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

Hello Odd Lots listeners! As we take a break for the holidays we'd like to take a moment and bring you an episode by one of our sister shows here at Bloomberg Podcasts, Merryn Talks Money. In this special two-part series, John Stepek and Merryn Somerset Webb tell the extraordinary story of John Law: a fugitive Scots gambler who became the most powerful financier in France and helped invent the modern monetary system. From murder and exile to paper money, banking revolutions and spectacular collapse, Law’s life reveals why today’s financial system works the way it does—and why it sometimes blows up. It’s history, scandal and monetary theory rolled into one irresistible tale. We used a range of sources for this podcast but two key books to read if you'd like to find out more are:John Law: A Scottish Adventurer of the Eighteenth Century (2018), by James BuchanJohn Law: Economic Theorist and Policy-Maker (1997), by Antoin MurphyLike this episode? Listen and Subscribe to the Merryn Talks Money podcast on Apple, Spotify, iHeart or wherever you get your podcastsOnly Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox — now delivered every weekday — plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Joe Weisenthal?

  There are some market stories where you want every detail. Tracy and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and need to know what's moving markets and why. That's the Barclays Brief podcast. Every week, experts from Barclays Markets and research get you up to speed on what matters and what to watch next, about the time it takes to grab a coffee. So, search Barclays Brief wherever you get your podcasts.

• 0:26Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk, and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices,

• 1:09Speaker 01

  but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

• 1:48Speaker 02

  Congratulations, you've built a dashboard. But now comes the follow-up question, and the follow-up to the follow-up, and the dashboard for that. Meet Hex. Give everyone the power to ask their own questions, explore data, and build with AI, all in natural language. Because every answer should spark another question, limited only by your curiosity, not your data team's bandwidth. Go deeper than dashboards. Join over 2,000 leading data organizations. Visit hex.ai.

• 2:19Joe Weisenthal?

  Hello, Odd Lots listeners. I'm Joe Weisenthal.

• 2:22Tracy Alloway?

  And I'm Tracy Alocke.

• 2:23Joe Weisenthal?

  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.

• 2:32Tracy Alloway?

  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.

• 2:48Joe Weisenthal?

  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. So his influence is still felt and check out the episode.

• 3:03Tracy Alloway?

  We hope you enjoy.

• 3:07Tracy Alloway?

  Bloomberg Audio Studios, podcasts, radio, news.

• 3:12Speaker 04

  Okay, 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?

• 3:43Speaker 05

  Yeah, and we need to take two whole episodes to do it. This is, this is a special series, folks.

• 3:49Speaker 05

  John Law's story is the story of a fugitive Scotsman. Clearly I identify with that quite closely. Briefly became the most powerful man in France.

• 3:57Speaker 04

  And the richest.

• 3:58Speaker 05

  And the richest, yeah, which is even more important. And in doing so, he changed both monetary and arguably European history forever.

• 4:05Speaker 04

  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.

• 4:19Speaker 04

  Okay, 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.

• 4:34Speaker 05

  Yeah, you could. And whatever else he was, he was a gambler and 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.

• 4:48Speaker 04

  Yeah, I think 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, John rather likes John Law.

• 5:01Speaker 05

  I think I'm really quite fond of him.

• 5:03Speaker 04

  Full for charisma every time.

• 5:06Speaker 05

  Well, yes, yes, perhaps.

• 5:13Speaker 05

  Chapter one, the beginning.

• 5:20Speaker 04

  Where was this horrible person born?

• 5:22Speaker 05

  Well, let's wind back all 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.

• 6:05Speaker 05

  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.

• 6:16Speaker 04

  Leaving behind eight kids.

• 6:17Speaker 05

  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 Jean 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.

• 6:50Speaker 04

  So we're not into fractional reserve banking at this point, not quite yet?

• 6:54Speaker 05

  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. And 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. But 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 that you're going to get back. So basically, if everyone came in the goldsmiths up once and wanted all their money back, it wouldn't be there immediately that day.

• 7:39Speaker 04

  I reckon I would want my own gold coins back.

• 7:42Speaker 05

  I mean, I think you probably would at this time because a lot of them are debased.

• 7:45Speaker 04

  Well, other people's may be chipped and clipped, et cetera. I want mine.

• 7:48Speaker 05

  Yeah. So, I mean, you kind of maybe want to use the bailment.

• 7:51Speaker 04

  So as a child, he's already learnt about gouging interest rates, monopolies, gold.

