Modern history



There appears nothing but new clothes, new figures and an infinite number of families raised to new fortunes. They see 800 new coaches set up in Paris, and the families enriched purchase new plate, new furniture, new clothes and new equipage, so that there is a most prodigious trade there.

Daniel Defoe,

September 12, 1719

THE PARLEMENT’S THREAT TO HANG HIM SHOOK LAW profoundly but did not alter his resolve to put his master plan, the so-called system, into action. He was still fired by the gambler’s will to win, a philanthropic desire to improve, and the urge to experiment. Also, he was still obsessed with the rejection of his appeal for a pardon for the death of Wilson, and craved redemption. But Law’s sense of isolation at the Palais Royal seems also to have awakened a more profound, barely acknowledged need for social acceptance and belonging. Law the opportunist, once happy to live outside the conventions of society and to make use of his haut monde connections for his own ends, now longed to be properly part of them. As with many successful businessmen today, he was consumed by political ambition. Perhaps Katherine had something to do with this shift in his thinking: the death threat and the rapid turns in political events must have disturbed her and underlined the vulnerability of their position. Perhaps behind Law’s increasing desire for public office lay not only his ambition but concern that the family’s future should be made more secure. It is possible, too, that Katherine felt she had an important role to play: as a doyenne of society, she could forge alliances that would help to stabilize Law’s political career. One fundamental belief, however, she could not change: in money, he was convinced, lay the key to salvation and the answer to his aims.

As France’s premier banker, he was ideally poised to become a man of repute. The following autumn, when Lady Mary Wortley Montagu was passing through Paris, she noted the change in his fortunes: “I must say I saw nothing in France that delighted me so much as to see an Englishman (at least a Briton) absolute at Paris. I mean Mr. Law, who treats their Dukes and Peers extremely de haut en bas and is treated by them with the utmost submission and respect.” Always an enthusiastic patron of the arts, Law sat for his portrait, probably with artist Alexis Simon Belle, at around this time. The painting shows a man in his mid-forties, of refinement, charm, and still youthful appearance, wearing a full-length brown periwig, embroidered velvet robe, and lace cravat—grand clothes befitting his already elevated status. His face is thin and rather angular, his mouth, though half-smiling, has an air of determination, and the expression is distant—the piercing gray-eyed gaze avoids the viewer, as if his mind is elsewhere, perhaps with his system’s next phase: his bank’s takeover by the state. The bank’s assets now included over 9 million livres in coins and 1.6 million in bills of exchange. Against these were fewer than 40 million livres in outstanding notes. Law had remembered the warnings of Saint-Simon and the lessons of the Bank of Amsterdam and had restricted the issue of notes.

In December 1718, the Banque Générale became the Banque Royale, the equivalent of a nationalized industry today. Law continued to direct it, and under his leadership over the next months, the finances of France leaned more heavily on it. New branches opened in Lyon, La Rochelle, Tours, Orléans, and Amiens. To ensure that everyone made use of paper money, any transactions of more than 600 livres were ordered to be made in paper notes or gold. Since gold was in short supply, this obliged nearly everyone to use paper for all major transactions. Meanwhile, for the leap of confidence they had shown in purchasing shares in the bank in its early uncertain days, and perhaps to buy his way into their world, Law rewarded investors lavishly. Shares that they had partly bought with devalued government bonds were paid out in coin. Both he and the regent had been major shareholders and were among those who profited greatly from the bank’s takeover.

Few recognized the dangers signaled by the bank’s new royal status. Hitherto Law had kept careful control of the numbers of notes issued. There had always been coin reserves of around 25 percent against circulating paper notes. Now, with royal ownership and no shareholders to ask awkward questions, the bank became less controllable. The issuing and quantity of printed notes and the size of reserves would be decided by the regent and his advisers. The temptation to print too much paper money too quickly would thus be virtually unchecked.

Within five months of its royal takeover, the writer Buvat had noted in his journal, with more than a touch of irony, that eight printers, each of whom earned only 500 livres a year, were employed around the clock printing 100-, 50- and 10- livre notes. A further ominous change followed: notes were no longer redeemable by value at date of issue but according to the face value, which would change along with coins if the currency was devalued: the principle that underpinned public confidence in paper had been discarded and one of Law’s most basic tenets breached. But as the eminent eighteenth-century economist Sir James Steuart later incredulously remarked, “no-body seemed dissatisfied: the nation was rather pleased; so familiar were the variations of the coin in those days, that nobody ever considered anything with regard to coin or money, but its denomination . . . this appears wonderful; and yet it is a fact.”

