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

  In Paris, the story was very different. Law returned to the bank’s offices in early June to find himself confronted by the pitiful sight of hordes congregating outside in the sweltering summer heat in the hope of exchanging their banknotes for coins. Such visible evidence of vanished confidence—a run on the bank—represented, and represents still, every banker’s worst fear. Law had always been a man of high ideals. The desire to do good, to bring happiness and prosperity, had, he always claimed, spurred him more than the desire for personal wealth or status. Now, witnessing people’s suffering, he must have been stung more profoundly than by any criticisms from his peers. He had to find an answer.

  Only about 2 percent of the money now in circulation was in silver and gold. To eke out the dwindling supply as fairly as possible and to ensure that the neediest had access to coin, he decided on a system of rationing. From early June, only a single 10-livre note per person could be exchanged, and the bank opened twice a week for the conversion of 100-livre notes into smaller denominations. Financial stability could return, he decided, if the numbers of shares and banknotes were reduced and the value of coins was boosted. Immersed in redressing this balance, Law failed to spot his enemies’ quiet resolution that he was to be tolerated but manipulated. Once enough paper was withdrawn and the system was sufficiently weakened, they would step in. Law was hammering nails into his own scaffold.

  The withdrawal of banknotes and shares from circulation began with more than a touch of melodrama, with vast public bonfires witnessed by thousands of astonished onlookers. The first burning of 100,000 shares owned by the Crown and 300,000 belonging to the company took place outside the Hôtel de Ville. In the following weeks thousands of livres’ worth of notes and shares were crammed into iron cages and similarly ignited, as an array of ingenious schemes, each aimed at pruning the paper system and partially restoring the metallic one, was set in train. The regent’s mother shook her head over the irony of it all: while no one in France had a sou, she quipped, they had toilet paper in plenty.

  But confidence once lost is hard to regain, and burning vast quantities of money and shares was not the way to restore it. Every smoldering bonfire further sapped the credibility of paper, and the press for coins grew more insistent. The poor could only scour the street for coins, or barter to feed themselves. The most basic necessities of life were affected by the crisis. Coins had to be specially dispatched to the bakers of Gonesse, who supplied Paris with bread, so that they could buy wheat: corn merchants refused any form of payment in paper.

  While the poor scavenged, the privileged inhabitants of the grand hôtels and palais danced on. Cocooned by credit, which no supplier dared deny them, they reveled in ever more conspicuous excess, as if by an orgy of spending they could hold the menace at bay. Just as during the 1930s depression the Waldorf Astoria was fully booked, in 1720 ten times more was spent at the opera than in the previous year; theatrical productions were more lavish than ever; people dressed with ever more extravagant ostentation and gorged themselves at banquets with scores of exotic courses. “There is still a great deal of money in France,” wrote the Princess Palatine in August 1720. “They are very fond of luxury, which has never been indulged in to such an extent as it is at present.”

  For foreign investors who held French banknotes the situation was particularly dire. Their losses were amplified when the French exchange rate plummeted even more dramatically than the share price. A pound sterling, worth 39 livres in May, was fetching 92 livres by September, and was unquoted for the next three months. One expatriate who managed to profit from the falling value of French currency was Law’s friend and sometime business partner Richard Cantillon, who had returned to Paris in search of further investment opportunities. With a foresight that sets him apart from every other financial pundit of the day, he anticipated the downward slide in French currency and by various currency dealings—advancing loans in one currency while taking deposits in another, fixing French currency loans in sterling, then waiting for the livre’s value to fall—made a second fortune. The size of some of these deals, sufficient further to depress the livre and worsen the shortage of coins, inevitably drew Law’s attention. Legend has it that he paid a visit to Cantillon’s office and presented him with a curt ultimatum: “If we were in England we would be able to talk and reach an agreement, but in France, as you know, I can tell you that you will be in the Bastille this evening if you do not give me your word to leave the country in forty-eight hours.” Cantillon, who understood the importance of quitting while ahead, left Paris for London, where he turned his attention to South Sea shares—and a similarly spectacular fortune.

  At the bank, the bonfires and rationings had done nothing to improve matters. Coin supplies could not keep pace even after the restrictions were imposed. Reserves ran so low that vast quantities of copper coins were minted, but there was still a hopeless insufficiency. Bank openings became briefer and more sporadic, and the queues continued to grow. When the doors did open, the competition to get to the front of the line was frenzied. “The demand is so prodigiously great for the money, and the notion that everyone has in their heads that they will stop payment again in a few days, is such as makes people even mad to get their money, and hazard their lives to come at it,” wrote Defoe, referring to an incident in which armed guards were forced to fire on the crowd, killing three people, to preserve order. It was just a prelude.

