Millionaire: The Philanderer, Gambler, and Duelist Who Invented Modern Finance

by Janet Gleeson

Overview

On the death of France's most glorious king, Louis XIV, in 1715, few people benefited from the shift in power more than the intriguing financial genius from Edinburgh, John Law. Already notorious for killing a man in a duel and for acquiring a huge fortune from gambling, Law had proposed to the English monarch that a bank be established to issue paper money with the credit based on the value of land. But Queen Anne was not about to take advice from a gambler and felon. So, in exile in Paris, he convinced the bankrupt court of Louis XV of the value of his idea.
Law soon engineered the revival of the French economy and found himself one of the most powerful men in Europe. In August 1717, he founded the Mississippi Company, and the Court granted him the right to trade in France's vast territory in America. The shareholders in his new trading company made such enormous profits that the term "millionaire" was coined to describe them. Paris was soon in a frenzy of speculation, conspiracies, and insatiable consumption. Before this first boom-and-bust cycle was complete, markets throughout Europe crashed, the mob began calling for Law's head, and his visionary ideas about what money could do were abandoned and forgotten.
In Millionaire, Janet Gleeson lucidly reconstructs this epic drama where fortunes were made and lost, paupers grew rich, and lords fell into penury — and a modern fiscal philosophy was born. Her enthralling tragicomic tale reveals two great characters: John Law, with his complex personality and inscrutable motives, and money itself, whose true nature even to this day remains elusive.

Product Details

ISBN-13:	9781501154973
Publisher:	Simon & Schuster
Publication date:	05/27/2016
Edition description:	Reissue
Pages:	304
Product dimensions:	5.00(w) x 8.00(h) x 0.90(d)

About the Author

Janet Gleeson is the author of the bestseller The Arcanum, as well as Millionaire, The Grenadillo Box, and The Serpent in the Garden. She lives with her family in Dorset.

Read an Excerpt

Chapter 1: A Man Apart

He came to Paris, where he cut such a fine figure that he held the bank at Faro. He usually played at the house of a famous actress, where they played for high stakes, although he was in as great demand with Princes and Lords of the first order, as in the most celebrated academies, where his noble manners and even temper, distinguished him from other players.

Barthélemy Marmont du Hautchamp,
Histoire du système de finances(1739)

It is an evening in November 1708 in the Parisian salon of Marie-Anne de Chateauneuf -- "La Duclos" -- a celebrated actress of Paris's Comédie Française, and as usual she is entertaining Parisian society. Despite the lustrous presence of sundry ducs, marquis, and comtes, talk is uncharacteristically desultory. France is in the throes of the world's first global war, the War of Spanish Succession, which has raged already for seven years and will endure for another six. This country, the most powerful and populous in Europe, has been ruined by the perpetual conflict. But this cocooned Parisian circle is scarcely conscious of it: the talk is not of the devastating defeats France has suffered at the battles of Oudenaarde, Turin, Ramillies, and Blenheim. It focuses instead on the move of the elderly Louis XIV, the Sun King, and his court from Versailles to Marly, and the love affairs of the fascinating but capricious Duc d'Orléans.

Those who find these topics less than engaging are drawn instead to the cluster of players engrossed in a card game, faro. Most are habitués of the tables -- at this level of society everyone knows everyone else -- but among them one man stands apart. He is fashionably clad as one would expect in a wide-skirted velvet coat, unbuttoned to reveal a damask waistcoat and cravat of Brussels lace, while a periwig of black curls cascades over his shoulders. But at over six feet tall -- a remarkable stature in these diminutive days -- he is a man of grand and imposing looks that according to one acquaintance "places him among the best made of men." Amid the twitchy players, he is also remarked for his gentle and insinuating manners, a serenity of temperament that amply reflects his outward appearance.

During a lull in play La Duclos proudly presents the stranger as John Law, a Scottish gentleman visiting Paris. Her guests soon realize, however, that although Law is as charming and witty as he is physically attractive, he's reticent when questioned on his circumstances. They also discover, as the evening progresses, that he is a master gambler.

According to the rules of the game, the players must defeat a single opponent, the tallière, or banker, to win. This evening Law has been permitted to pit his wits against the rest and adopt the solitary role of opponent. He is the bank. As the stakes grow higher, the players' mood shifts from studied composure to overt unease, and a crescendo of voices pledge increasingly reckless sums. But no matter how great the amount at risk, Law never relinquishes control over his outward expression.

