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

  Voltaire,

  Short Studies: The French Islands

  EVER SINCE LAW HAD TAKEN CONTROL OF THE LOUISIANA colony, tantalizing reports of it had appeared in France’s official newspaper, the Nouveau Mercure: correspondents described a land of milk and honey in which the climate was temperate, the soil fertile, the woods replete with trees suited to building and export, and the countryside populated with wild yet benign “horses, buffaloes, and cows, which however do no harm but run away at the sight of men.” In this wonderland, said an article published in September 1717, the soil bulged with seams of gold and silver ore; other valuable minerals—copper, lead, and mercury—also awaited exploitation, and the natives had spoken of an enormous rock near the Arkansas River made of a type of rock that was “dark green, very hard and very beautiful, resembling emeralds.” In short, said the endlessly imaginative Mississippi journalists, “nothing almost is wanting . . . but industrious people, and numbers of hands to work.” The optimistic dispatches continued to circulate Paris for three more years. “The most solid foundation for the hopes of the Mississippians,” wrote the captain of the Valette, a vessel that had recently returned from the region, “are the silver mines discovered in the country of the Illinois [the local Indian tribe].” Elsewhere, in the fairs, markets, and taverns of provincial towns and villages, catchy songs advertised the colony’s charms:

  Aujourd’hui il n’est plus question

  De parler de Constitution,

  Ni de la guerre avec l’Espagne;

  Un nouveau pays de cocagne,

  Que l’on nomme Mississippi,

  Roule a présent sur le tapis.

  Today there is no longer any question

  Of talking of the constitution

  Nor of the war with Spain;

  A new wonder land

  That they call Mississippi

  Has appeared on the scene.

  By 1719, the showpiece settlement of New Orleans, founded a year earlier and strategically placed at the mouth of the Mississippi to control the trade on the Mississippi and Missouri rivers, was said to be a prosperous town of “nearly 800 very comfortable and well appointed houses, each one of which has attached 120 acres of land for the upkeep of the families.” Furthermore, mineral finds exceeded all expectation, said the Mercure of April 1720: samples sent for testing had proved astonishingly pure—“One scarcely finds the same quantity in the richest mines of Potosi.”

  It was all an illusion. The reality, concealed beneath the veils of beguiling disinformation, was that the colony was struggling to stay alive. Between 1717 and 1720, of the thousands that made the arduous journey to Louisiana, over half perished en route or returned exhausted and disenchanted with what they found. Hundreds more perished from disease or starvation. No sizable deposits of silver or gold, let alone emeralds, had been found, and according to the report of de Bienville, the colony’s governor, to the company in 1719, New Orleans consisted only of four modest houses, where the immigrants survived entirely by trading with the natives.

  The glossy reports and alluring songs had been master-minded by Law more as a marketing ploy than a deliberate deception. He was adamant that given enough time and money, the colony would become the valuable territory everyone believed it to be. But he was hampered by innate French reluctance to emigrate: there were too few willing pioneers. Yet having realized that, along with the predictable profits of the other rights acquired, much of the pyramid of speculation depended on public belief in the colony’s prosperity and their expectation that this was sure to increase, he had no alternative but to conceal the facts until more potential settlers came forward.

  To tempt them he offered attractive incentives. Colonists’ expenses would be met by the company from the time they took up residence until they were established, and they would be provided with land, livestock, and thirty pounds of flour a head until their first harvest. But however successfully in the past he had manipulated the public’s opinion, he could not persuade them willingly to leave France for an unknown, undeveloped wilderness, even though much of the nation’s money was staked on it.

  Undaunted, and in the expectation that where he led others would follow, Law acquired a concession of his own in 1719. In partnership with the Irish émigré Richard Cantillon, one of Paris’s most successful private bankers, and the English speculator Joseph Gage, he acquired the rights to a plot of 16 square leagues bordering the Ouachita River to the west of the Mississippi, in what is now the state of Arkansas. While Law and his partners observed operations from the comfortable security of their Paris mansions, around a hundred settlers—including carpenters, mine workers, and gardeners—were enlisted to prospect for minerals and to grow tobacco. The party, supervised by Cantillon’s brother Bernard, left La Rochelle on the slave ship St. Louis in March 1719. Three months later it dropped anchor in the brave new world of Louisiana. By one account, Law’s expedition was unusually well equipped, with “such a large quantity of merchandise and other effects that they filled three boats to get to their concession.”

