The great “Mississippi Scheme” which wrought havoc on the French in
1720 is the central and turning point in the history of John Law, late
of Lauriston, Controller-General of Finance in France. His father,
William Law (grand nephew of James Law, Archbishop of Glasgow) was a
goldsmith in that city.
As in the seventeenth century the goldsmiths were also the bankers and
moneylenders of the community, a successful goldsmith might be looked
on as on the highroad to great fortune. To William Law in 1671 was
born his first son John, who had considerable natural talent in the
way of mathematics--and a nature which was such as to nullify their
use. As a youth he showed proficiency in arithmetic and algebra, but
as he was also in those early days riotous and dissipated, we may
fairly come to the conclusion that he did not use his natural powers
to their best advantage. He was already a gambler of a marked kind.
Before he was of age he was already in debt and was squandering his
patrimony. He sold the estate of Lauriston which his thrifty father
had acquired, and gave himself over to a life of so-called pleasure.
His mother, who had family ambitions, bought the estate so that it
might remain in the family of its new possessors. He removed himself
to London where within a couple of years he was sentenced to death for
murder--not a vulgar premeditated murder for gain, but the unhappy
result of a duel wherein he had killed his opponent, a boon companion,
one Austin who had acquired the soubriquet of “Beau” Austin. Through
social influence the death penalty was commuted for imprisonment,
and the crime only regarded as manslaughter. He had however to deal
with the relatives of the dead man who were naturally vindictive. One
of them entered an appeal against the commutation of the sentence.
Law, with the characteristic prudence of his time and nationality,
did not wait for the leisurely settlement of the legal process, but
escaped to the continent where he remained for some years sojourning
in various places. Being naturally clever and daring he seems to have
generally fallen on his feet. Whilst in Holland he became secretary
to an important official in the diplomatic world, from which service
he drifted into an employment with the Bank of Amsterdam. Here the
natural bent of his mind found expression. Banking in some of its
forms is gambling, and as he was both banker and gambler--one by
inherited tendency and the other by personal disposition--he began to
find his vogue, addressing himself seriously to the intricacies and
possibilities of the profession of banking. He was back in Scotland in
1701 (a risky venture on his part for his felony had not been “purged”)
and published a pamphlet, “_Proposals and Reasons for constituting a
Council of Trade in Scotland_.” This he followed up after some years,
with another pamphlet, “_Money and Trade considered, with a proposal
for supplying the Nation with Money_”; and in the same year (1709) he
propounded to the Scotch Parliament a scheme for a State Bank on the
security of land--a venture which on being tried speedily collapsed.
This, like other schemes of that period, was based on the issue and use
of paper money.
[Illustration: JOHN LAW]
In the meantime, and for five or six years afterwards, he was
travelling variously throughout Europe, occupying himself with
formulating successive schemes of finance, and in gambling--a process
in which he, being both skilled and lucky, amassed a sum of over a
hundred thousand pounds. He had varying fortunes, however, and was
expelled from several cities. He was not without believers in his
powers. Amongst them was the Earl of Stair, then Ambassador to France,
who allured by his specious methods of finance, suggested to the Earl
of Stanhope that he might be useful in devising a scheme for paying off
the British National Debt. After the death of Louis XIV, in 1715, he
suggested to the Duke of Orleans, the Regent for the young King (Louis
XV), the formation of a State Bank. The Regent favoured the idea, but
his advisers were against it; it was, however, agreed that Law might
found a bank with power to issue notes and accept deposits. This was
done by Letters Patent and the _Banque Générale_ came into existence in
1710, and was an immediate success. Its principle was to issue paper
money which was to be repayable by coin. Its paper rose to a premium
in 1716; in 1717 there was a decree that it was to be accepted in the
payment of taxes. This created a new form of cheap money, with the
result that there was a great and sudden extension of industry and
trade. From this rose the idea of a new enterprise--The Mississippi
Company--which was to outvie the success of the East India Company
incorporated by Charter in 1600 under the title of “The Governor and
Company of the Merchants of London trading to the East Indies,” which
after periods of doubtful fortune, and having become consolidated with
its rival “The General East India Company”--partially in 1702, and
completely in 1708, under the somewhat elephantine name of “The United
Company of Merchants of England trading to the East Indies”--was now
a vast organization of national importance. To the new French Company
for exploiting the Mississippi Valley was made over Louisiana (which
then included what were afterwards the States of Ohio and Missouri).
