to its aid economically by discounting English paper. 
 
 So, as we have often said in this study, in reality, the 
 organization of the credit system of a country always 
 adapts itself more or less to surrounding conditions. In 
 France this adaptation has been taking place, especially 
 in recent tunes, more rapidly than would have seemed 
 possible thirty years ago. 
 
 ,f 
 
 Evolution of Credit and Banks 
 
 However, there are still several gaps in the organiza- 
 tion of credit in France, and they are due precisely to 
 certain of these surrounding conditions. Initiative in 
 founding industries and boldness in planning new enter- 
 prises and new outlets for capital are not adequate to the 
 needs of the productive power of the country. So, our 
 special banks for advancing funds for silent partner- 
 ships in industrial enterprises (commandites) axe few in 
 number. There is, to be sure, one great concern, the 
 Banque de Paris et des Pays-Bas, which is working in this 
 field, conforming to the principle of the division of labor and 
 of risks, exploiting its own capital and, unlike the credit 
 companies, not accepting deposits, which latter could not 
 properly be employed by this company for the operations 
 in which it engages. It does business on a large scale only, 
 and is organized for that purpose. So, it seems to us, 
 that the very thing we lack in France are institutions of 
 this same kind, which, working on a smaller scale, could 
 perhaps give efficient aid to the transformation or creation 
 of middle-sized industries. 
 
 238 
 
 / 
 
 239 
 
 li 
 
i 
 
 APPENDIXES. 
 
 Appendix I. — Note on the Credit Fonder de France. 
 
 Two systems of organizing land credit.— Historical sketch.— The Banque Hypothft- 
 caire, 1818-1846.— Bad mortgage laws in France until 1852.— Founding of several 
 companies after this decree of February 28, 1852.— The Credit Foncier de Paris.— 
 The decree of December 10, 1852. It extends the privilege of the CrMit Foncier, 
 and authorizes fusion of this institution with the others.— Influences of the Crimean 
 war, 1854-55, bad harvests, and issues of other securities.— Administration.— Prin- 
 ciple and system of land loans.— Securities with prizes.— Regular automatic amor- 
 tizement by the periodic drawing of a certain number of obligations.— Simple mech- 
 anism of the Crfedit Foncier.— Should a land credit company be centralized?— The 
 CrMit Foncier is authorized to make loans to towns, etc.— Founding of the Cr6dit 
 Agricole by the Credit Foncier, 1861.— Bad operations of the Crfedit Agricole. It 
 was merged in the Crfedit Foncier in 1876.— Capital.— The Banque Hypothtealre 
 is merged with the Crfedit Foncier.— Lowering of the rate of interest. The CrMit 
 Foncier is obliged to submit to conversions^ It makes conversions on its own 
 account.— Loans to private individuals.— Town loans.— Statistics of mortgage 
 loans.— Issues of loans. Rate and amortizement. 
 
 I. 
 
 The organization of credit on real estate, the introduc- 
 tion of deeds on landed property into the general system 
 of paper currency, the prompt and easy negotiation of 
 these deeds, the suppression of obstacles, the Hghtening 
 of the burdens which encumber landed possessions, are 
 some of the questions which have most occupied the public 
 mind for sixty years back, and given rise to the most 
 various projects and schemes. 
 
 Two different systems came under consideration at 
 the start: Was it advisable to follow the German plan 
 of forming companies of borrowers, that is to say, syn- 
 dicates of landowners who issued certificates of liens 
 and left to those of their number who desired credit the 
 
 1971 — 10 
 
 ■16 
 
 241 
 
I 
 
 h •■ 
 
 National Monetary Commission 
 
 task of placing these securities and realizing on them? 
 Or, was it better to form companies of lenders who should 
 borrow on their own credit and lend to the private indi- 
 viduals who applied to them? The latter plan was pre- 
 ferred. Lastly, should there be a single company for the 
 whole of France? Or, rather, was decentralization useful, 
 and was it better to foimd a certain number of societies 
 in the jurisdiction of various courts of appeal? After 
 a short trial of the latter plan, the system of a single 
 society was adopted. 
 
 This development was rapid. The Bank of France was 
 fifty years in gaining its exclusive privilege for the whole 
 of France; the estabhshing of the land bank monopoly 
 was a matter of something less than two years. Central- 
 ization has always been the rule in France; it belongs to 
 the system of political organization which concentrates 
 everything in the Capitol. 
 
 Let us sum up briefly the evolution in France of the 
 Credit Foncier. 
 
 The first mortgage bank in France was founded in 1818 
 under the form of a commandite with the firm name of 
 Deleuze, Briot & Co. It became a joint-stock company 
 in 1820. It made loans for twenty years at 4 per cent 
 plus the amortizement. It turned over to the borrower 
 obligations which bore a fixed interest and were redeem- 
 able one-twentieth each year. It collapsed in 1848. Its 
 failure was the result, first, of bad operations; second, of 
 inadequate mortgage laws. The defects of these laws 
 were (a) the absence of outer forms for the purpose of 
 making the transfer of property rights with regard to a 
 
 242 
 
 I 
 
 % 
 
 / 
 
 Evolution of Credit and Banks 
 
 third person; (6) defective registration of encumbrances, 
 such as charges for water rights, right of way, life rent, 
 use, etc.; (c) defective information as to privileges and 
 legal mortgages. 
 
 To Volowski is due the credit of bringing about the 
 reform of this legislation. 
 
