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

  The city must have captivated him. During the past forty years of Louis XIV’s reign, Paris had become “one of the most beautiful and magnificent [cities] in Europe,” according to Dr. Martin Lister, who visited the same year as Law, “in which a traveller might find novelties enough for six months for daily entertainment.” It was a city of stone-paved streets and ornately carved façades replete with hidden treasure. “As the houses are magnificent without, so the finishing within and furniture answer in riches and neatness; as hangings of rich tapestry, raised with gold and silver threads, crimson damask and velvet beds or of gold and silver tissue. Cabinets and bureaus of ivory inlaid with tortoiseshell, and gold and silver plates in a 100 different manners; branches and candlesticks of crystal,” the overawed doctor reported.

  For the visiting dandy, city life offered much. By day he might choose to follow the familiar tourist route, visiting the Louvre, or the King’s Library, promenading in the Tuileries, the Luxembourg, or Physic Garden, or hiring a coach to drive to “a great rendezvous of people of fashion,” the Cour de La Reine, a triple-avenued park bordering the Seine. As night fell, there was the opera at the Palais Royal or the Comédie Française or, during the season, the bustling fair of St. Germain, where stalls remained open long into the night.

  Once settled, Law gravitated to the court of the erstwhile King James II. Reliant upon the generosity of Louis XIV for his subsistence, James was currently living in impoverished exile in St. Germain-en-Laye, a château outside Paris. The Jacobite court seethed with covert plots to reinstate him, and it is impossible to be certain how genuine Law’s sympathies were with his cause. He may have visited the court merely because he hankered for the company of fellow Scots; or, as he later suggested, to rejoin some of the friends who had helped him to escape from London; or, more questionably, to infiltrate the court in the hope of gathering intelligence of Jacobite schemes. Performing such a service might gain him favor with King William and help secure a pardon—which preoccupied Law throughout his years of exile.

  Gaming, “a perpetual diversion here, if not one of the debauches of the town,” claimed his interest, and even more so than in London offered the easiest way to meet high society. As one visitor put it, “It is a great misfortune for a stranger not to be able to play, but yet a greater to love it. Without gaming one can’t enter into that sort of company that usurps the name of Beau Monde, and no other qualification but that and money are requisite to recommend to the first company in France.” Predictably, much of Law’s time was spent in stylish salons mingling with the elite, gaining their confidence with his insinuating charm and impeccable manners before fleecing them at faro and basset, two of the most fashionable and high-rolling games of the day, at which he excelled. The odds in both games are stacked heavily in favor of the banker—a role Law adopted whenever he could, possibly paying his hostess for the privilege. One acquaintance remembered that Law “never carried less than two bags filled with gold coins worth around 100,000 livres” and that the stakes were so high that his hands “were unable to contain the coins he wished to stake” and he had his own tokens minted, each worth eighteen louis d’or.

