TONTINES & GUILLOTINES

In a recent statement Arnaud Montebourg, the French socialist government’s industry minister, announced France’s intention to create a state-owned mining company with a world-wide remit by saying,

“Colbertism is coming back and that is good.”

Jean-Babtiste Colbert

Jean-Babtiste Colbert (1619-1683) was the Controller-General of Finances and Minister of the Maison du Roi during the reign of Louis XIV, the Sun-King of France having being recommended to Louis by the former Chief Minister Cardinal Mazarin. Louis has an insatiable and extravagant need for money and Colbert spent a great deal of his energies in trying to reform the French tax system, to ensure equitable taxation of the non-tax paying nobility at its core, but with the ultimate objective of directing much of this newly acquired gains in the direction of his King.

Taxation and money-raising schemes were the flavour of the times (the Thirty-Years War and the Fronde taxation rebellions at home had exhausted much of France’s wealth) as Cardinal Mazarin tried to balance the books. Into this heady mix of need and greed around 1648 strode Lorenzo de Tonti, a Neapolitan banker who had sought exile in France after a failed revolt against the Spanish viceroy in Naples.

Tonti first proposed an annuity-based life-insurance money-raising scheme (a scheme for which ever after would be known as a Tontine) for the State to Cardinal Mazarin, which the Cardinal quickly adopted and attempted to establish.

A Tontine schema as John Houghton, a London apothecary, pointed out as early as February 1683, in an analysis of such a proposal by the East India Company and its bankers, was a scheme that provided for an,

“a yearly increase in wealth, by subscriptions, to advance money at interest, for lives of whatsoever age or sex, under ten several ranks or classes; which subscriptions will produce great advantage to the survivors…”

A Tontine was an all or nothing scheme in which the subscribers or their nominees earn a fixed annuity based on the interest earned by the combined initial capital of the age cohort into which their subscription is invested, but in addition the surviving subscribers of the scheme would divide up the interest owed to any deceased member of the scheme amongst themselves. The attraction of Tontines over life-annuity schemes was that income rose rapidly with advancing age ( and the death of other subscribers) whereas life-annuity income was constant.  That said Tontines were a gamble on the mortality risks of the subscribers and the last man or woman standing potentially derived the maximum benefit by accumulating all the interest owed to every original subscriber while the original capital devolved to the State.

As Tonti himself wrote in a letter to Colbert in 1665,

"the great advantage to His Majesty would be, that, without opening his purse, he would inherit the revenues of each class by the death of the last survivor in it, and would thereby find himself relieved from payment of the interest..."

Tonti’s original 1649 French proposal never got off the ground as it was blocked by the Parlement of Paris in 1653 on the grounds that the cost to the State could not be accurately estimated and that the interest proposed of 5% at all ages was much lower than existing annuity rates. A second Tonti proposal in 1656 dressed up as a Royal Bank scheme and which also included an innovative lottery component also failed to materialise and it was not until 1689 that the first successful French tontine was introduced by one of Colbert’s successors as Controller-General of Finances, Louis Phélypeaux, the comte de Pontchartrain.

Comte de Pontchartain

The first successful operative Tontine scheme was in the Dutch municipality of Kampen in 1670 and throughout Europe and further afield they soon established as well utilised tool in generating private, local government and State capital finance. 


Tontines were also the impetus to start gathering and publishing accurate mortality data, the basis of all actuarial life insurance business today.

There were obvious drawbacks of course. As a basis for murder if other surviving subscribers could be isolated and eliminated is one but more commonly in a time of ledgers and accounts clerks, and poor communication facilities generally, the documentation of identity and death of subscribers to a Tontine scheme, particularly in times of strife where many of those subscribers resided in different countries was extremely difficult, in addition to the forgery of documentation intended to maintain a flow of income to an already dead subscriber.

In France after 1689 Tontines for the next 120 years successfully became the basis of a huge amount of the French-government and private cash generation schemes until the catastrophic failure of the private Caisse Lafarge scheme in 1809 after which the State of France declared Tontine schemes illegal.

Tontine Coffee House,

New York

In England all three State tontine schemes up from the first in 1693 to the last in 1776 failed and by the following year Tontines to all intents and purposes were banned. In 1777 the English Parliament because,

"it hath been found by experience that the making insurances on the lives or other events wherein the assured shall have no interest hath introduced a mischievous kind of gaming”,

enacted the Life Assurance Act of 1777 (also known as the Gambling Act :14 Geo. 3 c.48) an act

"for regulating Insurances upon Lives, and for prohibiting all such Insurances except in cases where the persons insuring shall have an interest in the Life or Death of the Persons insured.”

Not so in Ireland where the 1777 Life Assurance (Gambling) Act was not incorporated until 1866 (and still in force!). There were three Irish State Tontines, fully subscribed to, particularly by the burgers of Geneva, in 1773, 1775 and in 1777. 

Marie Antoinette

Queen of France

1775

The 1775 Tontine scheme subscriber list makes interesting reading. At the top of the second class of subscribers was Her Majesty Marie Antoinette, Aged 20, the “Present Queen of France” who had subscribed £100.

1775 Irish Tontine Subscriber List

(the D next to name indicate Death on a later accounting)

Marie Antoinette (by then called Madame Capet by the French Revolutionary Council) was guillotined on the 16 October 1793 at the age of 38 years. All future interest on her Irish Tontine 1775 subscription would be divided out amongst the other surviving subscribers.

From Tontine to Guillotine!

The originator of the Tontine schemes was not to be all that lucky himself. Sanctioned by Mazarin Tonti was to have received a pension of 6,000 livres per annum from 1649 for his proposal and there is a plaintiff letter to Jean-Babtiste Colbert in October 1663 where he complains that,

“I have submitted a petition to the King, humbly begging him to consider, that for three years I have only received 3,000 livres of the pension of 6,000 livres a year which His Majesty had caused to be paid to me from the year 1649 down to 1660, in consideration of my services: and as I am pursued by my creditors, am bound to give honourable subsistence to my family of seventeen persons, according to my position. I have had recourse to His Majesty to receive of his goodness the wherewithal to remedy my present necessities. I very humbly entreat you to support it with your protection, and to continue to me your favours, which will secure my lasting obligation.”

Tonti’s pleas fell on deaf ears and eventually either Louis XIV but more likely Colbert got fed-up with him and had him imprisoned in the Bastille from 1668-75. He died in obscurity around 1684 although one of his “seventeen” dependents, his son Pierre was to be the co-founder of the great US city of Detroit with Cadillac by establishing the fort of Fort Pontchartrain du Detroit in 1701. It is ironic to note that the fort was called after the French Controller-General who finally put his father’s ‘great’ scheme into operation and not Jean-Babtiste Colbert who had put Tonti into prison.

Reference:

Mc Keever, K. A Short History of Tontines. 2010 Fordham Journal of Corporate & Financial Law, 15;2:491-521
Weir, DW. Tontines, Public Finance, and Revolution in France and England, 1688-1789. 1989 Journal of Economic History, 49, 1: 95-124