 An important decree, issued February 28, 1852, pro- 
 vided: 
 
 1. The option of discharging a debt by annual pay- 
 ments. 
 
 2. Each land credit association must have territorial 
 limits. 
 
 3. These associations have the right to issue obligations 
 or certificates of liens. 
 
 4. They can make loans only on first mortgages. 
 
 5. The loan must not exceed half. the value of the 
 property. 
 
 Expenses,— lAdiyivmum interest, 5 per cent; amortize- 
 ment, 2 per cent or i per cent of the total of the loan; 
 administration expenses, according to schedules estab- 
 lished by the statutes. 
 
 Summary procedure in favor of land credit concerns. 
 
 Courts can not grant extension of time for the payment 
 of annuities. Payments of annuities are not subject to 
 attachment. The land credit companies may foreclose 
 on the property by filing a petition with the presiding 
 judge of the civil court, within fifteen days, at the expense 
 of the debtor. During sequestration the land credit com- 
 panies may collect any profits produced. The extensions 
 of time for foreclosure are shortened. 
 
 243 
 
1'" 
 
 Pi 
 
 '^ 5 
 
 :^i 
 
 
 National Monetary Commission 
 
 Several land credit companies were founded after this 
 decree, but not without difficulty. They had as oppo- 
 nents the notaries who were then in the habit of making 
 all mortgage loans. 
 
 A great association was founded at that time in Paris, 
 with a capital of 25,000,000 francs; it got together by sub- 
 scription 10,000,000 francs. Its statutes were approved 
 by the act of August 3, 1852. It took the name of 
 Banque Fancier e de Paris, or Societe de Credit Foncier. 
 The principal bankers of Paris were its stockholders. 
 
 Other associations of the same kind were founded at 
 Marseilles and Nevers. Two others, at Lyons and Tou- 
 louse, were on the point of obtaining licenses when the 
 decree of December 10, 1852, was issued. This decree 
 extended the privilege of the Credit Foncier to all the de- 
 partments where institutions of this kind had not yet been 
 founded, and authorized it to take over the land credit 
 companies of Marseilles and Nevers. The Credit Foncier 
 de Paris then changed its name to the Credit Foncier de 
 France. In reality the obligations or certificates of Hens of 
 the land credit companies of Marseilles and Nevers had not 
 been placed to advantage. They were new securities of 
 a special kind, and the pubUc was not well informed about 
 them. The same thing was true, besides, of the Credit 
 Foncier de Paris. 
 
 This concern received from the State a subsidy of 
 10,000,000 francs. Its guaranty fimd was placed at 
 60,000,000 francs, half of which was to be subscribed at 
 once. It imdertook to make mortgage loans to the amoimt 
 of 200,000,000 francs, including interest, sinking fund, 
 
 -v^ 
 
 I 
 
 i* 
 
 f 
 
 Evolution of Credit and Banks 
 
 administration expenses, so as to wipe out the debt in 
 fifty years. 
 
 But rigid regulations were established, based on mis- 
 taken theories; the State, or at least the ministers, thought 
 that they and the Credit Foncier together were strong 
 enough to fix at will the interest on capital — ^a false notion, 
 as future events proved. An issue of a loan of 200,000,000 
 francs did not succeed entirely. Another decree was 
 passed (December 21, 1853) modifying the 5 per cent 
 rate by setting up a movable scale, based on the average 
 market price of government 3 per cents. 
 
 Operations were more successful after this. In April, 
 1854, the total of loans realized on amounted to about 
 50,000,000 francs. But the organization was not as yet 
 paying the Government, and in reality the period from 
 1852 to 1854 had not been at all favorable. Bad 
 harvests, the war, numerous issues of securities, among 
 others railroad obHgations, had increased the rate of 
 interest and made the placing of the Credit Foncier 
 obligations very difficult. The annuity was increased 
 successively from 5 francs to 5.44 francs, 5.65 francs, 
 5.95 francs, and 6.06 francs. 
 
 In order to remedy a situation which was due only to 
 chance circumstances, a system of monopoly with state 
 control was instituted, and on July 6, 1854, a decree 
 bestowed on the Credit Foncier de France an organiza- 
 tion similar to the one of the Bank of France. At the 
 head of this establishment were placed a governor and 
 two deputy governors, named by the Emperor. The 
 maximum rates imposed on the rates of the annuity by 
 
 244 
 
 245 
 
National Monetary Commission 
 
 Evolution of Credit and Banks 
 
 the preceding decrees were suppressed. The fact was at 
 last recognized that the rate of interest is not a thing to 
 be fixed by decree. This institution was placed in reality 
 under the department of the Minister of Finance, and 
 controlled by his representatives. 
 
 This regime has not been changed in its fundamental 
 points. 
 
 The governor is named by the President of the Re- 
 pubhc, Ukewise the two deputy governors. 
 
 The board of directors, composed of 20 members, is 
 named by the general assembly of the stockholders. 
 
 The censors, three in number, are also named by the 
 general assembly. 
 
 It is this combined authority — state inspection and 
 the supervision of the general assembly of stockholders — 
 that directs the operations of the Credit Foncier. 
 
 II. 
 