  Travel, and the unfortunate affair with Mrs. Lawrence, had done nothing to blunt Law’s enthusiasm for romance. Perhaps it was after a particularly successful evening at the tables that he was introduced to Madame Katherine Seigneur, née Knowles, an expatriate outsider in the court of St. Germain who had married a Frenchman. Katherine was of noble birth, a descendant of Henry VIII’s second wife Anne Boleyn and the sister of the Earl of Banbury. Law had probably met her brother, and if not had certainly heard of him while in the King’s Bench prison in London: he, too, had been involved in a fatal duel. There are no surviving original portraits of her, although she sat at least once for her friend, the famous Italian pastelist Rosalba Carriera, but a Dutch engraving, possibly made after one of the portraits, shows an immaculately dressed woman with dainty features, a generous bosom, and a minuscule waist. Judging by descriptions of her she was not, however, an obvious target for Law’s attentions. The Duc de Saint-Simon recalled candidly that she was “rather handsome,” but that her beauty was flawed by a birthmark like a wine stain “covering one eye and the upper part of her cheek.” Katherine had another crucial distinction: among the overpowdered, overrouged, coquettish ladies of fashionable Paris, Saint-Simon noticed, “she was proud, overbearing and very impertinent in her talk and manners, seldom returning any of the polite attentions offered to her.” Although in England overtly intelligent women were not generally esteemed—most men would have tended to agree with Samuel Johnson’s later quip that “a man is in general better pleased when he has a good dinner on his table than when his wife talks Greek”—in France it was different. Amid Parisian society, women enjoyed a greater level of independence. “It is observable,” wrote one visitor, “that the French allow their women all imaginable freedoms, and are seldom troubled by jealousy; nay, a Frenchman will almost suffer you to court his wife before his face, and is even angry if you do not admire her person.” Perhaps Law, having learned to respect his mother’s formidable business acumen, had an unusual regard for clever, outspoken females, and this daunting, difficult, striking woman reminded him of his awe-inspiring mother Jean—or, accustomed as he was to easy conquests, he simply found her hauteur challenging. In any event, he pursued Katherine with determination, and she, evidently dissatisfied by her marriage, must have responded. Yet even had she not been married, such a relationship would have caused consternation: Katherine was of noble birth, while Law was a gamester whose family circumstances were shrouded in mystery. Society frowned on such alliances, and most people sympathized with Lord Sandwich, who later remarked that a father would rather see a daughter “with a pedlar’s bag at her back” than marry beneath her. To Law and Katherine, however, far from home and their families, there was little to stand in the way of their mutual attraction. Certainly, Katherine’s husband (about whom nothing is known apart from his name) seems to have offered no impediment—although the most obvious explanation for his apparent inertia is that he was absent when she and Law met. The liaison blossomed.

  Meanwhile, Law’s mastery of dice and cards had unfortunate but unsurprising repercussions. No one wants to stake money against someone who hardly ever loses, and, as it had in London, Law’s knack for winning brought him enemies along with gains. Whispers of his “sharpness” at cards, his dubious past, and his possible involvement in espionage began to circulate and brought him to the attention of the authorities. Clearly the time had come for Law to move on; only Katherine held him back.

  In the sophisticated world of which both Law and Katherine were habitués, discreet infidelities, however ill-advised, could be quickly forgotten—but there was a chasm between a clandestine affair and an elopement. Both must have known that the latter would cost Katherine her reputation and that there would be no turning back. It is, therefore, a mark of the usually guarded Law’s feelings that he asked Katherine to leave Paris with him. The decision cannot have been easy, but perhaps feeling that travel offered the only way for such an unconventional partnership to evade the usual social restrictions, she agreed, in Gray’s words, “to pack up her awls, leave her husband, and run away with him to Italy.” From then on Katherine Seigneur was known as Mrs. John Law even though marriage, for the time being at least, was impossible. As no doubt they had feared, the story of their flight made headlines in the Paris press and Horace Walpole later wrote of “an account in some French literary gazette, I forget which, of his [Law] having carried off the wife of another man.”

  Their destination was Italy, the birthplace of European banking. They went first to Genoa, where, according to Gray, Law was able to find “cullies [suckers] enough to pick up a great deal of Money from,” and later to Rome, Florence, Turin, and Venice. In each city he visited he played the tables and worked at his research into finance. The great public banking institutions of Italy had been born in the Middle Ages from t
he need to fund crusades, commerce, and war. By the late sixteenth century Venice’s state banks—the Banco di Rialto and the Banco del Giro—operated much like the bank in Amsterdam, which had followed the Venetian lead, accepting deposits in adulterated coin and issuing notes in “bank money” with the guarantee of the state. Law also learned much about foreign-exchange dealing in Venice. According to Gray, “he constantly went to the Rialto at change-time [when the exchange was open], no merchant upon commission was punctualler, he observed the course of exchange all the world over, the manner of discounting bills at the bank, the vast usefulness of paper credit, how gladly people parted with their money for paper, and how the profits accrued to the proprietors from this paper.”

