Modern history



Lundi j’achetai des actions;

Mardi je gagnai des millions;

Mercredi j’arrangeai mon ménage;

Jeudi je pris un équipage;

Vendredi je m’en fus au bal;

Et samedi à l’Hôpital.

My shares which on Monday I bought

Were worth millions on Tuesday, I thought.

So on Wednesday I chose my abode;

In my carriage on Thursday I rode;

To the ballroom on Friday I went;

To the workhouse next day I was sent.

LARGELY THROUGH DRAWING ON THE OLD GAMBLING strategies—masking emotion, following a set plan—Law overcame his dread and resisted the challenge. His victory was typically audacious. The morning after his dismissal from office, with a contingent of guards camped outside his door and sundry investigators nosing through his private papers at the bank, he had sent word via Lord Peterborough requesting an urgent audience with the regent. The response was swift: the Duc de la Force had been sent to escort him to the Palais Royal, where he was left to wait in a small gallery. Eventually, after several hours, an equerry informed him that the regent was unable to see him. Law returned to his house, aware that the public humiliation had been intentional—and that his critics were exultant.

Yet the regent, despite appearances to the contrary, had not forsaken him. Public unrest had allowed Law’s enemies—most notably d’Argenson, whom Law had so spectacularly trounced on numerous occasions, and the Pâris brothers, deprived by Law of their lucrative tax farms—to pressure him to abandon Law and his system. Only three years of his regency remained to Orléans before Louis XV came of age, and the Parlement was whispering that they might try to oust him sooner. Fearful for his own survival, he had decided to play them along, to give them rope and watch them become ensnared in it. His rejection of Law, even though Law failed to realize it, was part of the charade. He had invested too much in his protégé’s ideas to abandon them without a fight. Only if all else failed would Orléans sacrifice Law.

For Law a resurgence of hope, and an inkling of the regent’s underlying regard for him, came late that night when he was summoned clandestinely to the Palais Royal where Orléans greeted him warmly, according to Law with “mille amitiés,” and listened approvingly to a torrent of ideas for resolving the problems of the bank and company.

The next day, the guards were withdrawn, and Law’s allies felt bold enough to champion him as “the only man capable of getting them out of the maze they were in.” Law, under secret instruction to return to duty, worked continuously for the next forty-eight hours, returning to his original idea of maintaining credit but placing it under firm control. At a council meeting two days later, much to the astonishment of those assembled, Law entered as if the drama of the past days had never happened. His strategy, he announced, was ready.

Law’s adversaries were flabbergasted. Somehow he had evaded confinement, emerged from disgrace, and, moreover, the regent airily informed them, was about to return to high office—as intendant général du commerce and managing director of the bank and the Mississippi Company. The Duc d’Antin testified to the general astonishment of such a turnaround: his diary entry for June 2 reads, “We saw this day a rare thing: a minister deposed for several days, who had been placed under arrest by a major of the Swiss Guards, returned on Sunday to council to propose a policy and to be approved by the entire assembly.”

But return to royal favor, though welcome, did not mean that Law’s worries were over. Loyalties ebbed and flowed daily amid shifting tides of political ascendancy. Bourbon, Conti, and de la Force, aware of how much they had gained, fearful of how much they could lose, usually rallied round him, but their support vacillated according to their appraisal of the current political situation. No one wanted to be associated with failure and thus jeopardize his own position.

Law’s return to grace was bad news for his enemies. D’Argenson, who had done most to undermine the regent’s trust in Law, and whom one critic famously described as having “a soul as black as his peruke,” was dismissed as keeper of the seals and sent into retirement. The Pâris brothers were banished to the provinces. But the changes in Law’s favor were limited: the Parlement was still hostile, and most of his critics in the council retained their posts.

Meanwhile, within the grandiose offices of the bank, an investigation into the accounts was drawing to a close amid murmurings that it was no more than a token gesture, intended to endorse the regent’s support of Law. “It is thought he [the regent] will influence the commissaries a point to take Mr. Law’s accounts to make a report in his favour,” Pulteney observed perceptively. A week later, when the commissioners reported that they had found no evidence of irregularities, few believed them. Their skepticism was later justified: the inquiry had discovered that large unauthorized issues of notes had been circulated but to save the regent embarrassment the matter was glossed over.

