Millionaire_ The Philanderer, Gambler, and Duelist Who Invented Modern Finance Part 4

This did nothing for efficiency, Law deemed, and served only to make necessities more expensive and to encourage the holders of the offices "to live in idleness and deprive the state of the service they might have done it in some useful profession, had they been obliged to work." In place of the hundreds of old levies he swept away (over forty in one edict alone), Law introduced a new national taxation system called the denier royal, denier royal, based on income. The move caused an outcry among the holders of offices, many of whom were wealthy financiers and members of the Parlement, but delight among the public. "The people went dancing and jumping about the streets," wrote Defoe. "They now pay not one farthing tax for wood, coal, hay, oats, oil, wine, beer, bread, cards, soap, cattle, fish." based on income. The move caused an outcry among the holders of offices, many of whom were wealthy financiers and members of the Parlement, but delight among the public. "The people went dancing and jumping about the streets," wrote Defoe. "They now pay not one farthing tax for wood, coal, hay, oats, oil, wine, beer, bread, cards, soap, cattle, fish."

Elsewhere a similar sense of well-being came from share dealing. The regent's family and favorites were given preferential allocations and prospered spectacularly. His mother reported that the king had millions for his household and that "My son has given me 2 million in shares which I have distributed among my household." The Marquis de La.s.say, the Marechal d'Estrees, the Duc de la Force, and the royal princes of Conti and Bourbon made millions. Bourbon spent part of his colossal windfall in starting his own porcelain factory and redecorating his chateau at Chantilly. An avid equine enthusiast, he was convinced that he would come back in the afterlife as a horse, and had luxurious stables, the so-called Grandes ecuries, designed by the architect Jean Aubert. Arcaded, domed, and studded with sculpture, the palatial building could house five hundred horses and survives as an equestrian museum.

So numerous were the private fortunes gained that a new word was invented to describe them. The word "millionaire" was coined at this time to describe the rich Mississippians, first appearing in print in the lawyer Marais's journal in 1720:

Esperons que la dividende En sera plus sure et plus grande Sur le rapport qu'il en fera, Et que l'on communiquera Aux calotins actionnaires, Lesquels n'ont point realise Comme certains millionnaires Peuple avare et mal avise.

Let's hope that the dividend Will be more certain and larger On the return that it will bring And one will inform The smug investors Who have realized nothing Like certain millionaires A greedy and ill-advised breed.

The term "millionaire" exerted a seductive appeal. Drawn by stories of unbelievable gains that echoed throughout Europe, foreigners flocked to Paris. Estimates vary, but around 200,000 (some put it as high as 500,000) people from Venice, Genoa, Geneva, Germany, England, Holland, and Spain, as well as vast numbers from the provinces, gravitated to the city to play the markets. The streets were choked with carriages; all modes of public transport from the major cities of Lyon, Aix, Bordeaux, Strasbourg, and Brussels were booked up months in advance; people gambled or bid outrageous sums for a place on a coach.The lucky ones arrived in Paris to find every room occupied, and even stables let as accommodation. Journalists reveled in the frenzied get-rich-quick ambience. In one periodical Defoe commented, "Beau Gage has gained three hundred thousand pounds sterling by the stocks. The Lord Londonderry also . . . being the same that sold the great diamond to the King of France is there, and they say has likewise gotten very great sums of money." Gage was later nicknamed Croesuss, and with his winnings he attempted to buy the island of Sardinia and the crown of Poland. He was trounced in Poland, equally dishonestly, by Augustus the Strong of Saxony, prompting Alexander Pope to write in his "Epistle to Bathurst":

The Crown of Poland, venal twice an age, To just three millions stinted modest Gage.

But in certain Parisian salons the flouris.h.i.+ng fortunes of countless overseas investors met with a chilly reception. Why, many asked, should foreigners profit when many French were unable to buy as many shares as they would have liked? What right had Law to help English investors at their expense? "Some of the French have endeavoured to represent to Mr. Law's prejudice the great gains they pretend his countrymen have made," the diplomat Daniel Pulteney observed. Law ignored the faultfinders. In reality, nostalgia for the land of his birth had nothing to do with it: he encouraged outside investors because he recognized that to play the markets they brought with them silver and gold currency, without which the system of paper money could not survive.

While the holiday mood continued, the foundation of the fabulous gains remained unquestioned. Shrouded in the mists of inexperience, speculators of the rue Quincampoix had no yardstick against which to measure their experience. Almost a century earlier, in the 1630s, speculation fever had descended on Holland when the price of tulips and futures contracts for bulbs had bubbled and burst-the now notorious Tulipmania. But though shares had long been available, investors had been largely confined to small, select groups. The wider general public had never before taken part, nor had such rapid rises on such a scale ever been witnessed. Like gluttons at a Mississippi banquet, most investors ingenuously accepted the opportunity to gorge themselves and never considered the consequence. The fact that the huge increase in share prices was founded on little more than hype and the hugely expanded money supply was unthinkingly brushed aside.

The quant.i.ties of notes that had been circulated were vast indeed. Estimates differ-there are no precise figures, because all records were burned in the aftermath of the Mississippi-but one a.s.sessment generally accepted by scholars puts the figure at over 1.2 billion livres' worth by the end of 1719. Added to this, the 624,000 shares that had been issued at 221 million livres were, on current market valuations at the end of November 1719, worth 4.8 billion livres. Of these the Crown and the company probably owned a third. France, thanks to Law's magic system, was now richer to the tune of 5.2 billion livres. The regent himself had earned a fortune, which he circulated liberally to his paramours and favorites, and Law believed himself "the richest subject in Europe." But the question of what underpinned these paper fortunes had been dangerously ignored.

