Millionaire: The Philanderer, Gambler, and Duelist Who Invented Modern Finance (7 page)

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 the 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 because 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.

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.