The True Tale of a Gambler’s Knack for Finance

In his play “St. Joan,” George Bernard Shaw poses the question: “Must then a Christ perish in torment in every age to save those that have no imagination?” One is tempted nowadays to echo the question on a much less exalted plane: Must there be a catastrophic stock market collapse in each generation for the edification of those who have no imagination or knowledge of history?

The London-based writer Janet Gleeson, whose last book, “The Arcanum,” told the colorful story of the first European porcelain makers, now turns her knack for sound research, lucid exposition and lively storytelling to the enterprising Scotsman who might well be called the father of modern finance. A contemporary of the English novelist Daniel Defoe and the French memoirist Saint-Simon, John Law (1671-1729) almost single-handedly raised France from the depths of financial devastation to the pinnacle of prosperity, only to plunge it back into chaos.

The son of an Edinburgh goldsmith, Law was an uncommonly prepossessing man with a flair for mathematics. Tall, good-looking and well-mannered, he was just the sort to fit into fashionable London society, which, in those days was largely devoted to gambling. Having been foolish enough to gamble away his inheritance before his 21st birthday, Law decided to adopt a more scientific approach. His new method, based on calculating probabilities, soon made his fortune.

Law’s life took a turn for the worse when he killed a man in a duel and was sent to prison. When his appeals for clemency failed, he escaped to the Continent, visiting Amsterdam, Venice and other cities where money could be made at the gaming tables. These were also key financial centers. In Amsterdam, particularly, Gleeson suggests, Law had the opportunity to observe how a reliable bank could foster stability.

In those days, coins were still the primary currencies. Shortages of gold and silver depleted royal treasuries. Coins were often debased as unscrupulous persons filed off their edges. But some countries, like Holland, had banks which “took deposits in local and foreign coinage, weighed and assessed them for their purity, and in return issued credit notes . . . representing the intrinsic value of the metal content of the coins rather than their face value. . . . Since the value of the notes was assured, the public [came to] prefer them to . . . coins . . .”

Law gravitated to Paris in the closing years of the reign of Louis XIV, whose religious intolerance, personal extravagance and penchant for expensive wars had well-nigh emptied the royal coffers. In contrast with England and Holland, where stocks, bonds and banking flourished, France was financially conservative, a veritable backwater.

Law became friendly with the forward-looking Duc d’Orleans, who in 1715 became regent after the death of the king, whose great-grandson, the future Louis XV, was still too young to assume the reigns of government. Orleans supported Law’s plans to establish a bank and, later, a joint stock company that would offer shareholders an opportunity to invest in France’s thus-far unprofitable Louisiana Territory.

Law’s schemes succeeded brilliantly at first. But the joint stock venture, known as the Mississippi Company, proved his undoing and the undoing of countless investors. A period of dizzying rises in share prices made millionaires of people from many walks of life. But when the bubble burst, there was hell to pay, and Law barely escaped with his life.

Indeed, despite the book’s racy subtitle, Law, as Gleeson portrays him, was essentially well-intentioned, hardly a scoundrel. A charmer who ran off with another man’s wife, he seems to have been a devoted husband and a good father to their two children. His reforms as France’s controller lifted the heavy burden of taxes on wood, coal, hay, oats, bread and soap that made life hard for the poor, and shifted them onto the rich in the form of an income tax.

Although he loved to gamble and win, he also seems to have believed his schemes would spread prosperity, which they did--for a while. As Gleeson concludes, there is a lesson to be learned: Speculation feeds more speculation. Financial markets, like most other aspects of human nature, are inherently fickle. Or, as Ralph Waldo Emerson put it, “Nothing is got for nothing.”