Millionaire: The Philanderer, Gambler, and Duelist Who Invented Modern Finance Read online

  Orléans saw it differently; though tempted, he was terrified. To make such an acquisition while widespread hardship continued would court controversy and criticism. But to Law, as to most men of his age, scruples were a selective luxury. Idealism could be put on hold when necessary, and ambition now demanded a different rationale. With the help of Saint-Simon, he argued persuasively that the “greatest king in Europe” should not apply the same rules as everyone else and that, in any case, the amount in question would have little real effect on the populace. The jewel’s splendor would reinforce France’s status in the world, and thus the greatness of the regency.

  Orléans capitulated and authorized Law to make the final negotiations. A price of 2 million livres was agreed, but since there was no money to buy the diamond outright, a loan was secured against other jewels. Ever since, the Regent Diamond has adorned the regalia of France. Stolen during the revolution, it was recovered in time to sparkle on the ceremonial sword of the first consul in 1801, and it remains in the Galerie d’Apollon in the Louvre, a gleaming testimony to Law’s determination to make his mark and the regent’s irresolution in the face of temptation.

  The spectacular diamond was a mere diversion compared with the mammoth drama to which Law had hinted in letters to the regent: “The bank is not the only nor the greatest of my ideas. I will produce a work that will surprise Europe by the changes which it will produce in France’s favour,” he wrote, a few months before the bank was inaugurated.

  The idea that would rock the world and immortalize its inventor seemed innocuous enough. Law’s rapacious eye had focused on the wealth promised by the Indies, Africa, and the Americas, and he wanted to form an overseas trading company to exploit it. The Italians, the Spanish, the Portuguese, the Dutch, and the English had all reaped immense fortunes from their fleets laden with silk, ebony, ivory, lacquer, coffee, tea, chocolate, spices, gold, silver, porcelain, and myriad other luxurious and lucrative cargoes. Now, said Law, France should share the harvest.

  So far the French had enjoyed little success overseas. Cardinal de Richelieu, Louis XIII’s great minister, had set up East and West Indian companies a little less than a century earlier. Under Colbert, in Louis XIV’s reign, further ventures had been tried in Canada, the Caribbean, Newfoundland, the French Americas, and the coast of Senegal. None had flourished, and overseas trade had been handed over to private enterprise. Among those who grasped the colonial baton was Robert Cavalier de la Salle, a native of Rouen, who in 1682 set out from Montreal, found and navigated the Mississippi, and was murdered while trying to establish a colony in Louisiana. The Canadian-born captain of a naval frigate, Pierre le Moyne d’Iberville, continued the quest, and when he died, Robert Crozat, a wealthy Parisian financier, took over. Crozat had come closer than anyone before him to succeeding, plowing 1.5 million livres into his enterprise. But when he came under the beady eye of the Chamber of Justice and found he owed taxes of 6.6 million livres, he decided, with some reluctance, to relinquish his Mississippi concession in part payment of his dues.

  Here was Law’s great chance. The trading privilege that had reverted to the Crown was for the French colony of Louisiana, a territory many times larger than France, stretching from the mouth of the Mississippi for three thousand miles north, encompassing what is now Louisiana, Mississippi, Arkansas, Missouri, Illinois, Iowa, Wisconsin, Minnesota, and parts of Canada. This vast tract was uncultivated, largely unexplored, and inhabited only by tribes of Indians. No one knew what riches lay beneath its soil or within its forests, and most of France did not even know where the colony was, but it was whispered that this new El Dorado was copiously endowed with seams of gold and silver and with emerald mountains.

  The ingenious scheme was baited to entice both the regent and the private investor. The reason most other overseas ventures had failed, Law said, was because they were undercapitalized and badly directed. His venture would be amply funded and inspirationally managed and would earn such huge revenues that France would again become the most powerful nation in the world. He would raise the necessary capital of 100 million livres by selling 200,000 shares, each valued at 500 livres. If he formed a stock company and sold shares to the general public, everyone who wanted to could share in his company’s success and grow rich. The draw for the Crown was that investors would partly pay for shares in Crown debt—the state bonds or billets that had been circulating in some form since the reign of Louis XIV. The company would charge a lower rate of interest for the billets, thus effectively doing the Crown a favor by saving precious money. The bargain for brave investors was that Law offered to accept the devalued billets at face value in return for company shares.