The share price had been boosted on its upward path by the ease with which money could be borrowed from the bank. Loans at 2 percent interest were readily available and shares could be used as collateral. The eighteenth-century economist Du Tot summed it up: "Law," he said, "had built a seven-storey building on foundations that would support only three." Now we would call it a bubble. As the autumn of 1719 yielded to winter, share prices scaled ever more precarious heights: shares that in August had traded for 3,000 livres tripled in value by December and by the new year reached a peak of 10,000, a twentyfold increase on the original par price of 500 livres, for which Law had been so hard pressed to find subscribers seven months earlier.

As the year drew to a close there were signs, however, that he was beginning to succ.u.mb to the pressures of his own success. In November the journalist Buvat noted that the Duc d'Antin, the Marquis de La.s.say, Law, and several unnamed ladies had traveled by carriage to the rue Quincampoix-where carriages were banned to everyone else-to visit a banker by the name of Bergerie. Law was at the carriage window and, to amuse the ladies, threw several fistfuls of coins into the street. They watched as "the rabble and courtiers tumbled over one another in the mud to pick them up [and] someone threw from a neighbouring window several buckets of water on the opportunists, one can imagine as a result the state they were in." The incident's unsavory undertone raised questions as well as eyebrows. Had Law's concern for public well-being been blunted by his success? Was ego blinding his moral sensibility to the extent that he now saw avarice as a form of entertainment?

One key long-standing supporter feared the worst: the Earl of Stair, Law's old friend, became increasingly antagonistic. An inveterate and often unlucky gambler, Stair was distrustful of Mississippi speculation and scoffed at every price rise. In August, as share prices zoomed upward, he had commented venomously that the frenzied market was "more extravagant and more ridiculous than anything that ever happened in any other country." Law had then offered him a large number of shares and was offended when he refused them with the pompous rejoinder that he did not think it became the king's amba.s.sador to give countenance to such a thing.

This version of the argument conflicts, however, with the Princess Palatine's account of their dealings. Stair, she said, "cannot conceal his hatred of Law, nevertheless he has made three good millions through him." Stair's animosity, detectable by his ever more alarmist dispatches, was sparked by his worries about Law's emerging anti-British sentiments. Law, he said, was interfering in diplomatic matters that were no concern of his, and threatening the British economy: "He . . . pretends he will set France much higher than ever she was before and put her in a condition to give the law to all Europe; that he can ruin the trade and credit of England and Holland whenever he pleases; that he can break our bank whenever he has a mind, and our East India Company." Law, who had three times been refused a pardon, was now exacting painful revenge. Ironically, the pardon had been granted by George I two years earlier, but Law responded with typical impetuosity by handing over the doc.u.ment to the regent as proof of his unstinting loyalty.

Stair, however, ignored this detail. According to him, by the year's end the regent was losing faith in Law. Having heard a variety of rumors relating to his erratic behavior, the regent a.s.sured Stair he had reprimanded Law for his impudence. A few days later, Stair averred, Orleans was again denouncing Law for "his vanity, presumption and insolence. He said he knew him to be a man whose head had been turned by his vanity and unbounded ambition; that nothing would satisfy him but to be absolute master; that he had such an opinion of his own talents and contempt for the talents of others as to be quite impracticable with any other person."

Stair's a.s.sessment did not tally with other diplomatic intelligence, which suggested that Law's authority was substantial. The Paris-based diplomat Martin Bladen appraised the situation in a revealing letter to Lord Stanhope. "The Regent has already reaped many solid advantages from the establishment of this company, he is resolved to throw all the revenues of France under their management, which cannot fail of raising the actions to a much higher price." Of Law's part in all this Bladen was in no doubt: "Mr. Law is become the idol of the people, the Regent has gained many new friends, the public debts of the government are all discharged, and the revenues of France very considerably increased." He drew the inevitable conclusion: "Your Lords.h.i.+p knows better than I how precarious our friends.h.i.+p is with this kingdom, and consequently how necessary it will be that some speedy methods should be thought on for payment of the public debts without which His Majesty cannot long continue the arbiter of Europe."

The growing anxiety was not only that France's economic renaissance would increase her political aspirations, but also that the flurry of tourists investing in Mississippi stock would drain England of her coinage. Concerns were amplified by Law's overt jingoism. Openly contemptuous of the English economy, "he spared no occasion of declaring without reserve, even without decency that we are bankrupt and shall be forced to shelter our country under the protection of France," wrote Daniel Pulteney to the secretary of state James Craggs. Stair told a similar story: "He [Law] said publicly the other day at his own table, when Lord Londonderry was present, that there was but one great kingdom in Europe. . . . He told Pitt that he would bring down our East India stock, and entered into articles [made an agreement] with him to sell him at 12 months hence, a hundred thousand pounds of stock at eleven per cent under the current price."

Law was convinced that the price of East India stock would fall and he was therefore, in modern parlance, taking a bear futures position. The stance was probably more of a propaganda exercise, meant to bolster confidence in French investments by running down English ones, than a considered opinion-and later it turned horribly wrong. But faced with this nose thumbing, England could do nothing but squirm. Despite what Stair said, Law was far too powerful to risk offending and, ever the archmanipulator, he played mercilessly on the anxiety, even complaining to Pulteney about comments in the English press calling his company "a chimera," at which he professed to take umbrage. Meanwhile, the career of Stair, the weakling who had picked an argument with a prizefighter, was doomed. When Lord Stanhope visited Paris in early 1720, his predictable conclusion that Law should not be provoked heralded the end of a brilliant diplomatic career for Amba.s.sador Stair. The following spring he was recalled.