The Decree of Incorporation was issued in 1717. The Parliament at
Paris presently grew jealous of such a concession having been given
to a foreigner; and the next year a rumour went about that Parliament
was about to have him arrested, tried, and hanged. The Regent met
the parliamentary resistance by making (1718) the _Banque Générale_
into the _Banque Royale_--the King guaranteeing the notes. Law was
made Director General; but he was unable to prevent the Regent from
increasing the issue of paper money, by which means he managed to
satisfy dishonestly his own extravagance. It was a fiscal principle
of the time that the State accountants did not go behind the King’s
receipt--the _acquit de comptant_ as it was called.
The Western Company was enlarged in 1718 by a grant of a monopoly of
tobacco, and of the rights of trading ships and merchandise of the
Company of Senegal. In 1719, the _Banque Royale_ absorbed the rights of
the East India and China Companies, and then assumed the all-embracing
title of _Compagnie des Indes_. The next year it took in the African
Company; and so through that the whole of the non-European trade of
France. In 1719, the management of the Mint was handed over to Law’s
Company; and he was thus enabled to manipulate the coinage. In the
same year he had undertaken to pay off the French National Debt, and
so become the sole creditor of the Nation. He already exercised the
functions of Receiver General and had revenue-farming abolished in its
favour. He now controlled the collection and disposal of the whole of
the State taxation. At this stage of his adventure, Law seemed a good
fiscal administrator. He repealed or reduced pressing taxes on useful
commodities, and reduced the price of necessaries by forty per cent.
so that the peasants could increase the value of their holdings and
their crops without fear of coming later into the remorseless grip of
the tax-farmer under the infamous _metayer_ system. Free-trade was in
the Provinces practically established. This, so far as it went, was all
Law’s doing. Turgot, who later got credit for what had been done, only
carried out what the Scotch financier had planned.
Law had promised high dividends to the speculators in his scheme, and
had so far paid them; so it was no wonder that “The System” raised its
head again. In 1719-20, all France seemed to flock to Paris to such a
degree and with such unanimity of purpose, that it was difficult to
obtain room to go on with the necessary work of the Mississippi Scheme.
In such matters, resting on human greed which throws all prudence to
the winds, the pressure is always towards the centre; and the narrow
street of Quin cam poix became a seething mass, day and night, of
speculators in a hurry to buy shares. The time for trying to sell them
had not yet arrived.
Naturally such a locality rose in value, and as demand emphasises
paucity of space, extraordinary prices ruled. Even a small share in
the lucky street, where fortunes could be made in an hour, rose to
fabulous value. Houses formerly letting for forty pounds a year now
fetched eight hundred pounds per month. And no wonder, when shares of
the face value of five hundred livres sold for ten thousand! When there
is such an overwhelming desire to buy, then is the opportunity for
sellers to realise, and the time for such speculation on the one side,
and for such commerce on the other, is naturally short and the need
pressing.
At the beginning of 1720 everything seemed to be increasing in a sort
of geometric ratio. After a dividend of forty per cent. had been
declared, shares of five hundred value rose to eighteen thousand.
Greed, and the opportunity for satisfying its craving, turned the
heads of ordinarily sensible people. The whole world seemed mad. It
appeared right enough that the financial wonder-worker who had created
such a state of things should be loaded with additional honours. It
was only scriptural that he who had already multiplied his talents
should be entrusted with more. There was universal rejoicing when
John Law--exiled foreigner and condemned murderer--was appointed, in
January, 1720, Controller-General of the whole finances of France.
Naturally enough, even the hard head of the canny Scot began to
manifest symptoms of giving way in the shape of becoming _exalté_. And
naturally enough his enemies--financial, political and racial--did not
lose the opportunities afforded them of taking advantage of it. Tongues
began to wag, and all sorts of rumours, some of them reconcilable with
common sense and easily credible, others outrageous, began to go about.