  On July 17, at 3 A.M., a crowd of around 15,000 had gravitated from distant suburbs to congregate in the streets outside the bank. Word had spread that for the first time in over a week 10-livre notes would be converted into coins between nine and one that day. Wooden barricades had been erected in anticipation of a throng, but a multitude this size was unexpected, unprecedented, and, it turned out, uncontrollable. At five o’clock several workmen, exasperated by the wait and fired up by alcohol, vaulted the barricades and launched themselves into the crowd on the other side. At the entrance in rue Vivienne there were similar scenes. Men picked their way over the ruins of the houses Law had demolished to make way for the new exchange, mounted the garden wall, and swung themselves through the chestnut trees to jump the queue. From every direction a hysterical multitude funneled toward the bank and those at the front found themselves defenseless against panicked surges from the throng behind.

  By dawn a dozen or more people had perished, crushed to death against the barricades, trampled underfoot by the stampede, their cries pitifully audible above the rabble’s roar. Buvat, the diarist, who left one of the most gripping accounts of the day, found himself caught in the mêlée when five or six men hurled themselves off a barricade and only narrowly escaped being crushed or suffocated to death. Defoe was moved by witnesses’ accounts: “It is impossible to describe the pressing and thronging for money at the bank, the outcries of those who were almost killed were most affrighting.”

  A large mob carried three bodies in angry procession to the Palais Royal and demanded the regent’s attention from outside the locked gates. While the regent sent for military reinforcements—some 6,000 uniformed troops were presently camped on the outskirts of Paris—Le Blanc, the secretary of state, and the Duc de Tresmes, the governor of Paris, arrived outside the forecourt. As the gates opened to admit them, a crowd of four or five thousand flooded in. Still in his carriage, the Duc threw handfuls of silver and gold into the crowd to appease them. Minutes later his sleeves were torn to shreds. Le Blanc needed an armed escort to reach the steps of the palais and face the tumult. Eventually, having secured a promise that money would be distributed throughout the city, the crowd began slowly to drift away.

  But the mood in the streets remained ugly. A second mob directed their attentions to Law and marched to the Place Vendôme to lynch him. Having failed to force the gates, they hurled missiles at his house, shattering most of the windows before guards arrived and arrested the ringleaders. Law had heard the furor and wisely escaped to the Palais Royal. Had he not, there was little doubt in anyone’s mi
nds what would have happened. “The rabble, who take things as they understand them, be they right or be they wrong, threw it all upon Mr. Law; and, had he returned into his coach, there had certainly been an end of all his designs and projects at once,” Defoe affirmed.

  Later that morning Law’s empty carriage was spotted in the rue Richelieu, leaving a side entrance of the Palais Royal. A group barred its path and attacked. Law’s driver suffered cuts and bruises and a broken leg before he escaped; the carriage was reduced to a splintered wreck.

  For his own protection Law moved into the Palais Royal. He was deeply shaken by the violence, and as before, the symptoms of acute distress were apparent. According to the regent’s mother, he remained “as white as a sheet” for several weeks after the incident. Even when he returned to his own residence the risk of assault still lingered. Youths said to have been employed by Law’s growing band of opponents kept watch on his every move, in the hope that a chance for vengeance would present itself. The children were still at Bourbon’s country estate, but Katherine was now a virtual prisoner in her home and the hostility with which Law and she were regarded must have seemed terrifying. From now on, according to Buvat, a watch on foot and horseback patrolled the house and the bank’s offices day and night. Law ventured out only with guards, and careful precautions were always taken. “When he removes,” wrote Daniel Pulteney, “it is not in his own équipage, and it is observed that the Swiss guards are dispersed about the streets he is to pass through.”

  Throughout the riots, the Parlement was deep in session. Their president, hearing of the attack on Law’s carriage and driver, with a sudden (if improbable) burgeoning of poetic wit, is said to have told fellow members:

  Messieurs! Messieurs! Bonne nouvelle!

  Le carrosse de Lass est reduit en cannelle!

  Sirs! Sirs! Good news!

  Law’s carriage has been reduced to splinters!

  The Parlement was supposedly pondering an edict to extend the trading privileges of the Mississippi in return for a substantial payment, which would allow further notes to be withdrawn. Swift to blame the disruptions on Law’s system, the members pushed home the advantage, refusing to register the edict, in the hope that their dissension, added to civil unrest, would finally topple Law. But the regent struck back, banishing them to Pontoise, a village forty miles from Paris. This was perceived by shareholders as a move in Law’s favor, and share prices rallied modestly. But the recovery was fleeting, soon overshadowed by frightening news: France faced an epidemic of plague.