For all the carefully calculated bravado and insults bandied over the dinner table, success had not turned Law into an egomaniac. Nor had it silenced his driving demon: his need for acceptance and his desire for political advancement. He might relish behaving high-handedly toward the English establishment and his role of bad-boy-made-good, but part of him craved acknowledgment of his achievement and wanted to be recognized for his honorable intentions, as well as respected for the money he could bestow. Success offered the chance to anchor himself to the country he had served so well by seeking a position within its government. The regent welcomed the idea, but there was a const.i.tutional dilemma: Law still followed the Protestant faith of his forebears, and in Catholic France a Protestant could have no legal role in government. For Law to hold public office he would have to convert.

Oddly for the descendant of a family whose livelihood had once depended on and been doomed by its faith, religion seems to have been of little significance to John Law. His choice of English friends bears this out: among them were several leading Jacobites, although he was also close to the Duke of Argyll and Earl of Ilay, who were staunch anti-Jacobites. If he felt any qualms about his conversion there are no records of it. There are, however, signs that Katherine did not share his feelings: she refused to follow suit, and was said to be "very much upset about it," according to the regent's mother, especially when Law insisted that both children should adopt the Catholic faith. But Law, at the zenith of his career, blinkered by ambition, ignored Katherine's opposition. The ceremony of his acceptance into the Roman Catholic Church took place in Melun in December 1719, presided over by the Abbe de Tencin, the brother of the infamous nun turned courtesan Claudine de Tencin, whose numerous lovers were said to include Law. The a.s.sociation must have been a double blow for Katherine. Like his sister, Tencin was renowned for his venality and corruption and agreed to Law's conversion largely because he knew he would profit from it. Later he received shares worth 200,000 livres. A few days later, on Christmas Day, Law partic.i.p.ated in his first Ma.s.s at his local church of St. Roche and marked the occasion with a sumptuous ball and dinner.

Uplifted by his conversion and anxious to secure public affection, Law donated vast sums to good causes. "He gives away lots of alms that are never talked about . . . and helps many poor people," wrote the Princess Palatine. "It is impossible to express the bounty and munificence of Mr. Law; and what a world of money he gives away on charitable and generous occasions." Daniel Defoe agreed: "The other day he gave 100,000 livres to the rebuilding of the church of St. Roche in Paris, being the parish church in which he lives and where he received his first communion. After the renunciation of his religion, he gave the same day a hundred thousand crowns to the relief of his country men at St. Germain . . . He had given very considerable sums to the Hospital la Charite."

Law's critics were unmoved by his generosity. They were forced to pay him lip service, but many secretly regarded him as a parvenu, whose reforms had seriously damaged their financial muscle. However much they had profited as a result of the escalating price of Mississippi shares, they still felt they would be better off with the old order, in which their preeminence was unrivaled. Moreover, they must have known his reward was imminent.

It came on January 5, 1720, with the announcement that Law had received the ultimate accolade: he had been appointed controller general of finance. The position surprised few. Law had been the nation's "first minister" in all but name for many months, but the t.i.tle underlined his ascendancy. The world could no longer ignore the fact that he held the purse strings and therefore held sway over the most powerful and populous nation in Europe.

To commemorate his new office, a portrait was made of France's new controller general, probably painted by the fas.h.i.+onable artist Hyacinthe Rigaud (the painting was feared lost but appeared recently at a Sotheby's house sale). Something of the dandy lingers: in it Law wears a gold-b.u.t.toned velvet coat and showy turquoise waistcoat embroidered with gold leaves and bunches of brilliantly colored fruit, and sports a powdered gray periwig. The once angular face is now softened with the jowls and ruddy complexion of good living. But it is a grandiose portrait, which forces you to acknowledge a man of exceptional stature and achievement. Gone is the dreaminess: the eyes, brooding beneath luxuriant black brows, focus directly on the viewer, while behind, the emblem of his empire-a Mississippi s.h.i.+p at full sail-powers toward the horizon.

12.

MISSISSIPPIMADNESS.

After the death of Louis XIV, Law, a Scotchman, a very extraordinary person, many of whose schemes had proved useless, and others hurtful to the nation, made the government and the people believe that Louisiana produced as much gold as Peru, and that it would soon be able to supply as great a quant.i.ty of silk as China. . . . The settlers almost all perished from want; and the city was confined to a few paltry houses. Perhaps one day, when France shall have a million or two of inhabitants more than she may know what to do with, it may be of some advantage to her to people Louisiana.

Voltaire, Short Studies: The French Islands

EVER SINCE L LAW HAD TAKEN CONTROL OF THE L LOUISIANA colony, tantalizing reports of it had appeared in France's official newspaper, the colony, tantalizing reports of it had appeared in France's official newspaper, the Nouveau Mercure: Nouveau Mercure: correspondents described a land of milk and honey in which the climate was temperate, the soil fertile, the woods replete with trees suited to building and export, and the countryside populated with wild yet benign "horses, buffaloes, and cows, which however do no harm but run away at the sight of men." In this wonderland, said an article published in September 1717, the soil bulged with seams of gold and silver ore; other valuable minerals-copper, lead, and mercury-also awaited exploitation, and the natives had spoken of an enormous rock near the Arkansas River made of a type of rock that was "dark green, very hard and very beautiful, resembling emeralds." In short, said the endlessly imaginative Mississippi journalists, "nothing almost is wanting . . . but industrious people, and numbers of hands to work." The optimistic dispatches continued to circulate Paris for three more years. "The most solid foundation for the hopes of the Mississippians," wrote the captain of the correspondents described a land of milk and honey in which the climate was temperate, the soil fertile, the woods replete with trees suited to building and export, and the countryside populated with wild yet benign "horses, buffaloes, and cows, which however do no harm but run away at the sight of men." In this wonderland, said an article published in September 1717, the soil bulged with seams of gold and silver ore; other valuable minerals-copper, lead, and mercury-also awaited exploitation, and the natives had spoken of an enormous rock near the Arkansas River made of a type of rock that was "dark green, very hard and very beautiful, resembling emeralds." In short, said the endlessly imaginative Mississippi journalists, "nothing almost is wanting . . . but industrious people, and numbers of hands to work." The optimistic dispatches continued to circulate Paris for three more years. "The most solid foundation for the hopes of the Mississippians," wrote the captain of the Valette, Valette, a vessel that had recently returned from the region, "are the silver mines discovered in the country of the Illinois [the local Indian tribe]." Elsewhere, in the fairs, markets, and taverns of provincial towns and villages, catchy songs advertised the colony's charms: a vessel that had recently returned from the region, "are the silver mines discovered in the country of the Illinois [the local Indian tribe]." Elsewhere, in the fairs, markets, and taverns of provincial towns and villages, catchy songs advertised the colony's charms:

