By Philip T. Hoffman
In 1754, the French author Voltaire was acquiring real estate, and to fund his purchases he drew upon his investment portfolio. "I beg you to let me know how much I can borrow against my account in order to arrange all this," he wrote to Guillaume Claude de Laleu. "I would also like you to send me Monsieur de Mont Martel's 160,000 livre short-term note, which can be cashed at par value even though it is far from being payable."
Although more than two centuries have passed, Voltaire's business letters have a surprisingly modern ring. At times he sounds like a wealthy modern investor, dashing off e-mail messages to his stockbroker or his personal banker. Yet, his man of business, de Laleu, was neither broker nor banker. He was a notary in Paris.
In eighteenth-century France, it was often to notaries that ordinary people and sometimes the government would turn to borrow and invest. As a group, Parisian notaries were unrivaled financial intermediaries. In the 1700s, they raised more money for long-term financing than banks and stock exchanges would until the mid-nineteenth century.
The discovery of this unexpected financial role for notaries came about thanks to an NEH grant that has helped Gilles Postel-Vinay, Jean-Laurent Rosenthal, and me explore the evolution of financial markets in Paris between 1660 and 1870. Our initial goal was to analyze the market through war, revolution, and political change, but study of the rich notarial records soon revealed the startling role played by the people who made them.
Who then were these Parisian notaries? Part attorneys, part court officers, and part real-estate agents, notaries drew up wills, marriage contracts, and land sales, and preserved official copies of the papers they had drafted.
Notaries had played these roles from the Middle Ages on in much of continental Europe, but in France, the records indicate they also provided financial services to a wide variety of clients. In the 1750s, for example, a Parisian courtesan, Miss Buchet, sold expensive furniture given to her by a wealthy lover. She then took the considerable proceeds and deposited them with a Parisian notary to earn interest. In the same decade, nuns at a convent in Saint-Quentin sent the Parisian notary Simon Hurtrelle 15,300 livres (roughly enough to keep sixty unskilled laborers employed for a year) to buy government bonds. Because the French government frequently defaulted on its debt, the nuns wanted Hurtrelle to use his expertise and find bonds that were safe.
The French notaries mastered the bringing together of borrowers and lenders in the eighteenth century. Before then, private borrowers had to find their own lenders. Beyond the circle of family and friends, though, borrowers would have a hard time convincing potential lenders that they were likely to repay a loan. Even if borrowers provided collateral (land, for example), there was no way to tell whether they had already mortgaged their property to take out other loans.
This is where the notaries could intervene. Because they drew up loan contracts, they knew whether borrowers were already tottering under a heavy debt load. Their involvement in property transactions revealed who possessed sound collateral, and, because they dealt with inheritances and estate management, they had a clear idea of who had money to lend. If a notary could not find the right match among his own clients, he could consult with other notaries. They might meet in a cafe to trade information about the lender and the creditworthiness of the borrower--what we might call the eighteenth-century version of the Equifax credit report.
Saying that the notaries played a key role in the eighteenth-century Parisian capital market does not mean the city lacked other financial agents. It had bankers and stockbrokers, and also government financiers, such as the illustrious chemist Antoine-Laurent Lavoisier.
The bankers helped the state sell long-term bonds, and the stockbrokers traded these bonds and shares in government-sponsored trading companies. But the bulk of the bankers' business involved short-term financing of trade. Similarly, the financiers advanced money to the monarchy but never in the form of long-term loans.
What distinguished the notaries was that they arranged long-term loans--loans of several years or more--particularly for private borrowers, who used the funds to build houses, purchase businesses, or buy government positions, a common practice in ancien régime France. They also put together some two-thirds of the government's long-term loans in the late eighteenth century--loans that bankrolled the French military in its battles against Britain and thereby helped the American colonies gain their independence.
A financial crisis from 1716 to 1720 provided the notaries of Paris with an impetus to make loan arrangements. In the so-called Law affair, a Scottish banker named John Law tried, with the monarchy's support, to reduce the government's debt by transforming state bonds into shares in a gigantic trading company. Law also sought to introduce the use of paper money, a novelty in France and indeed in Europe, since coins were the customary medium of exchange.
