John Law and the Mississippi Company, Part 1
Brian Trumbore
President/Editor, StocksandNews.com

The 200th anniversary of the Louisiana Purchase is fast approaching (April 30 being the commonly accepted date) and a friend reminded me that to properly tell the story I should really examine the life of John Law, a great monetarist who was also responsible for one of the great bubbles of all time, the 1720 fiasco known as the Mississippi Company.

I have to be honest with you folks, this is a pretty heavy story in some respects and I don't know how many parts I will be telling it in, but today we'll start with the beginning, normally a good idea in these matters.

John Law was born in Scotland, 1671 (one of my sources says 1670). His father William had apprenticed with a goldsmith, the money dealers of the day, and later became a highly successful one himself. Typical of the time, John was one of 12 children, though only four survived childhood. William's first wife had died giving birth and John ended up being the eldest of the survivors.

As William's wealth grew he did what all the moneyed folk did back then, purchase a few estates. John then began working for his father when he was 14 and spent three years learning the principles of banking. It was clear that this "physically attractive," "agreeable," and "magnetic" lad who stood six feet (very tall for those days) had quite an aptitude for math. He also became a real favorite of the ladies, who called him Beau Law.

But by 1688 his father was very ill and William went to Paris seeking treatment, only to die there with his family back in Scotland. John was of an age to attend university but opted to take some revenue from one of the family estates instead and then headed to London. According to one friend, young John proceeded to gamble and womanize, becoming "nicely expert in all manner of debaucheries."

In fact with his mathematics ability and cool demeanor, Law was a gambler that all the other players emulated, often staking their own money off of his bets. One of the popular card games of the day was faro, where players must defeat a single opponent, the talliere, or banker, to win. Law loved to be the banker, where he could pit his wits against the rest. Author Janet Gleeson describes the action in her book "Millionaire."

"Each player chooses one, two, or three from a deck of cards on the table before them, using gold louis d'or as their stake. Slowly the croupier takes his pack, discards the uppermost card, plays the next two - the loser and the winner - and places them in front of him. Winning depends on players having selected the same number as the second card dealt by the croupier (suits are irrelevant), so long as he does not deal two cards of the same face value, in which case the banker also wins. The dealing continues, players betting on every draw until three cards remain. The room is transfixed for the final turn, when the players must guess the cards in order of appearance. Inevitably, Law triumphs over most."

Most assume that Law had nothing but good fortune on his side. As time goes on, though, and as his reputation spreads, others believe he must be cheating. The answer probably lies somewhere in between, but there is no doubt he was using his math acumen to figure out when the odds were stacked in his favor. In other words, John Law, due to his being one of the few of his day to understand complex probability theory, was really one of the first card counters.

Well, aside from his gambling prowess, as noted earlier Law was a man about town, consorting with actresses that he met not only in the gambling parlors but at the theatre as well.

Excessive gambling took its toll, however, and as he got more and more reckless, soon he found himself going through his inheritance. He also had built up quite a bit of debt so he rushed home to his mother at Lauriston, the family estate in Scotland.

Mrs. Law was sharp and a terrific businesswoman so through her own financial maneuvering she was able to keep her son out of debtor's prison. John then returned to London, more determined than ever to master the finer aspects of gaming. He became a better card counter and mastered the odds at dice, the latter a game called "hazard," similar to craps.

But on April 9, 1694, John Law killed Edward Wilson in a duel and John's life came crashing down.

Wilson, who also had the nickname 'Beau' and was jealous that he didn't have the looks or skill that Beau Law had, was nonetheless one of London's real "dandies." [To totally digress, in 1966 Herman's Hermits had a hit with "Dandy," a song written by Ray Davies of the Kinks, that best describes the term.]

Law crossed paths with Wilson over the latter's sister, who had moved in to the boarding house where Law was living with his mistress. Edward Wilson gave Law grief over his living arrangement and the sister left, earning the scorn of Law's landlady, who didn't want her own reputation tarnished. [Sounds like this would make for a good play, eh?]

Anyway, Wilson and Law decided to hold a duel one night after the two had been drinking and Law killed Wilson with his sword. Law was arrested, though by all (admittedly sketchy) accounts Wilson was the aggressor, so Law's case was built on the act of self-defense. But the jury found him guilty and sentenced him to death by hanging.

Eventually, King William III cancelled the death sentence but due to the fact the Wilson clan was well-connected, Law still faced civil charges and he was transferred to another prison to await his fate. But it became depressingly clear to him that he was facing the rest of his days behind bars so he tried to escape. Unfortunately, he was caught filing down his bars.

Here is where the details get more than a bit murky. Suffice it to say, though, that Law's own supporters carried quite a bit of weight themselves and finally he was able to conspire with some prison officials who allowed him to escape his sleeping (drugged) guards. Law, now a fugitive, managed to flee to France.

Upon reaching the continent, he traveled all over Europe and renewed his gambling and gallivanting, though in the mornings he studied up on economics. Law spent time in key tourist centers where it was easy to find wealthy residents who became his next victims, but destinations such as Amsterdam, Venice and Genoa were also major centers of finance and this pricked his curiosity even further.

Law first visited Paris in 1697 and immediately frequented the parlors, of course. One visitor of the time said of gambling, "It is a great misfortune for a stranger not to be able to play, but yet a greater to love it."

Law also partied with intelligent women in the salons. Samuel Johnson said of the time, "a man is in general better pleased when he has a good dinner on his table than when his wife talks Greek," but women in Paris enjoyed more independence.

Around 1700 Law had a run-in with local authorities and he returned to Edinburgh. In his classic "Extraordinary Popular Delusions & the Madness of Crowds," Charles Mackay described his predicament.

"During his residence in Paris he rendered himself obnoxious to D'Argenson, the lieutenant-general of the police, by whom he was ordered to quiet the capital."

Now as a fugitive you might be thinking how could he return to Scotland? Law was safe because the union between England and Scotland wasn't formalized as yet, but when he didn't receive the pardon he sought, and as the completion of the union drew near, Law was forced to flee back to Paris.

At this point Law pursued one of those independent women, Katherine Seigneur, a descendant of Henry VIII's second wife Anne Boleyn. Only one problem, Katherine was married. At the same time Law was once again a success at the gaming tables, which meant he was picking up a new set of enemies, one of whom was a good friend of Katherine's. So Katherine left her husband and ran away with Law to Italy.

Law proceeded to make a killing in places like Genoa, Rome, Florence, Turin and Venice, the latter being known as "the brothel of Europe." After 10 years he had accumulated some 20,000 pounds, a huge sum for the time. And when he wasn't at the tables he was doing more research on the art of finance, developing the theories that we will begin to explore next week.

Sources:

"Extraordinary Popular Delusions & the Madness of Crowds" Charles Mackay "Millionaire" Janet Gleeson
"The Political Economy of France at the Time of John Law" Earl J. Hamilton
"The Memoirs, Life and Character of the Great Mr. Law" W. Gray (from 1721?don't know what the 'W' stands for)
"An Historical Study of Law's System" Andrew McFarland Davis
"Devil Take the Hindmost" Edward Chancellor
"Europe: A History" Norman Davies
"Great Bubbles" Edited by Ross B. Emmett

Brian Trumbore