Aujourd'hui il n'est plus question De parler de Const.i.tution, Ni de la guerre avec l'Espagne; Un nouveau pays de cocagne, Que l'on nomme Mississippi, Roule a present sur le tapis.

Today there is no longer any question Of talking of the const.i.tution Nor of the war with Spain; A new wonder land That they call Mississippi Has appeared on the scene.

By 1719, the showpiece settlement of New Orleans, founded a year earlier and strategically placed at the mouth of the Mississippi to control the trade on the Mississippi and Missouri rivers, was said to be a prosperous town of "nearly 800 very comfortable and well appointed houses, each one of which has attached 120 acres of land for the upkeep of the families." Furthermore, mineral finds exceeded all expectation, said the Mercure Mercure of April 1720: samples sent for testing had proved astonis.h.i.+ngly pure-"One scarcely finds the same quant.i.ty in the richest mines of Potosi." of April 1720: samples sent for testing had proved astonis.h.i.+ngly pure-"One scarcely finds the same quant.i.ty in the richest mines of Potosi."

It was all an illusion. The reality, concealed beneath the veils of beguiling disinformation, was that the colony was struggling to stay alive. Between 1717 and 1720, of the thousands that made the arduous journey to Louisiana, over half perished en route or returned exhausted and disenchanted with what they found. Hundreds more perished from disease or starvation. No sizable deposits of silver or gold, let alone emeralds, had been found, and according to the report of de Bienville, the colony's governor, to the company in 1719, New Orleans consisted only of four modest houses, where the immigrants survived entirely by trading with the natives.

The glossy reports and alluring songs had been master-minded by Law more as a marketing ploy than a deliberate deception. He was adamant that given enough time and money, the colony would become the valuable territory everyone believed it to be. But he was hampered by innate French reluctance to emigrate: there were too few willing pioneers. Yet having realized that, along with the predictable profits of the other rights acquired, much of the pyramid of speculation depended on public belief in the colony's prosperity and their expectation that this was sure to increase, he had no alternative but to conceal the facts until more potential settlers came forward.

To tempt them he offered attractive incentives. Colonists' expenses would be met by the company from the time they took up residence until they were established, and they would be provided with land, livestock, and thirty pounds of flour a head until their first harvest. But however successfully in the past he had manipulated the public's opinion, he could not persuade them willingly to leave France for an unknown, undeveloped wilderness, even though much of the nation's money was staked on it.

Undaunted, and in the expectation that where he led others would follow, Law acquired a concession of his own in 1719. In partners.h.i.+p with the Irish emigre Richard Cantillon, one of Paris's most successful private bankers, and the English speculator Joseph Gage, he acquired the rights to a plot of 16 square leagues bordering the Ouachita River to the west of the Mississippi, in what is now the state of Arkansas. While Law and his partners observed operations from the comfortable security of their Paris mansions, around a hundred settlers-including carpenters, mine workers, and gardeners-were enlisted to prospect for minerals and to grow tobacco. The party, supervised by Cantillon's brother Bernard, left La Roch.e.l.le on the slave s.h.i.+p St. Louis St. Louis in March 1719. Three months later it dropped anchor in the brave new world of Louisiana. By one account, Law's expedition was unusually well equipped, with "such a large quant.i.ty of merchandise and other effects that they filled three boats to get to their concession." in March 1719. Three months later it dropped anchor in the brave new world of Louisiana. By one account, Law's expedition was unusually well equipped, with "such a large quant.i.ty of merchandise and other effects that they filled three boats to get to their concession."

As he had hoped, his example inspired similar partners.h.i.+ps. A handful of aristocrats, several successful speculators in Mississippi stock, including the widow Chaumont, and several of his English, Irish, and Scottish emigre friends, including the glamorous f.a.n.n.y Oglethorpe, joined in ventures aimed at farming tobacco, rice, and silk or prospecting for minerals.

Within months of hearing of his expedition's safe arrival Law was trumpeting its success. Rumors eddied through salon society of the silver deposits discovered on his land, and of a mine already yielding five ounces of silver for every hundred-weight of ore. Few suspected that the whispers emanated from Law's imagination rather than the correspondence of his settlers, for the mission, despite its ample resources, was far from triumphant.

Bernard Cantillon and his team had found themselves in a dismal, hostile territory in which the struggle for survival overshadowed any attempt to farm or prospect. The immigrants were racked with scurvy, dysentery, malaria, and yellow fever. There was the ever-present danger of hostile Indians, who needed constant bribes to remain friendly. According to Buvat, in one attack that took place in March 1719 and was never publicized, 1,500 French colonists were ambushed in their homes and slaughtered. There was also danger from the Spanish settlements to the west-with whom war was waged from 1719 to 1720-and English settlements to the east, between which the French colony was sandwiched. Cantillon and his party, like others before them, realized the extent of the exaggeration only when they arrived, but by then it was too late to go back. Within four years, desertion, disease, and other hazards had culled the expedition's numbers until only a quarter remained. Law and his partners found little in the way of quick profit. In a letter to one partner two years later, when his own fortunes were in decline, he was forced to relinquish his investment: "With regard to my Louisiana colony, I thank you for your offers. As I am not in a state to continue to take on the necessary expenditure to support it, don't hesitate to take the party that suits your interests best. Wis.h.i.+ng you success in what you undertake." Another two centuries would pa.s.s before the true wealth beneath the soil was found, not in silver, gold, or emeralds but in oil.