 The principle on which land loans are based is that 
 capital of this kind can be reimbursed but slowly. It is 
 necessary, therefore, to make loans for a long term, and 
 tie up capital for a certain time, and assure its partial 
 return each year by a regular sinking fimd. It is also 
 important to have new capital available when it is needed, 
 since the annuities collected each year must be devoted 
 in part to a special use. The Credit Foncier, in order to 
 procure this capital, issues obhgations on which it pays a 
 rather small interest, for the reason that these obhgations 
 are issued with prizes. The bearers of obhgations have the 
 chance of winning prizes. This attracts purchasers, and 
 the obligations are easily placed. The Credit Foncier uses 
 
 246 
 
 4 
 ♦^^ 
 
 as an amortizement for its borrowings the annuities that it 
 receives from its debtors. This amortizement is so planned 
 that there is a rotation between the amortizement, the pay- 
 ment of annuities, and fresh borrowings. Capital here 
 changes hands more slowly than in an ordinary bank, but 
 it circulates, one might say, automatically. There is, 
 then, according to the needs, a demand for capital, and in 
 proportion to the size of the sums borrowed by the Credit 
 Foncier, an amortizement of this capital. Finally, a thing 
 that we must bear in mind is that the obligation of the 
 land credit, which in reality represents a lien on "immov- 
 able" property, becomes "movable" property which 
 may be transferred and sold like all securities of this 
 kind. 
 
 The mechanism is ingenious and simple; it acts auto- 
 matically and regularly. But if the tool is fitted to the 
 work it has to do, it must be added that the difficulty of 
 the case in point is not to find capital and a scheme for 
 its amortizement, but to know how to lend this capital 
 wisely, and to debtors who will be able to keep their 
 engagements; then it is important not to loan on real 
 estate that is likely to depreciate to any great extent, 
 and to measure the loan by the property that secures it. 
 Here is the chief difficulty, and it is in this connection 
 that the question arises: Should a land credit company 
 be centralized, especially when it is in a country with 
 diverse and varying regions as to land, cultivation, indus- 
 try, and density of population? Is it possible by sending 
 agents from a distant central point to make sure of the 
 approximate value of real estate? The Credit Foncier de 
 
 247 
 
 / 
 
National Monetary Commission 
 
 Evolution of Credit and Banks 
 
 I 
 
 'm 
 
 .1 
 
 France seems to have succeeded in doing so, in the main 
 because the loans are principally on cify buildings and 
 town lots. But in countries of wide area where the 
 regions are imlike and where it needs an intimate knowl- 
 edge of the locality in order to make investments with 
 as little risk as possible, centralization is certainly not a 
 method to be recommended. 
 
 There is furthermore another field into which the Credit 
 Foncier de France branches out. It has, in fact, been au- 
 thorized (by the decrees of July 6, i860, and February 
 28, 1862) to make loans to communes, departments, 
 syndical associations, etc., with or without landed security. 
 In the matter of commimal loans, especially, the company 
 is almost sure to be paid regularly and its pledge consists 
 of the additional communal tax, the extra centimes 
 voted by the town coimcil to secure the loan. Properly 
 speaking, then, this is not a question of land credit. 
 These loans are made on special issues of communal obli- 
 gations, whereas the issues for ordinary mortgage loans 
 consist of land obligations. 
 
 Other decrees enlarged the scope of its activity. The 
 act of January 11, i860, had already extended its privi- 
 leges to Algeria, and the same year the law of May 19 
 had substituted it for the Comptoir d'Escompte in the 
 operations of this establishment with the Sous-comptoir 
 des Entrepreneurs, an institution which made loans on 
 building lots or on houses in process of construction. 
 
 Then the Credit Foncier created a joint-stock company 
 which was legally independent, but was in fact affihated 
 with the parent concern, and dependent upon it, since 
 
 248 
 
 ¥' 
 
 it was tmder the same management. This association was 
 called the Credit Agricole. It was chartered by the decree 
 of February 16, 1861, and began operations April i of the 
 same year. 
 
 The aims of this society were as follows: To procure 
 capital or credit for agriculture and the industries con- 
 nected with it, by making or facilitating by its guaranty 
 the discount or negotiation of effects payable at the latest 
 in ninety days; to open credits or loans for a longer period, 
 but without exceeding three years, on pledge (nantisse- 
 ment) or any other special security; to receive deposits 
 with or without interest, not exceeding twice the capital 
 in cash or represented by securities placed in the com- 
 pany's safe; to open running accounts, make collections, 
 to carry on, with government sanction, all other oper- 
 ations which aim at helping the clearing and improving 
 of the soil, etc., and the development of agriculture. 
 
 But the Credit Agricole, whose object was supposedly to 
 help French agriculture, thought proper to loan a large 
 sum — 1 68 ,000,000 francs — to the Khedive of Egypt. This 
 unfortimate speculation was on the point of bankrupting 
 the company in 1876 when the Credit Foncier absorbed 
 the concern and straightened out its business as best it 
 could, not, however, without losses to the amotmt of 
 something like 9,000,000 francs. 
 
 As a result of uniting with the establishments we have 
 mentioned, the Credit Foncier had increased its capital 
 successively to 60,000,000 francs, and at the end of 1869 to 
 90,000,000 francs. But this was only a nominal figure, 
 since the 500-franc shares had been sold for only 250 francs. 
 
 249 
 
f 
 
 I'. 'I 
 
 N ational Monetary Commission 
 
 When it took over the Banque Hypothecaire — a joint-stock 
 company founded in 1879, but without the privileges of 
 the larger concern — its capital was increased to 1 55,000,000 
 francs. It is today 200,000,000 francs. 
 
