“Le système de John Law” and the Spectre of Modern Despotism in the Political Thought of Montesquieu

In the early eighteenth century, Europe was rattled by a series of financial shocks, stemming from the impropriety of government and economic actors who grew increasingly interdependent as governments relied on private lenders for imperial expansion. New institutional arrangements redefined the relationship between class and power and led to original notions of political justice, inconceivable in the pre-modern economic era. Political thinkers increasingly placed emphasis on how existing notions of freedom could be squared with bringing unwieldy and chaotic economic situations under political control. Some concerned themselves with how commerce stifled the civic character, while others held a more optimistic view, suggesting commerce was a source of political stability that engendered certain forms of virtue commensurate with eighteenth-century political exigencies. Among these thinkers, Charles-Louis de Secondat, Baron de la Brède et de Montesquieu astutely observed France’s transition from an orderly but stultifying feudal order towards a progressive but often unstable commercial society, and he sought to reconcile these two positions throughout his political works. Montesquieu observed that France’s debt crisis following the War of Spanish Succession made government actors more amenable to “financial engineering” schemes, which in turn opened new avenues for corruption in the private and public sectors. In an infamous episode simply known as “Le système” (System), John Law’s influence over the French monarchy yielded disastrous fiscal and monetary decisions, and subsequently led to short-term financial loss and social instability throughout France. Such events reinforced Montesquieu’s concern with maintaining a balance between the contribution of the “monied class” to public life and a continuing role for aristocratic government in harmonizing commercial ends with the public interest. This article builds on the existing literature that recognizes the centrality of Law’s System in Montesquieu’s political thought. The article traces the tangible roots of Montesquieu’s reflections concerning the ambiguous relationship between commerce and liberty, and situates him among his contemporaries in debates concerning France’s debt crisis following Louis XIV’s death and the subsequent establishment of the System. More broadly, the article conveys Montesquieu’s moderation vis-à-vis commerce, which embraces the freedom and dynamism of modern commerce, but nonetheless warns against new forms of despotism that accompany progress in the financial sector. I first reconstruct the historical and institutional context of Law’s System and then examine Montesquieu’s response to Law and his defenders on questions concerning political moderation and the role of the nobility in commercial society. The War of Spanish Succession had devastating consequences on France’s economic, social, and political order. It was left insolvent with unsustainable debt, leading to a series of currency devaluations and de facto bankruptcies as it struggled to meet its increasing war costs. France’s public credit suffered as a result, spurring a vicious economic cycle of high rates of interest for public and private borrowing, followed by an increase in taxes on French citizens in order to support interest payments on its debt load. Moreover, the Treaty of Utrecht—which formally ended the War of Spanish Succession in 1713—ensured a number of commercial guarantees for England and Holland, giving France’s neighbours a comparative advantage in global trade. Broadly speaking, two principal factors exacerbated France’s financial woes: the limitless profiteering of private financiers who exploited new opportunities created by Louis XIV’s wars, and fiscal and monetary mismanagement on the part of the Crown’s ministers, whose reforms triggered a series of bankruptcies, raising the cost of short-term credit. France’s decentralized collection of revenues (tax-farming) coupled with its increasingly centralized decision-making apparatus tightened an already unhealthy partnership between the Crown and its private financiers, the latter of whom profited over a series of financial schemes that France’s ministers approved once the …