In Paris, conscious that the rising share market depended on public confidence that large-scale revenue would come sooner rather than later, Law moved to speed things up. The stumbling block as he saw it was still the dearth of settlers and an inadequate support system. He responded first with orders for new s.h.i.+pping, making so ma.s.sive an investment that even the pragmatic Daniel Pulteney was astounded: "Besides the s.h.i.+ps the company had already bespoke in England, which I think were 8 or 9 orders, are lately sent for building there 8 more . . . 4 s.h.i.+ps are now fitting out at port Louis," he wrote, in early 1720, by which time the company fleet had already swelled to some thirty s.h.i.+ps, more than the rival English East India Company.

Meanwhile, the problem of where to find settlers had been dramatically addressed: new legislation was pa.s.sed whereby every criminal, vagabond, and prost.i.tute and any servant unemployed for more than four days was listed and liable for transportation. An army of mercenary soldiers, known as "archers," was employed by the company to trace, apprehend, and escort them to the nearest port for transportation. In Paris, with the blessing of the authorities, Law rounded up orphans and young people from the so-called hospitals, many of which served also as detention centers and poorhouses. Thus, in Paris alone it was estimated that some 4,000 people-among them society's most defenseless, disreputable, and dangerous citizens-taken from Bicetre, l'Hopital General, and Salpetriere, would swell the numbers of settlers and provide the necessary unskilled labor. According to the reports, the first cargo of female deportees arrived to the warmest of welcomes from the male settlers and quickly found marriage partners. Problems arose, however, when two men claimed the last woman, and the matter had to be decided by hand-to-hand combat.

In Paris, at a comfortable distance from wrestling matches on the dockside, few at first opposed the transportations. Echoing the general mood, Saint-Simon commented, "If this had been done with wisdom, discernment and necessary caution, the object they proposed would have been accomplished, and Paris and the provinces relieved of a heavy, useless and sometimes dangerous burthen." But public approval was short-lived. The journalist Buvat sternly noted the problems caused in Louisiana by certain categories of female immigrants: "The debauched girls that had been transported to the Mississippi and other French colonies had been the cause of much disorder bytheir libertine actions and by the venereal disease that they had spread."

Increasing displeasure was voiced over the brutality of the archers. Poorly supervised, ill disciplined, and corrupt, they were soon universally detested and feared. If too few people from the designated categories were captured, the archers were known to arrest anyone unfortunate enough to stumble into their path. According to Pulteney, their fiendishness was exacerbated by financial temptation. They were paid commissions for every captive, and the system was widely abused. With a word in the ear of an archer and few sous slipped in his hand, it was all too easy for an unwanted relative, awkward son, inconvenient compet.i.tor, or demanding spouse to be dispatched to the swamps of Louisiana. There was even a popular song to warn husbands of the danger:

O vous tous, messieurs les maris, Si vos femmes ont des favoris, Ne vous mettez martel en tete; Vous auriez fort mechante fete.

Si vous vous en fachez, tant pis: Vous irez a Mississippi.

O all you husbands If your wives have favorites Don't get worried; You will have a terrible celebration.

If you get angry, too bad: You will go to Mississippi.

Despite growing public concern, archer chicanery showed no sign of diminis.h.i.+ng. Even infants were reported to have fallen prey: "I have heard that they have taken children out of houses; some they release again for money, those who cannot or will not pay a ransom are carried to a prison whence they are to be sent to the Mississippi," Pulteney lamented. Those who could not escape were abysmally mistreated: "Not the slightest pains were taken to provide for the subsistence of these unfortunates on their journey, or at the places where they disembarked; they were shut up at night in barns without food, or in cellars from which they could not issue. Their cries excited both pity and indignation," recorded an outraged Saint-Simon. The injustice of impressment would find most famous literary expression in the novel Manon Lescaut, Manon Lescaut, published in 1731 by Abbe Prevost. The story charts the life of a young girl, Manon, during the Regency era, who is diverted from life as a nun by the appeal of money. Manon betrays her first suitor, who loves her and wants to marry her, takes numerous lovers, and is eventually arrested and deported to Louisiana, where she dies from the hards.h.i.+p she encounters. published in 1731 by Abbe Prevost. The story charts the life of a young girl, Manon, during the Regency era, who is diverted from life as a nun by the appeal of money. Manon betrays her first suitor, who loves her and wants to marry her, takes numerous lovers, and is eventually arrested and deported to Louisiana, where she dies from the hards.h.i.+p she encounters.

The groundswell of disapproval did not diminish Law's quest for settlers, but conscious of the problems created by deportations, he concentrated his efforts on enticing volunteers-especially young married couples-to the colony. On visits to Paris hospitals he offered generous dowries to couples who would marry and emigrate. "They took 500 boys and girls from the hospitals of Bicetre and de Salpetriere . . . the girls were in wagons and the boys on foot escorted by 32 guards," noted Buvat. But the most bizarre event Law engineered took place in September 1719, when the pealing bells of the St. Martin quartier quartier of Paris proclaimed the ma.s.s nuptials of eighty young girls of doubtful repute and eighty specially pardoned criminals. While the marriage took place the couples stood shackled together in heavy iron chains. Afterward, under the watchful eye of a company of archers, they were paraded, still in chains, through the streets of Paris before being sent to La Roch.e.l.le for transportation to Louisiana. The chains caused consternation among the public, and a similar ma.s.s wedding, in which couples were linked with flowers-presumably to symbolize the fecundity that awaited them-took place soon after in a blaze of publicity. of Paris proclaimed the ma.s.s nuptials of eighty young girls of doubtful repute and eighty specially pardoned criminals. While the marriage took place the couples stood shackled together in heavy iron chains. Afterward, under the watchful eye of a company of archers, they were paraded, still in chains, through the streets of Paris before being sent to La Roch.e.l.le for transportation to Louisiana. The chains caused consternation among the public, and a similar ma.s.s wedding, in which couples were linked with flowers-presumably to symbolize the fecundity that awaited them-took place soon after in a blaze of publicity.