Lord Stair reported that Law had boasted that he would raise France on
the ruins of England and Holland, to a greater height than she had ever
reached; that he could crush the East India Company and even destroy
British trade and credit when he chose. Stair resented this, and he and
Law from being close friends became enemies. To appease the incensed
and at present all-powerful Law, the powers that were recalled Lord
Stair.
On 23 February 1720, the _Compagnie des Indes_ and the _Banque Royale_
were united, thus linking the ends of the financial chain. “The System”
was now complete.
When Aladdin set the Genius, who had hitherto worked so willingly, the
final task of hanging a roc’s egg in the centre of the newly-created
palace, he brought the whole structure tumbling about his ears. So it
was with John Law and the egregious Mississippi Scheme. His idea was
complete and perfect. But the high sun when it reaches its meridianal
splendour begins from that instant its downward course.
The reaction was not long in manifesting itself. Usually in such
matters there is a pause before the great driving-wheels reverse
their motion, and the backward motion, beginning slowly, gathers way
as it progresses. But in this case human intelligence and not soulless
machinery was the propulsive force of reaction. The speculators had
begun to work before the onward movement had come to an end or even
begun to slacken. They were loaded up with a vast amount of stocks
whose value, even if there had been money to redeem them, was severely
limited, whereas they had purchased at prices varying between the
first rise above nominal value and that reached by the last desperate
speculator. It is not wise to hold such inflated stock too long, and in
a crisis sailing-master Wisdom orders Quarter-master Caution to take
a trick at the helm. When the bare idea of unification of financial
interests was mooted, the wise holders of stock commenced to unload.
When this movement began its progress was rapid--so long as there was
anything to be moved. The first class to feel it were the bankers. The
specie ran out like the pent-up water from a burst reservoir, till in
an incredibly short time there was not sufficient remaining to afford
the money-change needed in daily life. The advisers and officials of
the State, seriously alarmed, began at once to take strong measures
supported by royal decrees. Then as ruin began to stare the whole
nation in the face more and more with every hour, desperate expedients
were resorted to. The value of the currency was made by every
stratagem, dishonest trick, and unscrupulous exercise of power, to
fluctuate so that such differences or margins as arose might be grasped
forthwith for national use. Payments in bullion, except for very small
amounts, were forbidden. The possession of anything over five hundred
livres in specie was deemed an offence punishable by confiscation,
partial or wholesale, and by fine. Domiciliary visits were paid to seek
evidence of offence and to enforce the new laws, and informers in this
connection were well paid.
Then began a war, between public oppression and individual trickery,
to defend acquired rights and evade unjust demands. The holders of
paper money, unable to realise in specie, tried to protect themselves
by purchasing goods of intrinsic value. Precious metals, jewels, and
such like were bought in such quantities that the supplies diminished
and the prices grew, until to avoid immediate ruin, such purchases
were proclaimed illegal and prohibited. Then ordinary commodities of
lesser values were tried as means of barter, till their prices too
rose to such an extent that trade was paralysed. In order to meet the
growing danger a still more desperate expedient was resorted to. A
decree was issued the effect of which would be to reduce--gradually
it was hoped--the obligation of bank notes to one-half their nominal
value. This completed the panic, for here was a position which could
not be guarded against by any prudence or wisdom. No one could
henceforth by any possibility be financially safe. The speculators who
had already realised were alone safe. _Bona fide_ investors, if not
already overwhelmed by disaster, saw the tide of ruin rising rapidly
around them. Nothing within the power of the state could now be done
to check or even lessen the state of panic; not even the reversal of
the late decree in ten days after its issue. To make matters still
worse the Banque at this very time suspended payment. Probably in
a wild endeavour to do _something_ which would avert odium from
itself by saddling the responsibility on someone else, the Government
procured the dismissal of Law from the Controller-Generalship of
Finance. However--strange to say--he was very soon appointed by the
Regent as Intendant-General of Commerce and Director of the ruined
bank. The much-vaunted, idolised, and believed-in “System” had now
fallen hopelessly and was ruined forever. Law was everywhere attacked
and insulted with such unmitigated rancour that he had to leave the
country. He had invested the bulk of the great fortune which he had by
now acquired, in estates in France; and these together with everything
else that he had were now confiscated.
