Currency law

Money - Janet Gleeson on the dissolute Scotsman who gave us paper money

Money is but a shadow of what it once was. In an age in which a modest flat in central London costs a seven-figure sum, the word "millionaire" still has lustre, but it has become largely symbolic. How appropriate, then, that the financial wizard who first gave rise to this alluring term did so by using an innovation now even more pervasive than millionaires in Mayfair - and equally symbolic. Every time we buy or sell something, we do so with a piece of paper or a plastic card or metal coins of no intrinsic value. Few of us spare a thought that, in so doing, we are fulfilling the outlandish ideas of John Law, a swashbuckling Scot who lived three centuries ago.

I stumbled on John Law by accident. Leafing through the pages of a dictionary of biography, I came across his portrait; thin-faced, dreamy-eyed, he was sporting a luxuriant, double-bottomed wig and splendid velvet coat. Something in the wily yet wistful set of his mouth made me want to know more. I did not know it then but, like many others before me, I had fallen prey to John Law's magnetism.

I was flabbergasted by what I learnt. His history is peppered with deeds of derring-do, ill-advised romance and huge reversals of fortune. Yet his financial innovation and the events he sparked invest him with far greater significance than that of a merely entertaining playboy. Moreover, with present-day headlines screaming of new economies versus the old and imminent stock-market crises, Law's life seems extraordinarily pertinent. Here was the man who established the first western bank to issue paper money on a comprehensive scale. Here was the man who planted the notion that dealing, rather than doing, could make you rich. It was because of him that France experienced the Mississippi Bubble, the world's first great stock-market boom and bust (precursor to the South Sea Bubble). And thanks to him also that, during the heady year of 1719, so many in Paris grew so rich that the word "millionaire" was first minted to describe them.

The son of an Edinburgh goldsmith, Law was blessed with handsome looks and an uncommon flair for mathematics. When his father died and left him a decent income, Law drifted to London. Establishing himself as a young beau about town, he infiltrated fashionable London society, largely by virtue of his gambling prowess. His dissolute lifestyle had predictable consequences: Law soon exhausted his inheritance and, in desperation, turned to the study of probabilities, a new science of the time. But the caution now exercised at the card table did not extend to his romantic life. An unfortunate quarrel with a rival beau over his mistress led to a duel in Bloomsbury Square. Swords were brandished, Law killed his opponent, and he was condemned to death by hanging. But luck had not entirely deserted him. With the collusion of well-connected friends, Law engineered an escape from prison just before the sentence was due to be carried out. He fled to the Continent, where he travelled to key centres of tourism and finance such as Paris, Turin, Amsterdam and Venice. A decade later, he ran off with the wife of a Frenchman and grew rich. But as his wealth increased, so did his dissatisfaction. Like countless successful businessmen through history, when money was no longer a challenge, he began to crave serious political clout.

At the time, the primary form of currency was gold and silver coins. Yet the limited supply of precious metals was constraining economic progress. Realising that if some other form of money could be found, the frustrating limitations of gold and silver that were holding back economic growth could be overcome, Law made a formal proposal to Queen Anne. Not surprisingly, a convicted felon did not seem an appropriate candidate to trust with the nation's purse, and the Queen turned him down. Back in Europe, Law decided to try his luck in France, where the unbridled extravagance and military ambitions of the ageing Louis XIV had virtually bankrupted the most powerful and populous European kingdom. Here again, he met an impasse. Louis was reluctant to trust his finances to a non-Catholic, especially one with a shady past. But all was not lost. Among the Parisian haut-monde beguiled by Law was the Duc d'Orleans, Louis's nephew. When Louis died in 1715, Orleans became regent, and offered Law a chance to put his schemes into practice. Law was given the go-ahead to found the first bank in France issuing paper money backed by reserves of gold and fully redeemable on demand. Economic confidence in French currency was thus gently nurtured, and the bank prospered. But Law's political ambition was still not satisfied. He set in train an even more ambitious scheme aimed at capitalising on France's overseas colonies, founding a joint stock venture, the Mississippi Company, with rights to the profits from the Louisiana colony, a vast territory stretching over half America. At the time, the colony was little more than a swampy, hostile, disease- ridden tract, but Law painted it as a future Eldorado, with emerald rocks and mountains of gold and silver.

At first, the public was wary, but as Law's marketing ploys grew more persuasive, the share price took off. Paris was engulfed in Mississippi madness. Share prices that had languished at 490 livres were snapped up three months later at 3,500; by year end in 1719, they had risen to 10,000. Meanwhile, the printing presses at the mint, which Law also controlled, went into overdrive to provide enough banknotes to sustain the share price. As new millionaires were made in all walks of life, conspicuous consumption became the order of the day, and the dealing frenzy gathered pace. Aristocrats jostled with their servants to buy and sell, while Law, the financial wizard who had made them rich, became the most feted man in Europe.

The result is not hard to divine. By the autumn of 1720, rumours about the bank's inability to honour its notes, coupled with doubts about the colony's prosperity, had begun to unsettle investors. Law tried to stem the tide of those desperate to cash in, but there was nothing he could do. Within weeks, the share price had plummeted by 90 per cent. From international superstar, Law became a hated figure. He only narrowly escaped France with his life and lived the rest of his days in Venice, estranged from his family, a pathetic figure, existing on what he had been. History's recognition of his economic inventiveness had been eclipsed by the crumbling of his schemes. Three centuries on, the man who was once more powerful, rich and famous than Alan Greenspan, George Soros and David Beckham put together is a largely forgotten figure. Law would doubtless concur with the lines penned by one of his contemporaries, James Grainger: "What is fame? an empty bubble;/Gold? a transient, shining trouble."

Internet millionaires, please take note.

Janet Gleeson's The Moneymaker: the remarkable true story of John Law - philanderer, gambler, murderer . . . and the father of modern finance is published in paperback by Bantam Books(£6.99)

This article first appeared in the 13 November 2000 issue of the New Statesman, The New Statesman Essay - The fall of civic culture