SO swift was the flow of wealth out of England to those American colonies where the labour of negro slaves was enabling huge profits to be obtained in short periods of time, that King George III determined to bring some of the wealth back again by means of taxation . The Stamp Act was passed .
The effect was terrific . No more deadly threat to the system of international finance could have been imagined . Pitt uttered protests no less vigorous than those which came immediately from the other side of the Atlantic . The King’s right to impose taxation of any kind on colonists was sharply called in question, and in the following year, 1766, the Stamp Act was repealed .
But George III was obdurate . In 1767 he secured the passage of an Act to tax American Imports, and again found himself assailed by the City of London as well as by the colonists . The opposition became violent; in 1770 this Act also was repealed, only the tax on tea remaining . But the bankers were in no mood for compromise . They continued to agitate with all their might . The King, unshaken in his resolution, reaffirmed his right to impose taxation on the colonists . In 1770 the people of Boston rebelled ; in 1775 the American War of Independence was made inevitable by the colonists’ formal denial of the King’s right .
That year, in France, witnessed the death of Louis XV and the ascent of the throne by his grandson, Louis XVI, a young man imbued, like George III, with high ideals, and like him determined, if possible, to rescue the people by restoring the Royal authority . Louis XVI chose as his foreign minister Vergennes, a man firmly of opinion that France’s troubles sprang out of the triumph of England . Vergennes’ sole idea was to resist English influence throughout the world . He saw a golden opportunity in the troubles in America .
The bankers, especially Necker, were rejoiced at this turn of events; for the behaviour of the King of England filled them with consternation . If investment in the British Overseas Empire was to be subject to tax, where were they? Necker, acting in secret, made it possible for King Louis and Vergennes to send help to the American colonists; at the same time he paid a visit to his London office, taking his wife and daughter with him . As the agitation against the war in America and in favour of the Colonists was still going on in London, he had no need to hide his views . He found his English colleagues hopeful that King George III would receive a severe lesson, but not anxious that war should break out between France and England . These were his own views . It was essential, as he thought, that the King of England should be taught his place in relation to finance; but not at the expense of an upheaval such as a great European war, with its attendant outbreaks of patriotic fervour, must occasion, since such a war would inevitably, for a time at any rate, heal the breach between the King of France and his people and so restore to the King his sovereign power . Necker returned from London in an anxious frame of mind . His anxieties were not lessened by when he heard about the activities of another of King Louis’ ministers, the Comptroller General Turgot .
Anne Robert Jacques Turgot was fifty . His grandfather had served Louis XIV with distinction; his father, as Prévôt des Marchands, had instituted an excellent system of sanitation for the City of Paris . Service was in young Turgot’s blood; he showed his capacity for service when, in 1761, he was appointed by Louis XV Intendant of Limoges . This was a poor and backward district; he set himself the task of being the friend of the people placed under his care .
"Everything," he declared, "in these God-forsaken provinces reflected the image of ignorance and of barbarism in the middle of the Eighteenth Century ."
He wrote immediately to his subordinates :
"Do not neglect to instruct yourself on the state of agriculture in each parish, the quantity of lands in waste, the reclamation of which these are susceptible, the principal production of the soil, the object to which the industry of the inhabitants is applied . . . . ."
The information which Turgot gathered showed him how harshly the taxes pressed on the poor and how wrong it was that the 130,000 clergy and 140,000 nobles in France, who, between them, owned the larger part of the land, were privilegedthat is to say, exempt from taxation . He wrote letter after letter to Versailles urging that the burden of taxation in his province should be reduced by at least 700,000 livres (£28,000) . But the King was without resources and did not dare to offend the nobles and their creditors the bankers .
A famine occurred in Limoges . Turgot took active measures to feed his people and quickly find that the lords of the grain trade, over which Necker presided, had discovered ground of offense . On May 14, 1770, he wrote to Versailles:
"In times of scarcity it is humane and even just to bring the law to the help of the over-burdened farmer . The landlord, whom the scarcity enriches, cannot, without showing most odious greed, attempt to draw, from the cruel circumstances when his tenant is now placed, a profit still more exorbitant than before ."
Turgot held the view that agriculture was the bedrock of national prosperity, and declared :
"Finances are necessary; for a State must have revenue; but agriculture and commerce are, or rather agriculture animated by commerce is, the ultimate source of these revenues . If State finance is injurious to commerce it is injurious to itself . These two interests are essentially united . . . Government ought to remove those obstacles which retard the progress of industry . . . (for example) the high rate of interest charged on money . This (high rate of interest) offers to all possessors of capital the mean of living without working, encourages luxury and idleness, and withdraws from commerce (and so renders unproductive for the State) the wealth and work of a large number of citizens .
"High rates of interest, further, prevent the nation from engaging is branches of commerce which do not yield one or two per cent . more than these rates . . . and condemn to be left uncultivated all the lands of the kingdom that cannot yield more than five per cent., since, with the capital needed to develop these lands, one could, without working, procure the same return ."