Elsewhere in Europe the speculative boom was still gathering pace. By the summer of 1720, in the fetid passages of London’s Exchange Alley, the skin on the South Sea bubble was perilously overstretched. Shares that in January had traded for £130 were changing hands for £1050 at the end of June. As in France, every echelon of society—country parsons, impoverished widows, kings, princes, courtesans, yeoman farmers, eminent scientists, philosophers, writers, artists—caught the contagion, and with loans easily available, they joined the multitude, though few fully comprehended its shady complexities. Even Isaac Newton blindly took part and when asked for advice on the subject is said to have responded that while he could calculate the motions of the heavenly bodies, he could not do the same for the madness of the people. “Our South Sea Equipages increase every day,” wrote Daniel Defoe in early August. “The city ladies buy South Sea jewels, hire South Sea maids, and take new country South Sea houses; the gentlemen set up South Sea coaches, and buy South Sea estates.” The boom in London’s other bubble companies continued equally frenziedly. “The hurry of our stock-jobbing bubblers has been so great this week that it has exceeded all that was ever known. There has been nothing but running about from one coffee-house to another and from one tavern to another, to subscribe without examining what the proposals were. The general cry has been, ‘For God’s sake, let us subscribe to something, we don’t care what it is,’” reported the London Journal on June 11, 1720. Mainland Europe was similarly sucked into the craving for effortless fortune. The stock markets of Amsterdam and Hamburg boomed as never before. Dealers jostled for Dutch West India stock, which by midsummer had doubled in price since the beginning of the year; Dutch East India was similarly coveted and rose from £800 to £1000; prices of insurance shares in at least half a dozen Dutch cities also rose.

In Paris, the story was very different. Law returned to the bank’s offices in early June to find himself confronted by the pitiful sight of hordes congregating outside in the sweltering summer heat in the hope of exchanging their banknotes for coins. Such visible evidence of vanished confidence—a run on the bank—represented, and represents still, every banker’s worst fear. Law had always been a man of high ideals. The desire to do good, to bring happiness and prosperity, had, he always claimed, spurred him more than the desire for personal wealth or status. Now, witnessing people’s suffering, he must have been stung more profoundly than by any criticisms from his peers. He had to find an answer.

Only about 2 percent of the money now in circulation was in silver and gold. To eke out the dwindling supply as fairly as possible and to ensure that the neediest had access to coin, he decided on a system of rationing. From early June, only a single 10-livre note per person could be exchanged, and the bank opened twice a week for the conversion of 100-livre notes into smaller denominations. Financial stability could return, he decided, if the numbers of shares and banknotes were reduced and the value of coins was boosted. Immersed in redressing this balance, Law failed to spot his enemies’ quiet resolution that he was to be tolerated but manipulated. Once enough paper was withdrawn and the system was sufficiently weakened, they would step in. Law was hammering nails into his own scaffold.

The withdrawal of banknotes and shares from circulation began with more than a touch of melodrama, with vast public bonfires witnessed by thousands of astonished onlookers. The first burning of 100,000 shares owned by the Crown and 300,000 belonging to the company took place outside the Hôtel de Ville. In the following weeks thousands of livres’ worth of notes and shares were crammed into iron cages and similarly ignited, as an array of ingenious schemes, each aimed at pruning the paper system and partially restoring the metallic one, was set in train. The regent’s mother shook her head over the irony of it all: while no one in France had a sou, she quipped, they had toilet paper in plenty.

But confidence once lost is hard to regain, and burning vast quantities of money and shares was not the way to restore it. Every smoldering bonfire further sapped the credibility of paper, and the press for coins grew more insistent. The poor could only scour the street for coins, or barter to feed themselves. The most basic necessities of life were affected by the crisis. Coins had to be specially dispatched to the bakers of Gonesse, who supplied Paris with bread, so that they could buy wheat: corn merchants refused any form of payment in paper.

While the poor scavenged, the privileged inhabitants of the grand hôtels and palais danced on. Cocooned by credit, which no supplier dared deny them, they reveled in ever more conspicuous excess, as if by an orgy of spending they could hold the menace at bay. Just as during the 1930s depression the Waldorf Astoria was fully booked, in 1720 ten times more was spent at the opera than in the previous year; theatrical productions were more lavish than ever; people dressed with ever more extravagant ostentation and gorged themselves at banquets with scores of exotic courses. “There is still a great deal of money in France,” wrote the Princess Palatine in August 1720. “They are very fond of luxury, which has never been indulged in to such an extent as it is at present.”