 III. 
 
 The Credit Foncier had from the beginning seen its 
 rate of interest on loans regulated by the public authori- 
 ties. The stupidity of this measure was soon perceived. 
 It became free to follow the law of supply and demand 
 for capital in this direction, that is to say, for capital 
 to be used in land investments. It made loans, then, 
 at 5 per cent and over. But the lowering of the interest 
 rate on capital in general was especially evident after 
 the war of 1870-71. The Credit Foncier was not long 
 in feeHng the effects of this. Its debtors had, according 
 to contract, the right to anticipate the payments of their 
 loans, and they took advantage of this right on a large 
 scale beginning with 1875. 'The city of Paris was its 
 debtor for the sum of 283,000,000 francs, redeemable in 
 28 annuities. Seeing the state of the money market, the 
 city could lessen its expense and find money at a cheaper 
 rate. It had, therefore, the easy alternative of reim- 
 bursmg the Credit Foncier. This establishment did not 
 allow other debtors to operate conversions in this way, 
 but proceeded to make them on its own account. 
 
 A loan of 500,000,000 francs in commimal obligations was 
 issued by the Credit Foncier on August 5, 1879. Shortly 
 after, in September, 1879, another loan of 900,000,000 
 francs in land obligations was subscribed for with equal 
 success. The Credit Foncier, which had been loaning its 
 
 250 
 
 / 
 
 
 ^. 
 
 Evolution of Credit and Banks 
 
 fimds to the city of Paris at 5.15 per cent before this 
 conversion, now charged slightly less than 4 per cent or 
 fully I per cent less. 
 
 The rate of interest was also lowered for ordinary mort- 
 gage loans made to private individuals. Besides, the two 
 kinds of operations of the Credit Foncier have special 
 funds that have been borrowed for the loans of each of 
 these branches separately; money borrowed on municipal 
 obligations is appHed to making loans to towns, syndi- 
 cates, etc., and money raised on land securities is used for 
 land loans to private individuals. 
 
 The lowering of the rate of interest increased the opera- 
 tions of this estabHshment. Beginning with 1882 it loaned 
 to private individuals and towns 394,000,000 francs. In 
 1883 the total was nearly 300,000,000. 
 
 It makes loans of two descriptions : 
 
 1. Mortgage loans for long periods with amortizement; 
 the period may be from ten to seventy-five years, according 
 to the plan chosen. The borrower may clear himself by 
 advance payments. The interest on these loans is 4.30 
 per cent at the present moment, without commission. 
 
 2. Loans on mortgages for a short date without amor- 
 tizement ; these are for periods of from one to nine years. 
 The interest is 4.30 per cent, without commission; the 
 borrower can not make advance payments. 
 
 The Credit Foncier loans to the amount of half the 
 value of the property, if it is a question of houses or arable 
 lands, etc., and up to a third of the value if the loan is 
 on woods and vineyards. This is easily explained. The 
 woods may be cut down or destroyed by fire, the vines 
 
 351 
 
 ^_^ 
 
N ational Monetary Commission 
 
 ravaged by phyloxera, mildew, etc. As for buildings of 
 factories or mills, they are appraised only for their value 
 taken apart from their industrial use. 
 
 The Credit Foncier loans to communes, departments, 
 and pubHc estabhshments with or without amortizement. 
 The rate of interest is 3.85 per cent for towns and depart- 
 ments, and 4.10 per cent for pubHc estabhshments. 
 
 Here are the statistics for loans on mortgages since 
 the founding of the Credit Foncier, taken in ten-year 
 periods except for the last, which comprises the years 
 1905 to 1907, or three years. 
 
 Period. 
 
 1843-1854 
 1855-1874 
 1875-1884 
 1885-1894 
 1895-1904 
 1905-1907 
 
 Number 
 of loans. 
 
 8,861 
 
 ".571 
 33.26a 
 
 36.914 
 44.019 
 13,898 
 
 Total of loans. 
 
 Francs. 
 
 546,300,000 
 
 648,900, 000 
 
 I. 555.000,000 
 
 I. 194.800,000 
 
 I, 244, 700,000 
 
 388, 300.000 
 
 The total of these loans from the time of the founding 
 of the Credit Foncier amounts to 5,577,000,000 francs, 
 out of which 2,073,000,000 francs are still due. 
 
 The following are the statistics of the commimal loans 
 authorized by the law of July 6, i860. 
 
 Period. 
 
 1860-1870 
 1871-1880 
 1881-1890 
 1891-1900 
 1901-1907 
 
 Number 
 of loans. 
 
 1, 366 
 
 998 
 
 14.313 
 
 9.951 
 
 9.832 
 
 Total of loans. 
 
 Francs. 
 693,000,000 
 
 505, 000, 000 
 
 770,000.000 
 
 1, 040, 000, 000 
 
 678, 700.000 
 
 252 
 
 -•'■?„ f 
 
 / 
 
 If 
 
 Evolution of Credit and Banks 
 
 The total of communal loans since the decree of i860 
 is 3,687,000,000 francs. The CrMit Foncier has col- 
 lected 1,895,000,000 francs, and there are still due it 
 1,792,000,000 francs. 
 
 The Credit Foncier has borrowed money, and still 
 borrows, according to its needs, by means of issues of 
 obhgations with prizes. These are land obligations if 
 they are issued for mortgage loans, and communal obliga- 
 tions if they are issued for town or department loans. 
 
