Winning the lottery of life - the tontines

Mercure 1726:  24th February, Charlotte Bonnemay, widow of Louis Barbier, died in Paris aged 96 years old.  She alone remained of all the Rentiers who comprised the 13th Class of the first Tontine, and the 14th of the second; at the time of her death she enjoyed an annity of  73,500 livres of income from an subscription of 300 livres in the two classes.

Mercure historique et politique 1762: Mr. Christophle de Beaud, native of Pontarlier, former Chaplain to the nuns of Chaillot and Confessor to the late Queen of England, wife of James II, has just died in his parish of Doux, aged 97 years.  He was the last shareholder of his Division in a Tontine; thus in the last two years of his life, he enjoyed 10,400 livres in rentes

Madame Barbier's obituary, with details of her marvellous annuity, was repeated in journals, dictionaries and books of anecdotes, both French and English, throughout the 18th and early 19th centuries. The source of her wealth was a  "tontine", a form of life annunity with benefit of survivorship, which was occasionally issued alongside ordinary annuities by the French government.

19c book illustration - Tonti is the plump bewigged gent on the left

The "tontine" takes its name from the Italian banker Lorenzo Tonti, who first proposed the scheme to Mazarin in 1652.  Although his plan was initially rejected, the French government later resorted to tontines on a considerable scale.  Ten French tontines were issued in all, starting in 1689 and ending in 1759. They were strictly a wartime expedient:   ten thousand persons contributed 6.5 million livres during the War of the Grand Alliance, twenty-five thousand contributed 26 million livres during War of the Polish Succession; a similar number thirty million in the War of Austrian Successson, and in 1759 nearly fifty thousand  contributed 47 millions in the Seven Years War in a single tontine.

Royal Edict creating the tontine of 1744

French tontines were divided into 14 age classes with different rates of return, and the intial investment was normally set at 300 livres. Payments could be made contingent on the subscriber's own life, or that of a third-party nominee, typically a child.  The crucial difference from an  ordinary life annuities was  that payments did not cease on the death of an individual but were divided between the rest of  shareholders, and continued until the death of the last survivor in each class.  Hence the huge gain of a few lucky (but aged) individuals.

Tontine agreement from 1736, with nine ms. signatures
https://encheres.catawiki.eu/kavels/10190797-france-tontine-dit-d-aout-1734-rente-viag-re

Unsurprisingly tontines were widely recognised as a desperate measure forced on a reluctant government.  According to the Encyclopof all financial expedients, tontines are perhaps the most expensive for the State". The entry in Savary's Dictionnaire universelle de commerce notes that  f all expedients they were the most burdensome due to their  high interest rate and because they took "about a century to extinguish"
Savary, Dictionnaire universel de commerce (1762 edition)
https://books.google.co.uk/books?id=OoM-AAAAcAAJ&pg=PA1055#v=onepage&q&f=false

Tontines: list of trustees and payment agents, Almanach royal, 1764

It was often supposed that finance ministers had foolishly underestimated the longevity of the subscribers.  This view was lent credence by the Antoine Deparcieux's Essai of 1745 in which he contructed  life-tables based on 9,000 nominees from the first two tontines and compared them with records of deaths from religious houses;  to everyone's surprise the tontine-holders achieved the greater life-expectancy;  it was "a false prejudice" Diderot admitted, to suppose that religious lived longer than gens du monde.  The American economic historian David Weir estimated that  the expected age at extinction of  a class in the French tontines was in fact about 92, but notes that a few extra years was not that significant in terms of additional cost;  tontines at least had the advantage   that commitment could be more easily calculated than for ordinary life annunities, since it depended mostly on numbers in each class (Weir, "Tontines", p.112)

David Weir compared the outcome of  tontines in France with the situation in England, where they were also used in the 18th century, but with notably less success. The terms offered by the  French government were much more favourable, and were particularly advantageous in the older age classes, whereas almost all English tontines were taken out on children (p.113)  Contemporaries often regarded tontines as a form of lottery but, as David Weir comments,  it takes a very long time to "win" the gamble of a tontine.  In practice, like individual life annuities, they appealed mainly to pension seekers.  The initial investment tarif was set slightly above price of life annuities to reflect the advantageous terms, but both life annuities and tontines paid well over 7% interest.(Weir, p.112-3)  

Dr Weir emphasised that the annuities played a political role in cementing the allegiance of the urban bourgeoisie who did not benefit from tax exemptions and privilege. The inviolability of tontine income in particularly was emphasised in strongest terms.  Nonetheless, in November 1763 a royal edict banned any future government tontines, citing their enormous expense. In 1770 the abbé Terray froze tontine payments and converted them to life annuities, thereby transferring the future benefits of survivorship to the State.  The subscribers still enjoyed advantageous terms, since flat-rate 10 percent annities were  applied to all tontine classes, but there was a widespread sense of betrayal and fear of default was heightened among other annuity holders.  At a crucial juncture royal government alienated an important sector of support, without realising substantial financial gain.

Reference

David R. Weir, "Tontines, public finance, and revolution in France and England, 1688-1789
The Journal of Economic History, 1989, 49(1): p. 95-124 [article on JStor]

The idea of winning out through longevity at least had a certain amusement value. In 1708 Alain-René Lesage offered the Comédie-Française a one-act farce entitled "La Tontine".  A physician hoping to raise the funds to give his daughter a dowry, buys a tontine on the life of an elderly peasant, whom he then strives to keep alive. The play was  not performed until 24 years later, in February 1732, and finally appeared in print in the Oeuvres of 1739.    The tontine featured only as a device, but the preface to the collection maintained - without foundation - that the play had been suppressed for "reasons of State".

See:   Christelle Bahier-porte, "Dans l'atelier de Lesage : l'histoire de La Tontine, des manuscrits au livre (1708-1739)". Revue d'histoire littéraire de la France, 2011. 111,(4), 837-850.

http://www.cairn-int.info/abstract-E_RHLF_114_0837--in-lesage-s-workshop-the-history-of.htm

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