For over a century, life annuities were sold as a means of financing government deficits. In the 18th century, the French state would sell these annuities to fund its wars in Europe and abroad, often at very generous implied interest rates. Though they experimented most with life annuities, in contrast to Britain’s perpetual consolidated annuities (called ‘consols’), one of these still forms part of the French public debt to this day. However, inflation has eroded the value of the annual payments to scarily more than the cost of postage and the envelope in which to mail them. This perpetual annuity was created three centuries ago to reward an advisor to a duke for turning down a bribe. This perpetual pension has transformed from the personal obligation of an aristocrat to a liability of the French state. The story tracks some of France’s political and economic history.

Claude Linotte

           The story of this peculiar pension starts with Claude Linotte. Born in Paris in 1686, Linotte was trained as a lawyer. He went on to serve as an adviser to Emmanuel Théodose de La Tour d’Auvergne, the Duc de Bouillon, and his son and heir Charles Godefroy. In the early 18th century, Bouillon was a small duchy in modern-day Belgium. The tiny principality comprised the town of Bouillon and some small nearby villages. Linotte was assigned to tutor the Duke’s children and was also tasked by the Duke with protecting their inheritance.

           However, this inheritance came with a great deal of debt. Thus, when he succeeded his father, Charles Godefroy went about having some of his lands sold in order to make good on the family’s liabilities. It was then, in 1738, that the French minister of Finances Philbert Orry tried to bribe Linotte with 40,000 livres to sell off a part of this estate to the King of France at a favorable price. Linotte informed the Duke who rewarded him for turning down the bribe by granting him an annuity. Much of this story is told by the economist François Velde, in his paper ‘The Case of the Undying Debt’, which recounts the history of this antiquated pension.

Pension

           To reward him for his integrity, the Duc de Bouillon offered Linotte a pension of 2,000 livres a year for life. This was a generous sum; in this era, a skilled building craftsman made 400 livres a year. To provide for his heirs, Linotte politely asked for a perpetual annuity and the two settled on a 1,000 livres pension to be paid to him and his decedents in perpetuity. The annuity was secured by the duke’s own pension from his post as Grand Chambellan de France. Members of the La Tour d’Auvergne family would hold this post continuously from the mid-17th century to the French Revolution and successors were responsible for paying the pensions of their predecessors.

           It is a testament to the diminishing buying power of money over the centuries that a sum so large could have shrunk to the value of a baguette today. At the time Linotte was awarded this pension, 1,000 livres was worth 10 ounces of gold, a $14,000 value today. Measured in silver, 1,000 livres bought about 150 ounces, still over $2,000 in today’s money; silver having retained its value far less well over the last 280 years. It wasn’t the only generous pension awarded to the Linotte family by the Dukes of Bouillon. A generation later, Claude Linotte’s son Claude-Henri Linotte became the procureur general, or attorney general, of Bouillon. In 1760, he and his wife were gifted a life pension of 1,200 livres as a wedding gift from the Duke.

           From there things went downhill for the Linottes and their benefactors. The Duchy was invaded during the French Revolution in 1794 and incorporated into France a year later. The aristocrats’ estates were confiscated during the Revolution but were restored to the Duke, then Jacques Léopold de La Tour d’Auvergne, as it waned. Regardless, years without the income from his estates and mounting debt and overdue taxes had nearly bankrupted the Duc de Bouillon. The childless Léopold died in 1802 and with the rest of the dynasty having fled France during the Revolution, it fell to the government to handle the estate.

           Under Napoleon, the ducal estates of the La Tour d’Auvergne household were confiscated and creditors’ claims were added to the state debt. The Linotte pensions were among these claims. Because the debts far exceeded the value of the assets, this was essentially a bailout amenable to all parties, especially since the Bonapartes picked up some elegant properties, including a grand townhouse in Paris and a castle in Navarre. Some of the properties acquired were later given to Joséphine, Napoleon’s first wife, upon their divorce. In this process, Linotte’s annuity became a liability of the French state, as it remains today.

           Napoleonic-era financial statements from Bouillon record the perpetual pension as being for 800 livres, net of a 20% withholding for taxes. A consequence of the French Revolution was the introduction of the franc as the national currency at a rate of 1 franc per 1.0125 livres. As such, the Linotte pension amounted to 790 francs a year. Over a century later, the introduction of the ‘nouveau franc’ under President Charles de Gaulle in 1960 saw a 100-to-1 conversion of old francs to new francs. Thus, the Linotte pension paid just under 8 francs from the 1960s until the introduction of the Euro. Then, at a conversion rate of 6.56 francs for €1, the perpetual annuity was converted to a mere €1.20 a year.

Today

           So, after 280 years, there isn’t much left for the modern descendants of Claude Linotte. As it happens, Marie and Jean Verrier, a couple living in a suburb of Paris, can both trace their genealogy to the 18th century lawyer. No original record of the pension exists but the Verriers have a chest full of other records to prove they are eligible to receive the annual annuity payments. In 1900, descendants of Linotte were offered almost 16,000 francs by the state in exchange for extinguishing the annuity, but they refused. Nowadays, given the miniscule amounts involved, the Verriers don’t even bother collecting the sum from their government. As Jean Verrier explains, “the processes you’d have to go through. We’d spend in stamps, in paper, in time, 10 times more or 100 times more than [the €1.20 owed]”.  

           The fact that the 1,000 livres payments have been reduced to €1.20 a year is a testament to the devouring power of inflation on fixed annuities. When the annuity was created in 1738, the purchasing power of the payments amounted to the equivalent of $14,000 today. Recalling that 1,000 livre bought you 10 ounces of gold at the time, $14,000 worth at today’s prices, reveals that gold just barely retained its purchasing power over the last three centuries. Of course, had the annual payments been reinvested at market interest rates, returns perhaps would have been higher. When dealing in illiquid perpetual investments, it isn’t the fortune that matters in the end so much as where it is kept.

Lesson

            That Claude Linotte’s pension payments have been reduced to the value of a baguette may be a disappointment to his heirs. However, this fact barely diminishes the historical significance of the 18th century annuity. Indeed, it may even enhance it. It illustrates that all investments are subject to risks and uncertainties; the former being predictable, the latter not. Over long periods of time, it is uncertainty that is more threatening. Whereas credit risk and inflation risk may be predictable over a short time horizon, they are quite uncertain over periods as long as three centuries. Whereas Linotte may have been able to make an educated guess of what the value of 1,000 livres a year would amount to in 1750, he would be clueless of its real value centuries later. Despite this, the fact that records of the Linotte pension survive at all is a testament to the potential for continuity in the face of risk and uncertainty.

Further Reading

1.     Grant, James. Money Shows Its Age. Grant’s Interest Rate Observer, 24 Dec. 2010.

2.     McCullagh, Declan. “A Government Pension That’s Lasted 271 Years.” CBS News, CBS Interactive Inc., 2 Dec. 2009.

3.     Velde, François R. “The Case of the Undying Debt.” Financial History Review, vol. 17, no. 2, 2010, pp. 185–209.

4.     Whittall, Christopher, and Georgi Kantchev. “The Bond That’s Still Paying Interest, 280 Years Later.” The Wall Street Journal, Dow Jones & Company, 6 Jan. 2019.

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