If Law was unhappy he gave no sign of it. Apparently he was busy reinvesting profits from his bank shares. He began to build a vast property portfolio, buying the Duchy of Mercoeur from the Dowager Princess of Condé for the sum of 100,000 livres and the Hôtel de Soissons from the Prince of Carignan for 750,000 livres. The Hôtel became the headquarters of the Mississippi Company, but the beautiful gardens were retained by the shrewd prince, who later profited by letting them as a marketplace for share dealing.

At around this time, Law was joined in Paris by his brother William, who was four years his junior, had trained in Edinburgh as a goldsmith, and was, Law believed, one of his most trusted allies. William was a founding director of the Banque Générale and had worked for some time as Law’s agent in London. Among his friends was George Middleton, one of London’s leading bankers, whose services the Laws used to undertake their investments in diamonds, Scottish property, and South Sea and East India stock. Shortly before settling in France, William married Rebecca Dives, the strikingly beautiful daughter of a London coal merchant. In Paris the couple took up residence in a suitably imposing mansion, employed a retinue of liveried servants, acquired several carriages, and thanks to Law and Katherine’s influence, were introduced to court circles.

Meanwhile, Law was casting his net ever wider. He was anxious to encourage local industry, having always seen it as fundamental to national prosperity. An agent in England was employed under his brother’s direction to find clock- and watchmakers, weavers, metalworkers, and other specialist craftsmen and tempt them with various financial enticements to move to France. According to Buvat, around nine hundred workers settled at Versailles, where they were given lodgings in a converted stable block belonging to the Duchesse de Berry, the regent’s daughter, and in the nearby Parc aux Cerfs. Each received a salary of thirty livres per month plus thirty sous a day for food. It was a move few immigrants can have regretted: a huge demand for luxury goods was one of the immediate effects of the incredible economic boom France was about to experience.

Chiefly, though, the price of Mississippi shares, which was still struggling disappointingly below par, engrossed Law. The way to turn the ailing Mississippi Company into Europe’s most successful conglomerate and to return France to a state of prosperity, Law concluded, was to monopolize French trade and state finances. This audacious idea was, in a sense, the lesson of youth reapplied: as a young man he had learned that the way to win was to ensure that the odds of winning were always in his favor. Now the same principle was utilized in corporate enterprise. Law was dealing his company an unbeatable hand.

The first acquisitions targeted overseas trade: the right to tobacco farming in the colonies, to slaves and other lucrative products in Senegal. Tobacco smoking had yet to become entrenched in polite circles, but snuff was the height of fashion—the Princess Palatine tartly criticized ladies for “arriving here with their noses dirty as if they had rubbed them in mud,” although a year later she remarked perceptively, “They call it the magic plant, because those who begin to use it can no longer give it up.” The profits from such a monopoly, as many investors quickly realized, were therefore likely only to grow.

Then came the most crucial coup so far: the acquisition of trade to the East Indies. Law had noted that the French East India and China Company had been badly managed and was making huge losses. He contended that if it was merged with the Mississippi Company it would form an enterprise with global trading rights from which each company would benefit. The idea was grandiose, daring, risky, but he made it sound plausible. The acquisitions would be paid for by a second issue of 50,000 shares, nicknamed filles, daughters (the first issue was known as mères, mothers), priced at 500 livres each (with a nominal value of 500 livres). Unlike the mères issue, which investors had bought with state bonds, the filles would be paid for in cash. This, Law explained, was because the first move he would make to revive French overseas trade would be to invest in two dozen ships of five hundred tons each and the capital from the shares would be necessary to finance them.