At the end of the same year, 1720, whilst he was at Brussels he was
asked by the command of the Czar (Peter), to administer the finances of
Russia, but declined. After this episode, grateful to a broken man, he
spent a couple of years wandering about Italy and Germany and probably
gaming a fluctuating income through gambling. Next he was to be found
in Copenhagen where he had sought sanctuary from his creditors. Next
year there was an outward change in his status, when he went to
England, on a ship of war, at the invitation of the Government. There
he was presented to George I. Somewhat to his chagrin he was denounced
in the House of Lords as a Catholic--(he had abjured his old belief of
Protestantism before accepting the high office of Controller-General
of Finances in 1720)--and an adherent of the Pretender. He pleaded in
the King’s Bench the Royal pardon for the murder of Beau Austin which
had been sent to him in 1719. He spent the succeeding few years in
England whence he corresponded with the Duke of Orleans. He expected
to be recalled to France but his hope was never realised. He wished to
go to the Continent but was practically a prisoner in England, fearing
to leave it lest he should be arrested by his creditors, amongst whom
was the new French East India Company which had been reconstructed on
the ruins of the old. In 1725 Sir Robert Walpole, then Prime Minister,
asked Lord Townshend, the Secretary of State, to give Law a King’s
commission of some sort, so that such might serve for his protection.
In the same year he went to Italy. He died in Venice in 1729, in what,
compared with his former state, was poverty. To the last he was a
gambler, always ready to take long risks for a prospect, however
remote, of large gain. A story is told that in his last years he
wagered his last thousand pounds to a shilling (20,000 to 1) against
the throwing of double sixes six consecutive times. The law of chances
was with him and naturally he won. He renewed his wager but the
authorities would not allow the further gamble to take place.
John Law married, quite early in life, the daughter of the Earl of
Banbury and widow of Mr. Seignior. His widow died in 1747. Some of
the members of his family were not undistinguished; his son died a
Colonel in the Austrian service; and one of his nephews became Comte de
Lauriston and rose to be a General in the French army and Aide-de-Camp
to the first Napoleon. He was made a Marshal of France by Louis XVIII.
John Law was a handsome and distinguished-looking man, blonde, with
small dark grey eyes and fresh complexion. He made an agreeable
impression on strangers. Saint-Simon, the social historian, gave him a
good character: “innocent of greed and knavery, a mild good man whom
fortune had not spoilt.” Others of his time regarded him as a pioneer
of modern statesmanship.
How is it then that such a man must be set down an impostor? In
historical perspective as an impostor he must be regarded, though not
as such in the narrowest view. The answer is that his very prominence
sits amongst his judges. Lesser men, and greater men of lesser
position, might well stand excused in matters wherein he is accorded
condemnation.
“That in the Captain’s but a choleric word
Which in the soldier is flat blasphemy.”
If, when a man plays a game wherein life and death and the fortunes
of many thousands are involved, it behoves him to be at least
careful, much greater is his responsibility where the prosperity
and happiness of nations are at stake. Had Law merely started new
theories of finance, and had they gone wrong, he might well claim,
and be accorded, excuse. But his were inventions of what, in modern
slang, is called “get-rich-quick” principles. Not only did Law not
enrich human life--with one exception, that of enlarging the currency
in use--or add to the sum total of human well-being and happiness; he
even neglected to show that forethought and consideration for others
which in all honour ought to be exercised by the deviser and controller
of great risks. He was a gambler, and a gambler only. He merely put
into the pockets of some persons that which he had taken out of the
pockets of others; and in doing so showed no consideration for the
poor, the thrifty, the needy--for any of those whose contentment and
happiness depend on such as are in high places and dowered in some
way with productive powers. The soulless uneducated churl who does an
honest day’s work does more for humanity than the genius who merely
shifts about the already garnered wealth of ages. John Law posed as
a benefactor and accepted all the benefits that accrued to him from
the praises of those who followed in his wake and gleaned the rich
wastage of his empire-moving theories and schemes. Financiers of Law’s
type no more benefit a country or enrich a people than do the hordes
of wasters and “tape”-betting men who prey on labour as locusts do on
the crops. If they wish not to do unnecessary harm--which is putting
their duty at the lowest possible estimate--they should at least try to
avoid repeating the errors which have wrecked others. A brief glance at
the wreckage which lay well within the Scotch gambler’s vision, will
show how he shut his eyes deliberately not only to facts, but to the
many correlations of cause and effect. Before his Mississippi Scheme
was formulated, there had been experience of banking enterprises, of
schemes for mercantile combination and for the exploitation of capital,
of adventurous dealings in the developments of countries new and more
or less savage, East and West and South.