  But when the scheme was discussed, the Parlement (the sovereign law court of Paris with some political functions including registering all laws and state loans) voiced strong resistance. Suspicions remained of Law’s motives; jealousy of his influence with the regent rankled. Law was an outsider, and no matter how successful, ingenious, and persuasive, always would be.

  The regent, however, viewed things differently. His affection and admiration for Law had grown with the bank’s profits. Law tendered the promise of untold wealth, adventure, uncertainty, excitement. The Parlement represented the small-mindedness of judges. For a man who always craved the frisson of novelty, who had spent long years feeling frustrated under the reactionary Louis, there was little contest. He overruled the critics, and Law was granted his privilege. In August 1717, the Company of the West, known popularly ever since as the Mississippi Company, was founded. It was given the right to all trade between France and its Louisiana colony for twenty-five years and to maintain its own army and navy, to mine, and to farm. As managing director of the company Law held sway, ruling half of America in all but name.

  But in these early days the company, like the bank, struggled to survive. The enticements Law had used to secure the concession had been costly and hindered progress. The fact that the shares were largely bought in devalued government bonds meant that the only capital available to build fleets and pay for crews, captains, stores, seeds, stock, tools, manual labor, and all the other needs of the settlers was the 4 percent interest payable on the bonds. If all the shares were subscribed, the most that would be raised would be 4 million livres a year ($440,000)—a modest sum, even then, on which to found a new El Dorado.

  The reality was worse. While temptation to rid themselves of billets was great, the public, like the Parlement, were still distrustful of Law. Although joint-stock companies were familiar to English and Dutch investors, to the French they were not. The pleasures of share dealing were as yet undiscovered, the profits unimaginable, and the pitfalls worrisome. By the end of October, fewer than 30 million shares had been taken up, and many of those subscribed for had not been paid in full. Racking his brain for ways to boost sales, Law announced that investors could pay for shares in five installments, and might sell them at any point after the first installment had been made. But even with this incentive shares still floundered below par.

  Meanwhile, Law’s enemies within the establishment were gathering. Noailles’s animosity had grown with the launch of the Mississippi Company, and he was “setting all the machines at work to overthrow him,” stirring up the councils and the Parlement against him. Law grumbled to Saint-Simon, knowing full well that his complaints would reach the regent and carry more weight than if he made the criticisms directly. In January 1718, the enmity between Noailles and Law had reached such a pitch that the regent was forced to act. He hosted a supper party at Noailles’s residence, La Raquette, at which he asked both men to present their ideas for the future. Noailles opted for the tried and tested tax and monetary manipulations. Law talked of nationalizing the bank, of expanding his trading company into a vast conglomerate, larger and more powerful than anything the world had ever seen, even of making the outstanding national debt disappear. Orléans’s “natural love of in-direct ways, and the attraction of those mines of gold which Law made him foresee�
� made Law’s innovative vision infinitely more appealing than Noailles’s irreconcilable traditional approach. The finance minister was ushered expediently to a new post in which he would have nothing to do with John Law.

  His place was filled by the gimlet-eyed d’Argenson. Many questioned the appointment. Some said that d’Argenson knew little of finance, that he would take the role and its perks and let Law run things behind the scenes. Others felt that he was a hard-liner who had been brought in to keep a stronger control of the Parlement. Certainly it seemed that he was not going to let Law run his show and take all his glory. As if trying to out-maneuver him, d’Argenson swiftly proposed his own remedy for the country’s financial problems: he would slash government debt by calling in old coins and state bonds for revaluation. The livre would be devalued by a sixth, but a substantial amount of debt would be absorbed.