 These issues of the Credit Foncier for land loans (land 
 obligations) have a rather slow amortizement. 
 
 Thus the loan of 1879 (3 P^'' cent land obhgations) is 
 payable at the latest in sixty years; issue of loan of 1883 
 (land obhgations), 3 per cent, in ninety-eight years; of 
 1885 (land obligations), 2.6 per cent, in ninety-five years; 
 of 1895 (land obhgations), 2.8 per cent, in seventy-five 
 years; of 1903 (land obhgations), 3 per cent, in seventy- 
 five years; of 1909 (land obligations) , 3 per cent, in seventy 
 years. 
 
 For the last ten years or so it is seen that the time of 
 reimbursement tends to decrease. As for the rate, it is 
 seen that after issues made below 3 per cent from 1885 to 
 1895, the last two loans (land obligations) have been at 3 
 per cent. 
 
 For communal loans the rates and duration of amortize- 
 ments are as follows: Loan of 1879 (municipal obhga- 
 tions), 2.6 per cent, payable in sixty years; of 1880 (mu- 
 nicipal obhgations), 3 per cent, payable in sixty years; of 
 1 89 1 (mimicipal obligations) , 3 per cent, payable in seventy- 
 five years; of 1892 (municipal obligations), 2.6 per cent, 
 
 253 
 
National Monetary Commission 
 
 payable in seventy-five years; of 1899 (municipal obliga- 
 tions), 2.6 per cent, payable in seventy-five years; of 1906 
 (municipal obligations) , 3 per cent, payable in ninety years. 
 
 The obligations of the Credit Foncier are very popular 
 with the pubUc. 
 
 The establishment is wisely administered and answers 
 certain well-defined needs in the country. It has greatly 
 helped, both by its land loans and its communal loans, in 
 the improvement of towns, because of the aid it gives 
 private individuals in their building operations, as well 
 as by making it possible for towns to undertake public 
 works and improve surroimding conditions. 
 
 Here are, in addition, the dividends distributed in the 
 last few fiscal years: 
 
 Francs. 
 
 1903 - - 27 
 
 1904 - _ 27 
 
 1905 28 
 
 1906 28 
 
 1907 30 
 
 Let us add that the Credit Foncier uses its free funds in 
 discounting commercial paper and making collateral loans. 
 On December 31, 1907, the various bills and securities 
 figured in its balance sheet for 182,000,000 francs, and its 
 collateral loans for more than 37,000,000 francs. 
 
 Its debtors owed the Company on December 31, 1907 — Francs. 
 
 Mortgage loans 2, 103, 800, 000 
 
 Communal loans _ i, 788, 500, 000 
 
 3, 892, 300, 000 
 
 It had in circulation at this date — 
 
 Land obligations 2, 021, 000, 000 
 
 Communal obligations 1,612, 900, 000 
 
 3. 633, 900, 000 
 
 254 
 
 ^ 
 
 / 
 
 Appendix II.— Note on the Cridit Agricole Mutuel. 
 
 Societies of the Rayneri-Rostand type.— Durand banks.— Law of November 5, 
 1894. Creation of local banks of agricultural credit.— Causes of their lack of suc- 
 cess.— Law of March 31, 1899. Founding of district banks.— Condition of the local 
 and district banks.— Liability of the members.— Rates on loans. 
 
 On the outskirts, so to speak, of the general organiza- 
 tion of banks and credit in France, a more speciahzed 
 and less ambitious business than that we have studied in 
 this treatise is carried on in the so-called Credit Agri- 
 cole Mutuel banks. We must not confound them with the 
 Socidt^ du Credit Agricole, related to the Credit Foncier, 
 the workings and the ill luck of which have been set 
 forth in Appendix I. The object of the one and the 
 others is indeed to make loans to agriculttire ; but while 
 the Credit Agricole (related to the Credit Foncier) made 
 loans at very long terms of payment, to be used on land 
 improvements the outcome of which was more or less 
 in the distant future, the banks of the Credit Agricole 
 Mutuel grant much smaller loans, with much shorter 
 terms of maturity, and in order to meet immediate ex- 
 penses. The transformation of capital arising from this 
 last form of loans must in principle be much quicker, and 
 the repayment, for the same reason, Hkewise quicker. 
 
 The characteristic of the Credit Agricole Mutuel is to 
 give a mutual basis to credit; to offer as security to the 
 lender the joint responsibility of a company of people. 
 Its existence and development are. closely bound up with 
 
 255 
 
V" 
 
 National Monetary Commission 
 
 the laws sanctioning groups of individuals and with the 
 progress of the spirit of association and soHdarity. This 
 explains the rather late appearance in France of a form 
 of credit institution which had already been working in 
 Germany since the middle of the nineteenth century — 
 we mean the Raiffaisen and Schulze DeHtzsch banks. 
 
 It is only after the law of March 21, 1884, organizing 
 professional syndicates, was put into effect that we see 
 the beginnings of the organization of the Credit Mutuel. 
 After various gropings about and a few setbacks — with- 
 out serious material detriment, since it was all experi- 
 mental — we see a whole series of banks taking shape, 
 which we can class vmder three chief types: (i) The 
 Socidt^ Cooperative de Credit Mutuel de V Arrondissement 
 dePoligny (Jura); (2) the societies of the Rayneri-Rostand 
 type; (3) the Durand banks. 
 
