Millionaire: The Philanderer, Gambler, and Duelist Who Invented Modern Finance (23 page)

Both Burges and the French ambassador, Gergy, realizing that the end was near, hovered around him, anxious that the minute his life was over they should be the first to examine his papers. He had mentioned in earlier letters to France that he was working on writing a history of his system, and they presumed that this document would be found among his papers. The French feared that if details of the system’s intricacies fell into the wrong hands, Bourbon and other powerful members of the French establishment might be embarrassed. It was also thought that the papers would include details of the secret fortune with which everyone still believed he had escaped. Gergy enlisted Jesuits to administer the last sacrament and keep vigil over the invalid. Despite a slight rally at the beginning of March, which gave “some sort of hope of Mr. Law’s recovery,” his strength continued to wane, and two weeks later Burges reported him “so ill that nobody expects his recovery.”

Nonetheless, he remained mentally alert and well enough to make a will in which he left his entire estate to Katherine. Although the fact that they had never married could not have been entirely secret, the elopement had been generally forgotten. The world at large believed Katherine to be his wife. Because she was not, and presumably to spare her embarrassment, Law made the bequest to her in the form of a deed of gift to Lady Katherine Knowles. There was no mention in the document of their children, nor of the fact that she was his common-law wife.

Two days later, on March 21, 1729, a month before his fifty-eighth birthday, the end came peacefully. “Mr. Law is dead, after struggling seven or eight and twenty days with his distemper, which was judged mortal by his physicians from the very beginning; he died with great calmness and constancy and is spoke of here with much esteem,” recorded Burges, whose affection for the colorful exile had grown over the past years. The epitaph in the March edition of the
State of Europe
was less decisive in its tribute, describing him as “a gentleman who has made himself so famous in the world by the enchanted project of the Mississippi and other fatal schemes that were copied after it, that his name . . . will be remembered to the end of the world.”

For young John Law, who had been at his father’s bedside when he died, the sorrow of bereavement was profound. He wrote poignantly to his mother, describing Law as both father and friend and outlining his bequest. “He departed this life on Monday last 21st of this month, giving us all his blessing; and has made a general gift to your ladyship of all he had and all pretensions whatsoever, with full power of disposing, acting, contracting, etc., in short doing what you think proper of all.”

To spare young John the pain of remaining in the house in which his beloved father had died, Gergy sympathetically invited him to stay. In truth he was more concerned about “the secret papers which ’tis reported Mr. Law has lodged in the hands of a friend” and the contents of the will than the boy’s suffering, and hoped that with John close he would soon get a chance to examine them. John voluntarily handed over to him several of his father’s letter books, one of which survives in the Bibliothèque de Méjanes in Aix-en-Provence, but anxious that the French might try to appropriate the art collection, he tried to keep the contents of the deed-of-gift document secret. As soon as he was installed in Gergy’s residence and safely out of the way, Gergy found and copied the will and sent it to the French minister of foreign affairs: “I wished to be informed surreptitiously concerning the testament which everyone said the deceased had made, there fell into my hands a copy (which I take the liberty of sending you) of a deed of gift executed on the 19th of this month, of all M. Law possessed in favour of her who passes as his wife, although, as you will see he does not describe her as such in this deed.”

A day after his death, John Law’s body was taken to the ancient Venetian church of San Gemignano in the Piazza San Marco. He was buried the next day following a requiem Mass sung by the papal nuncio. Nearly eight decades later, while Venice was under Napoleon’s rule, the church was ordered to be demolished. By a strange quirk of fate, one of the French governors of the city was John Law’s great-nephew Alexander Law. Before the church was razed he ordered that his illustrious forebear’s remains be moved to the nearby church of San Moise. His tomb remains there still—a stone’s throw from Florian’s and the Ridotto, where once he passed his days—a fitting resting place for a man who spent so much of his life in sampling the city’s pleasurable pursuits, and who, in the end, became a tourist attraction himself.

Even in death Law’s wishes were thwarted. His brother William’s resentment still burned, and the news of John Law’s death and unconventional will offered a final outlet for his rancor. William disputed the deed of gift and claimed Law’s estate for himself. His grounds were that Katherine had never been married to his brother, that her children were illegitimate, and that therefore he, as next of kin, was Law’s legal heir. The French judiciary found against Katherine, but since William was not naturalized, declared that William’s children, John Law’s nephews, who had been born in France and were thus French citizens, should inherit.