  If Law had had anything to do with the scheme, he did not show it. His main worry was to prevent the public losing trust in his banknotes, although since they were guaranteed at value on date of issue, they would be unaffected—or, if anything, more desirable. Thus, he reasoned, he could lie low while d’Argenson played at finance. He was wrong.

  In the Parlement there was outcry. Unlike in England, members of the French Parlement were nonelected and had little real influence over the absolute monarchy; their role was no more than that of a judicial high court with administrative and legal duties. To bolster his own position in the early days of his regency, Orléans, however, had restored to them the right of “remonstrance” before registration, which Louis XIV had removed in 1673. It was a decision he now regretted, since it gave them a lever—albeit a flimsy one—with which to challenge his authority. Law had not been overtly involved in the devaluation of the currency, and later said he had opposed it. But the scheme presented the Parlement with a twofold opportunity: to assert its power and to dispose of Law, against whom distrust festered. “The Parlement are still doing all they can to pick a hole in Mr. Law’s coat, striking at the Regent through his sides,” reported Fanny Oglethorpe—a Jacobite exile and friend of Law—of the mounting tensions. The English ambassador, the Earl of Stair, also marked the mood: “What makes it dangerous to employ Law is that everyone is against him, and that the Duke of Orléans, in the present situation of his affairs, would run a great risk in putting the administration of the finances into the hands of a stranger so generally hated, even if his system were good.”

  The turning point came when the Parlement audaciously demanded that the regent revoke the devaluation. When he refused, the judges retaliated by publishing an edict that outlawed the link between the bank and the government. No longer would taxes be payable in banknotes, it said, and, moreover, it was “forbidden to all foreigners, even naturalized, to meddle directly or indirectly, or to participate under assumed names, in the handling or the administration of the royal funds.” The reference to Law could not have been clearer.

  The crisis deepened. Word reached Saint-Simon that the Parlement intended to send bailiffs “some morning with a warrant to arrest Law and hang him within three hours in the prison-yard.” At this, according to the Jacobite exile General Dillon, the regent “sent immediate orders to the foot and horse guards to be ready at a call and had powder and ball distributed to them. There are actually footguards at Law’s house to secure his person from insult.” It must all have been a frightening reminder to Law of his trial and imprisonment. During an emergency meeting hastily convened by Saint-Simon, the strain of the past days took their toll and Law’s self-possession crumbled: he broke down, according to Saint-Simon, “more dead than alive, [he] knew not what to say, still less what to do.” Saint-Simon calmed him, and suggested that Law and Katherine take refuge in vacant apartments at the Palais Royal. Here, said Saint-Simon, he would be able to “make more noise and bind the Regent more and . . . talk with him at all hours and urge him up to the mark.” In fact the regent was too preoccupied to keep Law briefed with the unfolding events, and Law, already unsettled, became increasingly isolated and insecure.

  Orléans had decided to surprise the Parlement with a meeting known as a lit de justice, in which the young king would assert his regent’s authority and override the Parlement’s remonstrance. Saint-Simon helped lay plans to crush the Parlement and only perceived Law’s anxiety when he was accosted by one of Law’s servants, who begged him to visit his master. He found Law in distress with Katherine. It may have been the first time she had seen Law’s vulnerability, and to judge from Saint-Simon’s account of this meeting, she had failed to allay his fears. Law was taut with the fear that the regent was abandoning him to his enemies, and it was only when Saint-Simon reassured him that there was nothing sinister in the regent’s behavior that he seemed “to breathe again.”

  On August 26, the day of the lit de justice, Paris awoke to find Swiss guards, musketeers, cavalry, and household troops posted around the Palais Royal, the Tuileries, Law’s bank, and other strategic landmarks. The meeting began at ten in the Palais de Justice. Before the regency council, the Parlement, officers of the bodyguard, and a contingent of spectators “of consideration and mark,” the eight-year-old king mounted the small staircase to his throne beneath a tapestry baldachin. D’Argenson, as Keeper of the Seals, made the announcement on the boy’s behalf: “The King chooses to be obeyed, and obeyed on the spot.” Thus, with more than a dash of melodrama, the royal authority of the regent was upheld, and the sixty-nine rebellious magistrates of the Parlement quashed. Three refused to fall into line and were arrested. The rest sweated profusely into their powdered wigs and robes of ceremonial velvet and conceded, reluctantly, that their moment had passed. The challenge had failed: once again Law, the outsider, had eluded them.