 Soci^t^ Cooperative de Credit Mutuel de I'Arron- 
 dissement de Pohgny was founded in 1885 with a capital 
 of 20,000 francs divided into 500-franc shares. It was 
 regulated by the law of July 24, 1867, on societies with 
 variable capital. It lent only to its members; the maxi- 
 mum of credit for each member was limited to 600 francs; 
 the loan was made for three months with privilege of 
 renewal up to a year; the borrower had to furnish surety. 
 He signed a note to the order of the society; the siwety 
 gave his indorsement on this note; the society added its 
 signatiure and, bearing these three signatures, the note 
 was presented for discount at the branch office of the 
 Bank of France at Lons-le-Saulnier. The interest rate 
 on the loan was higher by i per cent than the discount 
 
 256 
 
 ^ 
 
 I 
 
 Evolution of Credit and Banks 
 
 rate of the Bank. The Poligny Bank was imitated by 
 five or six other banks started about the same time. Its 
 statutes are models of prudence. 
 
 Societies of the Rayneri-Rostand type are rather more 
 numerous; there are about 60 of them. They meet a 
 demand for a more complete and widespread organiza- 
 tion than do societies like the Poligny cooperative banks. 
 They are under the influenc of the " Federative Center of 
 Popular Credit " {Centre Fediratif du Credit Populaire), an 
 organ of propaganda, having headquarters at Marseilles 
 and fotmded on the initiative of MM. Rayneri and Rostand. 
 This federative center continues the work begun by the 
 "Society for the promoting of popular credit," started by 
 Father Ludovic de Besse. Hence its origins, if not its 
 tendencies, are ecclesiastical. It must be said that the 
 banks of Rayneri and Rostand try — even if they do not 
 always succeed — ^to observe absolute neutrality in regard 
 to religion as well as politics. 
 
 The "Centre F^d^ratif" plays the part of adviser to 
 the banks. These latter are perfectly free in their choice 
 of method in realizing credit, and they follow their own 
 interest, which is to adapt themselves to the special con- 
 ditions of the environment in which they operate. They 
 are encouraged by the State, and they organize and 
 govern themselves as they please. Most of them act 
 in concert with the agricultural syndicates. The Centre 
 F^d^ratif has tried to get the savings banks to use for 
 the advantage of local and regional federated banks the 
 privilege given them by the law of July 20, 1895, of loan- 
 ing part of their money to credit companies. 
 
 I97I — JD- 
 
 ■17 
 
 257 
 
National Monetary Commission 
 
 Finally, the Diirand banks have a very clearly defined 
 ecclesiastical character; most of them are administered 
 by the Catholic clergy. Their foimder, M. Durand, a 
 lawyer of Lyons, adopted in their entirety the principles 
 of the Raffaisen banks of Germany, which are also purely 
 ecclesiastical. They are based on the united and unlim- 
 ited responsibility of all their members; they have no 
 capital stock and borrow only the fimds strictly necessary 
 for loans and in proportion as loans are made. They 
 lend to the members alone and for a maximum term of 
 five years. Their resources come either from savings 
 deposits to a small extent or from donations or legacies 
 inspired by a feeling of beneficence and philanthropy. 
 
 There are about a thousand Dtu-and banks. The 
 average amount they loan is 370 francs, which shows 
 that their clientele is especially made up of small farmers. 
 
 On this organization of popular credit, due to private 
 initiative, has been grafted an official organization, fol- 
 lowing the law of November 5, 1894. The aim of the 
 lawmaker was to coordinate all these efforts, to extend 
 them by combining them with the effort of syndicate 
 organization, and to develop these two institutions, one 
 through the other, by making them strictly and jointly 
 liable. 
 
 So, then, the law of November 5, 1894, sanctions the 
 union of credit banks and agricultural syndicates. A 
 priori this. union' might be fruitful; each member of a 
 syndicate being in principle a cooperator, it is easier to 
 make him go in for mutual credit. On the other hand, 
 one of the chief functions of agricultural syndicates is to 
 
 258 
 
 Evolution of Credit and Bank 
 
 X-9 
 
 i 
 
 / 
 
 \ 
 
 furnish their members with fertilizers, seeds, machines, 
 utensils, etc., sometimes even with the live stock needed 
 for farming. Consequently the loan from the Credit 
 Agricole will most often be used in paying for these pur- 
 chases. So there will be the certainty that the funds 
 loaned will be well employed to productive ends, which 
 increases the guaranty of repayment. Finally, the fact 
 that the borrower belongs to an agricultural syndicate is 
 a guaranty that it is really a farmer who is being bene- 
 fited by the credit accommodation that people have 
 tried to provide. 
 
 The law of 1894 minimizes the formalities and expenses 
 necessitated by the creation of a bank of agricultural 
 credit. It can be started with or without capital. In the 
 latter case, it must stipulate the imlimited liability of its 
 members, whether it operate under a firm name or as a 
 joint-stock company. If there is a capital, all of it must 
 be subscribed and at least a quarter of it paid in. With 
 certain reservations, the societies have perfect freedom 
 in drawing up their statutes; they may lend only to 
 agricultural enterprises— they do not distribute any 
 dividends; the personal shares receive a fixed interest. 
 However, at the end of the year they may pay back to 
 their clients a quarter, at most, of the profits, prorated 
 according to the business their clients have done with 
 the company. The other three-quarters are paid into a 
 reserve fund. 
 
