John Law of Lauriston / Financier and Statesman, Founder of the Bank of France, Originator of the Mississippi Scheme, Etc.

by A. W. Wiston-Glynn

During the five years that followed his first unsuccessful incursion into the domain of practical politics, Law was engrossed in the development of a new and more brilliant project. He gave it to the world in 1705 in a volume which bore the title, “Money and Trade considered, with a Proposal for Supplying the Nation with Money.” It displayed a remarkable grasp of the theory of credit, and evidenced the inborn financial genius of its author. Although its proposals and the propositions upon which they were based can hardly bear judgment according to the standards of present-day political economy, it must be remembered that up to that time no attempt had been made in the formulation of the principles of that science. The difficulties he had to encounter were great, but the manner in which he surmounted them was not only a tribute to his clearness of mind, but showed a judicial capacity to a remarkable extent in marshalling masses of disjointed facts.

He proposed the establishment of a Land Bank, with power to issue to landlords notes secured upon their estates, and having a forced currency at their face value. The extent of each issue was to be determined in one of three ways: 1. As an ordinary heritable loan, not exceeding the maximum of two-thirds of the value of the property; 2. As a loan up to the full value of the property, but with a fixed period of redemption; or 3. As an irredeemable purchase for value. The adoption of his proposal would have had the effect, he submitted, of relieving the commercial tension due to the insufficiency of specie by supplying a medium of currency of a non-fluctuating value. Though forced, the notes would not in any way have been mere accommodation paper, but would always be for value or security received. Confidence would thus have been maintained, and the risk of panic amongst holders avoided.

Law had succeeded in interesting the Court party and a considerable number of influential politicians in favour of his suggested scheme. It appealed to them less upon its merits than upon its probable effect of reducing the estates of the kingdom to dependence upon the Government. The Duke of Argyll, supported by his sons the Marquis of Lorne and Lord Archibald Campbell, and by the Marquis of Tweeddale, submitted the proposal to the Scottish Parliament. An opposition, however, led by the Lord Chancellor, proved strong enough to reject it by a large majority, and passed a resolution “that the establishing of any kind of paper credit, so as to oblige it to pass, was an improper expedient for the nation.” It is evident that the ground of the opposition, which was ostensibly the chimerical nature of the scheme, but really the fear that the Government of the country would be placed in the hands of the Court by its adoption, was not the concealed intention of Law in its formulation. The possibility of this consequence only emerged in the course of discussion, and in the knowledge of the composition of Parliament the opponents of the scheme were strongly justified in regarding the possible result as a certain probability. From Law’s point of view, however, the scheme only attempted what is successfully followed by banking institutions of the present day, with the difference that the latter have a reserve of gold against their notes, whereas the former would have had the landed property of the country.

Law’s hopes of being able to realise his ambitions in his native land were now at an end. He saw no prospect of attaining that position in the control of public affairs to which he aspired, and for which he considered himself eminently fitted. He was, accordingly, compelled to fall back upon his old gambling career, which had been practically suspended since his return to Scotland. To such advantage did he indulge his skill in this direction, that in the course of a few months he found himself an extremely wealthy man, amongst his gains being the estate of Sir Andrew Ramsay of a yearly value of £1200 Scots, and an annuity of £1455 Scots secured upon the estate of Pitreavie in Fife, purchased in 1711 by Sir Robert Blackwood from the Earl of Rosebery.

The negotiations for the Union of the two kingdoms were now fast approaching a successful conclusion. Law felt his safety in a somewhat precarious condition, the death of Wilson still rendering him liable to arrest should he cross the Border, and the Union in all probability likely to remove the element of safety from his residence in Scotland. He petitioned the Crown for a pardon, but Wilson’s brother, an influential banker of Lombard Street, protested against its being granted, thus leaving no excuse upon which a pardon might be extended, had the royal prerogative been inclined in his favour.

The Continent furnished the only safe asylum, and thither Law removed himself in 1707, or at the latest, early in 1708. He seems first to have taken up residence at the Hague, and then at Brussels, living in luxurious fashion, and impressing every one by his extravagance and apparently inexhaustible resources. With a keen eye for the weaknesses of a people, Law introduced the Dutch to the exciting possibilities of the lottery system. So far was he received into their good favour that not only was a State lottery established, but every town of any consequence had a smaller lottery of its own. The lottery was to be the great panacea for all financial embarrassments, national and municipal. Law, however, was not a disinterested participant in all these dazzling schemes. His suggestions, if worth adoption, were worth remuneration, but unfortunately he did not himself disclose the source of it, with results which necessitated his removal from the country. “Mr. Hornbeck, Great Pensionary of Holland, being also a nice calculator, finding out that Mr. Law had calculated these lotteries entirely to his own benefit, and to the prejudice of the people, having got about 200,000 guilders by them, Mr. Law was privately advised by the States to leave their dominions.”