Each player chooses one, two, or three from a deck of cards on the table before them, using gold louis d'or as their stake. Slowly the croupier takes his pack, discards the uppermost card, plays the next two -- the loser and the winner -- and places them in front of him. Winning depends on players having selected the same number as the second card dealt by the croupier (suits are irrelevant), so long as he does not deal two cards of the same face value, in which case the banker also wins. The dealing continues, players betting on every draw until three cards remain. The room is transfixed for the final turn, when the players must guess the cards in order of appearance. Inevitably, Law triumphs over most. He scoops the gold coins he has accumulated into the leather purses he has brought with him, leaving the losers, ruefully, to review their depleted wealth. Once again he has apparently defied the laws of chance and emerged spectacularly victorious.

Few among those present perceive that he has been assisted by anything more than unusual good fortune. Years later his closest acquaintances, such as the Duc de Saint-Simon, failed fully to understand his gaming victories, and described him as "the kind of man, who without ever cheating, continually won at cards by the consummate art (that seemed incredible to me) of his methods of play." In fact, success on this scale has almost nothing to do with luck or consummate art but lay in ensuring that the odds are stacked heavily in his favor. Even when not in the lucrative role of banker, by marshaling a remarkable mathematical intellect and employing his understanding of complex probability theory, of which few are aware, Law was able to measure with astonishing accuracy the likelihood that a given card would appear. To him there was little doubt about the evening's outcome.

Not far from the opulent interior of La Duclos's salon, in a plain but comfortably appointed apartment of the Benedictine Priory in Faubourg St. Antoine, was one of the few men in Paris to whom John Law's success was of pressing concern. Marc René de Voyer de Paulmy, Marquis d'Argenson, Paris's superintendent of police, was as physically unattractive as Law was outwardly engaging, with sallow skin and deep-socketed eyes. He was noted chiefly for his "subtle mind" and "natural intelligence," and his business -- others' secrets -- was a métier at which he excelled. As the eagle-eyed Duc de Saint-Simon remarked, "There was no inhabitant [of Paris] whose daily conduct and habits he did not know."

D'Argenson relished sophisticated company and felt easy in the elite world to which John Law's gaming skills had given him access. During the decade he had held his position, Law's sporadic appearances and extraordinary successes had grown increasingly perturbing. D'Argenson was convinced that John Law was filling some secret role for the British, or that he constituted some other even more insidious threat. His unease deepened when, despite every attempt to find out more about Law, intelligence was discovered to be worryingly sparse. Some said he was a fugitive from British justice, that he had escaped from prison, where he had been sentenced to death by hanging for killing a man. His fortune was variously rumored to have come from gaming tables in Vienna, Rome, Venice, Genoa, Brussels, and The Hague, or from an inherited Scottish estate. But all this was hearsay and speculation. A year earlier, when d'Argenson discovered Law intent on masterminding a dangerous scheme that might undermine France's economy -- the introduction of paper money to France -- he had expelled him from Paris. Now the King's foreign minister, the Marquis de Torcy, had informed him that not only was Law back without a passport but that "his intentions are not good," and that "he is serving our enemies as a spy." Torcy was worried and wanted to know more. D'Argenson, equally disturbed, had attempted for some weeks to track Law down. The quarry had proved elusive.

Copyright © 1999 by Janet Gleeson

Table of Contents

Introduction

1 A Man Apart

2 Gilded Youth

3 London

4 The Duel

5 Escape

6 The Exile

7 The Root of All Evil

8 The Bank

9 King of Half America

10 Finding the Philosopher's Stone

11 The First Millionaire

12 Mississippi Madness

13 Descent

14 The Storms of Fate

15 Reprieve

16 The Whirligig of Time

17 The Prodigal's Return

18 Venetian Sunset

Epilogue

Acknowledgments

Sources

Bibliography

Index

Introduction

Introduction

Within the last twenty years commerce has been better understood in France than it had ever before been, from the reign of Pharamond to that of Louis XIV. Before this period it was a secret art, a kind of chemistry in the hands of three or four persons, who actually made gold, but without communicating the secret by which they had been enriched....It was destined that a Scotchman called John Law should come into France and overturn the whole economy of our government to instruct us.

Voltaire,
"Essay on Commerce and Luxury"

Money has ever posed problems. Not even love, said Gladstone, has made so many fools of men. Throughout time the most obvious but universal dilemma -- that there is never enough of it -- has confounded everyone, from mendicants to monarchs, and their ministers.

Rarely, however, had the problem seemed more pressing than it did in the late seventeenth century. Money, as most people had always understood it, was silver or gold -- precious metals whose value lay in their intrinsic scarcity. But the fact that coin supplies were limited by the metal that could be dug out of the ground was proving a serious hindrance. Throughout Europe, warfare of vast scale and expense coupled with the extravagant lifestyles of kings had emptied entire treasuries. At the same time the growing population, expansion of trade, and colonization of foreign lands demanded more cash to progress. As rulers plotted invasions, perused peace treaties, and yearned to sponsor new industry, build new palaces, and develop their domains overseas, money and how to create more of it became an obsession. In an age poised between superstition and enlightenment, it became as fashionable to ponder the subject that would soon be christened political economy as the disciplines of philosophy, mathematics, and nature. While on the one hand alchemists strove futilely to turn base metal into gold, on the other entrepreneurs proposed a plethora of ingenious schemes to sidestep the shortage. At the lowliest level, small-change coins made from base metal alleviated the dearth of coins in the streets. On a grand scale, banks and joint-stock companies used the magical device of credit to fund royal debts and colonial expansion by issuing paper banknotes and shares of token rather than intrinsic worth. Thus the frustrating limitations of gold and silver evaporated, but a new, even more baffling problem emerged: the question of how to maintain public confidence in the value of intrinsically valueless paper.

