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

  To his friends the argument was convincing, and the Duke of Argyll brought it to the attention of the Scottish Parliament. At the next sitting, on June 28, 1705, the main business under consideration was the question of union between Scotland and England: in view of Scotland’s economic ills, worsened by the Darien scheme, the union was now widely seen as advantageous. Law’s scheme was also to be discussed, along with another proposal by the eminent Dr. Chamberlen, who was already well known in Scotland and England for his financial schemes.

  Despite Law’s hopes, the past weighed heavily against him, and his proposal sparked an explosive response. William Greg, an agent working for the English government who watched proceedings, was highly dismissive of Law, “a gentleman who of all men living once was thought to have the worst turned head that way,” and wrote off the pamphlet as the “homespun” proposal of a “rake.” Two days later, when Parliament again convened to discuss the two schemes, Law became ensnared in the complexities of Scottish politics.

  One of the parliamentary factions, the Squadrone Volante, opted to support him, but he was fiercely opposed by the national party, headed by Andrew Fletcher of Saltoun. George Baillie of Jerviswood, a member of the Squadrone, proposed Law’s scheme, “in his opinion, a more rational and practicable scheme than that of Dr. Chamberlen.” Few agreed. Fletcher, an irascible man, scornfully retorted that he thought it “a contrivance to enslave the nation” and demanded that the two men be brought before Parliament to reason and debate the matter openly.

  Rushing to Law’s defense, the Earl of Roxburghe, also of the Squadrone, declared he did not see why Law, who had spent “some considerable time purely to serve his country,” should be forced to appear against his will; he should be treated “with good manners if not encouragement.” According to one witness, Fletcher was so furious at what he took to be an accusation of ill manners that had he been near Roxburghe “they would have gone together by the ears.”

  Argyll, who was presiding over the meeting, ordered that Fletcher and Roxburghe be confined in their chambers to avoid the row continuing after the debate. Roxburghe, “mannerly and respectful,” allowed himself to be arrested. Fletcher, who famously boasted “that he never made his court to any king or commissioner,” proved more elusive. Surreptitiously leaving the house, he made his way to a nearby tavern and sent a challenge to Roxburghe to meet him at Leith, a popular spot for duels.

  With Baillie as his second, Roxburghe talked himself out of confinement, responded to Fletcher’s challenge, and rushed to Leith at six in the evening. Before the two men could draw swords, Baillie intervened. The fight would not be fair, he said. His lordship had “a great weakness in his right leg so that he could hardly stand, ’twas not to be expected that this quarrel could be decided by the sword.” Fletcher had foreseen such an objection, produced a pair of pistols, and offered them to Roxburghe to take his choice. Baillie again objected that his lordship’s weakness would “equally disable him from firing on foot.” Meanwhile, in the distance a party of mounted constabulary was spotted—both men were still supposed to be under arrest. The seconds immediately fired their pistols in the air and everyone returned to Edinburgh.

  The ludicrous quarrel did nothing to help Law. His scheme, though interesting enough for William Greg secretly to dispatch a copy south to his superiors (London was already watching the progress of John Law), was damningly rejected for being “too chimerical to be put in practice.” And while the wranglings dragged on, union drew ever closer. Law, reluctant to leave his homeland and still optimistic of securing a royal pardon, again lodged an appeal for clemency. His petition reiterated his intention to work for “the ease and honour of the government and the good and prosperity of his country.” Again he was turned down.

  Exile was now the only way to avoid imprisonment. As Katherine made preparations to depart, Law passed his final days on Scottish soil at the gaming tables. Among his recorded successes was an estate worth £1,200 (US$1,800) won from Sir Andrew Ramsay, “one of the finest Gentlemen of his time,” who after his encounter with Law had only £100 (US$160) left.

  The earliest known likeness of John Law, a miniature in the Earl of Derby’s collection, dates from around this time. The image shows a dreamy young man in a short wig with Madonna-like oval face, heavy-lidded eyes, long hawkish broken nose, and generous mouth. His expression of poker-faced calm calls to mind his contemporary du Hautchamp’s description of him playing cards, “a serene temper without transport [that] made him master of himself when fortune ran against or for him, so he generally came a gainer, seldom a considerable loser.” Perhaps Law gave the miniature to his mother on his departure. He was never to see her again; she died two years later. For the time being, however, such sorrow was far from his thoughts. Finding some way of putting his schemes into action was now his overriding aim; his resolve had never been greater.