The following list will typify. Of all these John Law had knowledge
sufficient to judge of difficulties to be encountered in the early
stages, of dangers not only incidental to the things themselves, but
based deep in human nature.
The East India Company founded in 1600
The Bank of England founded in 1694
The Africa Company founded in 1695
The Darien Company founded in 1695
A glance at each of these, all of which were within the scope and
knowledge of Law, their aims, formation and development, up to the time
spoken of, can hardly fail to be illuminative. The sixteenth century
had been an age of adventure and discovery; the seventeenth of the
foundation of great commercial enterprise, of conception of ideas, of
the constructive beginnings of things. The time for development had
come with the eighteenth; and now care and forethought, prudence and
resource, were the preparations for success.
The East India Company was in reality the pioneer of corporate
trading, and as for nearly a hundred years it was in a measure alone
in its scale of magnitude, its experiences could well serve as
exemplar, guide, and danger signal. It was based on that surest of all
undertakings, natural growth. It came into existence because it was
wanted, and from no other cause. Its very name, its modest capital, its
self-protective purpose make for understanding.
In its Charter of Incorporation its purpose was indicated in the name:
“The Governor and Company of Merchants of London trading to the East
Indies.” Its capital was £70,000, which though a large sum for those
days, was, according to our modern lights, an almost ridiculously small
sum for the object then before it, and to which it ultimately attained.
The time was ripe for just such an undertaking.
The Peace of Vervins (1598) which left both France and Spain free
to look after their domestic concerns, was immediately followed by
the Edict of Nantes (1599) which gave religious liberty to France,
and such a new freedom is always followed by national expansion.
By this time Spain--the explorer or conqueror--and Holland--the
patient organiser--held Eastern commerce in their hands. England
had been gradually making a commerce of her own in the Indies, and
all that was required was an official acknowledgment, so that the
thunder of her guns should, when required, follow the creaking of her
cordage. From the story of this great enterprise, through its first
twenty-five years, could be drawn the lesson of such schemes as Law
was now formulating. Though it had succeeded, in spite of Dutch and
Portuguese opposition, in establishing “factories” when the historic
massacre by the Dutch at Amboyna in the Molucca Islands, took place
in 1725, the Eastern Company seemed near its dissolution. It was not
till the establishment of the Hooghly factory in 1742 that things
began to look up. After that, fortune favoured the Company more
than she had appeared likely to do at the start. The marriage of
Charles II to Catherine of Braganza in 1661 brought progress in its
train. Catherine’s dower, which included Bombay and so put a part of
Portugal’s later possessions in British keeping, greatly stimulated the
East India Company which thenceforth was able to weather the storms
that threatened or assailed. The privilege of making war on its own
account, conceded by Charles II, gave the Company a national importance
which was destined to consolidate its interests with those of England
itself. So strong did it become that before the end of the eighteenth
century it was able to resist the attack on its charter made by a
powerful and progressive rival, the “New Company.” The rivals, after a
few years of _pourparlers_ and tentative efforts, were united in 1708;
and thenceforth the amalgamation, under the title “The United Company
of Merchants of England trading to the East Indies,” was practically
unassailable on its own account. It was additionally safe in that it
had the protection of the great Whig Party under Godolphin. The capital
of the Company, now enlarged to £3,200,000, was lent to the Government
at five per cent. interest and was finally merged in the National
Funds. The history of the Company, after 1717 does not belong here, as
it is only considered as showing that John Law had the experience of an
earlier Company similar to his own to guide him in its management if he
had chosen to avail himself of it.
