It is easy to overestimate the role finance had in setting off the Industrial Revolution. To some extent, the early stages of the Industrial Revolution took place in spite of the financial system rather than because of it. Industrial enterprises in the first half of the 19th century had little access to the capital markets and banks were largely disinterested in serving them. The first banks to focus on industrial firms were launched in the middle of the century. Among the trailblazers of industrial finance was Jacques Laffitte, one of the most prominent financiers in France’s history.
Jacques Laffitte rose from a notary’s clerk to become arguably the first modern investment banker. Born in 1767, the son of a Bayonne carpenter, Laffitte worked for a provincial merchant in his youth. He began his financial career in 1787 as a junior member of the private bank of Jean Frédéric Perregaux, then one of France’s leading banks. He became a partner in the bank in 1800 and eventually took charge of it after Perregaux’s death in 1808. He had the bank renamed, first to Perregaux, Laffitte et Cie. and then simply to J. Laffitte et Cie.
During the French Revolution, the financiers then in business were ruined by the state bankruptcy which saw much of the public debt written off by two-thirds. So, the country’s banking system had to be rebuilt. Jacques Laffitte was among the eldest and most significant figures in a new generation of bankers. They would be politically connected like their older counterparts but were generally partial to the liberal ideas that had sprung from the French Revolution, from meritocracy to technological and social progress.
Laffitte was a follower of Claude-Henri de Rouvroy, Comte de Saint-Simon. In France especially, Saint-Simon was perhaps the most influential social reformer of his day. He pointed to industry and finance as the means for facilitating national improvement and work for all citizens. Saint-Simon inspired not only Laffitte but many an industrialist and financier in early 19th century France.
Through J. Laffitte et Cie., Laffitte managed money for the leaders of the First French Empire including Napoleon himself. He funneled a lot of this money to industrial companies. Napoleon left five million francs with Laffitte before leaving France for his imprisonment in faraway Saint Helena. Even after Napoleon’s defeat, he was able to serve the restored monarchy just as he had the prior regime. As a subcontractor, Laffitte helped place French government bonds on behalf of Barings, one of Europe’s largest banking houses.
The financial expertise and capital gained in floating state bonds was extended to serving private business. Laffitte spent the 1820s supplying capital to firms engaged in insurance, canals, real estate, newspapers, and industry. He attempted to launch a new industrially-oriented bank, the Société Commanditaire de l’Industrie, in 1825. In this endeavor, he was supported by the other mega-banking-house of the era, the Rothschilds, with whom he had earlier partnered to raise a state loan for Haiti. Still, Laffitte was denied permission from the government to found his new bank.
A change of government in 1830 meant Laffitte himself briefly served as France’s Prime Minister in 1830-31. This coincided with his recovery from a bankruptcy caused by the economic depression that had helped set the stage for the French Revolution of 1830. After leaving office, Laffitte was successful with a second attempt to launch a new bank in 1837, now at the age of 70. He launched the Caisse Generale du Commerce et de I’Industrie, also known simply as the Caisse Laffitte.
The Caisse Generale du Commerce et de I’Industrie was founded with fifteen million francs of paid-in capital. This equity capital was augmented by more than sixty million francs in ultra-short-term bills. Laffitte relied on these bills, with terms as short as five days, since the Banque de France had a monopoly on banknote issuance.
The Caisse Laffitte combined commercial and investment banking. It engaged in traditional banking activities, such as discounting notes and bills; the bank advanced money on 276 million francs worth of bills in its first year in operation. Further, the bank also made long-term loans to industry. Laffitte laid the groundwork to take on the public floatation, not just of state securities, which would have been nothing new, but also those of industrial and railroad companies which would not have normally been able to access the nascent capital markets. Laffitte’s creation spawned many imitators but his was the first bank with ambitions or capital so large.
At the time, serving industry was not something banks usually did. For one, industrialization was still in its infancy in France. Banks had commonly ventured outside of finance into trading commodities directly, particularly importing goods like coal and tea from abroad, but did not even provide credit to nascent industries. Beyond their novelty, banks had other reasons to be cautious. Firms funded by banknote issuance or short-term deposits needed to hold short-term, liquid assets and long-term loans to industrial companies did not meet these requirements. Common also was the concern that lending to industry would lead to overproduction by new firms armed with borrowed money, to their own detriment and those of more established firms as well.
Besides founding a bank that would serve as a model for a new kind of banking firm, Laffitte had a considerable career in politics and public service. He became president of the Chambre de Commerce and governor of the Banque de France in 1814; he would lead the latter until 1819. At the Banque de France, Laffitte was involved in financing the French indemnity payments due after the country’s defeat in the Napoleonic Wars. Laffitte lent something over five million francs from the Banque de France to the restored monarchy in 1815. He also advanced money to give troops their overdue pay, which had accumulated after the defeat at Waterloo.
Laffitte lent Banque de France funds liberally during a financial panic in 1818. That same year, he was involved in creating a new savings bank aimed at the working class. While philanthropic to some extent, the bank helped induct small savers into the securities markets by allowing them to save up the money required to purchase an entire government bond for themselves. From 1816, Jacques Laffitte served in France’s new parliament, the Chambre des Deputes. As mentioned earlier, he served briefly as Prime Minister and simultaneously held the post of Finance Minister in the early 1830s. He was not terribly successful as Prime Minister and left politics to found his Caisse Laffitte.
Jacques Laffitte died in 1844. His Caisse Generale du Commerce et de I’Industrie was by now discounting bills worth more than 350 million francs a year. Laffitte was replaced by three managers at the bank. It didn’t last long. His Caisse Laffitte failed in 1848 during another of France’s political and financial crises. Still, banks focused on serving industry was a concept that survived. They continued to be fragile though as many such banks would fail even after the example set by the Caisse Laffitte, Crédit Mobilier being one of the most prominent examples of the 19th century.
Jacques Laffitte drove the retooling of the French banking system for the benefit of industrial firms that were largely unable to borrow from banks mostly focused on financing trade. Though, it was perhaps a fitting end that his Caisse Generale du Commerce et de I’Industrie would be short-lived. It turns out that industry is no less tumultuous a field for lending than trade and banks would not overcome the inherent fragility of their business until the following century.
More from the Tontine Coffee-House
Read about the rise and fall of Crédit Mobilier, a bank also dedicated to industry and whose founders were also disciples of the Comte de Saint-Simon. Also learn of Napoleon’s role in creating the Banque de France. Consider subscribing to this blog’s newsletter here.
1. Kindleberger, Charles P. A Financial History of Western Europe. George Allen and Unwin, 1993.
2. “Laffitte, Jacques.” Encyclopædia Britannica: Volume 16, 11th ed., 1911.
3. Liesse André. Evolution of Credit and Banks in France: From the Founding of the Bank of France to the Present Time. Government Printing Office, 1909.
4. Redlich, Fritz. “Jacques Laffitte and the Beginnings of Investment Banking in France.” Bulletin of the Business Historical Society, vol. 22, no. 4/6, Dec. 1948, pp. 137–161.
5. Zeldin, Theodore. France 1848-1945: Volume I: Ambition, Love and Politics. Oxford University Press, 1973.