Millionaire: The Philanderer, Gambler, and Duelist Who Invented Modern Finance (9 page)

In France, meanwhile, his luck had begun to turn. The signing of the peace of Utrecht in April 1713 had brought the long war to a close. Louis XIV, now seventy-five and still in remarkably robust health, brooded over the ruins of his kingdom. His sense of loss was compounded by a tragic sequence of events that had transformed the French succession. In the space of three years, three heirs—his son the Dauphin, his grandson the Duc de Bourgogne, and his great-grandson the Duc de Bretagne—had died. The heir to the throne was now Louis’s second great-grandson, a four-year-old child, and Law’s ally, the Duc d’Orléans, stood in line as regent.

Louis’s sorrow promised opportunity for Law. More than ever France needed an answer to her financial problems. Sensing that the king’s contempt for him might now have mellowed, Law returned to Paris. On Christmas Eve he wrote to Nicolas Desmarets, Louis’s new finance minister, begging for an audience “to discuss matters, which I trust will be agreeable, being for the service of the King and the well-being of his subjects.” Orléans’s support was beginning to work in Law’s favor, and his request was received slightly more favorably. Desmarets scribbled a note to his clerk, “when he comes I will speak to him,” at the top of Law’s letter. But either the office was inefficient and no word was sent to Law, or some of the old distrust lingered and Desmarets dragged his feet. Nearly a fortnight later, having heard nothing, Law wrote again, this time more impatiently: “On 24 December I took the liberty of writing to your lordship to beg you to allow me a private audience to discuss the service of His Majesty. As my business affairs oblige me to leave shortly I would like to know if this honour will be granted.” Again the honor was not granted, but Law was still convinced that a breakthrough was close. He returned to The Hague to prepare to move his family to France.

By May 1714 he was back in Paris, still denied the formal audience to make his presentation. He wrote confidently, “You had the goodness to say you would let me know when you had time to give me an audience. I await your orders.” Katherine, meanwhile, was in The Hague supervising the packing of furnishings and personal effects, a formidable task, with their extensive collection of art and furniture. They suffered a setback when they were held up by French customs officials at Rouen. Law wrote to Desmarets, confidently requesting the assistance he felt was due to a man who would soon be playing a key role in French affairs: “Several chests and crates with the valuables and furnishings that I used during my stay there are being dispatched from Holland. As among these there are some crockery and other fragile objects that will be easily damaged if they are opened
en route
and as I have no one to look after them, I am taking the liberty of begging your lordship to grant permission for them to pass through Rouen without being opened, and that they can be examined when they arrive at my house.” Desmarets was not unsympathetic, but neither would he allow Law to ignore the usual formalities. He gave instructions that Law should be told “that I can’t arrange a visit at his home . . . this is only usual for ambassadors . . . but if he likes I will send an order to have the chests and crates sent to the customs in Paris, where they can be opened in front of him.”

A month or two later the Law family were comfortably settled in their new residence, a mansion staffed with “a sizeable retinue of servants,” in the Place Vendôme (then known as the Place Louis le Grand), one of Paris’s newest and most fashionable squares, where many of the capital’s most powerful financiers lived. The move had been noticed by d’Argenson, who remained extremely wary of Law and alerted foreign minister Torcy: “A Scot named Law, gambler by profession and suspected of evil intentions towards the King appears at Paris in high style and has even bought an impressive home in the Place Louis le Grand, although no one knows of any resource except fortune in gambling, which is his whole profession. I cannot believe that the motives which have aroused just suspicions against him have ended with the peace.” Torcy, however, must have caught wind of the shift in the establishment’s regard for him and scribbled on the letter, “He is not suspect. One can leave him in peace.”