The establishment sneered. As usual d’Argenson, who—according to Law—was “jealous of the credit that I had acquired with His Royal Highness and the public by the direction of the bank and the Western company,” was a vociferous opponent, claiming that the plan was doomed and casting doubt on public willingness to invest, given that the first issue of shares was still trading below par. Egged on by d’Argenson, even the regent was anxious about the scheme’s viability and stalled Law’s request for royal sanction. Realizing that the doubters would be silenced only if he demonstrated, irrefutably, that the idea was fail-safe, Law conferred with several key friends and potential investors. They agreed on easy terms of payment for the new issue of shares: ten monthly installments (later made even more tempting by being increased to twenty). Ships would be slow to prepare and fit, Law said, so the company would not need its full working capital immediately. With this incentive dangling before them, five supporters were keen enough to pledge to buy a million livres’ worth of shares each. Law’s gambling instincts now surfaced: he guaranteed to put up 2.5 million livres as a first down payment on the par price. This effectively obliged him to buy over 90 percent of the entire issue and invest a total of 25 million livres. To the regent, self-assurance on such a scale was irresistible: on Sunday, May 23, he overruled d’Argenson’s misgivings and authorized the deal. The new enterprise was named the Company of the Indies, although most still used the old sobriquet, Mississippi Company.

Beneath his surface bravado, Law fretted over the wisdom of his move: “On Monday night I did not sleep; I had gained a great confidence with the public and I feared losing it by the action that I had taken,” he later owned. In fact, his gamble paid off. In the goldfish-bowl society in which he moved, underwriting an issue on such a scale could scarcely fail to attract attention. Everyone assumed that to do so Law, with his inside knowledge, had to have been certain of success. The growing profits of his acquisitions, particularly of the tobacco monopoly and the distant Louisiana colony, seemed assured. The shrewdest began to follow suit.

Rapidly, amid a flurry of rumor, the herd instinct took hold. The price of the old shares broke through their par price and rose to 600 livres, and subscriptions for the new issue streamed in. By mid-June shares were changing hands at 650 livres, and 50 million paper notes poured off the bank’s presses to enable people to purchase the next issue of shares, which would be offered at the end of the month. Slowly, the skeptical French public, who had burned their fingers with state bonds, were learning that paper investments could rise as well as fall in value. Law was about to compound the lesson with maneuvers that laid bare his grasp of consumer psychology: the elementary concept that reducing supply increases demand.

New issue restrictions were imposed: in order to buy one new share investors had to own four old ones. Thus, those who had bought the original issue enjoyed the pleasure of watching the value of their investment rise as, over the summer of 1719, France savored her first taste of a bull market. By the time the second installment was due on the new issue, the share price had doubled to 1,000 livres. Meanwhile, Law gilded the lily still further by stating that the company would pay a generous 12 percent dividend of 60 livres in the following year. As the bank printed more notes and issued more loans to allow greater numbers of people to buy and deal in shares, prices continued to rise.

Law’s summer spending spree was still incomplete. At the end of July 1719 he bought the rights to the Royal Mint for 50 million livres. To cover the cost, a third issue of 50,000 shares was offered. These were nicknamed petites filles, granddaughters, and as before were linked to earlier issues. To buy one granddaughter you had to own four mothers and a daughter.

Outside the Mississippi Company office, throughout the summer of 1719, Paris was rapidly engulfed in unprecedented speculation madness. By mid-August the shares that three months earlier had languished at 490 livres were being snapped up at 3,500. A carnival atmosphere descended on the city, and on the evening before St. Louis Day, August 25, thousands gathered in the Jardin des Tuileries to enjoy a firework and musical extravaganza. At the end of the evening the fashionable crowd funneled toward an exit at one end of the gardens but found their way partially barred because a steward had forgotten to open one of the gates. Impatience became a surge of panic when word spread that pickpockets were capitalizing on the wealthy captive audience. A dozen or so thieves were later arrested, pockets crammed with gold and silver snuff boxes, watches, diamond crosses, embroidered shawls, handkerchiefs, lace headdresses, pieces of men’s waistcoats, and panels of expensive ladies’ coats that had been subtly cut from their backs. Amid the pandemonium, eleven women fell and were suffocated or trampled to death. Hundreds more suffered broken limbs, heat exhaustion, the aftereffects of crushing. Paris mourned.