Publicity stunts and propaganda fueled much gossip and filled pages in the journals but had little impact. Inevitably, rumors of the sufferings of colonists penetrated even the inst.i.tutions from which many were culled. The promise of freedom could not overcome the mounting terror of transportees-some became so reluctant to emigrate that they were willing to risk life and limb to avoid it. Riots and skirmishes escalated in ports and prisons. On January 20, 1720, it was reported that nineteen married couples placed in jail awaiting departure had ambushed their guard, grabbed his keys, and succeeded in setting themselves free. At La Roch.e.l.le, 150 girls about to embark sprang at the archers guarding them and attacked them with nails and teeth. The affray was only brought under control when the archers fired at the transportees, killing twelve and forcing the rest to embark at gunpoint.

By early 1720, numbers of emigrants had dwindled to the point at which Law was having to recruit large numbers of foreigners: "A great many Scotch rebels are to be employed there and I am told they have got people from Ireland and will endeavour to get more," observed Daniel Pulteney. But although Irish, Scottish, Swiss, German, and other non-French settlers were more easily lured aboard the new Mississippi Company vessels with financial incentives, the press gangs and atrocities continued. Some attempt was made to control the worst excesses of the archers by forcing them to operate in groups rather than individually. To highlight the improvement they were given smart new uniforms-blue coats and silver-banded tricorn hats-but such token measures did nothing to diminish their brutality. Inevitably, Law was seen as condoning their activities, and public opinion erupted against him. "One could wonder that Mr. Law who cannot but be extremely sensible how very obnoxious he is already to the generality of people here should yet provoke them more and more every day by some fresh hards.h.i.+p," wrote Daniel Pulteney, of public consternation at some new archer savagery.

To be great, said Ralph Waldo Emerson, is to be misunderstood. In Law's case, no one comprehended that his apparent indifference to public criticism over transportations was not a signal of inhumanity but rather that he was preoccupied with far more pressing concerns. Weeks after his promotion to the position of controller general he faced the most challenging dilemma of his career. Unfettered speculation fever still spiraled. His enemies-the financiers, tax inspectors, and councillors of the Parlement whose livelihoods he had damaged-had regrouped. The very survival of the system he had created was endangered by the combined perils of still-rising share prices and burgeoning conspiracies. In such a climate, Law was understandably slow to respond to public outrage. Eventually, however, the message seems to have filtered through, and the deportations were halted in May 1720.

By then, though, Paris and the world at large had awakened to the perils of paper and to the struggle that confronted him. To save the bank, the Mississippi Company, and the fortunes of thousands of investors, Law unleashed a cataclysmic financial storm.

13.

DESCENT.

As long as the credit of this bank subsisted, it appeared to the French to be perfectly solid. The bubble no sooner burst, than the whole nation was thrown into astonishment and consternation. n.o.body could conceive from whence the credit had sprung; what had created such mountains of wealth in so short a time; and by what witchcraft and fascination it had been made to disappear in an instant, in the short period of one day.

Sir James Steuart, An Inquiry into the An Inquiry into the Principles of Political Oeconomy, Book IV (1770) Book IV (1770)

ON D DECEMBER 30, 1719, 30, 1719, IMPECCABLY CLAD AND BEWIGGED IMPECCABLY CLAD AND BEWIGGED as always, Law entered the cabinet of the Mississippi Company and addressed the annual general meeting. The sense of expectation was almost palpable. Within the past month share prices had dropped from a high of over 10,000 livres to 7,500, only to recover eleven days later and reach 9,400. Even among this informed circle of codirectors few fully understood why. Was the company the thriving enterprise that the world at large believed it to be? If so, why had the price fallen? If not, how long could recovery be sustained? Law appeared oblivious to the anxieties. With his customary charm and self-a.s.surance, he rea.s.sured them that the company was flouris.h.i.+ng. Overseas trade was expanding and the outlook so favorable that he would pay shareholders a dividend of 200 livres. For all those present this was festive tidings of the best kind. as always, Law entered the cabinet of the Mississippi Company and addressed the annual general meeting. The sense of expectation was almost palpable. Within the past month share prices had dropped from a high of over 10,000 livres to 7,500, only to recover eleven days later and reach 9,400. Even among this informed circle of codirectors few fully understood why. Was the company the thriving enterprise that the world at large believed it to be? If so, why had the price fallen? If not, how long could recovery be sustained? Law appeared oblivious to the anxieties. With his customary charm and self-a.s.surance, he rea.s.sured them that the company was flouris.h.i.+ng. Overseas trade was expanding and the outlook so favorable that he would pay shareholders a dividend of 200 livres. For all those present this was festive tidings of the best kind.