The move had just been completed during the summer of 1714 when Queen Anne died. Still hankering for a role in England, Law immediately lobbied an old Scottish friend, John Dalrymple, second Earl of Stair, the recently appointed British ambassador to France, to bring his case to the attention of the new king, George I. The son of the disgraced earl held responsible for the massacre at Glencoe, Stair shared the youthful Law’s passion for gambling and high living; he may have met Law over the tables in Edinburgh or London. When Stair arrived in Paris in January 1715, Law was the first person he visited.

The encounter left him deeply impressed. Now forty-three, Law had retained his good looks and athletic physique, but his youthful appetite for self-indulgence had been replaced by lofty ambition. Stair was dazzled by Law’s grasp of finance and his ability to explain complex subjects lucidly. He had little hesitation in taking up Law’s case and wrote to the statesman and secretary of state in England, James Stanhope, to recommend Law as “a man of very good sense, and who has a head fit for calculations of all kinds to an extent beyond anybody.” He was, said Stair, “certainly the cleverest man that is,” who might be “useful in devising some plan for paying off the national debts.” Stair also recommended Law to Lord Halifax at the Treasury. Halifax, who had met Law in The Hague and seen the proposal he had written in Scotland, needed little convincing of Law’s talent: “I have a great esteem for his abilities, and am extreme fond of having his assistance in the Revenue,” he said. But his good opinion was not enough. Later he wrote, “There appears some difficulty in his case, and in the way of having him brought over. If your lordship can suggest anything to me that can ease this matter, I should be very glad to receive it.” Stanhope’s reply to Stair confirmed the objections: “I did not fail to lay it before the king,” he wrote. “I am now to tell your lordship that I find a disposition to comply with what your lordship proposes, though at the same time it has met, and does meet, with opposition, and I believe it will be no hard matter for him [Law] to guess from whence it proceeds.” According to Law, Stanhope was furious that the petition was turned down, and “speaking to the King on my subject said that England’s debts during two wars were £50 million, but that she had lost more in the form of one of her subjects the day that I engaged myself in the affairs of France.” Twenty years on, the ghost of Wilson still hindered Law’s rise.

He did not waste time lamenting. Having resolved instead to prove to England what she had lost by his success in France, in May he made the long-awaited proposal to Desmarets for a state bank issuing paper money against deposits. But Desmarets, still distrustful, strung him along in a state of constant suspense, demanding endless explanations, pointing out pitfalls. In early summer, perhaps worn out with frustration, Law fell ill and was not sufficiently strong to revise his scheme again until July. By then word of it had filtered to Paris financiers, who, fearing that their profits would suffer, noisily voiced their opposition. A state bank of issue would never work, said Samuel Bernard, one of the wealthiest of the financiers, “in a country where everything depends on the King’s pleasure.” Faced with yet more hostility Law remained cool and surprisingly optimistic. But Desmarets, still playing for time, raised more queries. How soon could Law begin? What guarantees would he offer? How would it be administered? Patiently Law answered every question. He was ready to open the bank on August 10 or even earlier if he could. He was so sure it would succeed he would put up 500,000 livres of his own money as guarantee. In this grand new institution Desmarets should certainly hold an official role. Eventually, in early August, Law’s persistence paid off. Desmarets approved. There remained only the king to convince.

Louis was enjoying a quiet summer at his summer residence at Marly. On August 10, the day on which Law hoped to open the state bank, the king’s health suddenly deteriorated. According to contemporary reports, discolored blotches on his leg enlarged and the doctors, fearing gangrene, tried magical elixirs, multiple incisions, and swathing it in brandy-soaked bandages. But he was beyond help. On Sunday, September 1, 1715, at a quarter to nine in the morning, having reigned for seventy-two years, Louis XIV, France’s most glorious king, died.

Orléans, like most of France, spent little time grieving. The day after Louis’s death he made a compelling address to the Parlement in which he coerced the representatives to reject the right of a council of noblemen and the Duc de Maine to assist him in his regency, a scheme of joint rule laid out by Louis to restrain Orléans’s power. He emerged triumphant. Until the five-year-old Dauphin came of age, Orléans would rule France as regent. For John Law, the opportunity of which he had long dreamed had never seemed so close.

