April 6, 2023 
Canberra, 6 April 2023
In 1664, the 50-year monopoly granted to the French East Indies Company by King Louis XIV of France came to an end. Even with the royal authorisation of a monopoly, the company had not been functioning well and was forced to rely on private speculators to continue trading in the East. In return for the permission to trade, the privateers paid about 15 percentage of the gross amount realised in trade to the Company. This was meagre income and by 1712, the Company was in dire straits, unable to send any ships to India. They were forced to further their dilute their control on the trade by transferring the right to trade to merchants who paid an annual fee for the privilege.
Pondicherry, the centre-piece of French enterprise in the Indian sub-continent, was in trouble. The death of Francis Martin had been a heavy blow; and finances had dried up with no Company ships coming from France. When the control of the trade passed from Company hands to those of independent merchants, the Company representatives in Pondicherry could do very little to stem the decline. Even as the commercial activities continued to dwindle, French credit in the sub-continent was running low, suffering in status because of their premature withdrawal from that port of Surat leaving behind unpaid debts. The only silver lining in an otherwise darkening atmosphere was that the local powers of South India left Pondicherry alone. This was indeed surprising since the sub-continent, including the Deccan and South India resounded with the clash of arms on the death of the Mughal ruler Aurangzeb in 1707.
The turmoil around it, and the relative stability in Pondicherry despite a financial crisis provided the French officials with a golden opportunity to improve their status, conditional to the fact that sufficient finances were made available to a dedicated leadership team. While there was no immediate prospect of improvement, Pondicherry continued to exist as an independent entity—even though neglected and impoverished. The fact that the settlement did not falter and fail was fortunate for the French in the long term.
In the meantime, the parent Company in France applied to the King for a renewal of the privileges granted to it that were to expire in 1714. Although the state of affairs within the Company was well-known in the French court, the directors continued to have enough influence in the right quarters to get a Royal Edict issued on 21st September 1714, renewing all the previous privileges for a further period of ten years, starting from 1st January 1715. There was an added proviso in the new grant that one-tenth of the Company product would have to be given to the Great Admiral of France. Even with these cosmetic improvements, French affairs in India seemed doomed to atrophy.
A Short-lived Fillip in French Finances
As often happens in the long sweep of history, an unrelated event changed the tide of affairs, at least for a short period of time, sufficient to turn the fortunes of the French in India, who were on the verge of becoming destitute. On 1st September 1715, Louis XIV died, leaving behind and enormous public debt of 2,412,000,000 francs and having mortgaged the national revenue for years to come. The king’s brother Phillippe duc d’Orleans, who took over as the Regent, was hard pressed to avoid bankruptcy of the country. Unusual challenges bring out unusual brilliance in unusual people who, through sheer power of conviction, provide unusual solutions that seem to be the panacea for all the troubles. In France the solutions came from a Scotsman John Law (1671–1729), who had a reputation for being a gambler but was also highly regarded as an original economic thinker. He was appointed by the Regent to salvage the finances of a decrepit France.
John Law (1671–1729)
John Law left a remarkable legacy of forward-looking economic concepts, much before such developments were considered mainstream ideas. Although he lived in the 18th century, John Law’s vision of the monetary and financial system was far ahead of his times and could be considered futuristic even in the 21st century. Law conceptualised an economy run on credit, or at best bank notes, without having to mint metal coinage, which was the norm during his time.
Law was the first economist to articulate the theories of demand and supply, the circular flow of income, and the law of one price. He created the Mississippi System that converted his theories to practice, which went on to create Europe’s first stock market boom, followed by the first crash. Since his theories were seen to have failed in practice, John Law was considered a failed economist, which is far from the truth. Later-day economists have argued that he was not a failed theoretician but a practitioner far ahead of his time.
John Law set up a national bank, called General bank, which through public support relieved the crushing government debt burden. He offered very attractive terms for deposits, which very quickly reinstated public confidence in State finances and made the bank a success. The success of the bank in turn stimulated other industries and commerce, gradually moving the economy forward to becoming normal again, even edging France towards prosperity.