Turgot, in short, as an opponent of the doctrine that money must find its level, was an enemy of international finance . He saw, clearly enough, that if money was poured out in America and India, it would become ruinously dear in France, and that the con-sequences must be a starvation of French agriculture and industry, unemployment, poverty, and a home market incapable by reason of its lack of purchasing power of absorbing home production . He saw further that the goods which could not be sold at home would have to be sold in foreign markets if producers were to live . Thus he became an active opponent of the bankers’ doctrine of the supreme importance and value of the export trade as opposed to the home trade .
The fact that Louis XVI, on coming to the throne, had chosen this man as his financial adviser excited, as has been said, a lively anxiety in the minds of financiers all the world over . They would have been more anxious still had they been able to read Turgot’s first memorandum to his King :
"So long," he wrote, "as finance shall be continually subject to the old expedients in order to provide for State services, your Majesty will always be dependent upon financiers, and they will ever be the masters, and by the manoeuvres belonging to their trade, they will frustrate the most important operations . Thus the Government can never feel itself at ease, it can never be acknowledged as able to sustain itself, because the discontents and impatience of the people are always the means made use of by intriguing and ill-disposed men in order to excite disturbance ."
Turgot’s policy consisted of No bankruptcy ; no increase of taxes; no loans . In the impoverished condition of France he urged the King to practice a rigid economy . He added :
"I feel all the danger to which I expose myself . I foresee that I shall be alone in fighting against abuses of every kind, against the power of those who profit by these abuses, against the crowd of prejudiced people who oppose themselves to all reform and who are such powerful instruments in the hands of interested parties for propagating the disorder . . . . . And this people for whom I shall sacrifice myself are so easily deceived that, perhaps, I shall encounter their hatred by the very measures I take to protect them against exactions ."
Louis XVI promised his new finance minister his wholehearted support . Turgot immediately decided to remove the restrictions on the free sale of wheat throughout France, so that in times of famine, such as he had experienced at Limoges, wheat might be brought easily from districts where it was plentiful to districts where it was scarce . The effect of this measure was to cause an immediate fall in the price of bread at a moment when, thanks to a bad harvest, the price was very high . Necker and the other bankers who financed the grain trade were filled with alarm . Necker at once composed a pamphlet against Turgot’s policy and caused it to be widely circulated .
The pamphlet failed to influence the King . Immediately riots began to break out in many departments . The first of these occurred at Dijon on April 20, 1775 . After that Pontoise was affected, then Versailles, then Paris . It was observed that the rioters were liberally supplied with money, both gold and silver, and that their sole object was to destroy wheat . They pillaged the bakers’ shops in Paris and flung masses of bread into the Seine while shrieking for cheaper bread . The parlement of Paris, in which Necker’s influence was strong, looked on without concern . Turgot saw his expectations fulfilled . With the King’s concurrence he put down the riots and compensated those who had suffered loss . But he realized that the forces ranged against him were as powerful as they were full of resource and cunning . His best endeavours failed to establish the identity of the fomenters of riot .
The battle between King and bankers was now joined in France as well as in England . Turgot urged Louis to purge France of privileged persons and so restore the system of service:
"Privilege," he wrote, "was founded at a time when the nobles, as a class, were under special obligations to render military service which they fulfilled in person at their own expense . Now, on the one side, this personal service having become more inconvenient than useful is fallen entirely into disuse ; on the other side all the military power of the State consists in a numerous army, kept up and maintained at all times by the State . Such of the nobles as serve in this army are paid by the State; and not only are they under no obligation to serve, but on the contrary it is the common people alone who are compelled to serve since the establishment of the militia, from which the nobles and even their valets are specially exempt .
"Another reason operates to make privilege most unjust and at the same time contemptible . It is that, by reason of the ease with which nobility may be acquired by paying for it, the body of the noble corresponds to the body of the rich, and the cause of the privileged is no longer the cause of distinguished families against the common people, but the cause of the rich against the poor . The reasons we might have had to respect this privilege when it was confined to the ancient defenders of the State certainly cannot be entertained when the privilege has become common even to the race of financiers (revenue farmers) and contractors who have plundered the State ."
Turgot proposed a tax on land to be paid by all holders no matter what their station . He proposed further the supersession of the obsolete parlements by local authorities of a representative character and the abolition of the rights of ancient trade guilds and corporations whereby industry and commerce were held in thrall . It was a return to Royal feudalism; everyone possessed of any sort of privilege was threatened . Suddenly, therefore, the financiers found themselves supported by a host of courtiers, higher clergy, nobles, lawyers, and craftsmen, all of whom desired to see Turgot and his schemes brought to ruin . France was in an uproar; even the King’s Cabinet was divided, but the King stood firm :
"I have read with care," Louis XVI wrote to Turgot, "all the memorials which you have submitted to the Council, and the six projects of edicts which I have already approved . The want of unanimity is my Council upon these proposals, and the opposition they have met with outside, have given me much to think about; but the projects appear to me too useful and conformable to the public welfare not to be published and maintained by my whole authority . . . . There are so many private interests opposed to the general interest . The more I think of it, my dear Turgot, the more I repeat to myself that there are only you and I who really love the people ."