T
HE
B
ANK

Your Royal Highness will have no difficulty in reaping success from what I have the honour of proposing, the best actor is not the one with the largest role, but the one who acts the best. I know my strengths and I love pleasure too much to occupy myself in affairs that I do not understand in depth. My ideas are simple, the principles on which I have worked them out are true, and the conclusions I draw from them are correct.

Letter from John Law to the Regent,

December 1715

A
T THE
B
ANQUE
G
ÉNÉRALE THE MASSIVE DOUBLE DOORS
to the rue St. Avoye stood open. Inside, a handful of clients conversed idly in the vestibule before drifting toward the
grande salle
to conduct their business. It was late summer 1716 and, as usual, the bank was quiet.

Later that morning a carriage arrived that was far from ordinary or expected. A few customers glimpsed it slowing to turn into the narrow, arched entrance to the street. They must have recognized the livery of the coachman and the servants inside as that of the Duc d’Orléans. The servants got out carrying metal-bound coffers, which they took into the bank and placed on the counter. Then an equerry stepped forward to unlock them. Inside each chest was a mass of gold louis d’or and silver écus, which the regent wished to entrust to the bank. The total value was a million livres.

The bank’s other customers were transfixed. For the regent to invest such a sum in a bank that was at present the subject of mockery in many quarters was astonishing and significant. They did not know that the regent and the bank’s director John Law had contrived that the deposit be made as conspicuously as possible: public awe was precisely the effect for which they strove. It would boost confidence in the ailing bank and its paper banknotes.

The ploy worked. Within days the press had reported that the regent had such faith in John Law’s new bank that he had deposited a million livres in its vaults. The previously hostile
Gazette de la Régence,
which had predicted “[Law’s] bank will not succeed” and “no one talks of Mr. Law’s bank except to joke about it,” now remarked on “an order the other day from the mint to send a million to M. Law’s bank, that the Regent supports and is really his bank under the name of this Englishman. Everyone believes that it will hold up because royal funds are going in to it.” Royal patronage, as John Law was only too aware, was the most potent of marketing tools.

Yet after Louis XIV’s death, Law had been disappointed by the protracted process of establishing his bank. On his accession as regent, Orléans had dismissed Desmarets and, in line with his new system of government by aristocratic councils, made the Duc de Noailles head of the finance council. Noailles was energetic, shrewd, and ambitious but indecisive and innately distrustful of anyone who might threaten his position. Louis de Rouvray Saint-Simon, a French writer, courtier, member of the Regency Council, and friend of the regent, whose forty-one volumes of memoirs provide a fascinating insight into the key personalities and events of the time, observed that “in spite of his intellect, the multitude and mobility of his ideas and views, which successively chased each other off either wholly or in part, made him incapable of concluding any work of his own; neither was he ever satisfied with work done for him.” He was a hard and insidious taskmaster, and when the regent introduced Law as someone whose ideas were worth considering, Noailles was instantly suspicious. He nodded and muttered superficial encouragements but inwardly viewed Law as “an intruder put by the hand of the Regent into their administration” and hence, according to Saint-Simon, “long bandied [him] from pillar to post.”

Noailles found France’s financial crisis far worse than anyone had imagined. The country’s debts, estimated at over 2 billion livres, incurred interest repayments of 90 million; the tax system that should have covered the repayments of interest on the debt was so staggeringly inefficient and riven with corruption that the income was swallowed up three or four years in advance. Having studied the books, Noailles summed up the monetary morass: “We found the estate of our Crown given up, the revenues of the state practically annihilated by an infinity of charges and settlements, ordinary taxation eaten up in advance, arrears of all kinds accumulated through the years, a multitude of notes, ordinances, and allocations anticipated of so many different kinds which mount up to such considerable sums that one can hardly calculate them.”