  7

  THE ROOT OF ALL EVIL

  In his travels he learnt that in Betica everything shone with gold, which made him hurry to get there. He was made very unwelcome by Saturn, who was then on the throne, but once the god had departed from the earth he had an idea, and went out to every street-corner where he continually shouted in a hoarse voice: “Citizens of Betica, you think yourselves rich because you have silver and gold. Your delusion is pitiable. Take my advice: leave the land of worthless metal and enter the realms of imaginations, and I promise you such riches that you will be astonished.”

  Montesquieu,

  Persian Letters (1721)

  LATE IN 1705, LAW AND HIS FAMILY RETURNED TO A continent riven by conflict. The War of the Spanish Succession pitched the armies of France and Spain against an alliance of England, Holland, and the Holy Roman Empire. A year earlier, at the Battle of Blenheim, the English general Sir John Churchill, later Duke of Marlborough, had vanquished the French, killing, wounding, and imprisoning almost three-quarters of their army, some forty thousand men. That year the British captured Gibraltar and allowed their ships to sail into the Mediterranean “like swans on the river.” Over the following months the allies triumphed also at Ramillies, Barcelona, and Turin. As if to underline France’s waning fortunes, a total solar eclipse on May 11, 1706 signaled that seemingly even God had deserted the Sun King.

  Amid the unfolding political drama, the Laws based themselves in The Hague to await the birth of their first child. John Law hankered to make his next move, and the difficulty of traveling in war-torn Europe must have worried him, since he needed free passage to be able to sell his schemes. Over the next nine years, however, he crossed enemy lines with apparent ease, ignoring the usual formalities if necessary, reaching the enemy heartland of Paris several times, as well as visiting Vienna, Turin, Milan, Brussels, and Utrecht.

  Soon after the birth of their baby, a boy they named John, the Laws visited Vienna. Here, according to du Hautchamp, “he proposed his system to the Emperor, and although he was unsuccessful he did not leave without playing heavily and making large winnings.” Law did not shed many tears over his failure. By now he had focused his sights on Europe’s largest, most populous, but most severely impoverished nation: France.

  Superficially France seemed hardly to have changed for the past half century. Louis XIV had reigned for sixty-three years, during which he had raised his country to commercial heights that made it the envy of Europe, then ruined it with his penchant for military aggression, religious intolerance, and unrivaled extravagance. Lack of money lay at the root of all France’s evils. In the countryside the impoverished masses lived in abject misery, unshod, dressed in rags, forced to scavenge to survive. During severe famines in 1694 and again in 1709, following the worst winter in living memory, the poor made flour from ferns and grass stalks or roots such as asphodel. Children lived on “boiled grass and roots” and, according to one account, “crop the fields like sheep,” while the Princess Palatine, sister-in-law of Louis XIV, wrote, “The famine is so terrible that children have devoured each other.” A fortunate fe
w could barter: a cabbage for a bag of corn, two pigs for a cow, and so on. In Versailles it was not so easy. In a feverish bid to pay for his army and feed his people, the king had to resort to sending his gargantuan golden dinner services and silver furniture to the mint to be melted down for currency. Now he ate off enamel or faience pottery, and his entourage was expected to follow suit.

  Various vain attempts had been made to replenish the treasury. Additional venal offices were created and each position, mostly entirely spurious, sold off to the highest bidder. Interest-bearing paper credit notes called billets de monnaie had been offered in return for coins and were later converted into government bonds. New taxes were introduced, old ones raised—there were so many taxes that it was feared even marriages and births would be taxed. The coinage was constantly tampered with. Between 1690 and 1715 the currency was revalued forty times to make the limited gold and silver available stretch further.

  But the situation did not improve. By 1715 France would be over 2 billion livres in debt, largely to a group of forty private financiers, who also controlled the collection of taxes. The government could not afford the interest repayments on its notes, let alone repay them in coin. They had become so discredited that when Louis wanted to raise a loan of 8 million livres in coin from one of the financiers of Paris he had to pay 32 million in notes. In the provinces few could afford the taxes; people even resorted to marrying or baptizing their children without a priest to avoid the extra levy they felt might soon be demanded.