For foreign investors who held French banknotes the situation was particularly dire. Their losses were amplified when the French exchange rate plummeted even more dramatically than the share price. A pound sterling, worth 39 livres in May, was fetching 92 livres by September, and was unquoted for the next three months. One expatriate who managed to profit from the falling value of French currency was Law’s friend and sometime business partner Richard Cantillon, who had returned to Paris in search of further investment opportunities. With a foresight that sets him apart from every other financial pundit of the day, he anticipated the downward slide in French currency and by various currency dealings—advancing loans in one currency while taking deposits in another, fixing French currency loans in sterling, then waiting for the livre’s value to fall—made a second fortune. The size of some of these deals, sufficient further to depress the livre and worsen the shortage of coins, inevitably drew Law’s attention. Legend has it that he paid a visit to Cantillon’s office and presented him with a curt ultimatum: “If we were in England we would be able to talk and reach an agreement, but in France, as you know, I can tell you that you will be in the Bastille this evening if you do not give me your word to leave the country in forty-eight hours.” Cantillon, who understood the importance of quitting while ahead, left Paris for London, where he turned his attention to South Sea shares—and a similarly spectacular fortune.

At the bank, the bonfires and rationings had done nothing to improve matters. Coin supplies could not keep pace even after the restrictions were imposed. Reserves ran so low that vast quantities of copper coins were minted, but there was still a hopeless insufficiency. Bank openings became briefer and more sporadic, and the queues continued to grow. When the doors did open, the competition to get to the front of the line was frenzied. “The demand is so prodigiously great for the money, and the notion that everyone has in their heads that they will stop payment again in a few days, is such as makes people even mad to get their money, and hazard their lives to come at it,” wrote Defoe, referring to an incident in which armed guards were forced to fire on the crowd, killing three people, to preserve order. It was just a prelude.

On July 17, at 3 A.M., a crowd of around 15,000 had gravitated from distant suburbs to congregate in the streets outside the bank. Word had spread that for the first time in over a week 10-livre notes would be converted into coins between nine and one that day. Wooden barricades had been erected in anticipation of a throng, but a multitude this size was unexpected, unprecedented, and, it turned out, uncontrollable. At five o’clock several workmen, exasperated by the wait and fired up by alcohol, vaulted the barricades and launched themselves into the crowd on the other side. At the entrance in rue Vivienne there were similar scenes. Men picked their way over the ruins of the houses Law had demolished to make way for the new exchange, mounted the garden wall, and swung themselves through the chestnut trees to jump the queue. From every direction a hysterical multitude funneled toward the bank and those at the front found themselves defenseless against panicked surges from the throng behind.

By dawn a dozen or more people had perished, crushed to death against the barricades, trampled underfoot by the stampede, their cries pitifully audible above the rabble’s roar. Buvat, the diarist, who left one of the most gripping accounts of the day, found himself caught in the mêlée when five or six men hurled themselves off a barricade and only narrowly escaped being crushed or suffocated to death. Defoe was moved by witnesses’ accounts: “It is impossible to describe the pressing and thronging for money at the bank, the outcries of those who were almost killed were most affrighting.”

A large mob carried three bodies in angry procession to the Palais Royal and demanded the regent’s attention from outside the locked gates. While the regent sent for military reinforcements—some 6,000 uniformed troops were presently camped on the outskirts of Paris—Le Blanc, the secretary of state, and the Duc de Tresmes, the governor of Paris, arrived outside the forecourt. As the gates opened to admit them, a crowd of four or five thousand flooded in. Still in his carriage, the Duc threw handfuls of silver and gold into the crowd to appease them. Minutes later his sleeves were torn to shreds. Le Blanc needed an armed escort to reach the steps of the palais and face the tumult. Eventually, having secured a promise that money would be distributed throughout the city, the crowd began slowly to drift away.

But the mood in the streets remained ugly. A second mob directed their attentions to Law and marched to the Place Vendôme to lynch him. Having failed to force the gates, they hurled missiles at his house, shattering most of the windows before guards arrived and arrested the ringleaders. Law had heard the furor and wisely escaped to the Palais Royal. Had he not, there was little doubt in anyone’s minds what would have happened. “The rabble, who take things as they understand them, be they right or be they wrong, threw it all upon Mr. Law; and, had he returned into his coach, there had certainly been an end of all his designs and projects at once,” Defoe affirmed.

Later that morning Law’s empty carriage was spotted in the rue Richelieu, leaving a side entrance of the Palais Royal. A group barred its path and attacked. Law’s driver suffered cuts and bruises and a broken leg before he escaped; the carriage was reduced to a splintered wreck.

For his own protection Law moved into the Palais Royal. He was deeply shaken by the violence, and as before, the symptoms of acute distress were apparent. According to the regent’s mother, he remained “as white as a sheet” for several weeks after the incident. Even when he returned to his own residence the risk of assault still lingered. Youths said to have been employed by Law’s growing band of opponents kept watch on his every move, in the hope that a chance for vengeance would present itself. The children were still at Bourbon’s country estate, but Katherine was now a virtual prisoner in her home and the hostility with which Law and she were regarded must have seemed terrifying. From now on, according to Buvat, a watch on foot and horseback patrolled the house and the bank’s offices day and night. Law ventured out only with guards, and careful precautions were always taken. “When he removes,” wrote Daniel Pulteney, “it is not in his own équipage, and it is observed that the Swiss guards are dispersed about the streets he is to pass through.”