News of the disaster reached the rest of Europe along with reports of Law’s most daring maneuver. He had offered to take over the burden that had weighed so heavily on the nation since Louis’s final failing years, and lend the state enough to repay the national debt—1.2 billion livres at an interest rate of 3 percent. The proposal was intertwined with a highly contentious pledge to pay 52 million livres for the right to take over tax collection. At the time France leased this right to private enterprise in the shape of the General Receivers, who were responsible for direct taxation, and to the Farmers General, a syndicate of forty private financiers, who were responsible for collecting indirect taxes, such as customs duties and levies on salt and alcohol. The Farmers General were also the largest creditors of the state and profiteers from government indebtedness. The owner of a so-called tax farm lease had to estimate the sum of revenue he would raise and advance it to the state. If the revenue was below this amount, he himself was obliged to pay the state, while any revenue above it he could keep. In fact, research has recently shown that the forty financiers were not actually rich enough to advance the whole sum to be collected. They acted as “names,” or front men, for numerous anonymous investors and courtiers. It was a system that lay open to huge profits, corruption, and inefficiency, and one that was dominated by the Pâris brothers, the four most powerful financiers of France. Law’s fascination for finance had always been entwined with concern for moral economic issues. He saw injustice in the huge advantages the tax system gave to an established elite. Now he grasped the chance to eliminate them, little realizing how fiercely they would respond.

The massive sum needed to cover the government loan would be raised by a further issue of Mississippi shares. Existing bondholders would be given a choice of converting into shares or company annuities, which offered a return of 3 percent—at least 1 percent less than they currently received. The intention was to make shares a far more attractive proposition than annuities. The scheme was by far the most grandiose yet: Law was aiming to raise seventeen times more than the sum of all the previous issues, and again he made it sound entirely plausible.

Thus on September 13 a fourth issue of 100,000 shares, known as cinq-cents, was launched, priced at 5,000 livres with a nominal value of 500. As before, the issue was consumed hungrily by the Mississippi-mad public. Two more identical issues followed, then a final one of 24,000. Unlike earlier subscriptions, there were no restrictions on purchase—you did not need to own shares already; anyone might grow rich by buying into the Mississippi dream. The Earl of Stair noted, “The public had run upon this new subscription with that fury, that near the double of that sum is subscribed for: and there have been the greatest brigues [intrigues] and quarrels to have place in the subscription, to that degree that the new submissions are not yet delivered out, nor is the first payment received. Mr. Law’s door is shut, and all the people of quality in France are on foot, in hundreds, before his door in the Place Vendôme.” Scenes like this call to mind descriptions of the glamorous Anthony Morse—a stock dealer who in the midst of the nineteenth-century American stock boom acquired shares 5 or 10 million at a time and was frequently besieged by crowds of lesser speculators desperate for an investment tip.

Canny and ambitious though the scheme undoubtedly was, Law seems to have naïvely ignored the effect of his plans on the tax farmers and financiers, and the court nobility who backed them. The double blow—denying their lucrative tax profits and significantly reducing their income from their government bonds—was bound to spark an angry response and make them determined to undermine his reforms. Law disregarded the danger at his peril.

The shares were traded in the company’s new offices in Paris’s ancient commercial heartland, the rue Quincampoix, a street that today crouches under the shadow of the Centre Pompidou, in the Les Halles district. The rue Quincampoix is a long, thin thoroughfare, terminating at the rue aux Ours to the north and the rue Aubry le Boucher to the south. The road had long been a center for money changers, businessmen raising capital to start new ventures, and, during the reign of Louis XIV, traders in the unpopular billets. Its tongue-twisting name comes from one of its twelfth-century money-dealing residents, Nicolas de Kiquenpoit.

In volatile markets news is an essential tool that helps traders anticipate where prices might move next. Today’s brokers have at their disposal data vendors such as Reuters and Bloomberg offering a mass of up-to-date analysis, research, prices, and charts. The eighteenth-century equivalent was gossip. News of the colonies, government policy, and Law’s next move was endlessly anticipated and assessed in the rue Quincampoix. So many gravitated here to talk and trade that the surrounding streets were paralyzed by horses and carriages. D’Argenson, the finance minister, whose official residence was also in the street, was infuriated when one day in November he spent more than an hour stuck in a traffic jam. Eventually carriages were banned, gates erected to control the crowds, and guards posted to prevent night dealings, which disturbed residents. In another futile attempt to restore some semblance of order, one entrance was reserved for speculators of quality, the other for everyone else.