  10

  FINDING THEPHILOSOPHER’SSTONE

  There appears nothing but new clothes, new figures and an infinite number of families raised to new fortunes. They see 800 new coaches set up in Paris, and the families enriched purchase new plate, new furniture, new clothes and new equipage, so that there is a most prodigious trade there.

  Daniel Defoe,

  September 12, 1719

  THE PARLEMENT’S THREAT TO HANG HIM SHOOK LAW profoundly but did not alter his resolve to put his master plan, the so-called system, into action. He was still fired by the gambler’s will to win, a philanthropic desire to improve, and the urge to experiment. Also, he was still obsessed with the rejection of his appeal for a pardon for the death of Wilson, and craved redemption. But Law’s sense of isolation at the Palais Royal seems also to have awakened a more profound, barely acknowledged need for social acceptance and belonging. Law the opportunist, once happy to live outside the conventions of society and to make use of his haut monde connections for his own ends, now longed to be properly part of them. As with many successful businessmen today, he was consumed by political ambition. Perhaps Katherine had something to do with this shift in his thinking: the death threat and the rapid turns in political events must have disturbed her and underlined the vulnerability of their position. Perhaps behind Law’s increasing desire for public office lay not only his ambition but concern that the family’s future should be made more secure. It is possible, too, that Katherine felt she had an important role to play: as a doyenne of society, she could forge alliances that would help to stabilize Law’s political career. One fundamental belief, however, she could not change: in money, he was convinced, lay the key to salvation and the answer to his aims.

  As France’s premier banker, he was ideally poised to become a man of repute. The following autumn, when Lady Mary Wortley Montagu was passing through Paris, she noted the change in his fortunes: “I must say I saw nothing in France that delighted me so much as to see an Englishman (at least a Briton) absolute at Paris. I mean Mr. Law, who treats their Dukes and Peers extremely de haut en bas and is treated by them with the utmost submission and respect.” Always an enthusiastic patron of the arts, Law sat for his portrait, probably with artist Alexis Simon Belle, at ar
ound this time. The painting shows a man in his mid-forties, of refinement, charm, and still youthful appearance, wearing a full-length brown periwig, embroidered velvet robe, and lace cravat—grand clothes befitting his already elevated status. His face is thin and rather angular, his mouth, though half-smiling, has an air of determination, and the expression is distant—the piercing gray-eyed gaze avoids the viewer, as if his mind is elsewhere, perhaps with his system’s next phase: his bank’s takeover by the state. The bank’s assets now included over 9 million livres in coins and 1.6 million in bills of exchange. Against these were fewer than 40 million livres in outstanding notes. Law had remembered the warnings of Saint-Simon and the lessons of the Bank of Amsterdam and had restricted the issue of notes.

  In December 1718, the Banque Générale became the Banque Royale, the equivalent of a nationalized industry today. Law continued to direct it, and under his leadership over the next months, the finances of France leaned more heavily on it. New branches opened in Lyon, La Rochelle, Tours, Orléans, and Amiens. To ensure that everyone made use of paper money, any transactions of more than 600 livres were ordered to be made in paper notes or gold. Since gold was in short supply, this obliged nearly everyone to use paper for all major transactions. Meanwhile, for the leap of confidence they had shown in purchasing shares in the bank in its early uncertain days, and perhaps to buy his way into their world, Law rewarded investors lavishly. Shares that they had partly bought with devalued government bonds were paid out in coin. Both he and the regent had been major shareholders and were among those who profited greatly from the bank’s takeover.