We do not know if anyone at the meeting had enough direct contact with the colony to have an inkling of the true situation. Nor can we tell how many, even without such knowledge, sensed that this was a smoke screen or that Law had decided the dividend not according to company profits but according to the market share price to sustain the public's confidence in their investment-another ingenious marketing ploy. But behind closed doors, in a.s.sorted cabinets and boudoirs, a handful of cannier investors were questioning what Saint-Simon later scathingly termed "the chimera of the Mississippi, its shares, its lingo, its science . . . its hocus pocus for taking money from some and giving it to others." Rumors relating to Louisiana added to the ripples of disquiet. "I have spoken to a Frenchman who is lately come from the Mississippi. . . . The account he gives of the French settlement in that country would not encourage me to put my money into that stock," Pulteney reported to Whitehall. Law's charm and the dividend announcement were not enough to stanch the niggling insinuations. Even Saint-Simon could read the writing on the wall. "As the company possessed neither mines nor philosopher's stone it was obvious that its shares, in the long run, must decline in value." This comment calls to mind a remark made by Warren Buffett during the 1980s stock market downturn: "In the end, alchemy, whether it is metallurgical or financial, fails."

The climbing share price had been nourished by the injection of vast sums of paper money into the economy. Law realized the pitfalls of continuing on this route: the bank's reserves of coin could not keep pace with such expansion. If faith in paper wavered, supplies would run out. Everything rested on the willing suspension of disbelief. The system would self-destruct if people began to doubt it. Confidence-or credulousness-was all. But confidence was increasingly fragile.

Meanwhile, in the dingy alleyways and offices of the rue Quincampoix, the bonanza continued. Dealers taking advantage of the unregulated market became greedier and more daringly unscrupulous. Shady practices proliferated and futures trades-contracts whereby an investor agreed a share price and made a down payment for delivery at some future date-were, as far as Law was concerned, a particular problem. During the autumn of 1719, shares officially trading for around 10,000 livres were being sold in various forms of forward contracts for 15,000. Law saw that investors believed that share prices would rise still further. He knew that they would have to be controlled. He himself had caused the great dip and upward turn in the market in December 1719 by refusing loans, in an attempt to curb the money supply, then realizing how quickly the tide could turn and revoking the instruction.

To curtail the dubious dealings in the rue Quincampoix, company sales offices were opened in the new year to buy and sell shares at fixed prices. To satisfy the public hunger for shares and restrict the trade in futures, a new investment opportunity, called primes, was launched. The equivalent of what traders would today term a call option, a prime allowed investors to pay a deposit of 1,000 livres for the right to buy a share priced at 10,000 livres for delivery within the next six months.

Most investors still thought that shares would go above 10,000 livres. Lured by the leverage opportunity, they scram-bled to sell their meres, filles, pet.i.tes filles, meres, filles, pet.i.tes filles, and and cinq-cents cinq-cents to increase their gearing. One share sold for 10,000 livres enabled them to multiply their future holding tenfold. Within four days of the launch of the primes, the shares plummeted from 10,000 to 7,000 livres as people sold out to reinvest in primes. Law was forced into a position where he had to pay out large sums to buy up shares for which demand had evaporated. to increase their gearing. One share sold for 10,000 livres enabled them to multiply their future holding tenfold. Within four days of the launch of the primes, the shares plummeted from 10,000 to 7,000 livres as people sold out to reinvest in primes. Law was forced into a position where he had to pay out large sums to buy up shares for which demand had evaporated.

Aside from vacillating share prices, Law was beset with another dilemma. Silver and gold were draining from the bank's coffers. Antic.i.p.ating that an end to the boom was near, numerous shareholders were selling out and converting to coins. One of the first to sense the instability of the market was Law's close friend and possibly the only person to comprehend the precariousness of his policies: the Irish banker Richard Cantillon. Whether in currencies, shares, futures, wine, or art, Cantillon had an unerring eye for a good deal and a ruthlessness that prevented personal loyalty from standing in the way of profit.

Perhaps with the benefit of inside information gleaned over several good bottles of burgundy shared with Law, he was one of the few to antic.i.p.ate the sudden upturn in share prices and begin buying Mississippi stock at the low of 150 livres. By August, when the share price rose to over 2,000 livres, remembering what his brother in Arkansas had told him, Cantillon realized that the bull market was based on little more than smoke and mirrors and ever-increasing quant.i.ties of paper money. Feeling that a crash was both inevitable and imminent, he cashed in. His profit from these few weeks' exposure was reputed to be $80,000. He left Paris with his winnings and went on a tour of Italy to enjoy the sights and invest in art.

Cantillon was the first to turn his back on Law, but he was not alone. Several more major shareholders followed his example throughout the autumn, and by December the trickle had become a stream that seriously threatened the bank's reserves. Most investors converted banknotes from share sales into coins and either h.o.a.rded or exported them. The stock dealers Bourdon and La Richardiere did it quietly, changing notes for coin and jewels and dispatching them abroad. The most notorious seller was the Prince de Conti. Furious with Law for refusing him further handouts, Conti took some 4.5 million livres in notes to the bank and demanded coins. As in the bank's earliest days, Law had no alternative but to comply. Conti needed three wagons to carry away the coins.

By the end of 1720 some 500 million livres in silver and gold had been taken out of the country, and the trend showed no sign of diminis.h.i.+ng. Market vendors and merchants, aware of mounting unease, took paper with marked reluctance, often only at a discount, or spurned it altogether. In February, livestock sellers bringing their animals to market at Poissy refused to accept anything but gold and silver. Their customers, the butchers of Paris, were forced to hire a carriage to return to the city and collect the required coins.

Much of the money taken out by investors was dispatched to London, where the South Sea Company was now starting to gather its own momentum. It was one of several British chartered stock companies, and like the East India Company and the Bank of England, it had been granted a privilege in return for lending the government money. In 1711 the company lent $15.2 million to the government to pay off its floating debt and was granted a monopoly of trade with the South Seas and South America. Unlike Law's Mississippi Company, however, revenue was not expected from the profits of colonization. The vast income generated by the company, investors were told, would be made by an agreement with Spain that allowed the company's s.h.i.+ps free trade with ports in Peru, Chile, and Mexico. In reality the only rights the company held with Spain enabled them to supply slaves and allowed for one s.h.i.+p a year to trade with the region.