Never shy of ideas, Law now had a further concept based on speculation that he convinced the Regent to approve. Since 1541, France had controlled the Louisiana province in North America. Law set up a sovereign company to trade there rivalling both the English and Dutch companies, with a capital of 100,000,000 francs as capital, derived from issuing 200,000 shares at 500 francs each. The Regent ensured that by Royal decree, the Company of the West as it was called, had a monopoly for 24 years for trade in Louisiana and Canada. Unfortunately, Law’s futuristic measures were not liked by all and the opposition to his measures to turn around the failing economy came up in parliament in 1718. However, the Regent had enough power to defeat the opposition and then attach the General Bank to the State, which became the Royal Bank from 1st January 1719. In effect, the King and State was now standing security for the notes being issued by the Royal Bank.
Countering Market Volatility
Even in the 18th century, financial markets were prone to great and rapid volatility. When an unexpected downturn started to be felt, Law introduced rules that restricted the free trade of currency, which was a cardinal mistake, although the public were slow to appreciate the downside of this move. Even this measure could not stop the downward slide in the State economy. To avoid exposing the continuous downward turn in the economy, Law now conceived the idea of uniting the new American company with the old East India Company founded by Colbert. In addition, he also merged the French companies in China and Senegal, which were in any case not doing well, with the new company.
The Regent, anxious to steer the country out of the financial troubles that seemed never ending, once again supported Law and approved the merger scheme through a Royal decree that also accepted the earlier failures of the East India Company. This move added to the debt burden on the State. Further, the Regent gave extraordinary rights to the new Company vis-à-vis trade monopolies through a series of 12 Royal decrees. He permitted the now monolithic Company to issue shares to raise a capital of 25 million francs at 550 francs a share. It is possible that Law, the mastermind behind these manipulations, realised that the bubble was about to burst. He and his immediate circle of friends resorted to insider trading and opportunistic exploitation, making enormous profits even as the new share issue, which connected the Louisiana Company and the new amalgamated one, was progressing. Law continued to manipulate the market, while facilitating the siphoning off to the Royal coffers, money to the tune of 50 million francs.
The public was still blind to the impending disaster and the shares that had only fetched 70 percent of its face-value in 1715, were being sold at a premium of 200 percent in 1719. In this short-lived age of abundant capital, the Company made a purchase from the Government, which brought a windfall to it at a much later date—it purchased, for a consideration of 4,020,000 francs, a monopoly on the trade in tobacco from all French holdings overseas. However, even with all Law’s innovative ideas being implemented, the State debt in 1719 amounted to 1,800 million francs that accrued a yearly interest of 80 million francs.
Law’s ambition was to finish the public debt and thereby prove his theories to be robust and correct. He used the large Company towards this end, suggesting the substitution of Company shares for the increasing public debt. Once again, he manipulated the system towards achieving his aims and started to auction Company shares. The French now entered a short period of a race for wealth with all classes, even poor people, participating in the system and gaining hitherto unattainable personal wealth. Alongside this sudden bonanza, the pursuit of luxury and the demand for luxury items increased in direct proportion.
… and then came the crash
While France was frantically pursuing wealth in the belief that the golden era had just dawned, a crisis was brewing and rapidly looming large. By the end of 1719, it was noticeable that the share prices had plateaued and then they started to drop gradually. The downward trend was visible to any observer of the market. Heavy investors, clear-headed enough to realise that investments in landed property would be far more stable, started to sell their shareholdings. Large number of shares started to be released to the market, cheapening the price of already under par shares.
Law, more aware of the pitfalls of the continuance of this trend, tried all methods at his command to reverse or at least stop the downward spiral, to no avail. By February 1720 public realisation of the truth of the situation and the rage that it brought hit the market and the streets. The public clamoured to exchange the notes for silver and then invested in all kinds of ‘assets’ other than the paper bank notes. Within a few weeks the value of the notes had plummeted to almost nothing. With Royal connivance, Law continued to issue edict after edict to stem the downward spiral, to no avail. Then the Royal Bank was amalgamated with the Company of the Indies. By end-May, the run on the bank could not be contained, the shares were of very little value and riots started in the streets. John Law had to be placed in protective custody for his own safety. France’s first financial scandal had come home to roost.
Enter the Company
Within the span of just five years, the French economy was heading for a disaster. The Company of the Indies then came forward to rescue the home nation, offering to take all the depreciated notes of the Royal Bank and promising to pay back 50 million francs per month for the next one year, which would effectively wipe out the accumulated State debt. In return, they wanted the commercial privileges to be made perpetual. In a decree dated June 1720, the proposal was accepted by the Government and the company that ruled French holdings in India came to be called the Perpetual Company of the Indies. However, this move did not stop the financial panic in France and the decree was not validated by the Parliament.