• 7:58Speaker 05

  Yeah.

• 7:58Speaker 04

  He's kind of off before he's 15, isn't he?

• 8:01Speaker 05

  He's brought up in that, because I suppose the other interesting, sort of one of the core things would be a goldsmith, so 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 money-ness 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 Egosham, 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

• 8:46Speaker 05

  at the big city. He's interested in things like gambling and it does get to a point where he comes back, he's 16.

• 8:53Speaker 04

  The boarding school went bust because of the VAT.

• 8:55Speaker 05

  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. So basically, he's just a naughty boy and she's kind of fed up with his nonsense.

• 9:29Speaker 04

  At this point, he's 16, 17.

• 9:31Speaker 05

  He's 16, 17.

• 9:32Speaker 04

  There's a lot of mothers in Edinburgh today who might have similar feelings.

• 9:35Speaker 05

  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 a 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.

• 10:16Speaker 05

  So 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 Coutts 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.

• 10:46Speaker 04

  It's quite a brave move, even as a young man, to move from Edinburgh to London. Quite a journey.

• 10:52Speaker 05

  Yeah.

• 10:53Speaker 04

  Alien place to Scotland.

• 10:54Speaker 05

  As it is today. If I remember, I went to London for the first time when I was 21, thinking about it. I think it's a brave move. I 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.

• 11:23Speaker 04

  God, he must have been fed up by that point.

• 11:25Speaker 05

  You would think, wouldn't you? But they actually, it's weird, though, 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.

• 11:46Speaker 04

  Maybe the other kids are worse.

• 11:48Speaker 05

  I mean, possibly, possibly. They'd have to try quite hard. So down in London, he gets known as Beau Law. A Beau is a dandy, a kind of it-boy, a kind of man about town.

• 11:59Speaker 04

  Beau as in B-E-A-U, right?

• 12:00Speaker 05

  B-E-A-U, yes, as in 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. Chapter two, The Duel.

• 12:42Speaker 05

  In 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 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,

• 13:25Speaker 05

  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 at 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.

• 14:09Speaker 04

  Okay, so this was really unlucky.

• 14:11Speaker 05

  It is unlucky.

• 14:17Speaker 05

  We 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.

• 14:46Speaker 05

  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 Laurens. 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 Laurens took offence, probably because it's like, "Oh, what are you accusing me of? Running some kind of, you know, brothel 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. But I mean, ultimately, we don't know the real reason.

• 15:34Speaker 05

  After the fight, Law is arrested and the key legal question is whether it was a planned duel or a spontaneous fight. The duels were common but illegal. And I mean, this will seem a bit weird, I suppose, but premeditation 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, basically in those days, you got away with manslaughter. So 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 pre-arranged and it kind of, they showed letters and things to show that they had an ongoing feud. So 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.

• 16:13Speaker 05

  Now, the King reprieved him because, although duels 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 John 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. So 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,

• 16:58Speaker 05

  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 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. But 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 Johnston's recollections in which he recalls that one of the king's

• 17:41Speaker 05

  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." And then at that point, reading between the lines, King William tacitly gives permission for him to be bailed out.

• 18:03Speaker 04

  Fascinating that the king is so interested in this case, right?

• 18:05Speaker 05

  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.

• 18:21Speaker 04

  So he gets out.

• 18:23Speaker 05

  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.

• 18:45Speaker 04

  That's the point, isn't it, John, really?

• 18:47Speaker 05

  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.

• 19:12Joe Weisenthal?

  There are some market stories where you want every detail. Tracy and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and need to know what's moving markets and why. That's the Barclays Brief podcast. Every week, experts from Barclays Markets and research get you up to speed on what matters and what to watch next. About the time it takes to grab a coffee. So search Barclays Brief wherever you get your podcasts.

• 19:38Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices,

• 20:21Speaker 01

  but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 21:02Speaker 05

  Chapter three, Law on the Lamb.

• 21:14Speaker 04

  There's a gap before he arrives in France where presumably he starts to refine his monetary and fiscal thinking.

• 21:20Speaker 05

  Yes, this is when he does that. Also, while he's in jail, this is probably when he meets his long-term partner Catherine Nollis, who is oddly enough a great-great-granddaughter of Mary Berlin, who was Anne Berlin's big sister, the one who got away from Henry VIII. And that actually introduces the tantalizing 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. And so you have to assume that this is how they meet because she just sort of appears in his life in the historical record otherwise. And this is something I find really interesting about Law in general, he never gets married.

