Merryn Talks Money: John Law, The Gambler Who Invented Modern Money (Part 1)

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2:02Hello, Odd Lots listeners. I'm Joe Weisenthal. And I'm Tracy Alloway. We hope you're enjoying your holiday season. And we're taking a little break ourselves. So we wanted to bring you an episode from one of our fellow podcasts here at Bloomberg. A special holiday present, if you will. This is from the Marin Talks Money podcast, which is hosted by Marin Somerset Webb and John Stepek. And it is all about one of the most interesting historical economic figures. It's John Law. Yeah, that's right. So John Law, 18th century gambler, murderer, economic visionary. Like I think people say he like is sort of the mind behind fiat currency as we know it today.

2:43So his influence is still felt. And check out the episode. We hope you enjoy.

2:50Bloomberg Audio Studios. Podcasts, radio, news. OK, look back through the history of money and quite often it seems like nothing is happening. Long, long bits of calm. And then suddenly there's a catalyst of some kind. Stuff changes, right? And you get everything exploding, things flipping, a period of chaos. And then everything seems to reinvent itself. John Law, John, you know all about John Law. His history reflects exactly that. So what we're trying to do here over this holiday and over two episodes is tell his story, which tells us a lot about money, right? Yeah, and we'd need to take two whole episodes to do it.

3:28This is a special series, folks. John Law's story is the story based out of a fugitive Scotsman. I clearly identify with that quite closely. Briefly became the most powerful man in France. And the richest. And the richest, yeah, which is even more important. and in doing so he changed both monetary and arguably European history forever. Wow, it's a big story. So stay with us for it because his rise and his fall is not just about history, is it? It's about the monetary system that we live in today.

4:02Okay, John Law, he might not be as respected as the likes of Adam Smith but he pretty much laid the foundation for the monetary system that we use today, right? So you could arguably say that his thinking is more important than a lot of that academic muck. Yeah, you could. And whatever else he was, he was a gambler and a sometime murderer. He was also a practitioner. He did what he believed. And of course, as we'll find out, that didn't necessarily work to his advantage all the time. I think, you know, you're already giving away the fact that despite the fact he's a murderer, gambler, the beginning of the end of monetary systems and all sorts of other appalling things.

4:42John rather likes John Law. I think I'm really quite fond of it. Forts for charisma every time. Well, yes. Yes, perhaps.

4:56Chapter One. The Beginning.

5:03Where was this horrible person born? Well, let's wind back. I call the way back to April 1671 and John Law is born in Edinburgh. He was one of 12 children, four of whom died in childhood. His dad, William Law, was a goldsmith and his mum, Jean Campbell, was William's second wife. And she had three sisters and they'd all married well. So he's basically from a kind of upper merchant class background. So in 1683, when John Law is 12, his father, William, goes to France because he's got a kidney stone. he has to get an operation the chances are that he'll die under the knife but it's his only chance and there happens to be a company of barber surgeons of great reputation in France who do this kind of thing all the time so before he leaves he puts his affairs in order says goodbye to his eight kids and his wife and then heads off to France and as it turns out unfortunately he does die on the operating table leaving behind eight kids leaving behind eight kids and so Jean takes over the family business and she also avoids getting married again so as not to have to sign the business over to her husband and at this point goldsmiths are already in banking so one of John's brothers takes over the kind of goldsmith side of things actually making stuff out of gold but Gene and John sort of jointly kind of operate the banking side of the business so lending money this is already something that goldsmiths are starting to do.

6:33So So we're not into fractional reserve banking at this point, not quite yet. Well, not formally, but actually goldsmiths really are lending out money. It's not like they have to have a one-to-one correspondence. It's not 100 % reserve requirements. People know that people need credit and there's no way you could do that and have all the gold still sitting there in the bank on demand at any time. I mean, there's actually an interesting thing called bailment. And this is where if you want your goldsmith to look after your gold, you put it in a bag and you give it to them. And that means that you want that gold back.