The Parliament further nullified all actions that had been initiated earlier such as uniting the Royal Bank and the Company. The Company was reorganised and went back to being a purely commercial entity that was independent of the State and its share-value was slashed by two-thirds. The Company retained only the old privileges and the monopoly on tobacco.
French Ascendancy
In 1721, Pierre Christophe Lenoir (1683–1743) took over as the acting Governor of Pondicherry. In the same year, three ships sent from France with merchandise and gold arrived at Pondicherry. This was a fortuitous event since the French in India had been in the wilderness since 1712, unable financially to conduct any commercial activity of note. The non-payment of accumulated debt and the accompanying loss of credit had debilitated Pondicherry and the other stations at Chandannagar and Balasore were destitute. Lenoir decided to go with his instincts and judged, rightly as it turned out, that a good reputation and availability of credit was the foundation of commercial success. He, therefore, decided to use the sudden windfall in money to clear all the outstanding debts of the Company. The Company did not receive an immediate return on this investment, which was but natural and to be expected. However, it paid dividends soon enough.
The downside now was that since the finances had dried up in France, with the crash of the Royal Bank, no ships were send out to India for the next two years. After the brief hiatus of the previous year, Pondicherry returned to being in dire straits in 1722–23. Once again, the French in India became almost destitute, with no money, no resources and no merchandise—the butt of numerous jokes from Bengal all the way down to Cape Comorin, the southern tip of the Peninsula. Lenoir had anticipated ships arriving every year and therefore had pledged his credit in anticipation. It was on the fidelity of his word and credit that the prosperity of Pondicherry rested. Fortunately, Lenoir’s honourable actions the previous year of paying back the Company’s debts at the first opportunity now stood him in good stead. His rich trading partners were willing to wait, and Lenoir was able to tide over the difficult situation purely on the good faith that he had garnered from the local rulers and merchants.
By 1723, the Company was truly private, it did not have any privileges given by the Government nor did it have any restrictions imposed on it. Finally in October 1723, two ships arrived from France with merchandise and a new Governor-designate. These two shipments were also used to payback accumulated debt of the past two years. However, for the next three years, the Company managed to send an average of three ships every year to Pondicherry and commerce began to revive in the settlement.
In September 1726, Lenoir returned as the Governor and through personal intervention managed to greatly improve the trading activities. In October 1727 and January 1728, merchandise valued at nearly Rupees 9,00,000 (2,234,385 francs) and in September 1729 and January 1730, cargo worth Rupees 2,170,000 (5,404,290 francs) were shipped to France from Pondicherry. The figures prove the tangible progress in commercial activities. With a stable economy to support him, Lenoir initiated long-required improvements to the settlement. In addition, he levied a tax of one day’s income per month on all inhabitants, which produced sufficient funds to erect defensive walls on three sides of Pondicherry, leaving only the seaward side unprotected. These fortifications were thought to be sufficient to keep out local armies if they attacked the settlement.
Lenoir went on to establish an educational institution, the precursor of a college, where about 15 Jesuit missionaries taught the youth of the colony. When the land had been sold to the French to start the colony of Pondicherry, the local ruler had laid down a condition of religious tolerance as a pre-requisite for the sale. Therefore, a pagoda and two Hindu temples, original to the land, continued to exist in the settlement, within its protective walls. Religious freedom for the inhabitants was guaranteed by successive governors.
Pondicherry had a peculiar governance set up. The settlement was ruled by a Supreme Council of five members functioning under the Governor at his pleasure, who administered justice and local administration in the name of the king in France. However, the Governor and the members of the Council were Company employees, who could be removed and replaced by the Company without having to refer these actions to the King. All other French settlements in the sub-continent were subordinate to Pondicherry. By the end of Lenoir’s tenure, the population of Pondicherry was estimated to be in excess of 70,000.
Mahe
In 1725, a small squadron of French warships came up to the place locally known as Mayyazhi on the West coast, situated at the mouth of the River Mayazhipuzha, south of Tellicherry. They demanded that the small township—which was nominally the territory of the petty Raja of Cherakkal, but practically independent—surrender to them. The town was well fortified, rising above the seas and almost impregnable from the defenders’ point of view. Since the local chief refused to surrender, the French were in a quandary. The captain of one of the ships in the squadron submitted a plan for the capture of the town and requested that he be permitted to personally execute it.