• 22:06Speaker 05

  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 when he moves to France. But it's so interesting how, you know, 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. And 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.

• 22:42Speaker 04

  But to my mind... Well, no, it's interesting because when you say if he changed his religion between Protestant and Catholic back then, it did 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 know, you're not wedded to a particular ideology, you're open-minded, you're thinking freely, you've escaped from prison.

• 23:04Speaker 05

  Yes.

• 23:04Speaker 04

  You've got your girl with you.

• 23:05Speaker 05

  Move forward.

• 23:06Speaker 04

  Left prison, Catherine's with him. We don't know where he's gone, but he turns up in...

• 23:10Speaker 05

  Well, he turns up in Genoa, but I think the other thing to kind of contextualise stuff a little bit at this point, so 1694, while he'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 through in the near future. So it's basically an early but very, very primitive form of government debt. But by

• 23:51Speaker 05

  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 bankrupts 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 Crown's 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. And England's

• 24:35Speaker 05

  at war again and William needs to raise money to rebuild the navy after the 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 lotteries, 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.

• 25:07Speaker 05

  So the idea is to establish a bank that will sell shares to raise 1.2 million pounds in that money, so 1.2 million, a lot more than that in today's money, from shareholders and in exchange they'll get an 8% annual interest rate, which is backed by tax revenues raised on excise duties from ships coming up and down the Thames, basically. And that's the start of a kind of more formal way of raising debt for the country in a way that doesn't purely rely on the whims of the Crown.

• 25:43Speaker 04

  Boy, has that been overused since.

• 25:45Speaker 05

  It has a bit, it has a bit. Whereas you're getting your institutionalised and your institutions are starting to get built. Whereas in France, you've still got this very kind of old system. Louis XIV has already experimented with paper money and then banned it because he didn't trust it. The tax is raised largely from the poor, nobles and the clergy are exempt. The tax raising powers are sold to people who then pay for the right to raise the taxes, but then when they're collecting them, obviously there's massive scope for corruption involved in that. And so you've got a much older, less efficient, more corrupt and also more vested interests kind of system of financing the country in France. So that's kind of where we are at that point.

• 26:28Speaker 05

  So I think that's just useful for thinking about what happens next.

• 26:32Speaker 04

  If you see an organisation set up out with the Crown,

• 26:37Speaker 05

  Yeah.

• 26:37Speaker 04

  supposedly independent or a separate organisation, but also allowed to raise money

• 26:44Speaker 05

  Yeah.

• 26:44Speaker 04

  with the power of the state behind it, I would definitely start thinking.

• 26:48Speaker 05

  Okay, so that's the state of the public finances in England and France. And that's a very rough idea how they differ. So now let's get back to John Law of an escape from prison.

• 27:03Speaker 05

  Okay, so if this was a film, this is the point at which we'd break into a training montage, except rather than having Rocky punching bits of meat, we'd have John Lawd darting about Europe with his wife Catherine, or sorry, not his wife, his lady partner. And so between about 1695 and 1705, they spend 10 years going around Europe. They spend a lot of time in France, they spend some time in Holland, there's various other places they may or may not have been. And most of the time, he's basically funding their lifestyle by hosting high-end society gambling games. He's very good with statistics, he's very good with understanding probability, which, I mean, to be honest, when you read some of the things that people were getting excited about at the time,

• 27:47Speaker 05

  they're talking about like he's calculating the odds of rolling a seven with two dice. And you're kind of like thinking, how did no one else know how to do that? But, you know, it's that sort of thing. And he also understands-

• 27:57Speaker 04

  And to be able to do that instinctively, it's amazing, really.

• 28:00Speaker 05

  Yeah, aye. And also taking the interest to write it down, because there are a lot of people writing about probability in gaming in particular at this point. The other thing that's interesting is that he twigs that in certain games, what you need to be is the banker. So a lot of the time, he's not actually gambling so much as being the house on the behalf of a lot of rich people who probably not engaged with probability particularly. And that's the other way he's making his money. But at the same time, he's not just doing that, he's learning about financial markets. So, you know, in Holland, he's sort of learning about shorting, he's learning about futures options, because the financial markets in Amsterdam are extremely sophisticated by the standards of the time. He's also spent a lot of time thinking about money, because obviously,

• 28:42Speaker 05

  his goldsmithing background means that he knows a fair bit about basic banking already. I think something that's really important to point out is that none of this is coming out of the blue. The biggest driver of all this, actually, and all this monetary theory stuff, is the fact that England and France have been, and the rest of, you know, Europe has been in war for three or four decades. So the governments are incredibly indebted and they keep looking for schemes and ways to raise more money. And so there's all kinds of schemes going around and there's all kinds of thinking about it. So during this time, John Law actually pitches land banks to three different countries. He pitches them in England, he pitches it to France and he also pitches it to Scotland.