7:07But if you give them loose coins, then there's an understanding that that money can be lent out and it's not necessarily the same gold coins, etc, that you're going to get back. So basically, if everyone came in the goldsmiths at once and wanted all their money back, it wouldn't be there immediately that day. I reckon I would want my own gold coins back. I mean, I think you probably would at this time because a lot of them are debased. Well, other people's maybe chipped and clipped, etc. I want mine. Yeah, so I mean you kind of maybe want to use the bailment. So as a child he's already learnt about gouging interest rates, monopolies, gold.

7:41Yeah. He's kind of off before he's 15, isn't he? Yeah, he's brought up in that, because I suppose the other interesting, sort of one of the core things about being a goldsmith is that he's used to that world where gold is an object, so it's jewellery, it's plates, it's things like that, but it's also got a separate financial function. There's this thing called moneyness somewhere That is a kind of abstract property of the gold And he appreciates that there's a difference between the gold object and gold as money And that's probably already kicking around in his brain, I would have thought Although the thing is, he has a tearaway His mum actually sends him off to a boarding school in a little village called Eaglesham Which is still about an hour and a half's drive from Edinburgh and at least part of it, according to sources at the time, is to keep him away from the temptations at the big city.

8:31He's interested in things like gambling and it does get to a point where he comes back, he's 16, he's meant to be... Boring's fault went bust because of the VAT. Was that? Yeah, exactly. Yes. Class war, even then. But he comes back and they have a falling out, him and his mum. There actually is a kind of court case over it. It sounds like he's almost like trying to divorce her and get his inheritance so that he can be free. And she says in the court documents that actually the true cause of his deserting of my family was because of my motherly reprehending him for biding late out at night and going to the lottery and other games.

9:07So basically he's just a naughty boy and she's kind of fed up with his nonsense. You said at this point he's 16, 17. He's been 16, 17. There's a lot of mothers in Edinburgh today who have similar feelings. Yes, I can imagine. Anyway, there's a lot of push and pull but it doesn't ever fully go to court and it does eventually get settled by the time he's 21 in 1692. The point is I think this illustrates that A. he's already someone who's very much pushing the boundaries and excited about getting out from under and making his name in the world and also that he's someone who kind of enjoys taking risks and actually probably isn't that careful with money despite his upbringing.

9:59So it's 1692, John Law's 21 and he's finished his education. He's inherited the money that he's owed from his mother and he goes down to London in the company of a chap called John Campbell who's a fellow Scot who wants to set up a goldsmiths in London. Now he does this and that actually eventually becomes Cootes Bank And John Law himself ends up living in St Martin's in the field Which for anyone who's not based in London Is pretty much where Charing Cross Station is today I mean at that point it actually was a field It's quite a brave move even as a young man To move from Edinburgh to London Quite a journey Yeah Alien place to Scotts then As it is today If I remember moving I went to London for the first time when I was 21 Thinking about it I think it's a brave move.

10:47I think he is clearly ambitious. At this point, I would say he's more reckless than anything else for reasons we'll see in a moment. I think basically he just wants to have fun because he spends a lot of his time gambling to the point where he actually has to write back to his mum and hand over a chunk of his inheritance in exchange for more cash, basically. God, you must have been fed up by that point. You would think, wouldn't you? But actually, it's weird. Throughout their lives, they don't have a major falling out again and she doesn't disinherit him or anything like that. So although he's leading a somewhat possibly dissolute life and he's kind of known as a dandy and a ladies' man and he does like gambling and partying and all the rest of it, she doesn't ever actually cut him off.

11:29Maybe the other kids are worse. I mean, possibly, possibly. They'd have to try quite hard. So down in London, he gets known as Bo Law. A Bo is a dandy, a kind of it boy, a kind of man about town. Oh, as in B-E-A-U, right? B-E-A-U, yes, as in, well, beautiful, I guess. And then we come to a massive turning point. It's fair to say that if this hadn't happened, John Law might just have ended up as another London society man, maybe dabbling in politics, maybe pushing money-making schemes around Exchange Alley with the other stock jobbers. But instead, he's about to embark on a path that will put him in a position to play financial alchemist with one of the biggest economies in Europe.

