A Betting Man

Britain’s​ early Enlightenment, between the 1680s and the 1750s, was the golden age of ‘projectors’, the name given to promoters of speculative schemes, some for making money, others for human betterment. After the Civil Wars of the 1640s the ingenuity which had once been applied to calculating the date of the Creation and the timing of the Second Coming was increasingly applied to more earthly concerns. The new science – experimental and mathematical – inspired a raft of solutions to contemporary problems. Some are with us still – life tables, actuarial mathematics, the insurance of life and property, as well as financial systems for managing public debt – although other panaceas were naive or faddish, for example the enthusiasm of the Anglo-Irish philosopher George Berkeley for the health benefits of tar-water. The phenomenon of projection is parodied by Berkeley’s fellow Anglo-Irishman Jonathan Swift in Gulliver’s Travels (1726), where projectors at the Academy of Lagado devise schemes for extracting sunbeams from cucumbers, building houses from the roof downwards, and reconstituting the food ingredients of excrement. In A Modest Proposal (1729), behind the persona of a projector, Swift advanced a bleak satirical remedy for the cure of Irish poverty: breeding and eating infants.

The literature of projection came close to political fact in Scotland during the traumatic decade that preceded the parliamentary union with England in 1707. There were intense political pressures on Scotland to resolve its constitutional relationship with England, which shared the same monarch; prolonged famine caused a significant rise in mortality rates; and a failed colonial venture at Darien in Panama wasted hundreds of lives and much of Scotland’s capital. In addition, in December 1704, in the midst of the constitutional tussle with England, the Bank of Scotland ran out of specie and was forced to stop lending for several months. The Scots were in a precarious position: they belonged to a small, insecure northern nation bullied by its larger, more prosperous neighbour, and didn’t possess its extensive transatlantic colonies, competitive manufacturers or thriving agricultural sector. How was Scotland to pay its way in the world?

A rash of solutions emerged in pamphlets of the time, including banking schemes, plans for a special council of trade, new crop rotations and agrarian laws, as well as the Darien scheme itself, a chimerical project to establish a trading entrepot on the narrow neck of land separating the Atlantic from the Pacific. Before the 1690s most books and pamphlets published in Edinburgh were theological; during the 1690s there was a striking shift to worldly concerns. Dark disillusionment inspired the grim panacea advanced in 1698 by the cosmopolitan, freethinking laird Andrew Fletcher of Saltoun. Confronting the problem of mass evictions and vagrancy brought about by the famine, Fletcher recommended the establishment of the form of slavery found in antiquity as a means of relieving the poor and putting them to work for the common weal. Whereas the (modern) reader knows that Swift’s Modest Proposer is not to be taken at face value, Fletcher is much harder to parse: his advocacy of slavery was undoubtedly intended as a provocation, but was not necessarily insincere.

John Law of Lauriston made his own distinctive contribution to the debate, in Money and Trade Considered: with a Proposal for Supplying the Nation with Money (1705). Law’s panacea was a system of paper money, underwritten not by precious metals or the monarch’s bond, but by the land of the country itself: a kind of national mortgage. Law recognised that the value of money was not intrinsic to the metal used for coinage; rather its value resided in the fluid convenience of a medium of exchange unhampered by the frictions of barter. Money, Law insisted, was ‘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.’

Law proposed land – valued as a multiple of its annual rent – as the basis for a public issue of paper notes to Scotland’s lairds, based either on a notional proportion of each laird’s lands, or by mortgage or outright sale to the state. Independently, Law and an English projector called Hugh Chamberlen both presented proposals to the Scottish Parliament for a land-backed system of paper money. Fletcher of Saltoun thought this non-bullionist approach a ‘gibberish language’. He denounced the schemes of Law and Chamberlen in Parliament as ‘shoals and shams to ruine the country’ and – seemingly without irony – ‘to enslave the nation’. Other parliamentarians disagreed. However, the principal matter at hand – overshadowing all the plans then circulating for the improvement of Scotland’s economy – was the question of union with England. Unsurprisingly, in the circumstances, Law’s scheme was rejected, and at some point in 1705 or early 1706, he left Scotland. ‘There is no evidence,’ James Buchan writes, ‘he ever returned.’

Law was born in 1671, the son of William Law, a master goldsmith who, like other goldsmiths of his time, drifted from metallurgy into finance, becoming a lender to clients. Success in this sphere enabled the purchase of an estate at Lauriston in 1683. His family background must have helped inspire Law’s fascination with money and its relationship to other commodities. But, as Buchan perceives, other factors played a part, including Law’s sophisticated grasp of mathematical probability and his exposure on the Continent to public institutions which deftly dispersed financial risk.