  The outbreak had begun in Marseille when crew members of a merchant ship from Syria, where the disease was rampant, evaded the usual rigorous quarantine restrictions and docked in port. Only after the cargo of silk and wool had been unloaded was the crew found to be infected. Eight people suddenly succumbed in the insanitary shanties surrounding the port. Slowly and insidiously the disease spread through the crowded dockside slums to the spacious villas of the well-to-do. “The fury of this distemper can’t be described,” wrote a terrified Defoe. “It begins with a light pain in the head, and is followed with a cold shivering, which ends in convulsions and death; and (which is more terrible) we are informed that not one person, no not one . . . touched with it, has been known to recover, and they seldom live above six hours after they are first taken.” At the end of July, an epidemic was formally acknowledged and a cordon sanitaire placed around the city, preventing people from leaving the infected area but also hindering supplies of food from reaching the inhabitants, who desperately needed it. As the disease ran rife, piles of rotting corpses were heaped so high that galley slaves were brought in to bury them, and since they were poorly supervised, looting broke out. By August a third of the city’s inhabitants—around 15,000 people—had perished from famine or disease and the cordon sanitaire had failed. The disease, like some exotic creeper, had spread its tendrils through Provence. In Toulon some 9,000 perished; a further 7,500 lives were claimed in Aix, a city, Defoe said, that was “utterly abandoned; the inhabitants poor and rich are fled to the mountains of the upper Provence, in hopes that the sharpness of the air, those hills being always covered with snow, may preserve them from the infection.” A month later the lawyer Marais recorded the harrowing descriptions of a doctor who had recently visited the affected area: “A town desolate and moaning, entire families destroyed, doctors and surgeons nearly all dead . . . the outskirts of the town full of looters and robbers who ransack the country houses of the bourgeois, who themselves don’t know how they will escape either the plague or the thieves.”

  Europe looked on compassionately but amid growing fears that the epidemic’s grasp would reach Paris, the Netherlands, and even London. “Large collections have been made and are making in the cities of France for the relief of the distressed people at Marseille and other places,” reported Defoe, who singled out for special mention the city of Genoa, which sent both money and a ship laden with food and medical supplies. Law and the regent also sent large sums to help.

  To stop the spread, draconian quarantine restrictions were imposed. Ships were liable to weeks of delay: in one particularly extreme example in Holland, three ships arriving from the Levant were burned while their crews were forced to wade ashore naked and spend a period of quarantine on an island. Private travelers were also hampered by the inconvenience of being obliged to have health certificates stamped in every town through which they passed, and in certain areas such as Tyrol were still liable to be held in quarantine for weeks if they were known to have passed through France.

  In the minds of many the plague became a metaphor for economic malaise, and Law, whose schemes had sparked the speculation contagion, was blamed. For his system the disease proved fatal. The key ports of Marseille and Toulon shut down, trade with Africa and the rest of the Mediterranean, until now flourishing, drew to a standstill. “Not a ship comes in to Marseille from any place that has heard of it,” remarked Defoe. “Commerce is universally stopped.” He could also have added that so had much of the income of the Mississippi Company. As a general slump in trade took hold, manufacturing dwindled, taxes on imports and exports diminished, holders of state investments could not be paid and thus had to sell Mississippi shares. “One cannot say what effect the demand for silver had but every prudent man sold some of his shares to have enough to feed his family during this public calamity,” Law later wrote. By the time the epidemic was over it had claimed over 100,000 lives and, as Law had feared, the system he had created.

  16

  THE WHIRLIGIGOF TIME

  Cy git cet Ecossais célèbre,

  Ce calculateur sans égal,

  Qui par les règles de l’algèbre,

  A mis la France à l’hôpital.

  Here lies this famous Scot,

  This peerless calculator,

  Who by the rules of algebra

  Has put France in the poorhouse.

  Anonymous,

  Paris (1720)

  AMID THE MURKY INTERIOR OF JONATHAN’ S COFFEE-house in London’s Royal Exchange people gather to gossip, intrigue, bargain, or perhaps to gape at a new print strung on the wall before them. The image is profoundly disturbing. A billowing curtain is drawn back by Harlequin and Scaramouch—two well-known figures from the commedia dell’arte—to reveal hell on earth, the rue Quincampoix, in which a heaving tangle of anxious investors, arms flailing, eyes wild, mouths beseeching, wave serpentine banknotes overhead. Amid the mêlée, oblivious to the madness, three men, representing English, French, and German investors, stand complacently on a dais of paper. A supplicant figure—John Law—squats obscenely at their feet and allows them to pour coins in his gaping mouth, while from bared buttocks he excretes paper notes that are snatched by one of the frenzied figures in the mire below. In the foreground a caged figure of Mercury—symbolic of commercial prosperity and, in this case, of ruined speculators—weeps as a man in front performs various gambling tricks. The message, of venality, folly, degradation, chaos, is explicit and sicke
ning—deliberately so. But by the time this engraving, from a famous series published in Holland in 1720 entitled The Mirror of Folly, was printed, disseminated, grasped, and gawped at in scores of similarly unsavory interiors, it was far from unique.