  As he had hoped, his example inspired similar partnerships. A handful of aristocrats, several successful speculators in Mississippi stock, including the widow Chaumont, and several of his English, Irish, and Scottish émigré friends, including the glamorous Fanny Oglethorpe, joined in ventures aimed at farming tobacco, rice, and silk or prospecting for minerals.

  Within months of hearing of his expedition’s safe arrival Law was trumpeting its success. Rumors eddied through salon society of the silver deposits discovered on his land, and of a mine already yielding five ounces of silver for every hundred-weight of ore. Few suspected that the whispers emanated from Law’s imagination rather than the correspondence of his settlers, for the mission, despite its ample resources, was far from triumphant.

  Bernard Cantillon and his team had found themselves in a dismal, hostile territory in which the struggle for survival overshadowed any attempt to farm or prospect. The immigrants were racked with scurvy, dysentery, malaria, and yellow fever. There was the ever-present danger of hostile Indians, who needed constant bribes to remain friendly. According to Buvat, in one attack that took place in March 1719 and was never publicized, 1,500 French colonists were ambushed in their homes and slaughtered. There was also danger from the Spanish settlements to the west—with whom war was waged from 1719 to 1720—and English settlements to the east, between which the French colony was sandwiched. Cantillon and his party, like others before them, realized the extent of the exaggeration only when they arrived, but by then it was too late to go back. Within four years, desertion, disease, and other hazards had culled the expedition’s numbers until only a quarter remained. Law and his partners found little in the way of quick profit. In a letter to one partner two years later, when his own fortunes were in decline, he was forced to relinquish his investment: “With regard to my Louisiana colony, I thank you for your offers. As I am not in a state to continue to take on the necessary expenditure to support it, don’t hesitate to take the party that suits your interests best. Wishing you success in what you undertake.” Another two centuries would pass before the true wealth beneath the soil was found, not in silver, gold, or emeralds but in oil.

  In Paris, conscious that the rising share market depended on public confidence that large-scale revenue would come sooner rather than later, Law moved to speed things up. The stumbling block as he saw it was still the dearth of settlers and an inadequate support system. He responded first with orders for new shipping, making so massive an investment that even the pragmatic Daniel Pulteney was astounded: “Besides the ships the company had already bespoke in England, which I think were 8 or 9 orders, are lately sent for building there 8 more . . . 4 ships are now fitting out at port Louis,” he wrote, in early 1720, by which time the company fleet had already swelled to some thirty ships, more than the rival English East India Company.

  Meanwhile, the problem of where to find settlers had been dramatically addressed: new legislation was p
assed whereby every criminal, vagabond, and prostitute and any servant unemployed for more than four days was listed and liable for transportation. An army of mercenary soldiers, known as “archers,” was employed by the company to trace, apprehend, and escort them to the nearest port for transportation. In Paris, with the blessing of the authorities, Law rounded up orphans and young people from the so-called hospitals, many of which served also as detention centers and poorhouses. Thus, in Paris alone it was estimated that some 4,000 people—among them society’s most defenseless, disreputable, and dangerous citizens—taken from Bicêtre, l’Hôpital Général, and Salpêtrière, would swell the numbers of settlers and provide the necessary unskilled labor. According to the reports, the first cargo of female deportees arrived to the warmest of welcomes from the male settlers and quickly found marriage partners. Problems arose, however, when two men claimed the last woman, and the matter had to be decided by hand-to-hand combat.

  In Paris, at a comfortable distance from wrestling matches on the dockside, few at first opposed the transportations. Echoing the general mood, Saint-Simon commented, “If this had been done with wisdom, discernment and necessary caution, the object they proposed would have been accomplished, and Paris and the provinces relieved of a heavy, useless and sometimes dangerous burthen.” But public approval was short-lived. The journalist Buvat sternly noted the problems caused in Louisiana by certain categories of female immigrants: “The debauched girls that had been transported to the Mississippi and other French colonies had been the cause of much disorder bytheir libertine actions and by the venereal disease that they had spread.”