Law's project whipped up stock market speculation, and the market ultimately crashed, ruining many investors. Others had their fortunes wiped out when loans they had made were repaid in nearly worthless paper money.
The notaries were not directly involved, though, and so they emerged unscathed. Indeed, the information they possessed was now all the more valuable, for they had recorded many of the repayments during the Law affair and so knew who had survived, who still had money to lend, and who was still a good credit risk.
For many notaries, arranging loans became an obsession. Antoine-Pierre Laideguive--perhaps the most active notary in all of Paris--worked the hours of a modern investment banker. He spent much of the day and evening traveling about the city to meet with borrowers, lenders, and other notaries so that he could put together deals. He returned home at 11 o'clock every night, ate a quick supper alone, and probably slipped into bed exhausted.
Contemporaries sensed the change in the notaries' behavior. In the words of the writer Louis Sébastien Mercier, the Parisian notaries were now "speculators" and "movers of money," who sought out nothing less than "every possible way to borrow here and lend there. They are involved in all loans of any size."
A few notaries, Hurtrelle and Laideguive among them, overreached themselves and went bankrupt, but they were the exceptions. The way most notaries did business kept them out of trouble. They restricted themselves to being brokers who arranged loans, and like real estate agents today, they had no personal investment that would be threatened if a loan went bad.
As brokers, the Parisian notaries certainly opened the credit market up to women and investors from the provinces, who would otherwise have had fewer places to put their savings. The nuns who sent money to Hurtrelle are but one example. And generally, they served their clients well. Voltaire, who experimented with other financial advisers before settling on his Parisian notary, could be quite demanding, but he was always happy with de Laleu and his successor, Jean-Baptiste Dutertre. In 1776, Voltaire wrote to Dutertre: "At my age of eight two, Monsieur, . . . it is a great consolation for me to see that a person as excellent as yourself is willing to take responsibility for my financial affairs."
The notaries' greatest achievement, though, was the money they raised. Some, it is true, went to the government, swelling the ocean of debt that would eventually set off the French Revolution. But a huge portion of the capital flowed to private borrowers and underwrote building construction. Perhaps the best-known project funded at least partially by notarial credit was the development of the Palais Royal. Combining a pleasure garden and the eighteenth-century equivalent of a shopping mall, it drew crowds then and still does so today.
If the Parisian notaries did so much, why then have historians until now overlooked their financial role? One reason is that the Parisian notaries abandoned the credit market in the nineteenth century. They did so in part because it became much harder to arrange long-term loans after the French Revolution.
Inflation during the Revolution ruined individuals who had lent money out long term, making nineteenth-century investors leery of that type of lending. Borrowers still wanted long-term loans for construction projects and industrialization, but lenders would only commit their funds for short periods. All notaries could do was get personally involved. They borrowed money for short terms themselves and then lent it out for much longer periods. This pushed them into dangerous speculation of the sort described by Honoré de Balzac and other novelists.
Many Parisian notaries went bankrupt in what we might think of as the nineteenth-century equivalent of our own savings and loan scandal. In response, the French government cracked down and barred the Parisian notaries from the credit market. Ultimately, banks took their place--in particular, a large government-backed mortgage bank, the Crédit Foncier de France.
Another reason the notaries have been ignored is that historians tend to be mesmerized by the banks and stock exchanges that rose to such prominence in the late nineteenth century. Yet brokers like the Parisian notaries were extremely important and not just in France. In seventeenth-and eighteenth-century England, for example, attorneys and scriveners (individuals who drafted deeds and loan contracts) put together long-term loans, and they, too, have suffered neglect.
The discovery of the Parisian notaries' financial roles may reorient economic history by encouraging the study of all sorts of forgotten financial intermediaries who have been overlooked simply because they, unlike bankers and stockbrokers, left no modern successors. The lesson from our work is that credit often passed through unsuspected financial intermediaries and was far more widespread in premodern societies than historians have imagined.