Throughout the riots, the Parlement was deep in session. Their president, hearing of the attack on Law’s carriage and driver, with a sudden (if improbable) burgeoning of poetic wit, is said to have told fellow members:

Messieurs! Messieurs! Bonne nouvelle!

Le carrosse de Lass est reduit en cannelle!

Sirs! Sirs! Good news!

Law’s carriage has been reduced to splinters!

The Parlement was supposedly pondering an edict to extend the trading privileges of the Mississippi in return for a substantial payment, which would allow further notes to be withdrawn. Swift to blame the disruptions on Law’s system, the members pushed home the advantage, refusing to register the edict, in the hope that their dissension, added to civil unrest, would finally topple Law. But the regent struck back, banishing them to Pontoise, a village forty miles from Paris. This was perceived by shareholders as a move in Law’s favor, and share prices rallied modestly. But the recovery was fleeting, soon overshadowed by frightening news: France faced an epidemic of plague.

The outbreak had begun in Marseille when crew members of a merchant ship from Syria, where the disease was rampant, evaded the usual rigorous quarantine restrictions and docked in port. Only after the cargo of silk and wool had been unloaded was the crew found to be infected. Eight people suddenly succumbed in the insanitary shanties surrounding the port. Slowly and insidiously the disease spread through the crowded dockside slums to the spacious villas of the well-to-do. “The fury of this distemper can’t be described,” wrote a terrified Defoe. “It begins with a light pain in the head, and is followed with a cold shivering, which ends in convulsions and death; and (which is more terrible) we are informed that not one person, no not one . . . touched with it, has been known to recover, and they seldom live above six hours after they are first taken.” At the end of July, an epidemic was formally acknowledged and a cordon sanitaire placed around the city, preventing people from leaving the infected area but also hindering supplies of food from reaching the inhabitants, who desperately needed it. As the disease ran rife, piles of rotting corpses were heaped so high that galley slaves were brought in to bury them, and since they were poorly supervised, looting broke out. By August a third of the city’s inhabitants—around 15,000 people—had perished from famine or disease and the cordon sanitaire had failed. The disease, like some exotic creeper, had spread its tendrils through Provence. In Toulon some 9,000 perished; a further 7,500 lives were claimed in Aix, a city, Defoe said, that was “utterly abandoned; the inhabitants poor and rich are fled to the mountains of the upper Provence, in hopes that the sharpness of the air, those hills being always covered with snow, may preserve them from the infection.” A month later the lawyer Marais recorded the harrowing descriptions of a doctor who had recently visited the affected area: “A town desolate and moaning, entire families destroyed, doctors and surgeons nearly all dead . . . the outskirts of the town full of looters and robbers who ransack the country houses of the bourgeois, who themselves don’t know how they will escape either the plague or the thieves.”

Europe looked on compassionately but amid growing fears that the epidemic’s grasp would reach Paris, the Netherlands, and even London. “Large collections have been made and are making in the cities of France for the relief of the distressed people at Marseille and other places,” reported Defoe, who singled out for special mention the city of Genoa, which sent both money and a ship laden with food and medical supplies. Law and the regent also sent large sums to help.

To stop the spread, draconian quarantine restrictions were imposed. Ships were liable to weeks of delay: in one particularly extreme example in Holland, three ships arriving from the Levant were burned while their crews were forced to wade ashore naked and spend a period of quarantine on an island. Private travelers were also hampered by the inconvenience of being obliged to have health certificates stamped in every town through which they passed, and in certain areas such as Tyrol were still liable to be held in quarantine for weeks if they were known to have passed through France.

In the minds of many the plague became a metaphor for economic malaise, and Law, whose schemes had sparked the speculation contagion, was blamed. For his system the disease proved fatal. The key ports of Marseille and Toulon shut down, trade with Africa and the rest of the Mediterranean, until now flourishing, drew to a standstill. “Not a ship comes in to Marseille from any place that has heard of it,” remarked Defoe. “Commerce is universally stopped.” He could also have added that so had much of the income of the Mississippi Company. As a general slump in trade took hold, manufacturing dwindled, taxes on imports and exports diminished, holders of state investments could not be paid and thus had to sell Mississippi shares. “One cannot say what effect the demand for silver had but every prudent man sold some of his shares to have enough to feed his family during this public calamity,” Law later wrote. By the time the epidemic was over it had claimed over 100,000 lives and, as Law had feared, the system he had created.

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