 Except for these restrictions the framers of the stat- 
 utes are perfectly free in organizing, administering, and 
 determining the conditions of dissolving the company, 
 
 259 
 
National Monetary Commission 
 
 of widening its field of action, or limiting the responsi- 
 bility of its partners. 
 
 Such as it is, the law of November 5, 1894, lends itself to 
 the introduction into France of the various kinds of agri- 
 cultural credit societies. Its terms are very broad. As 
 we said in the beginning, it brought no innovations; it 
 aimed merely to give an official and regular cast to the 
 movement already started by private initiative, which had 
 overstepped a little the bounds set by the lawmaker of 
 1884 to the activity of professional syndicates. In spite 
 of this patronage the success was not remarkable. Five 
 years after, in 1899, the companies founded imder the 
 provisions of the law of 1894 numbered only 83, according 
 to statistics; a hundred of the same kind had been cre- 
 ated but had not registered their statutes. Alongside 
 of these, a thousand banks of the Durand type, or the 
 Rayneri type, and a few autonomous societies were con- 
 tinuing to do business with their old constitutions. 
 
 Why were these agricultural credit banks so slow to 
 develop? Because their private capital and their de- 
 posits were insufiicient. It is not enough to wish to ex- 
 tend credit; means to do so must be provided at the same 
 time. Without doubt the joint guaranty of the mem- 
 bers and all the other kinds of guaranties which we have 
 enumerated above were of such a nature as to facilitate 
 the borrowings of local banks. But borrowing from 
 whom? There are involved here loans of long and very 
 imcertain maturities, according to the district. The risk 
 is greater and of a different kind from that on the dis- 
 coimt of ordinary commercial paper. The commercial 
 
 260 
 
 ^O!^ 
 
 
 I 
 
 Evolution of Credit and Banks 
 
 bill represents a value already created, and you only 
 have to wait to realize on it; the note of the credit bank 
 represents a value still to be created; that is to say, a 
 value subject to all the uncertainties of production and 
 sale — uncertainties especially numerous where it is a 
 question of agricultural products. So means had to 
 be found to facihtate the discount of the paper of local 
 banks if the movement was to progress at all; a second 
 story had to be added to the building, hence the law 
 of March 31, 1899. 
 
 We have said in our general study that the State had 
 demanded from the Bank of France, as the price for re- 
 newing its privilege in 1897, a gratuitous loan of 40,000,000 
 francs and an annual royalty equal to the proceeds of one- 
 eighth of the discount rate multipUed by the figure of the 
 productive circulation, the payment not to amoimt to less 
 than 2,000,000 francs. These two sources of income are 
 going to be used for establishing discount funds for the 
 credit banks. 
 
 To this end the law provided for the establishment of 
 district banks patterned on local banks, but with functions 
 more clearly defined. The district bank, Uke the bank 
 of the first degree, rests on the principle of mutuality; 
 money-making is not its aim nor dividing of profits, 
 except among its cHents in proportion to their dealings 
 with it. It receives gratuitous and temporary loans from 
 the State, the conferring of which is made every year by 
 a distributing committee composed of senators, deputies, 
 bank representatives, the governor of the Bank of France, 
 etc. These loans must not, as a matter of principle, 
 
 s6i 
 
 1 
 
National Monetary Commission 
 
 exceed a fourth of the capital paid in by the stockholders 
 of the district bank; they are made for a term of five 
 years, with the possibility of renewal. The district bank 
 is authorized to receive deposits in the form of running 
 accounts, and to issue notes, the total of which may not 
 exceed three-fourths of the sum total of its discounts. 
 This limitation is very open to criticism; the total of the 
 discounts being essentially variable, it is very difl&cult to 
 keep to this clause ; the most one can do is to accept it as 
 prudent advice to bear in mind. 
 
 Finally another resource not mentioned in the law, 
 which nevertheless is one of the principal elements of the 
 work carried on by the district banks, is the rediscount 
 of bills indorsed by the local banks. Besides discounting 
 these bills, they can make direct loans to the local banks 
 for the formation of their working capital. These are the 
 only two operations allowed them. The district banks do 
 not lend directly to the farmers; they have relations only 
 with their afl&liated local banks. Borrowers go to the 
 local banks. 
 
 A special department, "department of mutual agri- 
 culttiral credit and cooperation," established by the 
 Government Board of Agriculture imdertakes to watch 
 over the workings of this organization of credit of the 
 second degree. It makes a report every year to the 
 President of the RepubUc on the condition of the district 
 and local banks. We give below a few items taken from 
 the last report: 
 
 Sdf 
 
 Xs 
 
 f 
 
 Evolution of Credit and Banks 
 
 
 1 
 
 I 
 
 I 
 
 I 
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 •8 
 
 J! 
 
 
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 lOOO t» 00H^>OO*'-'00 
 
 t«C« 00 00000\r<\ON\0 
 
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 M 
 
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 t^ M lO N PI t^ to 
 
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 00 M100t«t*MO» 
 
 oooitooowt^^oo 
 
 M 
 
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 ro >o M vO O 00 \rt 
 
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 t— o NO \n \n o^ in 
 
 00 OnO *■* fOO\'*500 
 
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 The number of district banks increased from 21 in 1901 
 to 88 in 1907; their paid-in capital from 2,927,000 francs 
 to 9,015,000 francs; the state loans reached 28,628,000 
 francs in 1907; loans to local banks, 1,827,000 francs; dis- 
 coimting operations, including renewals, 79,888,000 francs; 
 their reserves, 1,481,000 francs; general expenses, 194,000 
 francs, or 0.28 per cent of the sum total of transactions. 
 In 1907 they received 6,825,000 francs in deposits with 
 an average balance of 600,000 to 800,000 francs. 
 