  Law knew he had the answer. The problems of the country, he promised, all stemmed from a lack of available money. “Trade and money,” he had written in Scotland, “depend mutually on one another; when trade decays money lessens; and when money lessens, trade decays.” The only way out of the downward spiral was through credit and by increasing the circulating money. Since there was a shortage of gold and silver in the country, the answer was to establish a national bank and issue money made from paper.

  It was a beguilingly simple solution. The hard part was getting through to the king. In November 1706 Law managed a journey to Paris, where he submitted a four-part memorandum to Chamillard, Louis XIV’s incompetent and overworked controller general, who headed the ministries of finance and war. Law tried to keep his argument brief and to the point. “I know,” he wrote, “that these proposals are long and boring, because it is necessary to explain many aspects of money . . . what I will present will be shorter and easier to follow, I will attempt to include nothing that is spurious.” The harassed Chamillard tried to appear diligent, scribbling annotations in the margin. In truth he did not understand and only laughed at Law’s vision. The king was never told of the proposal, and without his approval Law reached an impasse. “Apparently the opinion is that what I propose does not merit discussion at the council. I am not surprised: a new type of money more suitable than silver seems impossible,” he wrote disconsolately. But the visit was not entirely wasted. During his stay in Paris he met the king’s nephew Philippe, Duc d’Orléans.

  The two men had much in common. They were of similar age—Law was just three years Orléans’s senior, aged thirty-six in 1707—both were handsome, athletically built, and brilliant tennis players. Both enjoyed extraordinary success with the opposite sex. Orléans could outstrip even Law in his sexual conquests, although power and position were on his side. His numerous mistresses, whether stars of the opera, actresses from the Comédie Française, serving girls, daughters of diplomats, or, more rarely, aristocrats, were selected for good humor, voracious appetites for banqueting, drinking, and lovemaking, and lack of interest in politics. Looks mattered little—even the duc’s mother remarked wryly, “They do not have to be beautiful. I have often reproached him for choosing such ugly ones.” At night, in his Paris residence, the Palais Royal, he dismissed his servants and held soupers, notorious all-night revelries at which an eclectic assortment of courtesans, actresses, and his inner circle of dissolute male friends—the roués—gorged, drank to excess, and, according to Saint-Simon, “said vile things at the tops of their voices.” It was, said Saint-Simon, a ritual that “when they had made a vast deal of noise and were dead drunk they went to bed and began it all over again the next day.” Meanwhile they stimulated enough gossip to entertain the rest of Paris.

  But Orléans was far more than just another debauched aristocrat. A multitalented man of abundant if mercurial intellect, he was a freethinker who was fascinated by developments in music, literature, philosophy, and science, including the science of money. Chemistry enthralled him, and he passed long hours experimenting in his private laboratory alongside the eminent Dutch chemist Wilhelm Homberg. He was intrigued by necromancy; his penchant for conjuring spells and summoning spirits late into the night elicited much criticism in court circles. He was also a connoisseur of art. He learned to paint with the famous decorative painter Antoine Coypel—who decorated the ceiling in the Palais Royal—and festooned the walls of his home with masterpieces by Raphael, Titian, Rembrandt, Veronese, Caravaggio, and leading French artists. He patronized writers and poets, composed operas, and played the flute. Yet for all his abundant gifts and interests Orléans was frustrated. Louis XIV distrusted him and had consistently denied him a fulfilling role. His dissipation was largely inspired by boredom. Underneath the louche exterior, like Law, he was an idealist who longed for change.

  Law willingly spent long hours explaining his ideas and in Orléans found someone with the intellect and vision to understand. Perhaps also Orléans’s regard for Law was strengthened by secret admiration for his life of opportunistic adventure, a world away from the protocol and formality of the French court. Both men were fast thinkers and witty talkers, and with mutual intellectual respect, personal affection grew.