On his expulsion from Holland, Law abandoned himself to the life of a rover amongst the various Continental cities, and to all the attractions they offered. For six years he exercised with profitable results his skill as a gambler, and quickly gained a notoriety throughout Europe as a player of remarkable and unvarying success in every game of chance. He seems first to have gone to Paris, which afforded a rich and extensive field for gambling operations, and his good fortune brought around him a cringing crowd of followers, hoping to attract to themselves some of the glamour that surrounded the person of their idol. In his train were to be found the flower of the French nobility. He spent his time in the houses of the aristocracy of the day, of whom he was at all times a favoured guest, not less by his skilful play than by his pleasant, affable manner, and brilliant conversation and wit. Faro was the game in which he most delighted, and at the houses of Poisson, Duclos, and at the Hotel de Gesvres, he held a sort of faro bank, and the entree to these houses was considered a matter of the greatest favour. In the fashionable crowd of excited gamesters Law was the only one who remained absolutely cool whatever the fortunes of the game. His operations were conducted upon a most extensive scale, and necessitated the employment of considerable sums of money. It was no uncommon circumstance for Law to carry with him 100,000 livres or more in gold. So cumbrous did this become, that he conceived and carried out the idea of utilising counters, which were valued at eighteen louis each, and proved more convenient than the coin they represented.

During this first visit of Law to Paris, which apparently lasted not more than a year, Law succeeded in gaining the good favour of the Duc de Chartres, afterwards, as Duc d’Orleans, Regent of France during the minority of Louis XV., and of Chamillard, the Comptroller-General. With these he had frequent conversations concerning the embarrassed condition of the French Treasury, and discussed proposals for its improvement. He captivated them by the apparent soundness of his knowledge of finance, and by his brilliant theories for the establishment of the National Exchequer on a stable foundation. Every opportunity was embraced by Law for holding these discussions, and although they had no immediate effect beyond securing the adherence of two of the most powerful men in the Government, they laid the foundation of his future greatness. Unfortunately, however, for Law, the continuity of his acquaintance with the man with whom he desired most to cultivate friendship was rudely and unexpectedly suspended. D’Argenson, Lieutenant-General of Police, was suspicious of Law and his methods. His reports to the Government were unfavourable and framed with a view to Law’s expulsion from Paris. This he ultimately succeeded in getting authority to do, and Law was immediately served with a notice to leave the capital within twenty-four hours on the ground “that he knew how to play too well at the games he had introduced.”

For a considerable time Law remained away from Paris, visiting the principal cities of Italy, Hungary, and Germany, and in all leaving behind him the reputation of being one of the most remarkable men of his age. He became a frequent and well-known visitor at all the gambling resorts on the Continent. His progress from city to city resembled the progress of a royal court, and rumour preceded him to herald his coming. He was no common gambler. He was an accomplished man of the world, exquisitely courteous, and with interests that rose above the sordid pursuits from which he derived his pecuniary prosperity. His political instincts were always allowed free play, and by close observation he acquired the amplest knowledge of the industrial and economic conditions of the various countries he visited.

Law was now becoming anxious to secure an opportunity of putting into practice the schemes he had mentally constructed for the improvement of trade and commerce. The more he observed the prevailing unhealthiness of industry, and the more he satisfied himself as to the apparent causes of industrial depression, the more did he feel that his scheme was the only royal remedy. He accordingly returned to Paris shortly before the close of the reign of Louis XIV., purposing to gain the support of that monarch for the adoption of his system in France. Chamillard did not now occupy the office of Comptroller-General, but Law through the influence of the Abbé Thesul was received by Desmarets his successor, who not only discussed in thorough detail the scheme laid before him by Law for the rehabilitation of the financial condition of the country, but became so enamoured of it that he decided upon submitting it to the King himself. Louis XIV., however, was not a man of large mental horizon. His decisions were often the outcome of the impulse of the moment. Frequently they were determined by religious bias, even where religious scruples were wholly foreign to the matter under consideration. Law’s proposal seems to have been placed under the latter category by Louis XIV. Report has it that the bigoted monarch was more anxious to learn the faith to which the Scotsman belonged than to know the merits of his scheme, and that on being informed Law was not a Catholic, he brushed aside the matter and refused to accept his services.