One can hardly imagine Katherine’s reaction to the news of Law’s death and his brother’s subsequent actions. Apart from the sorrow of Law’s death after such a prolonged separation, she had to endure the embarrassment of scrutiny of their private circumstances, exactly what Law had tried to avoid. She had visited and supported William while in prison, and helped her sister-in-law as far as she could. To be repaid in such a manner must have seemed a desperately cruel blow. There was further calamity to come. When the precious art collection was being sent by boat from Venice to Holland a few months after Law’s death, a storm brewed. The boat sprang a leak and was forced back to port, by which time the paintings were so seriously damaged that they needed restoration that would take several years to complete.

In the midst of the ascendant sorrows, Katherine derived one significant advantage from Law’s death and unconventional last testament. As he had predicted, his death helped his family: the authorities were at last convinced that no funds were hidden abroad and dropped all outstanding claims against him. Katherine and her daughter were issued with passports and, with pitifully few assets, were at last able to leave France. Young John had secured a commission in an Austrian dragoon regiment, and to be near him she settled first in Brussels, then Utrecht. Tragically, only five years after his father’s death, the son contracted smallpox in Maastricht and died. Having somehow managed to secure part of the art collection, Katherine sold fifteen pictures and moved into a convent, where she lived until her death in 1747.

Fate dealt more kindly with Law’s beloved daughter Kate, who married her cousin Lord Wallingford and lived the life of a doyenne of London society, in a grand house in Grosvenor Street. Horace Walpole admired her good looks and remarked how similar she was to her father, whose portrait by Rosalba Carriera graced his famous picture gallery at Strawberry Hill.

E
PILOGUE

In our own day, we can devoutly wish that we may be spared the technically superlative disasters we have prepared for ourselves in order to enjoy the minor vicissitudes of the business cycle—of prosperity and depression and inflation and deflation. If we are so favored, we can count on some future period of prosperity carrying us on into a mood of exhilarant optimism and wild speculative frenzy. Instead of radio and investment trusts, uranium mines or perhaps portable reactors will be the new favorites. Or the speculative fever may strike land, oil, or even Boston.

J. K. Galbraith,

The Great Crash, 1929
(1955)

W
ITH JOHN LAW’ S DEATH EUROPE DREW BREATH. HE
had come to France prosperous, captivating, brimming with dynamic energy and ambition, confident that he could engender an economic revival. While he had seemed set to succeed he had been the people’s hero, by his own admission one of the wealthiest, and certainly among the most powerful men in Europe.

In his eyes he had failed not because of any flaw inherent in his ideas or ability but because of his own impatience: “I do not pretend that I have not made mistakes, I admit that I have made them, and if I could start again I would act otherwise. I would go more slowly but more carefully; and I would expose neither the state nor myself to the dangers which must necessarily accompany disorder of the general system.” Yet this was only part of the reason for his downfall. The road to hell, so the old proverb warns, is paved with good intentions. In Law’s case the more fundamental defect he could never bear to face was his own idealism. In dreaming of utopia he ignored human frailty and never imagined that he was unleashing several monstrous genies—people’s desire to make as much money for as little effort as possible, their instinct to follow the herd, to hoard when threatened, to panic if confidence was shaken. These elemental, uncontrollable human traits, together with the enmity of the establishment and the tragedy of the plague, were ultimately what toppled him.

In the aftermath of his departure and the collapse of the paper-money system, a draconian return to the coinage took place. Along with his paper money, the reactionary backlash swept away most of the tax reforms he had engineered. But the effect of his system remained indelible. He had created rampant but, for the Crown, highly beneficial inflation, which devalued Crown debt by two-thirds, and in so doing relieved the need for high taxation. France was left with a viable economy that allowed the monarchy to survive for a few more generations. The cost was to those who had held government debt in the form of bonds, annuities, or Mississippi shares, who found themselves ruined. His manipulation of finance had two further significant consequences: on the one hand profound distrust that made a state bank impossible to establish before the revolution; on the other, increasing demand for transparency. There were no published royal accounts until Necker’s
Comte Rendu
of 1781, which became a best-seller as a result. In creating a financial boom and making shares so widely accessible, Law had sown a seed of financial equality that the ancien régime could never entirely obliterate. Significantly, banknotes next returned to France eighty years later, when paper money known as
assignats
, based on the value of land—a scheme that echoed one of Law’s earliest proposals—was issued by the French National Assembly at the beginning of the revolution.

