CHAP. XXXIV. _How the diminishing the Denomination of the Paper in Circulation, by the arret of the 21st of May 1720, destroyed the Credit of France, when the same arbitrary Measures taken, with regard to the Coin, had produced no such Effect._ This question is curious, and I shall endeavour to resolve it in the best way I can, before I conclude this subject. The first thing to be done is to point out the immediate effects which resulted upon diminishing the denomination of the paper; because the destruction of the credit of France was not the immediate consequence of this _arret_; but the ultimate effect of a chain of consequences which followed indeed very quick upon one another. The paper had been declared, against the opinion of Mr. Law, by an _Arret de Conseil_ of the 22d of April 1719, _une monnoie fixe_, as has been said. Consequently, any diminution of its denomination was a plain infraction of the public faith. From this declaration in the _arret_ of the 22d of April 1719, the public reaped one notable advantage, which was, that in borrowing and lending paper, every one was sure that the obligations contracted could be dissolved by restoring the very same species of property which had been received; but by diminishing the denomination of it, by the _arret_ of the 21st of May 1720, all such as were debtors, became obliged to discharge their debts at the expence of double the sum of paper borrowed. The immediate consequence, therefore, of touching the denomination of the paper, was, to shew the public that their fortunes in paper were liable to the same inconveniences as fortunes in specie; that is, that they might be increased or diminished at pleasure. Upon this it was very natural for every one to endeavour to realize his paper, and put it into coin: since, _in pari casu_, it was better to have it in that which had some intrinsic value, than in that which had none at all. Of all the French paper, the notes were the most easily realized; because there was contained in them a direct obligation upon the bank to pay them in coin. The actions again were more difficult to be converted; because in order to realize them, it was necessary to find people who were willing to give either notes or coin for them. A run upon the bank, therefore, taking place, upon the _arret_ of the 21st of May, it was obliged to stop payment: this occasioned a general alarm, and _destroyed the confidence which the public had had in the state_, which is what we mean by _public credit_. This point explained, it remains to shew why the augmentations and diminutions upon the specie should not have ruined the credit of the paper. 1_mo_, The operations upon the specie affected the paper only indirectly; but the diminution upon the paper affected it directly.