Notwithstanding his propensities in this direction, Law also devoted his abilities and his keen powers of observation to another and more creditable study. The subject of banking, the mysteries of credit, and all the intricacies of financial problems appealed to his strongly mathematical mind, and of the advantages afforded him, whilst on the Continent, for an intimate acquaintance with the various systems of his time he was not slow to avail himself. At this period there were several banking companies in Europe, and of these the banks of Venice, Genoa, and Amsterdam were the chief. The first two owe their origin to the financial difficulties of the Venetian and Genoese Republics, and had been in existence since 1157 and 1407 respectively. The Bank of Amsterdam, on the other hand, was of more modern growth, having been established in 1609 in order to minimise the confusion continually arising from the unsteady value of the currency by placing the coinage upon a fixed and more permanent basis. Law, accordingly, utilised his stay in these three cities to gaining an insight into their methods of business. At Venice, we are told, he constantly went to the Rialto at Change time, and no merchant upon commission was more punctual. He observed the course of exchange all the world over; the manner of discounting bills at the bank; the vast usefulness of paper credit; how gladly people parted with their money for paper, and how the profits accrued from this paper to the proprietors. At Amsterdam, where he was employed as secretary to the British Resident in Holland, “he made himself acquainted on the spot with the famous bank of that city; with its capital, its produce, its resources; with the demands individuals had upon it; with its variations, its interests; with the mode of lowering or raising its stock, in order to withdraw the capital, that it might be distributed and circulated; with the order that bank observed in its accounts and in its offices; and even with its expenditures and its form of administration.”
The varied information which Law in this way acquired during his residence on the Continent, and especially in the great banking centres, he did not store as a mere mass of bare interesting facts. Whether the investigations he assiduously pursued were the outcome of a design to develop a new system of banking, or proceeded merely from the attraction of the subject, is matter of doubt. But it is clear that he abstracted certain principles of finance from the data he had gathered, and that these principles were heterodox according to the opinions of his contemporaries. Our judgment upon Law must be largely determined by our impression as to whether these principles were logically deduced explanations of the financial phenomena he observed, or whether they were the fanciful ideas of his own imagination for the justification of which he sifted his phenomena. It is extremely difficult to arrive at any definite conclusion. His own published writings give no guiding clue, and the records of his time confuse, rather than enlighten, by their contradictory and varied explanations of his schemes. It is probable that the principles upon which they were founded possessed an element of both possibilities. His observations on the one hand would seem to indicate to his mind some underlying law; and on the other hand his mind, impressed with the beauty and simplicity of some vast ambitious scheme of finance, would readily discover support in its favour from the deductions he had made. At no time did Law attempt to build up a system of financial philosophy, but he must be given due praise for laying down propositions bearing upon the subject of credit and of the use of paper money which have stood the test of time and received recognition from political economists of our own day. He must also be raised to a higher level than a mere financial schemer. His proposals were more than plausible. They had an element of practicability, in which he demonstrated his own belief by his readiness to put them to test under private direction before they were launched with sovereign authority and under public control. Convinced so thoroughly as he was with the soundness of his theories, and with the possibilities they opened up, if adopted, of infusing new life and new energy into the commercial world of his day, he regarded himself as a man with an important mission.
His own country seemed to offer a suitable field for his financial ability, and we find him back in Edinburgh in the closing year of the seventeenth century, the legislative independence of Scotland affording him all necessary safety against arrest for the murder of which he had been guilty five years previously.
CHAPTER II
Unsettled condition of Scottish politics in 1700.—Financial and commercial insecurity of country.—Law’s solution of difficulties.—Land Bank.—Supported by Court party.—Rejected by Parliament.—Again resorts to gambling.—Returns to Continent.—Expelled from Holland.—Visits Paris.—Discusses finance with Duc d’Orleans.—Expelled by Lieutenant General of Police.—Submits proposals to Louis XIV. without success.—Again attempts to secure adoption of proposals by France.—Financial condition of France.—Earl of Stair’s friendship with Law.
Scotland at the time of Law’s return was in a very unsettled condition, politically and commercially. The projected union of the two Kingdoms was beginning to emerge from the sphere of discussion into that of practical politics. The change was recognised as likely to be attended with results of the greatest consequence, but was not by any means enthusiastically supported by public opinion. What, however, was obviously impossible by means of conviction, was ultimately accomplished by methods of bribery, and the Act of Union stands as a striking instance of the great success of a policy universally condemned, but carried by dishonourable means in spite of the opposition of those who were chiefly concerned.
The minds of the people, however, in 1700 were more disturbed by the feeling of financial insecurity that was gradually asserting itself. The air had been for some years laden with all kinds of fanciful schemes advanced by men who had the public ear, and who had succeeded in calling up visions of easily won wealth in the imaginations of a nation at that time, as now, characterised by caution and business prudence to the degree of frugality. Banks, colonisation schemes, and all sorts of extravagant and even ridiculous proposals followed close upon one another in one continuous stream, but almost invariably bringing ruin in their train. The most notable, as it was the most disastrous of these, was the Darien Scheme launched by William Paterson, founder of the Bank of England. Patronised by all the nobility and people of money as well as by numerous public bodies, and possessing all the superficial elements of success, it produced a fever of financial excitement and a mad race for the acquisition of holdings in its capital. Its collapse caused widespread disaster, and was in reality a national calamity, entirely destroying that confidence essential to industrial and commercial stability.
Law found in the condition of his native country a congenial subject for treatment according to the economic theories he had developed during his stay on the Continent. In the beginning of 1701 he published his “Proposals and Reasons for Constituting a Council of Trade in Scotland.” In it he advocated changes of a very drastic and radical character, and while they were without question too advanced and impracticable for his day, at least for adoption in their entirety, they show that he was by no means a Utopian theorist, but possessed the insight and foresight of a statesman. He advocated the establishment, under statutory authority, of a Council of Trade entrusted with the sole administration of the national revenue, bringing under that denomination the king’s revenues, the ecclesiastical lands, charitable endowments, and certain other new impositions, such as a tax of one-fortieth on all grain grown in the country, one-twentieth of all sums sued for by litigants, and a legacy duty of one-fortieth. The Council of Trade would control the national treasury and would direct the national expenditure. The uses to which he suggested the moneys thus collected should be directed were all devised in the interests of promotion of trade. After allowing a sufficient sum for the Civil List, the Council were to discover proper means of employing the poor and preventing idleness; establish national granaries; improve the mines and develop the mineral wealth of the country; restore the fisheries to their flourishing condition of the reign of James I.; reduce the interest of money; abolish monopolies; and encourage foreign trade, which was at a very low ebb. Notwithstanding the vigour with which Law advocated his proposals, and notwithstanding the brilliant hopes he held out by their adoption, they received little or no countenance from public opinion, and were regarded as wholly impracticable by Parliament.