  Increasing displeasure was voiced over the brutality of the archers. Poorly supervised, ill disciplined, and corrupt, they were soon universally detested and feared. If too few people from the designated categories were captured, the archers were known to arrest anyone unfortunate enough to stumble into their path. According to Pulteney, their fiendishness was exacerbated by financial temptation. They were paid commissions for every captive, and the system was widely abused. With a word in the ear of an archer and few sous slipped in his hand, it was all too easy for an unwanted relative, awkward son, inconvenient competitor, or demanding spouse to be dispatched to the swamps of Louisiana. There was even a popular song to warn husbands of the danger:

  O vous tous, messieurs les maris,

  Si vos femmes ont des favoris,

  Ne vous mettez martel en tête;

  Vous auriez fort méchante fête.

  Si vous vous en fachez, tant pis:

  Vous irez a Mississippi.

  O all you husbands

  If your wives have favorites

  Don’t get worried;

  You will have a terrible celebration.

  If you get angry, too bad:

  You will go to Mississippi.

  Despite growing public concern, archer chicanery showed no sign of diminishing. Even infants were reported to have fallen prey: “I have heard that they have taken children out of houses; some they release again for money, those who cannot or will not pay a ransom are carried to a prison whence they are to be sent to the Mississippi,” Pulteney lamented. Those who could not escape were abysmally mistreated: “Not the slightest pains were taken to provide for the subsistence of these unfortunates on their journey, or at the places where they disembarked; they were shut up at night in barns without food, or in cellars from which they could not issue. Their cries excited both pity and indignation,” recorded an outraged Saint-Simon. The injustice of impressment would find most famous literary expression in the novel Manon Lescaut, published in 1731 by Abbé Prévost. The story charts the life of a young girl, Manon, during the Regency era, who is diverted from life as a nun by the appeal of money. Manon betrays her first suitor, who loves her and wants to marry her, takes numerous lovers, and is eventually arrested and deported to Louisiana, where she dies from the hardship she encounters.

  The groundswell of disapproval did not diminish Law’s quest for settlers, but conscious of the problems created by deportations, he concentrated his efforts on enticing volunteers—especially young married couples—to the colony. On visits to Paris hospitals he offered generous dowries to couples who would marry and emigrate. “They took 500 boys and girls from the hospitals of Bicêtre and de Salpêtrière . . . the girls were in wagons and the boys on foot escorted by 32 guards,” noted Buvat. But the most bizarre event Law engineered took place in September 1719, when the pealing bells of the St. Martin quartier of Paris proclaimed the mass nuptials of eighty young girls of doubtful repute and eighty specially pardoned criminals. While the marriage took place the couples stood shackled together in heavy iron chains. Afterward, under the watchful eye of a company of archers, they were paraded, still in chains, through the streets of Paris before being sent to La Rochelle for transportation to Louisiana. The chains caused consternation among the public, and a similar mass wedding, in which couples were linked with flowers—presumably to symbolize the fecundity that awaited them—took place soon after in a blaze of publicity.

  Publicity stunts and propaganda fueled much gossip and filled pages in the journals but had little impact. Inevitably, rumors of the sufferings of colonists penetrated even the institutions from which many were culled. The promise of freedom could not overcome the mounting terror of transportees—some became so reluctant to emigrate that they were willing to risk life and limb to avoid it. Riots and skirmishes escalated in ports and prisons. On January 20, 1720, it was reported that nineteen married couples placed in jail awaiting departure had ambushed their guard, grabbed his keys, and succeeded in setting themselves free. At La Rochelle, 150 girls about to embark sprang at the archers guarding them and attacked them with nails and teeth. The affray was only brought under control when the archers fired at the transportees, killing twelve and forcing the rest to embark at gunpoint.