Among monetary philosophers and innovators to confront the problem, John Law stands alone as the most improbable, controversial, yet visionary of financial heroes. He was big in every sense, over six feet tall with ambitions that were larger and more daring than anyone else's. On one level his story is the stuff of romantic legend. He turned his attention to finance after killing a man in a duel over an unfortunate liaison and escaping prison to save his neck. A congenial gambler, prepared to punt on the turn of a card yet burning with mathematical brilliance, he exuded a glamorous, dangerous magnetism. Women were spellbound by his impeccable dress, charming manner, and sexual charisma. Men were intrigued by the ease with which he was able to demystify complex subjects, his nonchalant wit, and his willingness to linger for hours over games of cards and dice. But his ideas and actions invest his life with far more significance than that of a beguiling and ambitious playboy: the things Law made happen still have resonance today.

In an ironic reversal of the concept of the philosopher's stone (the substance by which it was believed gold could be made from base metal), he founded the first national bank of issue in France that made money from paper on a previously unknown scale to revive the ailing economy. He formed the most powerful conglomerate the world had yet seen -- the Mississippi Company -- and encouraged unprecedented numbers of private investors to dabble in its shares. Once initial hesitation had been banished, investors from England, Germany, Holland, Italy, and Switzerland stampeded to Paris to play the markets, and share prices rose from 150 livres to 10,000 in a matter of months. In comparison, the best bull markets of the twentieth century, between 1990 and 1999, when the Dow Jones rose by 380 percent and the Nasdaq by 790 percent, seem paltry. Law sparked the world's first major stock-market boom, in which so many made such vast fortunes that the word "millionaire" was coined to describe them. Almost overnight he had become rich beyond expectation, a heroic figure, fêted throughout Europe, and promoted in recognition of his achievement to the position of France's financial controller -- the most powerful public position in the world's most powerful nation.

Pioneers, so they say, usually end up with arrows in their backs. In Law's case, enemies, inexperience, greed, and destiny conspired against his unconventional genius. The idea that money could be made from speculation rather than drudgery was printed indelibly on the popular consciousness. But having made their fortunes, many began to look for alternative investments, or to feel that paper was no long-term substitute for more traditional, tangible assets. When speculators began to cash in shares and withdraw paper funds to buy estates, jewels, or gold, or to speculate in other escalating foreign share markets, Law, hampered by jealous rivals, was unable to hold back the tide and the stock plummeted as rapidly as it had risen. People who rushed to the bank to convert paper back into coin found insufficient reserves and were left holding an asset that had become virtually worthless.

Over half a million people, equivalent to two-thirds of the entire population of the city of London at the time, claimed to have lost out as a result of John Law. Having sparked the first international stock-market boom, he had also sparked the first international bust. As loudly as he had been lauded a financial savior months earlier, he was branded a knave and ignobly demoted. Sadder, wiser, immeasurably poorer, he spent the rest of his life unsuccessfully trying to convince the world of his integrity, and that the idea behind his schemes was sound. His fall cast long shadows. It was eighty years before France dared again to try to introduce paper money to its economy. For years afterward history judged Law harshly. In the story of money, the chapter on his life embodies the perils of paper, the monumental significance of his economic foresight largely negated by his ultimate failure.

Today, if John Law or his critics could witness commerce conducted in any mall with credit cards, banknotes, and checks -- not a gold or silver coin in sight -- they would see, incontrovertibly, his vision achieved, but recognize also the same inherent weakness. The survival of any credit-based financial system still hinges on public confidence in a way that one based on gold does not. Spectacular financial breakdowns have peppered history ever since the advent of paper credit.

The American investment guru Warren Buffett once said, "If history books were the key to riches the Forbes 400 would consist of librarians." Nevertheless, three centuries after John Law delighted, then devastated investors in his Mississippi stock, an age of comparably varied and ambitious financial innovation unfolds -- witness the introduction of the euro, the opportunity to trade shares on the Internet, and a panoply of monetary instruments, from foreign-currency mortgages to inventive use of derivatives in equity, bond, and currency markets. In such a world Law's story still holds uncanny relevance.