12:12Chapter 2 The Duel

12:24In April 1694, John Law is 23 and he gets involved in the life of a fellow dandy called Edward Bo Wilson. Edward Bo Wilson is just another it boy like John Law, another dandy. And people are really intrigued by him because he's spending an awful lot of money down in London, even though the family that he comes from is not well off. They're sort of gentry, but they're the lower end of the gentry. So for perspective, he's thought to be spending something in the region of about£4 ,000 a year, which in current money is about£675 ,000 a year. And in terms of what people were saying about him at the time There's the equivalent of a local gossip columnist Who writes to his employers in Devon Who like to be kept up to date on the news in London And he tells them that Wilson is the subject of the general chat of the town He is no gamester, neither is he known to keep women company And it cannot be yet discovered how he came to live It's so prodigious an extravagancy We never get to find out where Wilson's money comes from Because on the 9th of April 1694 he and John fight at Bloomsbury Square and John stabs him in the stomach with an iron and steel sword of a value of five shillings which is about£40 today and to a depth of two inches that's all according to court documents and he dies immediately which strikes me as a tiny bit odd but I don't know anything about anatomy OK so this is really unlucky It is unlucky

14:00We don't know why they fought a later theory claimed that Elizabeth Villiers who was King William's mistress was involved but there's no evidence for that and it likely originated a century afterwards. And there's also a scandalous pamphlet from the 1720s and this suggests that Wilson was actually having an affair with a nobleman who was the person paying for his lifestyle and that law killed Wilson to silence him so effectively he was acting as a kind of 18th century hitman. But that seems to just be pure gossip meant to damage law's reputation at the time. And a more plausible, if somewhat less dramatic account Mentions a Mrs Lawrence And she was a friend of Law's And she was the landlady of a house Where Wilson's sister lived Wilson then discovered that Law was keeping a mistress there And he told his sister to leave And Mrs Lawrence took offence Probably because, like, oh what are you Accusing me of running some kind of, you know, brodle or something An argument followed And that's where the duel came from So basically Law might have been defending His friend's honour which I think is probably quite believable because he's clearly still quite hot-headed and reckless.

15:07But I mean, ultimately, we don't know the real reason.

15:17After the fight, law is arrested and the key legal question is whether it was a planned duel or a spontaneous fight. Duels were common but illegal. And I mean, this will seem a bit weird, actually, but pre-meditation is what made it murder and therefore punishable by hanging, whereas a kind of heat-of-the-moment impulse fight meant it was manslaughter. And basically, in those days, you got away with manslaughter. So the law claimed that Wilson attacked him suddenly in Bloomsbury Square, and that would have made it self-defence. But the prosecutors argued that it was prearranged, and they showed letters and things to show that they had an ongoing feud.

15:51So it was kind of cut and dried from that point of view. So the jury agreed, they convicted him of murder, and they sentenced him to hang. Now, the king reprieved him because although jewels were technically illegal, they were also sort of seen as a way that young men let off steam, so no one was actually keen to kind of execute people for them. But Wilson's family appealed, and that left joint law kind of rotting in prison. Now, jails then were privately run, so he was able to pay for better quarters. So, you know, in certain parts of the prison, poor people were kept and they were awful, whereas the bit that he was in was probably a little bit more pleasant, maybe like a kind of three-star B &B.

16:29So he remained there for nine months while the appeals dragged on and on. And in the background, because he was quite well-connected or from a well-connected family, Scottish politicians were lobbying the king for his release, while at the same time, Wilson's side was lobbying for him to be hung. And the king was kind of stuck in the middle. And you get the sense that the king just wished the problem would go away. And as early as kind of May that year, you've got officials hinting in documents that law could easily escape from this prison. and it was kind of stupid of him to just be hanging around waiting to see whether he'd get a pardon or not.

17:03But I think that's a little bit unfair because obviously he's a society guy, he's a gentleman and if he does escape from prison, that's going to make him a fugitive. So you can see why he might have thought, well, look, I'd rather wait for this pardon which is surely forthcoming at any minute. But in the end, the appeal doesn't go his way. He's sentenced to be hung. There's a quote in Johnson's recollections in which he recalls that one of the king's right-hand men told him that the king wouldn't pardon law without the consent of Wilson's brother. But he also said that, I think the king is willing he should be saved, provided it can be done in such a manner as that his majesty did not appear in it.