Law was widely travelled, but the wanderings of this gambler-adventurer and his common law wife, Lady Katherine Knowles, were not entirely voluntary. In 1694 he killed a well-connected gentleman called Edward Wilson in a quarrel in London, and, although he managed to escape from England after a period in jail, he remained for much of his life an outlaw in that jurisdiction.

The Europe in which he travelled was scarred by two decades of major warfare, the War of the League of Augsburg (1688-97) and the War of the Spanish Succession (1701-14), largely fought between Louis XIV of France and his enemies, who included William of Orange and his sister-in-law and successor as ruler of England, Scotland and Ireland, Queen Anne. Problems with the royal finances had substantially contributed to England’s near century of revolution under the Stuarts, but after the Glorious Revolution new systems of public debt developed which enabled the state to wage war far more effectively. Instead of short-term borrowing by the crown, there was a shift towards schemes for longer-term public borrowing under parliamentary auspices, whether by means of loans paid back in a graduated form as annuities or via the robust new institution of the Bank of England. Not only did the bank’s subscribers lend large and long in return for specified privileges, but Parliament-approved taxation provided a crucial backstop against default. The vicissitudes of public finance were no longer a first-order problem for the crown, since they were now effectively insulated from the state in a secondary market for Bank of England stock. Lottery loans – distant ancestors not so much of the National Lottery as of Premium Bonds – also created their own secondary markets, especially before and during the draws: the loan came from the purchase by the well-to-do of expensive tickets, some of which carried special prizes, and all of which entitled the bearer to an annuity.

England’s financial revolution enabled this formerly middle-ranking power to emerge as a dominant player in international relations, but it was by no means alone in experimenting with new and ingenious financial instruments, as Law discovered. In Genoa, where he was based between 1706 and 1712, the lottery had been outsourced since the mid-17th century to investors who supplied the state in return with a rising annual revenue. The Bank of Saint George, established in the early 15th century, issued blocks of shares, or luoghi, which were widely traded among the city’s elite. Here, the risk associated with public finances fell not on the state treasury or on the poor, but on those with disposable wealth who were able to purchase and trade luoghi.

In the Netherlands, where he lived in 1712-13, Law discovered a new kind of financial instrument, the premienegotie, what we would call an option or future. Dutch merchants had already begun to insure against fluctuations in the price of a commodity, and entered into agreements for future sales of set commodities at a certain price on a particular day. Above all, Law was impressed by the Dutch general lottery of 1712, which funded a loan to the state, with the Council of State fixing the ratio of large prizes to blanks at one to seven. The odds – for the underwriter at least – were alluring. Law devised a profitable scheme for insuring ticketholders against drawing blanks, and promptly advertised it in the Gazette d’Amsterdam. On a batch of ten tickets – whose numbers had to be supplied to him – Law promised, on receipt of a hundred guilder premium, to pay out three hundred guilders should there be no prize. He also offered various other forms of side insurance, or, more properly, side bets. Not that there was any serious risk for him: he had mastered the odds.

Law bombarded the governments of Louis XIV and Victor Amadeus II of Savoy with intricate schemes for financial reform and entered into protracted correspondence with their officials. The opportunity to put his theories into practice arrived in the forgotten interlude of Anglo-French amity which came in the wake of three decisive events: the conclusion of the War of the Spanish Succession in 1714; the death of Louis XIV in 1715; and the failure of the Jacobite rebellion that same year.

During the minority of Louis XV, France was governed by a regency council under the duc d’Orléans, who saw that peace was essential to restore the royal finances and backed Law’s schemes. The duc de Noailles, who presided over the treasury council, was less convinced. Law envisaged a wholesale financial revolution: the traditional methods of arranging public finance, he believed, were not only wasteful, but constipated. What Law wanted was a method of raising public revenue by boosting the money supply. Did not a nation’s trust in itself – in the very fact of society’s productive sinews – provide a form of collateral, however indirect, for increases in the quantity of paper money?

More​ than two decades of warfare had stretched the French crown’s finances to the limit. Loans to the crown were repaid in the form of lifetime annuities, a stratagem that had once been deployed in England, and the crown’s traditional policy of selling offices to raise cash resulted in further liabilities in the form of the emoluments owing to officeholders, who were not subject to dismissal and could only be bought out. Louis XIV’s most gifted finance minister, Jean-Baptiste Colbert, had made preparations for buying out public offices, but the demands of war ruined his plans, and his successors acceded instead to the creation of new offices. This ramshackle edifice came close to collapse in 1709, when the crown banker Samuel Bernard found himself seriously embarrassed for cash. By the end of the war the crown owed 900 million livres in promissory notes. The death of Louis XIV brought a fresh crisis.