Some advisers suggested that France should simply declare herself bankrupt and start again. Law convinced Orléans that to do so would pitch the country into even worse distress. He had a better way. In October, bubbling with enthusiasm, he proffered his newest proposal to the regent: a plan for a state bank administered in the king’s name that would handle all revenues and issue paper money backed by coins. “The convenience will be such that everyone will be charmed to have these bank bills rather than money, because of the facility of making payments in paper, and the certainty of receiving the value whenever they wish.”

While Orléans pondered the scheme, Law lobbied the regent’s closest advisers for support. A brave few murmured wary encouragement, among them the Duc d’Antin, who said he was “struck by his ideas, they appeared to merit a most detailed attention.” At the end of the month the scheme was formally put to the council and a panel of thirteen of Paris’s most illustrious bankers and financiers. But still Law’s star failed to rise. Members of the business community remained scornful and distrustful, their criticisms concealing their underlying concern that if a state bank was allowed to open its doors, it would be at great cost to them. Nine of the thirteen voted against it. Noailles, defensive and resentful of Law’s effortless influence with the regent, also thwarted him. As Law waited, naïvely expecting to be told to proceed, his betrayal took place behind the closed doors of the council chamber.

Confronted by the massed hostility of the business community as well as his own advisers, Orléans concluded, regretfully, that he could not afford to back such a controversial scheme and risk upsetting so many at this delicate early stage of his regency. For the time being the scheme would have to be sacrificed. He made his closing pronouncement ceremoniously. “He had come there persuaded that the bank ought to be established; but, after the opinions he had just heard, he agreed wholly with that of M. le duc de Noailles; and it would be announced to everyone that same day that the bank would not be carried out.”

Law’s prickly response to the regent’s abandonment hid profound disillusionment. Banks were by now accepted in every prosperous country. How could anyone question their usefulness? he raged. The regent, all too well aware of the truth of this, and probably lamenting his
volte-face
even as he made it, dreaded that Law might return to his wandering, gambling life, or worse still, take his expertise elsewhere. While Law brooded in his Paris mansion, the regent ordered Noailles to pacify him. Law said later that Noailles made a few vague promises on the regent’s behalf, and that “I could still be useful to the state, and he hoped that this rejection would not make me want to leave France, that he wished to make my stay a pleasant one in every way he could, and that it was even the opinion of the council that he should engage me to stay, being able to be useful with the knowledge that I have.” Still bristling, Law retorted, “I have need of nothing having enough to live with ease, that my intention in proposing to serve His Royal Highness was to make myself useful to the state and not augment my own good. The truth of this was obvious by the nature of my proposition.” But as the regent had hoped, Law simmered down, secretly flattered by all the attention. “I would not have even thought of making a second proposition if he had not pressed me to do so,” he later wrote, with manifest self-righteousness.

In fact, the fire burning in Law was unlikely ever to have been extinguished by the rejection of a single council: he had been dreaming for far too long to give up. Yet again, he told himself, it was merely a matter of modifying his ideas, and waiting. If the regent was uneasy with the idea of a state bank, Law reasoned now that the answer must lie in a private scheme.

The revised plan that emerged was for a privately run bank, similar to the Bank of England, issuing banknotes and financed by shareholders. Throughout a winter so cold that, according to the Princess Palatine, the regent’s mother, even the sea at Calais froze, Law briefed Orléans with renewed enthusiasm in conferences held at the Palais Royal and at Marly. In December he equated the introduction of credit with the discovery of the Indies, remarking that “if Spain had ceded the Indies [he meant the Spanish Americas] to the English, they would not have profited as much from them as they have from the use of credit . . . My banking project . . . will not bring the least prejudice to the King nor to the people; it is the quickest, safest and most harmless method of restoring the good faith and confidence of commerce; it is the true foundation of power in a state and the way by which one must begin to establish order.” When Law talked like this, money became the stuff of dreams, a magical cure-all, the embodiment of universal happiness rather than of sordid temptation. Orléans was captivated.