  Encouraged by his royal friend, Law optimistically revised his proposal and resubmitted it to the king. But for all Orléans’s help and Law’s high hopes, Louis eyed it icily. This time, according to Orléans’s mother, the Princess Palatine, the stumbling block was not the scheme’s complexities but the author’s religion. Law was a non-Catholic and therefore, to Louis, inherently untrustworthy. Police superintendent d’Argenson was instructed to hasten Law’s departure.

  Law did not give up hope. He based himself in Holland, from where he continued the roving quest for a ruler willing to listen. The nomadic life was arduous for Katherine, with a baby to care for, but the relationship does not seem to have suffered. On the contrary, it seems likely that the fortitude and loyalty she later displayed resulted from the closeness that developed during this extended period of rootlessness. In unfamiliar environments, and during long journeys across Europe, she and Law spent much time together and relied on each other for companionship. At each new city, Katherine’s dignified bearing worked in Law’s favor, for political advancement depended upon social success as much as worthy ideas. Her glamour, allied to his charm, helped forge the alliances on which his career depended.

  In the spring of 1710 he was in Italy, accompanied as usual by Katherine, who was pregnant. Their second child, Mary Katherine, whom Law called Kate, was born in Genoa. In Turin, Law presented a scheme for a bank similar to the Bank of England to Victor Amadeus, Duke of Savoy, whose domain was in dire need of cash after the siege of the city. The duke, a great admirer of Law, liked his scheme, and Law’s spirits rose. As he waited to be given the go-ahead, he involved himself in speculative dealings and currency trades so successfully that a year later he was able to open a bank account in Amsterdam with a deposit of £100,000 (US$160,000).

  But as the months passed, it became obvious that Victor Amadeus’s support did not mark the turning point for which Law had hoped. The duke’s ministers were stubbornly conservative, and eventually, after lengthy arguments, Victor Amadeus was forced to reject Law’s idea with the lame explanation that his dominions “were too small for the execution of so great a design.” He added that “France was the proper theatre for its performance, if I know the disposition of the people of that
kingdom I am sure they will relish your schemes.” Law agreed, but knew that with the present administration intact, there too the door was closed.

  Even in exile John Law’s success gripped the English authorities. By now he had decided that his ambitions would be helped if he presented himself to the world as a man of substance. In the spring of 1712 he left Italy to return to The Hague, “the handsomest, the most fashionable and the most modern looking town in the Netherlands,” according to one writer of the time. He invested his winnings in a grand residence and filled it with paintings and works of art. Lavish living on such a scale brought instant acclaim. With Katherine happily playing the role of society hostess, numerous visitors came to call. Everyone wanted to know exactly how his fortune had been made. In April 1713, the diplomat John Drummond wrote to the Earl of Oxford from Utrecht mentioning “a famous man in this country. . . . This Mr. Law has picked up in Italy a great estate, some say by army undertakings at Genoa, and some say partly by gaming. . . . I should be sorry to see him settle at The Hague, where he has bought a fine house, seeing he is rich, and can be very useful . . . the service he may be able to do his country really deserves his pardon.” Law enjoyed his reputation as a man of mystery and did nothing to discourage the gossip. He was as convivial and charismatic as ever: “He is really admired by all who know him here . . . and I should always wish the Queen’s subjects of such good estates and sense established at home,” wrote Drummond.

  He was still adding to his substantial fortune. According to Gray, the Dutch were renowned as “a very close wary people, but will give in to anything where there is any prospect of Gain.” Law, said Gray, seized the opportunity to introduce them to the delights of a national lottery, based on the one his old friend Neale had set up in London but “improved” to his own advantage. In Rotterdam Law’s ploy was discovered: he had “calculated these lotteries entirely to his own benefit, and to the prejudice of the People, having got about 200,000 guilders by them.” He was asked to leave the country. Recent research suggests, however, that Law was in fact operating a form of insurance scheme offering investors a way of reducing their losses should all their tickets lose: for a fee of 100 guilders, investors could lodge ten tickets with Law, and claim three times the sum if all ten lost. Later the scheme was modified so that the price dropped but all winnings over a certain level were payable to Law, who was employing his understanding of risk to his own profit, in much the same way as he did in games of chance. Such ventures were highly lucrative; two years later his fortune was said to have grown to $800,000.