Noailles toyed with, but in the end dismissed, the idea of summoning the Estates General, which had last met in 1614 (its next meeting in 1789 would precipitate the French Revolution). Instead he announced a general audit and made some attempts at retrenchment. Nevertheless, the sheer scale of the problem created an opening for Law, and Noailles acquiesced when in 1716 he was awarded the right to establish a private bank, which immediately restored some of the state’s credit. What followed in 1717 was highly inventive: the chartering of the Compagnie d’Occident (the Mississippi Company), given monopoly rights to trade in Louisiana. Holders of depreciated French crown IOUs were allowed to exchange them at par for stock in the new venture. This stock carried dividends, but not for the first year. The immediate effect was to create breathing space for the crown’s financiers.

At the end of 1718 Law’s bank was converted by royal fiat into a state bank, allowing him greater control over the money supply. Shortly afterwards, he effected the merger of various trading companies, including the Compagnie d’Occident, into a financial behemoth, the Compagnie des Indes, which promptly won the state’s minting privileges. In August 1719 the regent declared the end of the old financial regime: the Compagnie des Indes would lend the king 1200 million livres to buy out all of his creditors, becoming itself the sole creditor. Britain copied the idea, and the South Sea Company was awarded the right to carry out a similar debt-conversion scheme.

Law produced a management plan for the Compagnie des Indes which separated its activities into two broad areas, commerce (including the mint) and the administration of the state’s indirect taxes and excise. Soon the regent added to these duties the collection of the taille, a land tax paid by the peasantry. On 4 January 1720 Law became comptroller-general of the king’s finances. The rest of Europe marvelled at the phoenix-like renaissance of a French superstate by means of adroit financial reforms. Lord Stanhope predicted that, on account of Law’s financial ingenuity, ‘even the Emperor, England and Holland combined will not be in a state to oppose France.’ However, the combination of despotism and financial wizardry in a royal-owned bank proved far less solid than the Bank of England, which, with its broad base of shareholders, was better able to withstand the storms that followed the bursting of the South Sea Bubble in 1720.

In France there was a run on the bank. Law was at first able to quell it, but was pushed into increasingly desperate expedients, including manipulation of the currency by decree. Eventually, under extreme pressure, his plans had to be put into reverse, and the duties of the Compagnie des Indes were transferred back to the state. Law announced that the new notes would cease to be legal tender, which soon had creditors complaining that their debtors had become too prompt – repaying them in soon-to-be-worthless paper money. ‘He who receives what was owing to him reckons himself undone,’ one English official wrote from Paris; ‘He who pays his debts is thought unjust.’ By July 1720 the royal bank had gone bust, and Law’s financial gamble had failed. He fled France on Christmas Eve that year, and spent his last years in a second exile, dying in Venice in 1729. In France the regent reverted to the old regime of venal offices and annuities, whose collapse in the 1780s ushered in a revolution far more sweeping than Law’s.

Making sense of Law’s career – even locating him in the sources at certain points – is a major feat of scholarship. Most of the material Buchan uses is in English, French, Italian or Dutch, with a smattering in other languages and some Jacobite correspondence in code. Apart from the ‘blizzard’ of paper generated by his brief career at the helm of French public finances, Law is an elusive presence in the archives. Buchan finds his quarry under several variants of his name, not only as Laws, but as Lau, Laus, Lavv, Las, Lass and Laur, among others. He thinks he detects him for a time under the assumed name of George Seignior, and much later as a Mr Gardiner; Law also surfaces in Jacobite cipher under pseudonyms such as Ashburn or Arrington or as a number: ‘888’. Despite the fluency of Buchan’s prose and his gifts as a biographer, this is a book whose highly complex narratives – both personal and financial – make serious demands of the reader.

Law’s system evaporated as if it had never been, though a special commission continued to deliberate on his personal financial obligations until the outbreak of the French Revolution. There is, however, one tangible remnant of the wealth generated in France at the zenith of his career. The duc de Bourbon cashed in at a propitious juncture, using his capital gains to build the Great Stables at Chantilly. Law’s ‘monument,’ Buchan observes, ‘is a cathedral to the horse.’