  Along with its bank, Venice had much to attract John Law and his beautiful companion. They arrived in time for the famous carnival, which began on Twelfth Night, when some thirty thousand foreigners invaded the city to enjoy a bacchanalian extravaganza of acrobatics, music, animal fights, fireworks, and dancing in the streets. According to one spectator, “Women, men and persons of all conditions disguise themselves in antique dresses, with extravagant music and a thousand gambols, traversing the streets from house to house, all places being then accessible and free to enter.”

  Venice was famed for sex and gambling. The city dubbed “the brothel of Europe” had gambling houses, or ridotti, “where none but noblemen keep the bank, and fools lose their money.” One rueful English visitor described a typical soirée: “They dismiss the gamesters when they please, and always come off winners. There are usually ten or twelve chambers on a floor with gaming-tables in them, and vast crowds of people; a profound silence is observed, and none are admitted without masks. Here you meet ladies of pleasure, and married women who under the protection of a mask enjoy all the diversions of the carnival.” With Katherine at his side, Law presumably ignored sexual distractions and capitalized on the plentiful opportunities for making money instead.

  By the end of his tour of Italy, his financial expertise had opened numerous doors: the Duc de Vendôme and the Duke of Savoy were among his royal friends. After ten years of economic research, he had accumulated formidable financial knowledge as well as £20,000 from gambling, moneylending, and foreign-exchange trading. Yet for all this he was dissatisfied. Perhaps ambition made moneymaking for personal gain seem no longer sufficiently satisfying. Perhaps the glamour of travel had dimmed and Katherine, tired with the discomforts of their itinerant life, was pressuring him to settle. Certainly by now his observation of banking systems in Amsterdam and Italy, coupled with what he had seen of London’s financial innovations, had fired within him a grand vision: he wanted to use his understanding and ingenuity for the benefit of the populace, to play a key part in Europe’s financial evolution.

  Law’s interest in economy was leading him, like many others of his age, to reflect on the role of the state, or of large-scale enterprise, in national prosperity. He saw money as a scientist might an array of laboratory equipment and chemicals, as substance for experiment and a subject for theory. In this sense, he was reflecting the new, enlightened age. Just as the mysteries of mathematics and nature had been explained by the researches of scientists like Newton, Huygens, and Boyle, Law’s confident aim was now to use his knowledge to take on the challenge of experimenting with a nation’s fortune.

  Scotland, the land of his birth, he decided, was where his ideas would be unveiled. In about 1704, according to Gray, he made the long journey home, leaving Venice “with his Madam and family” to journey “through Germany down to Holland and there embark for Scotland.” Throughout the voyage, worries about his past constantly intruded. In England he was still a fugitive with a death sentence hanging over him, but Scotland, although ruled by the same monarch, had a separate government and he could not be arrested there for a crime committed in London. Should union between Scotland and England take place, however—and there were many in favor of such a change—his safety would no longer be assured.

  Law was tired of being on the run. After nearly ten years oftraveling he saw that unless he wanted to spend the rest of his life as a fugitive, a royal pardon was essential. The Wilson family’s animosity might be defused if he compensated them generously for their loss—and he now had the money to do so. Royal assent, the other criterion for a pardon, depended on the new monarch, Queen Anne, who had succeeded to the throne after William’s death. A flicker of hope grew that if he could convince her of the benefit his ideas could bring to her country, she might spare him the gallows and give him the longed-for reprieve.

  On arrival in Edinburgh, Law was reunited with his mother, whom he had not seen since he left the city as a young man. What did the redoubtable Jean make of the equally determined Katherine? Did her son hide from her the true nature of the liaison? Whatever their feelings, it seems that within this settled domestic background, Law was able to work with new purpose.

  He decided to tender his knowledge to the queen in the traditional way, by writing a proposal. His first work, only recently identified by scholars, was entitled “Essay on a Land Bank.” In it he proposed a bank issuing paper money based on the value of land. This was a more stable basis for credit than silver, he contended, since history had shown that precious metals could fluctuate in value according to their scarcity, whereas land’s value was less volatile. The idea was not entirely original: since the mid-seventeenth century numerous writers had put forward similar schemes—even Defoe felt “land is the best bottom for banks.” The same idea still flourishes today in the form of savings-and-loan associations.

