Lead book review

John Law: the Scottish gambler who rescued France from bankruptcy

8 September 2018

9:00 AM

8 September 2018

9:00 AM

John Law was by any standards a quite remarkable man. At the apogee of his power in 1720, he was the richest private citizen in Europe and controller-general of finance in France, responsible not merely for the country’s income and expenditure but for its commerce, navigation, agriculture and industry.

He created and presided over one of the earliest and greatest of all stock market boom-and-busts, that of the ‘Mississippi Company’, and inspired another, the South Sea Bubble. And he pioneered ideas about banking, monetary policy and financial markets that were revolutionary in his own time, and retain their importance three centuries later.

Yet Law was not French, not a noble, not an intellectual. On the contrary: he was a Scot, the largely self-educated son of an Edinburgh goldsmith, and a brilliant gambler. Oh yes, and a convicted murderer, who had escaped from jail days before his execution, fled Britain and gone on the run across Europe with his common-
law wife.

The story is no less remarkable than the man himself. But both have almost been lost to view. The evidence is scant and scattered, Law himself something of an enigma, his era caught in a turn-of-the-18th-century limbo between the more familiar territories of the so-called ‘Age of Revolutions’, Glorious, American and French. And he is no one’s hero.

Until now, that is. For into this gap steps the polymathic figure of James Buchan: writer of fiction, history and reportage, and author among much else of an excellent life of Adam Smith.

Buchan tells the story and portrays the man with enormous sweep and brio. He has clearly done a vast amount of research among the primary sources, yet somehow manages to combine the historian’s sense of the wider picture with the epigrammatic wit of the novelist, and the antiquarian’s delight in curios.

Of the now forgotten Banbury Peerage case, for example, which first came to the House of Lords in 1661, was renewed in 1883 and may not quite be settled even today, he drily remarks that it was ‘a lawsuit beside which Jarndyce vs. Jarndyce… is an instance of judicial panic’.

This all makes for a heady mixture, which gives a slightly disjointed feel to a complex narrative on occasion, especially in the early chapters. There are few moments of summary and repose in which the reader can gather their thoughts and work out who everyone is, what exactly is going on and what is at stake. But once Law has settled in Paris in 1714 — having absorbed Dutch finance in the Hague and developed his ideas on banking (and made a fortune) in Genoa — then the story really takes off.

Rarely can an entry have been better timed, for the death of the Sun King Louis XIV the following year created turmoil in France. Politically, it led to a power vacuum, soon filled by the Duke of Orléans acting as regent for Louis’s five-year-old great-grandson Louis XV. It also laid bare the true extent of France’s depleted finances. The most powerful nation in Europe was broke. Decades of warfare had exhausted the public coffers and run up huge debts, while the king — and so the state — was forced to divert income to support a huge rentier class of office-holders.

To make matters worse, what taxes there were fell most heavily on the poor. Desperate attempts were made to cut costs by annulling the value of traded debt; the result was a rapid drop in trade and social uproar met by vicious repression.

France needed liquid capital, and it needed it fast. Little wonder, then, that Law’s banking scheme was taken up with enthusiasm by the Duke. In 1716 Law founded the General Bank — soon nationalised as the Banque Royale — which issued its own banknotes, paper money redeemable by coin.

But this was merely the start. Law soon turned his attention from finance. For him, the true purpose of money was not as a store of value but as a means to stimulate trade. Without new sources of revenue, France could never escape the merry-go-round of debt and devaluation. Accordingly, in 1717, he set up the Mississippi Company to build up trade in the vast new territory of Louisiana. Buoyed by favourable subscription terms, investors flocked to buy shares, which rocketed in value, fuelling a wider mania.

In due course, however, Law found himself consumed by his own creation: Company revenues were wildly overestimated and slow to grow, while supporting the Company’s shares with purchases funded by the issuance of banknotes broke the link with coin, leading to a bank run and a huge devaluation.

Yet this was no simple story of swindling, boom and bust. Unlike its South Sea counterpart, the Mississippi Company was a very serious commercial undertaking. In his brief period as controller-general, Law sought a radical simplification of the corrupt, complex and regressive French tax system.

His General Bank was an important innovation, which prefigured modern fractional reserve banking, and many of Law’s insights into money, political economy, monetary policy and banking remain profoundly important today. In effect, he sought to modernise France; to create what Adam Smith would later call a ‘commercial society’, and turn its rentiers into investors at risk. The irony is that his efforts set back France’s commercial development and ultimately compounded many of the problems he sought to solve; problems that would later set the scene for the French Revolution.

Law himself was no self-dealing Gordon Gekko: if anything, he was naive in his personal dealings to a degree. When the bank failed, he and his family were reduced to near poverty, the kindness of others and his own flickering prowess at the gaming table. It is a fascinating, poignant, almost heroic story, and we must thank James Buchan for giving us this masterly account of it.

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