In hindsight Law captivates as much for his flaws and naïveté as for his flashy brilliance. It was not always so. For years his failure overshadowed his vision. Great eighteenth-century economists such as Adam Smith and Sir James Steuart acknowledged his significance but frowned on his actions. Smith called his system “the most extravagant project both of banking and stock-jobbing that perhaps the world ever saw,” and Steuart felt “the best way to guard against it [being repeated], is to be apprised of the delusion of it, and to see through the springs and motives by which the Mississippi bank was conducted.” The eighteenth-century philosopher and essayist David Hume must have learned something from Law’s mistakes when he wrote, “The greater or less plenty of money is of no consequence; since the prices of commodities are always proportioned to the plenty of money, and a crown in Harry VII’s time served the same purpose as a pound does at present.” Suspicion reverberated throughout the next two centuries. The nineteenth-century writer Charles Mackay included a vivid account of Law’s life in a volume entitled
Memoirs of Extraordinary Popular Delusions
, in which he figures alongside chapters on Tulipmania and duels. Karl Marx saw him slightly more sympathetically as “the pleasant character mixture of swindler and prophet.”

In this century infamy has turned mainly to neglect, even if, in the specialist world of economic historians, respect for him has increased as time has passed. Norman Angell, author of the famous
The Story of Money,
published in 1930, described him “juggle[ing] like a master magician with shares, premiums, instalments and issues.” J. K. Galbraith, emeritus professor of economics at Harvard, writing in the 1970s, said that Law “showed, perhaps better than any man since, what a bank could do with and to money,” while his most recent and detailed analyst, Professor Antoin Murphy, called him an “effervescent spirit who made quantum leaps in economic theory.” Beyond such specialist realms, Law, once one of the world’s most famous and powerful figures, is largely forgotten.

In an age of innovation, when one man’s vision and energy could surmount any constraint and change the world, John Law did. He was what would colloquially be called a mover and shaker. Many of his ideas were avant-garde. The idea of conglomerate corporations with multiple interests and sources of income is as ordinary today as it was extraordinary then. The marketing and propaganda techniques he employed were similarly innovative then but familiar now. The realization that art represented not only status but money was also exceptional for its time. Most of all, in conceiving a paper currency that operated independently of gold, he anticipated a development that is now taken for granted.

Often after time the message in past events is more easily read. Unraveling Law’s story three centuries on, one cannot help but feel a sense of
plus ça change plus c’est la même chose
—nothing really has changed. Today paper and plastic are unthinkingly accepted as valuable, and at the press of a button millions of dollars move around the world. But time’s passage has seemingly brought little in the way of additional invulnerability to the giant institutions public investment has created. Even with regulators, central bank reserves, and eons of experience, stock exchanges, banks, and economies still collapse and threaten the stability of those elsewhere. The economic cycle, which our forebears probably thought of as the wheel of fortune, has in recent history resulted in the meteoric rise and collapse of the Asian economies, Russia’s financial breakdown, and uncertainty surrounding the fate of China and Brazil. In the world of banking and finance the specter of financial calamity looms as intimidatingly as ever it did to investors in Regency Paris or in Georgian London. Maverick financiers can still rock governments, financial landslides on telephone-number scale still happen. The financial chicanery of junk bond guru Michael Milken dominated the speculative world of the 1980s during the boom years, but the market in junk bonds collapsed after his conviction and imprisonment. Under the direction of the Federal Reserve, the ill-fated Long-Term Capital Management was bailed out by leading investment banks in order to avert losses estimated at $14 trillion—more than enough to destabilize markets throughout the world.

Similarly, speculation contagion still periodically infects vast swaths of society. As in the days of the Mississippi, equities are no longer an elitist investment. Nowadays anyone with money invested in a pension, a tax-exempt savings plan, a mutual fund, or a savings-and-loan account is likely to have a vested interest in the stock market, and to feel, directly or indirectly, the effect of huge spikes and falls in stock prices. Recently, speculation fervor has fantastically bubbled Nasdaq Internet company shares.

Most amazingly of all, the driving force that causes the swell and burst of bubbles seems little altered. Within our high-tech information-technology universe, the hunch remains as much a part of the pundit’s repertoire as ever, the herd instinct if anything more able to effect terrifying vacillations in markets. Monetary utopia, John Law would be amazed to see, remains as elusive as ever.