  By early 1720, numbers of emigrants had dwindled to the point at which Law was having to recruit large numbers of foreigners: “A great many Scotch rebels are to be employed there and I am told they have got people from Ireland and will endeavour to get more,” observed Daniel Pulteney. But although Irish, Scottish, Swiss, German, and other non-French settlers were more easily lured aboard the new Mississippi Company vessels with financial incentives, the press gangs and atrocities continued. Some attempt was made to control the worst excesses of the archers by forcing them to operate in groups rather than individually. To highlight the improvement they were given smart new uniforms—blue coats and silver-banded tricorn hats—but such token measures did nothing to diminish their brutality. Inevitably, Law was seen as condoning their activities, and public opinion erupted against him. “One could wonder that Mr. Law who cannot but be extremely sensible how very obnoxious he is already to the generality of people here should yet provoke them more and more every day by some fresh hardship,” wrote Daniel Pulteney, of public consternation at some new archer savagery.

  To be great, said Ralph Waldo Emerson, is to be misunderstood. In Law’s case, no one comprehended that his apparent indifference to public criticism over transportations was not a signal of inhumanity but rather that he was preoccupied with far more pressing concerns. Weeks after his promotion to the position of controller general he faced the most challenging dilemma of his career. Unfettered speculation fever still spiraled. His enemies—the financiers, tax inspectors, and councillors of the Parlement whose livelihoods he had damaged—had regrouped. The very survival of the system he had created was endangered by the combined perils of still-rising share prices and burgeoning conspiracies. In such a climate, Law was understandably slow to respond to public outrage. Eventually, however, the message seems to have filtered through, and the deportations were halted in May 1720.

  By then, though, Paris and the world at large had awakened to the perils of paper and to the struggle that confronted him. To save the bank, the Mississippi Company, and the fortunes of thousands of investors, Law unleashed a cataclysmic financial storm.

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  DESCENT

  As long as the credit of this bank subsisted, it appeared to the French to be perfectly solid. The bubble no sooner burst, than the whole nation was thrown into astonishment and consternation. Nobody could conceive from whence the credit had sprung; what had created such mountains of wealth in so short a time; and by what witchcraft and fascination it had been made to disappear in an instant, in the short period of one day.

  Sir James Steuart, An Inquiry into the

  Principles of Political Oeconomy, Book IV (1770)

  ON DECEMBER 30, 1719, IMPECCABLY CLAD AND BEWIGGED as always, Law entered the cabinet of the Mississippi Company and addressed the annual general meeting. The sense of expectation was almost palpable. Within the past month share prices had dropped from a high of over 10,000 livres to 7,500, only to recover eleven days later and reach 9,400. Even among this informed circle of codirectors few fully understood why. Was the company the thriving enterprise that the world at large believed it to be? If so, why had the price fallen? If not, how long could recovery be sustained? Law appeared oblivious to the anxieties. With his customary charm and self-assurance, he reassured them that the company was flourishing. Overseas trade was expanding and the outlook so favorable that he would pay shareholders a dividend of 200 livres. For all those present this was festive tidings of the best kind.

  We do not know if anyone at the meeting had enough direct contact with the colony to have an inkling of the true situation. Nor can we tell how many, even without such knowledge, sensed that this was a smoke screen or that Law had decided the dividend not according to company profits but according to the market share price to sustain the public’s confidence in their investment—another ingenious marketing ploy. But behind closed doors, in assorted cabinets and boudoirs, a handful of cannier investors were questioning what Saint-Simon later scathingly termed “the chimera of the Mississippi, its shares, its lingo, its science . . . its hocus pocus for taking money from some and giving it to others.” Rumors relating to Louisiana added to the ripples of disquiet. “I have spoken to a Frenchman who is lately come from the Mississippi. . . . The account he gives of the French settlement in that country would not encourage me to put my money into that stock,” Pulteney reported to Whitehall. Law’s charm and the dividend announcement were not enough to stanch the niggling insinuations. Even Saint-Simon could read the writing on the wall. “As the company possessed neither mines nor philosopher’s stone it was obvious that its shares, in the long run, must decline in value.” This comment calls to mind a remark made by Warren Buffett during the 1980s stock market downturn: “In the end, alchemy, whether it is metallurgical or financial, fails.”