Necker was anxious and so were his colleagues in London, for while the King of France was endearing himself to his people by his wise and just policy, the King of England looked like bringing the American colonists to submission . An attack by the colonists on Canada had failed, and though the English had been forced to evacuate Boston, Washington was in great anxiety that New York would fall into their hands . His troops were far from satisfactory and, as he wrote himself, "Money is much wanted ."
A flight from the dollar was, in fact, in progress, for the very last thing that any of those who had sought profit in America desired was to lose their money :
"The resources of domestic loans," wrote Washington at a later period, "are inconsiderable because there are, properly speaking, few moneyed men, and the few there are can employ their money more profitably otherwise; added to which the instability of the currency and the deficiency of funds have impaired the public credit ."
In these circumstances Necker and his friends overcame their repugnance to a war between France and England . If France and perhaps Spain also supported the American colonists openly, they argued, the odds were that the policy of King George III would fail . Moreover the King of France would be plunged so deeply in debt by reason of his expenditure on ships and troops as to be unable to pursue his policy of reform . The reasoning was sound; but nothing could be done so long as Turgot continued to enjoy King Louis’ support . Necker devoted himself, therefore, in the first instance, to the ruin of the minister . Three separate means to this end were employed . In the first place, as has been said, it was represented to the King, through his Foreign Minister, Vergennes, that the moment had come to make England restore some of the possessions she had taken from France, and notably Canada . Vergennes himself was sincerely convinced of the justice of this view, and had already crossed swords with Turgot in the King’s Council because the Controller was opposed to war . The King confessed himself sorely tempted to make war and argued, with reason, that reforms which were difficult to accomplish in the existing state of affairs would present far less difficulty to a King who had achieved the glory of victory and the restoration of lost provinces .
The second line of attack was made by Necker himself . He drew up a memorandum on the budget which his adversary had produced for 1776, in which he criticized Turgot’s powers as a financier . As Necker was a multi-millionaire with the reputation of a financial wizard, these criticisms might be expected to influence the King to whom they were submitted . Incidentally Necker offered, if he himself was appointed Comptroller, to arrange for the King the loans which would be necessary in the event of a war with England . (Turgot had arranged a loan with the Dutch on the definite understanding that there would be no fresh expenditure of any sort .)
Finally Marie Antoinette was enlisted against Turgot . The Queen did not like the minister; but she had not made any open attack upon him . It was now represented to her that the disgrace of the young Comte de Guines, to whom she was attached, was due to Turgot’s influence with her husband . This was not, in fact, the case . De Guines, who was French Ambassador in London, had been recalled at the instance of Vergennes because he had acted indiscreetly in his dealings with the English Cabinet . Marie Antoinette implored the King to dismiss both ministers . Louis promised to make de Guines a duke, but refused further to commit himself .
"M. Turgot," wrote the Swedish Ambassador to his King, Gustavus III, "finds himself threatened by the most formidable league composed of all the great people of the kingdom, of all the parlements, of all the financiers, of all the ladies of the Court ."
Louis XVI was by no means the henpecked husband which it has pleased some historians to call him . He remained unshaken in his view that Turgot’s reforms were necessary . But he felt himself incapable, in the weak state of the Monarchy, of carrying out these reforms against the united opposition of clergy, nobles, and financiersto say nothing of his own Court . Reform, he declared in effect, is impossible without glory, and glory can only be won in a war with England . Turgot replied in a series of letters in which he used plain language . In the last of these he urged :
"Do not forget, Sire, that it was weakness that brought the head of Charles I to the block . . . . You, Sire, have been sometimes believed to be weak, but I have seen you, in trying circumstances, show real courage . You have said yourself, Sire, that you lack experience, that you have need of a guide . For such a guide, intelligence and energy of character are both required . . . .
"See, Sire, how you stand : with a ministry weak and disunited; outside, all minds in fermentation, the parlements leagued with all the discontented parties, the revenue short of the expenditure, the greatest resistance being made to an indispensable economy, no harmony in your council, no fixedness in its plans, no secrecy kept about its decisions . . . ."
Louis dismissed his minister and made de Guines a duke as he had promised .
"What gratifies me most, I must confess," wrote the Marquise du Deffand, an old lady of the Court, "is the triumph of M. de Guines . What joy M. Necker will feel ! "
She was not mistaken . Necker was summoned to take charge of the King’s finances . A loan was forthcoming and the war with England began . Turgot’s reforms, those dealing with the corn trade among the others, were flung on the rubbish heap .