Those who wisely chose to ignore British South Sea stock looked for more tangible repositories for their wealth in France. Many, including the wily widow Chaumont, invested in property, and within a few months the vast pool of paper money available had multiplied the price of land three- or four-fold. Inflation in other areas had also escalated. The recently arrived British diplomat Daniel Pulteney found difficulty in making ends meet and had to ask for an increase in his allowance. "I am told that most things are considerably dearer than they were when Mr. Bladen [his predecessor] came here. I find it so in the instance of a berlin [a carriage]. He paid 34 pistoles a month for his and I cannot have one under 50; the prices of things seem to rise as fast as the clocks do." More serious than this was the fact that the cost of staples was rising similarly and causing the poor increasing hards.h.i.+p. In the two months between December and January alone, prices rose by 25 percent. The cost of some foods rose even more steeply; a loaf of bread costing one sou before the boom cost four or five times that by December, noted the diarist Buvat.

In a foreshadowing of the laissez-faire economic policies of Coolidge, Harding, and Hoover in the 1920s, Law had always held that markets should be allowed to develop freely, with a minimum of bureaucratic intervention. "Constraint is contrary to the principles upon which credit must be built," he had once written. In other words, bureaucratic restrictions only hinder public confidence in credit economies. Now the tune changed. "Despotic power, to which we are beholden for it [the system], will also sustain it," he decided. The time had come for intervention. Turning to strong-arm legislation, he moved swiftly and devastatingly.

To curtail the export of coins and to discourage h.o.a.rders, on January 28, a little over three weeks after a.s.suming his office, he pa.s.sed an edict banning the export of coins and bullion. But again the theory was flawed: faced with unpopular regulations, humankind tends to seek an escape route. Prevented from salting away coins in Amsterdam or England, the public looked for alternatives or defied the ruling altogether. The wiliest turned to diamonds and other jewels, which they hastily sent abroad. Others, more daringly, smuggled money over the border. Vermalet, a prosperous stock dealer, was said to have placed his stash of a million livres in coins in a farmer's cart and covered it with manure. Then he donned a peasant's smock and drove himself to Belgium, from where he sent his money on to Amsterdam.

Law retaliated even more dramatically than anyone expected. On February 4, the purchase and wearing of diamonds, pearls, and other precious gems, emblem of every Mississippi millionaire, were prohibited. But the ban did not succeed in halting the stampede away from paper. In place of diamonds, pearls, and rubies, investors turned instead to silver and gold: candelabra, tureens, dishes, plates, even furniture made from precious metal, were hunted out and bought for vastly inflated sums. Two weeks later this escape route was also blocked: a new law prohibited the production and sale of all gold or silver artifacts with the exception of religious paraphernalia. Within days the price of crosses and chalices soared.

The bloated share price and overexpanded money supply still awaited Law's remedial scalpel. He called an extraordinary meeting of shareholders. Some two hundred of the wealthiest Mississippi millionaires attended, clad, according to one account, in such finery that they completely outshone the regent, the Duc de Bourbon, and the Prince de Conti, who were also there. Law announced that the royal bank was being taken over by the Mississippi Company. This apparent formality-he already directed both inst.i.tutions-facilitated a further significant change. The royal holding of 100,000 Mississippi shares would be bought back by the company for 300 million livres-the entire sum recently raised from the sale of primes-with a guaranteed additional payment of 5 million livres a month over the next ten years.

Law justified this acquisition by arguing that reducing the number of shares on which he would have to pay a dividend would help the company's balance sheet and curb the money supply. But some wondered whether in attempting to stop the flood of departing investors Law was not quietly encouraging the Crown to follow suit. Having paid the equivalent of 9,000 livres a share into the royal coffers, Law closed down the company sales offices and withdrew official support of the share price.

This was bad news for investors. Within a week shares plunged 26 percent, from around 9,500 to 7,800 livres, a sudden downslide that mirrored the 1929 Wall Street crash, when between September 3 and mid-November shares halved in value. The public was incandescent with fury. "The rage of the people is so violent and so universal against Law that I think it is above twenty to one, that, in the course of one month, he will be pulled to pieces; or that his master will deliver him up to the rage of the people," Stair wrote gleefully.

Cornered between public distress and inexorably ebbing reserves, Law could see no alternative but to take even more despotic action. On February 27 he issued an edict that outlawed the possession of more than 500 livres' worth of silver or gold and stipulated that in future all payments of more than 100 livres were to be made in banknotes. All surplus gold was to be brought to the bank and exchanged for paper. Transgressors could expect to be severely punished, and informers were encouraged with the promise of generous rewards. The slightest suspicion that gold was being concealed illegally would be enough for any house, whether palace or hovel, to be searched. The dreaded methods of the Visa, which Law had once scorned, now returned at his instigation. Servants were tempted to turn on their employers, children on their parents. Seething distrust made the crowds who took their silver and gold to the bank feel relieved of a burden when they returned with paper.

Predictably, however, not all complied. The most notable transgressor was the horse-loving Duc de Bourbon, who, getting wind of the new regulation, exchanged a reported 25 million livres for coins just before it came into effect. He was summoned by the regent to explain why he had "destroyed in a moment what we have struggled to establish over several days." Both Bourbon and Conti, who had cashed in earlier, were ordered to comply with the recent measures immediately, and return the gold, or risk having their property searched by the authorities and the gold confiscated. When both refused, investigators, who had doubtless been bribed, made cursory searches of their chateaux and, predictably, discovered nothing.