At the sound of a morning bell, the gates opened and convention vanished. Aristocrats jostled with their footmen and maids; bishops and priests vied with courtesans, opera singers, and actresses; magistrates did business with pickpockets; Italians, Dutch, and English mingled with the French. Daniel Defoe described the extraordinary scenes: “Nothing can be more diverting than to see the hurry and clutter of the stock-jobbers in Quincampoix street; a place so scandalously dirty, as if it had been not the sink of the city only, but of the whole kingdom. . . . The inconvenience of the darkest and nastiest street in Paris does not prevent the crowds of people of all qualities . . . coming to buy and sell their stocks in the open place; where, without distinction, they go up to the ankles in dirt, every step they take.” Even the nine-year-old King Louis XV was caught up in the frenzied mood. When a plan of Paris was laid before him, he was said to have demanded that Quincampoix be highlighted in gilding.

The Parisian elite was startled by the extraordinary number of people from the lower orders who prospered spectacularly from Mississippi speculation. Money was easy to borrow, and since you only needed put down a 10 percent deposit to play the market, people from all walks of life rushed to sell their châteaux, their diamonds, their cows, and their crops to join in. The privileged greeted the new social mobility with diffidence, worried that the hierarchy that for centuries had underpinned their superior status had vanished along with financial gloom. Even Voltaire was bemused. Writing to the Parlement councilor Nicolas de Genonville he commented:

It is good to come to the country when Plutus is turning all heads in the city. Have you really all gone mad in Paris? I only hear talk of millions. They say that everyone who was comfortably off is now in misery and everyone who was impoverished revels in opulence. Is this reality? Is this a chimera? Has half the nation found the philosopher’s stone in the paper mills? Is Law a god, a rogue or a charlatan who is poisoning himself with the drug he is distributing to everyone?

Journals and memoirs of the time recount scores of tales of Mississippians propelled from poverty to wealth overnight. As with today’s lottery winners, writers of the rags-to-riches stories reveled in the difficulties of those who found the transition hard to make, often ridiculing them for daring to aspire to luxurious living. There are tales of a footman who earned so much that he was able to buy himself a fine carriage, but when it was delivered forgot his changed circumstances and found himself taking up his old position at the rear. A baker’s son from Toulouse was said to have bought an entire shop full of silver plate for 400,000 livres, and sent it home to his wife with orders to invite the local gentry for dinner and use the silver. The woman was unused to such luxurious objects but did as instructed. When her guests arrived they collapsed in mirth to see soup served in a church offertory basin, the sugar dispensed from an incense burner, and the salt from chalices.

Of the fabled Mississippi investors who came from modest backgrounds the most spectacular success was that of the widow Chaumont from Namur, who came to Paris to collect a debt, which was paid to her in billets d’états. She invested them in Mississippi stock and swiftly made several million livres. She spent part of the proceeds buying the Château d’Ivry, and every week held legendary banquets where guests consumed “an oxen, two calves, six sheep and numerous fowls.”

Law’s own coachman was said to have made such profits that he tendered his resignation, having employed two drivers, one for himself and one for Law—he offered his ex-employer first choice. Another much-recorded incident relates the story of an exquisitely dressed woman who was observed descending from an immaculate carriage. When the aristocratic spectators asked who she was they were told “a woman who has tumbled from a garret into a carriage.”

Many of the servants who grew wealthy did so when their employers commissioned them to sell on their behalf at a certain sum. Often they arrived at the rue Quincampoix to find the price far higher than expected, in which case they could pocket the difference and use it as capital to trade. One of the many diarists of the time tells of a gentleman who sent his servant with 250 shares and instructions to sell at 8,000 livres. The servant sold them for 10,000, making a profit of half a million livres in a morning, then reinvested and a few days later found himself worth 2 million.

By October the share price was 6,500 livres. The rise was not, however, without vacillation. In the tumult of rue Quincampoix, traders operated independently and unregulated; prices at one end of the street varied dramatically from those at the other, and fortunes made in one hour could be reversed during the next. The Princess Palatine, the regent’s mother, recalled wryly that when the royal physician, Monsieur Chirac, heard that his stock had fallen dramatically he muttered, while taking a patient’s pulse, “Good Lord, it’s going down, it’s going down.” Fearing she was about to die, the lady began to sob. Chirac hastily consoled her: “Your pulse is splendid and you are quite well. I was thinking of the Mississippi shares on which I am losing because they are going down.”