During the period covered in this book English and French currency was based on a similar structure: 240 pennies or deniers = 20 shillings or sous = 1 pound or livre tournois. Coins in common use in France included the gold louis d'or and the silver écu, which were measured and varied widely against the value of the livre. Another common coin was the pistole, a Spanish silver coin worth approximately 10 livres. Exchange rates also varied enormously: a livre was worth between a shilling and 1s. 6d. According to the Bank of England a pound in 1720 is equivalent to about £73 (US$117) today. Therefore a sum quoted in livres can be converted to its approximate equivalent in dollars today by halving it, then multiplying by twelve.

Copyright © 1999 by Janet Gleeson

Editorial Reviews

Thoroughly researched, Millionaire is a marvelous read that animates its flawed hero while intelligently illuminating his time.
— BusinessWeek

Mark Frankel

Extraordinary, true story of a fugitive Scotsman John Law, wanted in England for killing a man in a duel in 1694. Law ends up in France, where he quickly, briefly becomes the most powerful man in Europe’s most powerful country, thanks to an elaborate inflationary scheme. Like most states, France was perpetually short of cash. Instead of having gold and silver be the coins of realm, Law reasoned, why not print money? Law naively thought political authorities would soberly control the printing presses. (England knew better; it was moving to a gold standard.) Law was soon disabused of that notion, but instead of walking away, he devised grander, ever more desperate stopgaps to keep the game going. Britain, too was going through a bubble, but its developing financial institutions, primarily the Bank of England, enabled London to better weather the resultant storm. Subsequently, the Brits, with a sound currency and the rule of law, were able to raise vast sums of money at reasonable rates to finance a war effort that bested the French in North America, despite France’s having four times Britain’s population. (19 Feb 2001)
—Steve Forbes

Forbes Magazine

In a marvelous follow-up to The Arcanum, Gleeson tells the story of "Jessamy John" Law, a brilliant mathematician, author, banker, womanizer, and killer who was condemned to die, escaped from prison, and rose to superstardom as France's financial controller. The problem he faced, much as we do today, was how to maintain public confidence in a credit-based financial system that relied implicitly on intrinsically valueless money. His bank, the Banque Royale, was the first national bank in France to rely on the issue of paper money to build its advantage. His organization, the Compagnie d'Occident, or Mississippi Company, sparked the first major international stock-market boom and bust by promising a field of drams based on the unexplored riches of the Mississippi River Valley. The author's short epilog provides relevance by noting the lasting effects of John Law's system and the still-present tools of instability that underlie today's financial markets. Gleeson tells the story of this flawed, brilliant man in the context of his time. Recommended for public libraries. [Previewed in Prepub Alert, LJ 3/15/00.]-Norman B. Hutcherson, Kern Cty. Lib., Bakersfield, CA

Library Journal

Her obvious passion for her story carries the reader along from crisis to crisis, and her eye for sensual detail allows her to recreate vividly the opulent world of French regency society.
—The New York Times Book Review

Diana B. Henriques

Gleeson is a gifted biographer whose book reminds us that finance is a passionate as well as a rational endeavor.

The New Yorker

An engaging, enlightening biography of the Scottish financial genius Law (1671-1729), whose innovations created for 18th-century France a remarkable but evanescent economic boom. Gleeson (The Arcanum, 1999) is a storyteller with uncommon gifts: here he unsnarls the complicated tale of a complex man who revolutionized the way people think about money. The son of a prominent goldsmith in Edinburgh, Law showed early promise in fencing and tennis—but most notable were his formidable mathematical talents, which enabled him to profit substantially from a variety of games of chance. In 1694, however, he killed the son of a powerful London family in a duel and soon found himself convicted of murder and sentenced to hang. Friends arranged for his escape, and he crossed the Channel to the Continent, where he began life anew. In Genoa, he eloped with another man's wife. In the Hague, he befriended a nephew of Louis XIV—a connection that would eventually result in his rise to the top of the French financial bureaucracy and make him "the richest subject in Europe." With lucent wit, Gleeson chronicles Law's rise and fall. Most intriguing are her accounts of his creation of the Mississippi Company, a stock venture that generated one of history's greatest boom-and-bust stories. Law, who had already convinced the French government to begin issuing paper money (to compensate for the critical shortage of coins and precious metal), sold shares in France's holdings in America. Soon people from all walks of life made enormous fortunes as the price of the stock skyrocketed (occasioning a new word—"millionaire"). But all collapsed when word spread that nolargedeposits of gold or silver had been found in the New World. During one of the ensuing "runs" on the banks, a dozen people died, trampled underfoot by the stampede of fearful depositors eager to reclaim their investments. Law, his life at risk, fled the country in disgrace and died broke in Venice. A brilliant cautionary tale whose relevance to the volatile economies of today is remarkable—and alarming.

Kirkus Reviews