 But the progress made by the local banks is more inter- 
 esting because they distribute credit. Their number in- 
 creased from 309 in 1901 to 2,168 in 1907; their members 
 from 7,998 to 96,122; the paid-in capital was 5,654,000 
 francs in 1907; the loans accepted in the same year 
 70,708,000 francs, of which 10,000,000 francs went to 
 cooperative production companies, especially dairies, and 
 to agricultural syndicates; the reserve reached 739,000 
 francs, and the current loans on December 31, 1907, were 
 30,452,000 francs. 
 
 The law of 1894 rightly allowed the foimders every 
 liberty in regard to the liability of the members; in three- 
 fourths of the banks this hability is Hmited either to the 
 shares subscribed, or to a multiple, or to the value of the 
 harvest of each member, or to his capacity for credit; each 
 district has adopted the system best suited to it. In the 
 south especially most of the banks have adopted the prin- 
 ciple of unlimited liability of all the co-members of the same 
 local bank ; this obtains particularly for almost all the local 
 banks affiliated with the district bank of the south, which 
 has its headquarters at Montpellier. Efforts are being 
 
 264 
 
 -4^ 
 
 \ 
 
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 1 
 
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 ii" 
 
 Evolution of Credit and Banks 
 
 made to generalize this principle which procures a wide 
 credit for the companies which adopt it. 
 
 The tendency at the beginning, in local as well as dis- 
 trict banks, was to allow loans at an interest rate lower 
 than the ordinary market rate. It was a serious economic 
 mistake which resulted in placing these banks and their 
 borrowers in an abnormal and hence a dangerous situa- 
 tion. It ought to have been foreseen that when the gratui- 
 tous loans of the State could no longer be continued, the 
 whole system would have to be changed at the risk of 
 compromising the prosperity of these institutions. In the 
 mind of the lawmaker, the object of the credit banks was 
 especially to act as intermediary between the farmer and 
 the Bank of France, to educate him in commercial practices, 
 and to teach him to use credit. Now, in lowering the 
 interest on money below the market rate, the borrower was 
 deceived as to his real position and as to the terms which 
 he has a right to obtain ; it was made impossible to extend 
 operations and render more kinds of service, since the banks 
 could not discount their paper at the Bank of France with- 
 out loss. 
 
 This situation was pointed out in the report to the Presi- 
 dent of the Republic for the year 1903. Here is the pas- 
 sage from this report in which the credit banks are advised 
 to correct their methods: 
 
 "The Banks must face the possibility of the total or 
 partial cutting off of the State loans, and anticipating 
 this event, they must establish large reserve funds so if the 
 case demanded they could increase their resources and 
 consequently their credit and their power of discount with 
 
 265 
 
V 
 
 Iw 
 
 National Monetary Commission 
 
 the Bank of France and other large institutions. An ex- 
 ample will illustrate more clearly the situation of banks 
 which discount below the normal rate. One of the banks 
 which does the largest business, making very large loans, 
 has been able to place in reserve after running three years 
 only 30,000 francs or so, because it discounts at 2 per cent 
 paper which it could not pass over to the Bank of France 
 without losing i per cent. Other banks in similar cir- 
 cumstances lose from 1 yi to 2 per cent when they are 
 forced to procure fimds by having opened for themselves 
 a collateral loan account. Consequently, the more business 
 they do beyond a certain figure, the more their profits 
 diminish. It is the opposite of what happens in every well- 
 regulated business, where the relative rate of general 
 expenses diminishes in proportion as business increases." 
 
 A few banks have paid attention to these observations 
 and changed their method of business in the way pointed 
 out to them by the inspectors of the Ministry of Agricul- 
 ture. Many have continued to give rates on loans lower 
 than the normal interest rate. 
 
 To sum up, the Credit Agricole was organized with a 
 real privilege. The Bank of France furnishes capital to 
 the State gratuitously, which loans it in the same way 
 without interest to district organizations of rural credit. 
 These latter can at their own pleasure lower the interest 
 rate and compete with the bankers who would like to en- 
 gage in these operations. It is an indirect means of protec- 
 tion. Has it brought about the expected results? That 
 is, does this credit, deliberately made cheap by capital 
 which does not pay any interest, really profit the small 
 
 266 
 
 ) 
 
 \Hmmm 
 
 \ 
 
 ^ 
 
 / 
 
 Evolution of Credit and Banks 
 
 farmers whom it was meant to help? In some localities 
 this end has been attained, at least in part, as in the de- 
 partments of the south where property is divided because 
 of viticulture. Besides, the crisis which has been severe for 
 several years past in these regions, has led the vine grow- 
 ers to deal with agricultural credit banks. But very often, 
 too, the cheapness of agricultural credit has helped the 
 larger farmers, those who, better equipped, better in- 
 formed on questions of credit, have really no need for this 
 protection. They benefit by a reduction in rate of inter- 
 est for which the Bank of France in the last analysis bears 
 all the burden, since this reduction is only made possible 
 by the gratuitous loan of 40,000,000 francs which the 
 State exacted from the Bank of France when it renewed 
 its privilege in 1897. 
 
 367 
 
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END OF 
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