17:39And then at that point, reading between the lines, King William tacitly gives permission for him to be bailed out. Fascinating that the king is so interested in this case, right? It is interesting, but I suppose we need to remember that law is basically a foreign national who's under threat of execution in a foreign country. so the Scottish legal authorities were almost bound to say something even if Law wasn't as well connected and he actually, you know, he is quite well connected So he gets out So Law makes his escape or rather by the sounds of it he's rescued Johnston, that's the Scottish Secretary of State we mentioned earlier reports that the King's right hand man came up to him and whispered to me in a crowd that my friend was at liberty but had been very slow to understand matters and prayed me to keep the secret which I did until King William's death and from that point we don't know exactly where law goes.

18:29That's the point isn't it John really? Well it is yes yes when you go on the run but yes this is a major turning point in his life probably the major turning point because it's his fugitive status that will eventually drive him to France which is where he will create monetary history.

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20:43Chapter 3, Law on the Lam.

20:55There's a gap before he arrives in France where presumably he starts to refine his monetary and fiscal thinking. Yes, this is when he does that. Also, while he's in jail, this is probably when he meets his long-term partner, Catherine Knowles, who is, oddly enough, a great-great-granddaughter of Mary Boleyn, who was Anne Boleyn's big sister, the one who got away from Henry VIII. And that actually introduces the tantalising prospect that just maybe John Law's children had chewed their blood in them, depending on exactly who was the father of Mary's kids. But anyway, Catherine's brother, Charles, who's a sort of dissolute upper class scoundrel, is in jail at the same time as Law for murdering his brother-in-law.

21:35And so you have to assume that this is how they meet because she just sort of appears in his life and the historical record otherwise. and this is something I find really interesting about law in general he never gets married so they're happily living together kind of like essentially out of wedlock he's born a Protestant but he converts to Catholicism purely for political purposes never ever trust a convert it's just it's so interesting how there's wars being fought over religion all over the place at this point and I just find it fascinating what a kind of unusually free thinking individual he seems to be.

22:13And I don't know necessarily where that comes from. And perhaps there were a lot more people like that in Scotland and England and France of the time than we traditionally think. But to my mind... Well, no, it's interesting, isn't it? You say changing religion between Protestant and Catholic back then, it shows a kind of open-mindedness and a lack of being, well, not being wedded to an ideology of any type. Although you could say that they're more or less the same, but we won't go there on this podcast. you're not wedded to a particular ideology you're open minded, you're thinking freely you've escaped from prison you've got your girl with you we don't know where he's gone but he turns up in Genoa.

22:51Well he turns up in Genoa but I think the other thing to kind of contextualise stuff a little bit at this point, so 1694 Wiley's in jail, this is also when the Bank of England gets established so England and France are basically both skint because they've spent so much money on either being at war with each other or with other European powers. So England's fiscal problem dates back to Charles II. So he'd been borrowing money from the goldsmiths and they would lend the money deposited with them to the crown and it would be secured against tax revenues coming due in the near future. So it's basically an early but very, very primitive form of government debt.

23:31But by 1672, a combination of war and good living means that Charles is out of money And so he suspends interest payments to the goldsmiths In an event which is known as the stop of the exchequer And as it turns out the payments are never fully made And there are running court cases right up until the 1700s But in the immediate term it bankrupt several big goldsmiths And also means that many wealthy families lose their money Because they had been depositing it with the goldsmiths And that had been lent to the king So anyway that casts a big shadow over the crowns creditworthiness. And so come 1693, the king's changed, it's King William now, we're in the middle of the Nine Years' War, which is a big European war, which is basically France versus everyone else.

24:15And England's at war again, and William needs to raise money to rebuild the navy after a defeat. But of course, the remaining goldsmiths have no interest in financing the crown anymore. But at the same time, the London financial sector, if you like, is buzzing. People have got lots of ideas about how to raise money. There's talk of law to raise, There's talks about lots of other kinds of schemes, but the scheme that does eventually get support is the idea to set up the Bank of England.