The captain was Bertrand Francis Mahe de la Bourdonnais, a lifelong sailor who had joined the navy as a common sailor at the age of ten. He had risen through the ranks to become captain of a frigate proceeding to India. La Bourdonnais was a self-taught engineer with in-depth knowledge of shipbuilding and repair. He proposed to land troops from a raft at the foot of the cliff under the covering fire from the ships of the sqn. The operation was successful; the French stormed and captured the town. The commodore of the squadron renamed the town to Mahe in honour of La Bourdonnais from the original Malayalam Mayyazhi, which had been anglicised to Maihi earlier. The town continues to bear the same name even today, Mayyazhi/Maihi having been effaced from common recollection. This was an important episode, since the French now once again had a foothold on the western coast, after the loss of Surat earlier.
Joseph Francois Dupleix – Arrives on the Scene – First Stint
Joseph Francois Dupleix’s (1st January 1697–10th November 1763) father was a director of the Company of the Indies and nominated his son to be the second-in-command of the French establishment in Pondicherry. Dupleix was 23 years old when he joined the position in 1720.
Praise for Dupleix
‘… to advert to the proceedings of one whose influence upon French India was destined to be even more direct, more commanding, more enduring;—whose brilliant genius all but completed the work which Francis Martin had begun;—who was indebted for all that he did accomplish to his own unassisted energies; who owed his failure to carry through all his high-soaring designs to that system of universal corruption, which, during the reign of Louis XV, consumed the very vitals of France, ruled in her palaces, and tainted all he public offices. We need scarcely say, that we advert to Joseph Francis Dupleix.’
—Colonel G.B. Malleson,
History of the French in India, pp. 66–67.
Dupleix wanted to expand the trade that had so far been confined to manufacture in Pondicherry and its immediate vicinity. He conceived of making the entire South India the catchment area for French exports from India, conducted through Pondicherry. Then he started to encourage private trade by Company officials, which was permitted under the existing rules. He set an example himself and realised a handsome profit on his personal investment. It was not long before other officials followed suit.
From early 18th century, the Company directors in Paris had been interfering in the actual functioning of the Pondicherry station, sending instructions, often ill-judged and irrelevant. These instructions were vague and irrelevant in the prevailing context since they arrived after a long delay when the ground realities would have changed; and was therefore prone to being misunderstood or misinterpreted. In one of these scuffles between Paris and the Pondicherry administration, Dupleix was suspended by the Directors in December 1726. He immediately appealed the decision and was reinstated on 30th September 1730, after nearly four years. As a compensation for the injustice that he had suffered, Dupleix was appointed the Director of the French settlement in Chandannagar (also spelt Chandernagore, and Chandernagor by the French).
The French had occupied Chandannagar in 1676. Although they fortified it in 1688, and a string of dependent trading posts had been established at Kasimbazar, Jugdia, Dhaka, Balasore and Patna, the settlement was considered of limited significance. Lack of finances and want of enterprise by the French in these posts had stagnated trade. The demoralised French community had not explored any new avenues and they were devoid of any initiative. The settlement was completely deprived of energy and any care for the future. Not even desultory efforts were made to improve the situation and the French settlement at Chandannagar was almost run over by jungle. It had fallen into a passive and assenting decrepitude. Into this somnambulant state of affairs, the energetic Dupleix arrived almost like a mini-storm.
Dupleix reached Chandannagar in 1731 and almost immediately appreciated the potential of the place to enhance trade. Since he was now Director, he immediately set about changing the place. He had no compunctions about using his own sizeable private fortune, which he had accumulated in Pondicherry, to improve the French settlement. By using his private funds as Company capital, he was able to induce others to join the venture with the objective of turning Chandannagar into a thriving trading post. Dupleix was a veritable dynamo of energy and ideas. Ships were bought, cargo freighted, communications opened with interior posts and local merchants induced to start using Chandannagar as a staging post for their activities.
Within four years of his taking over, Dupleix had 40 ships at sea, which increased to 72 the next year. Chandannagar was trading with Surat, Jeddah, Bura and China, bringing in handsome profits. The Director also built up a network of communications with the larger cities to the interior, all the way to Tibet. In a short span of time Chandannagar changed from being a mofussil and forlorn outpost to the most important European settlement in Bengal. Dupleix readily used his considerable private wealth for public purposes but also traded of his own account. The fortunes of the Governor and the outpost grew simultaneously. Dupleix envisaged a bright future for the French enterprise in the Indian sub-continent and was single-minded in his pursuit of this objective.
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