The Bank of England was, strangely enough, the project of a Scotchman,
William Paterson. The plan was submitted to Government in 1691 but
was not carried into existence for three years. It was purely a
business concern, brought into effective existence through the needs
of commerce, the opportunity afforded being the need of the State
and the concern of the statesman. It had a capital at first of over
£1,200,000, which was loaned to the nation on the security of the taxes
when the Charter was signed, there being certain safeguards against
the possibility of political misuse. The Controlling Board was to have
twenty-five members who were to be elected annually by the stockholders
with a substantial qualification. There were at this time in England
private banks; but this was an effort to formulate the banking
rights, duties, and powers of capital under the ægis of the State
itself. But even so sound a venture, enormously popular from the very
first and with the whole might of the nation behind it, had its own
difficulties to encounter. Its instantaneous success was an incentive
to other adventurers; and the co-operation with government which it
made manifest created jealousy with private persons and commercial
concerns. Within two years its very existence was threatened, first by
the individual hostility of those in the bullion trade, who already
acted as bankers, and then by a rival concern incorporated under strong
political support. This was the National Land Bank whose purpose was
to use the security of real estate as a guarantee for the paper money
which it issued for convenient usage. Strong as the Bank of England
was by its nature, its popularity, and its support, it was in actual
danger until the rival which had never “caught on”--to use an apposite
Americanism--actually and almost instantaneously collapsed.
The safety thus temporarily obtained was purchased at the cost to the
Government of a further loan of two million sterling--with the value to
the contra of an alliance thus begun with the Whig ministry.
A further danger came from the mad and maddening South Sea Scheme five
years later; but from which it was happily saved solely through the
greater cupidity and daring of the newer company.
The Darien Company, which followed hard on the heels of The African
Company, was formed in 1695, by Paterson; on the base of An Act of the
Scottish Parliament for the purpose of making an opening for Scottish
capital after the manner of the East India Company by which English
enterprise had already so largely benefited. Its career was of such
short duration and its failure so complete that there was little
difficulty in understanding the causes of its collapse. It might
serve for a _pendant_ of Lamb’s criticism of the meat that was “ill
fed and ill killed, ill kept and ill cooked.” The Company was started
to utilise, in addition to exploiting new lands, the waste of time,
energy and capital, between West and East; and yet it was not till the
first trading fleet was sailing that its objective was made known to
the adventurers. Its ideas of trading were those of a burlesque, and
its materials of barter with tropical savages on the criminal side of
the ludicrous--bibles, heavy woollen stuffs and periwigs! Naturally
a couple of years finished its working existence and “The rest is
silence.” And yet at the inception of the scheme two great nations vied
with one another for its control.
There are those who may say that John Law was not an impostor, but
a great financier who made a mistake. Financiers must not make
mistakes--or else they must be classed amongst the impostors; for they
deal with the goods and prospects of others as well as their own.
Law was simply a gambler on a great scale. He led a nation, through
its units, to believe that the following of his ideas would lead to
success. Financial schemes without good ideas and practical working to
carry them out are deceptive and destructive. The Mississippi Scheme
is a case in point. If the original intention had been carried out
in its entirety--which involved vast pioneering and executive action
of present and future generations, and an almost absolute foregoing
of immediate benefits--the result would have been of immense service
to the successors in title of the original ventures. The assessable
value of the real estate conveyed under the Mississippi Scheme to-day
equals more than a third of the present gigantic National Debt of
France, swollen though the latter is by the Napoleonic wars, the war
with Austria, the cost and indemnity of the war with Germany, and, in
addition, by the long wars with England and Russia.
If human beings had been angels, content with the prospect of gains in
the distant future, Law’s schemes might have succeeded. As it was, he,
working for his own purposes with an imperfect humanity, can only be
judged by results.