At the Origins of Public Credit: A Story of Stock-Jobbing and Financial Crisis in Prerevolutionary France

Abstract

This paper concerns a stock jobbing scandal involving the French Company of the Indies on the eve of the French Revolution. Speculative trading in the company’s shares on the Paris stock market triggered a credit crisis that brought down the king’s chief minister, Calonne, and ushered in the immediate chain of events that led to the collapse of the Old Regime and the beginning of the French Revolution. The episode witnessed the emergence of the modern French notion of “public credit” as a method of protecting the royal finances from the putatively corrupting influences of speculative capitalists. Two dynamics informed this broader development. First, the enterprise of speculative finance was linked to the worst excesses of Old Regime privileges generally. Second, the crisis of 1785-1787 served to displace the traditional notion of “royal credit” as the asset that required protection from the dangers of financial capitalism, making way for a more abstract, less personalized idea of public credit as an instrument and reflection of the financial power of the nation as a whole. That notion of public credit was, in principle, compatible with a monarchical form of government, but did not require a king to make it work.

Keywords: financial crisis, short selling, credit crisis, public credit, public debt, French Revolution, Company of the Indies, speculation, capitalism

JEL Classification: B10, B12, B15