While the regent and Law were closeted together, it was left to Noailles to initiate more painful methods of improving the country’s finances. A year earlier, he had instigated the Visa, a drastic form of financial surgery, by which large swaths of royal debt were amputated. Long-term debt, which had largely financed Louis’s wars, mostly took the form of annuity bonds sold by Paris’s city government, the Hôtel de Ville, to financiers and other private investors. The bonds paid a set interest rate that was covered traditionally by an agreed source of government revenue. One of Noailles’s money-saving measures was to reduce the interest on bonds from 7 percent to 4 percent. He also converted the various forms of short-term debt into
billets d’états,
state notes worth only two-thirds of their former value. He cut salaries and pensions, and revalued the coinage at 50 percent of its previous worth.

In systems of currency based on the value of gold and silver, especially in France, adjusting the value of the coinage was a frequent royal scam. The French monetary system was based on the livre tournois, a unit of account (like the pound sterling in England) used to express prices, contracts, and wages, for which there was no single coin, and against which the value of gold and silver coins could be adjusted. French coins included the gold louis d’or and the silver écu, equivalent in England to the gold guinea and the silver shilling. In this case, Noailles raised the value of the louis d’or, stating that its value would increase from fourteen to twenty livres (and the écu from three livres ten sous to five livres), thus effectively devaluing the livre. This was an inflationary measure that would cause prices to rise, even though it reduced the value of the state’s debt by diminishing the amount of coins needed to repay it. Revaluations worked by demanding that the public bring all their coins to the mint either for endorsement with a new stamp, representing the increased value, or by reminting lighter coins with a higher valuation against the livre. In both cases the state appropriated part of the bullion in the process of stamping or reminting it, but concealed it against the adjustments in value. The public, well aware that the Crown was profiting from such transactions, was understandably reluctant to hand over coins and see them altered in this manner, hence the tendency to hoard them, adulterate them, or smuggle them abroad and sell them as bullion.

Noailles’s measures made the balance sheet look better but plunged the nation into further financial distress. By encouraging people to send coins abroad, they worsened the shortage; by reducing interest payments and the value of government securities, they forced people to sell to maintain a level of income and the market price plummeted 80 percent. Businesses already foundering from a shortage of money fell deeper into debt and shopkeepers closed their doors—how could they agree to buy or sell something when they were unsure from one day to the next what the livre would be worth? Hundreds were bankrupted, which led in turn to mass unemployment. Many had no option but to turn to crime. The
Gazette de la Régence
recorded the climate of wretchedness: “It is not possible to express the misery of the provinces. The countryside is full of robbers; we dare not go out of the towns for fear of robberies which happen every night . . . nowhere else is there a country like it, and if the King does not pay we run the risk of a revolt. There are several officers who went charitably to dinner with some capuchins and even the capuchins made a collection for them. It is utter desolation.” Not only was the entire country foundering in an economic abyss, the very fabric of society was threatened.

Then Noailles instigated his most drastic remedy yet. In March 1716, a so-called Chamber of Justice was charged to investigate and call to account the financiers, tax collectors, and other officials who, it was felt, had profited unlawfully and on a vast scale from France’s economic distress. To assist the courts in their quest, people were tempted to inform with the bait of a fifth of any recovered money or property. Treachery ensued on an unparalleled scale. Disgruntled servants betrayed their employers, wives and mistresses whispered of their lovers’ financial misdemeanors, children cited their parents’ transgressions, and fearful of being reported, anyone who had coins hoarded them, unwittingly worsening the monetary shortage. People who panicked and tried to flee the country found that innkeepers and postmasters had been ordered to refuse horses to anyone they suspected of evading justice. Some turned back, admitted their crime, and relinquished properties or large sums of money to avoid the rack or the pillory. Others committed suicide rather than subject themselves to the horrors of investigation.