  Queen Anne was not impressed. Law’s arguments might be ingenious and succinctly expressed, but he could not erase his past. As a convicted felon and a notorious gambler, he was a far-from-obvious candidate to trust with the nation’s purse. After cursory consideration, the idea was therefore quickly rejected. The list of petitions and memorials to the queen in August 1704 recorded that Law, presently residing in Scotland, “by the intercession of friends” had managed to secure the Wilson family’s agreement to annul the appeal. It continues circumspectly, “yet your petitioner is debarred from serving your majesty (as he is most desirous) in the just war wherein your majesty is now engaged,” requesting royal pardon, “not only for the death of the said John [sic: it should be Edward] Wilson, but also for his breach of the said prison that he may be able to serve the queen for the rest of his life.” The application is marked with the single word “rejected.” In the eyes of the queen and her government, Law’s financial genius would never be acknowledged.

  Faced with this setback, Law did not waver in his determination. Certain that the scheme’s soundness was not in question, he decided to adapt it for Scotland. Here he was confident that his influential friends, including the Duke of Argyll, who was the queen’s commissioner in Scotland, would ensure a fair hearing.

  Scotland desperately needed someone to cure her economic ills. At the turn of the eighteenth century the country languished in an economic nadir, with currency in short supply, trade in the doldrums, unemployment and poverty widespread. The situation was exacerbated by a financial fiasco called the Darien scheme. The brainchild of William Paterson, founder of the Bank of England, the idea had been to found a colony in Panama, which would provide a base from which cargoes would be carried across the isthmus from the Pacific to the Atlantic and back, avoiding the long, treacherous route around Cape Horn. Touting the idea as a fail-safe investment that would yield fabulous rewards and make Scotland the richest country on earth, he raised £400,000—nearly half the capital of Scotland—from optimistic private investors all eager to participate. In 1698, after ejecting scores of desperate stowaways, five ships set sail from Leith with 2,000 passengers aboard, including Paterson, his wife, and his son. Three months later they dropped anchor at the settlement of New Caledonia.

  The expedition was a disaster. Malaria, dysentery, and other diseases were rife; the Spanish besieged the settlement; the English refused support becau
se they were worried about competition with the East India Company, and, as a consequence, trade was blighted. Two years later, when the project was finally abandoned, the lives of 1,700 colonists, among them Paterson’s wife and son, had been lost, numerous investors had been ruined, and the Scottish economy was in such crisis that even the survival of the Bank of Scotland, set up a year after the Bank of England, was threatened.

  John Law was convinced he could rectify the situation. Within a year he had completed a 120-page pamphlet entitled Money and Trade Considered with a Proposal for Supplying the Nation with Money. It was published anonymously in 1705 by Andrew Anderson of Edinburgh, a company owned at the time by Law’s aunt. A poster advertising the main points of Law’s argument was prominently displayed in local meeting places. His name did not appear on the proposal, perhaps to avoid marring its chances of success with his tarnished reputation; but in circles of influence, Law’s authorship was soon common knowledge.

  Economic historians still marvel at the extraordinary clarity of expression—that is, they say, remarkable for its time. Law begins by explaining the meaning of value, which he says is related to rarity rather than use. “Water is of great use, yet of little value, because the quantity of water is much greater than the demand for it. Diamonds are of little use, yet of great value, because the demand for diamonds is much greater than the quantity of them.” He then looks at the meaning of money and argues that “money is not the value for which goods are exchanged, but the value by which they are exchanged: the use of money is to buy goods, and silver while money is of no other use.” This vision of money as a functional medium—with no intrinsic value but backed by something of stable value, the gambler’s chips that can be cashed in at the end of the evening—leads him to his central suggestion, for a bank with the power to issue notes using land as security.