Along with the share-trading frenzy came an orgy of property speculation. Houses in the rue Quincampoix were bought or let by the shrewdest businessmen “foreseeing from the commencement that the ground of the street would rise in value to such an extent, that ten square feet might bring in the income of a lordly estate.” Property previously let at up to 800 livres per annum could be divided into twenty or thirty tiny offices and each sublet at up to 400 livres a month, a sum equivalent to an average craftsman’s annual salary.

Lean-to shacks were erected in alleyways and on rooftops and rented out for vast sums. As the throng continued to swell, local innkeepers, confectioners, and chefs charged huge prices for their services. Cafés opened nearby where aristocratic ladies and gentlemen could sip their tasse of coffee or chocolate and play quadrille while their brokers made them rich. All usual constraints of value were lost: a single chicken was said to change hands for 200 livres, and in one of the most bizarre and often repeated legends of the time, a hunchback was said to have earned 150,000 livres in a few days by leaning against a mulberry tree and renting out his hump as a writing desk on which to sign contracts.

A golden key, so the saying goes, opens any door, and many craved social acceptance along with their newfound wealth. Saint-Simon recorded the desperate lengths to which some would go to improve their status. The wealthy Mississippian d’André, who “had made mounds of gold,” used some of it to betroth his three-year-old daughter to the thirty-three-year-old Marquis d’Oyse, paying 600,000 livres and undertaking to make further annual payments of 20,000 livres until the child reached twelve, when an enormous estate would be made over as a final payment and the wedding would take place. The deal so amazed the haut monde that the lawyer Marais wrote in his diary, “The babies of Mississippians now cry for marquis instead of dolls.” D’André was one of many who subsequently lost his fortune, and the contract ended in an acrimonious lawsuit that was still dragging on fifteen years later.

Predictably Mississippians were drawn to unbridled luxury: a fine carriage trimmed with crimson velvet and gold fringing became the badge of success in the same way that a Rolls-Royce, Mercedes, or Ferrari broadcasts prosperity today. The age-old symbols of wealth—jewels, expensive clothing, gold, silver, property, and prestigious furnishing—were avidly sought. A window into this world of unabashed materialism is revealed in the paintings of Watteau, in which flamboyant figures in shimmering pastel silks pose in stagey fêtes champêtres or, as in the famous painting L’Enseigne de Gersaint, shop for works of art. The diplomat Daniel Pulteney gasped at the excess: “It is certain that the commerce of people here increases every day and that all manner of luxury does too; the Hollanders have drawn several millions from hence for jewels, lace and linen; I was told yesterday that one shop had sold in less than three weeks lace and linen for 800 thousand livres and this chiefly to people who never wore any lace before.” Defoe was similarly staggered by Parisian consumer frenzy: “Money,” he said, “flows like the waters of the Seine.”

Goldsmiths and silversmiths, whose business had languished in the wake of Louis XIV’s financial crisis, now found themselves inundated with orders. Within three months, 120,000 silver plates and matching dishes to a total value of more than $11 million had been cast, chased, engraved, and sold. The weavers at tapestry workshops in the Gobelins, in the provincial town of Aubusson, and in the Savonnerie carpet factory were deluged with commissions. Porcelain, another eye-catching, luxurious status symbol, was imported in vast quantity to fill the tabletops, cabinets, and walls of the elegant salons of the newly rich. The ateliers of furniture makers such as Charles Cressent and the Boulle brothers, sons of the great Charles André, pandered to the burgeoning craving for articles of unrivaled ostentation and intricacy. Showpiece commodes, bureaux plats, and cabinets were expensively veneered in exotic tropical timbers such as amaranth, kingwood, and satinwood—imported in Mississippi Company vessels—and further embellished with gilded nymphs and goddesses writhing among lush foliage. Such objects embodied prestige, bounty, status—the universal message of wealth both old and new. Summing up the prevailing mood, the regent’s doughty mother wrote, with a note of apprehension, “It is inconceivable what immense wealth there is in France now. Everybody speaks in millions. I don’t understand it at all, but I see clearly that the god Mammon reigns an absolute monarch in Paris.”

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