• 29:23Speaker 05

  And Scotland is the place where in 1704, he ends up back there. And he's actually up in front of Parliament or sending his ideas to Parliament because Scotland is looking for ways to raise more money because it's gone bankrupt because of an ill-advised colonial scheme. Now, bear in mind, he can go back to Scotland because Scotland and England obviously are two separate countries. So the fact he's wanted in England doesn't mean that he's a fugitive in Scotland. But also by this point, he has actually reached an agreement with Robert Wilson, Wilson's brother, that he will scrap his appeal and he's no longer going to pursue him for the death penalty. So although he hasn't got a formal pardon

• 30:03Speaker 05

  yet and won't receive one for quite some time, it's less of a pressing problem for him. So back in Scotland is where he publishes his monetary treatise, which is Money and Trade, which is basically his idea of how money works. So Felix Martin and Edward Chancellor, both of whom are respected financial historians and former guests on this podcast, make the point that Law's thinking does advance the concept of money. And there's one key quote that they pull out, which is this, "Money is not the value for which goods are exchanged, but the value by which they are exchanged." So in other words, Law is making the point that money is not a thing in itself, it's

• 30:46Speaker 05

  the financial technology that makes everything else work. And overall, that's his view of the world, is that money is the problem, where there isn't enough of it. Money is the kind of oil you need to make things go around.

• 31:01Speaker 04

  John, what do you think his driver was? I mean, the way you've just described him, he could have stayed in Amsterdam and made an absolute fortune trading, right? It sounds like he would have been a phenomenal trader. He could have made a fortune doing that. What was his driver behind doing all this? Do you think it's after status, after power? After more money than you can ever make, shorting stuff in Amsterdam?

• 31:20Speaker 05

  I think that's a really interesting question, but I honestly think it's the ideas that drove him. I mean, there is a quote, I can't remember who it's from, but one of his contemporaries points out, it's not the money that he was basically interested in, it was his ideas. He's basically a world improver. One of the problems with tying your currency to gold, and it was a problem and it would be a problem, is that sometimes you run out of gold. And the thing, one of the things that we forget, because we've had paper money for a while, so we recognise paper money's foibles relative to gold. Gold and precious metal had a lot of problems too. They were constantly being devalued and constantly having the relative values changed. I mean, one of the things that John Law does is he goes back into the history books

• 32:04Speaker 05

  and looks at how much the price of silver has changed. And one of the reasons that he talks about a land bank, and this is the idea basically, that you issue a paper currency that is effectively a mortgage on land. It's not very practical, which is one reason why it doesn't take off. But the point is that the land is almost like the kind of stones of yap. It never would actually change hands, it's just a thing that backs the IOU. And his idea is that, well, actually, we should use land because A, that's where all of the wealth of the economy actually comes from, and B, at that time, the price of land was much less volatile than the price of silver. So he's actually talking about anchoring the paper currency to an asset which is a much more stable background value.

• 32:46Speaker 05

  So basically, I think he's very much an idealist and he's excited by economic ideas and excited by theory. At the same time, there are lots of people like him. You know, so Daniel Defoe is not just, you know, the writer of Robinson Crusoe. He's also a kind of political pamphleteer and he's also, they call them projectors, but he's, you know, this guy's coming up with mad ideas for raising money, or not so mad. I mean, that's where the Bank of England came from. It wasn't a Defoe idea, but it was the idea of the guy who would actually later go on to do Scotland's ill-fated diary in the scheme.

• 33:20Speaker 04

  Yeah, safer from the improvers, eh?

• 33:22Speaker 05

  Well, absolutely. So, yeah, it's a time of intellectual ferment and John Law happens to be one of the flowers that grows most rapidly from that particular, what am I talking about?

• 33:34Speaker 04

  Flower, weed?

• 33:35Speaker 05

  Weed, weed, yes.

• 33:40Speaker 05

  His proposal for this land bank, Money and Trade Considered, is published anonymously by John's Aunt Agnes, who runs a printing business which holds the local monopoly on printing bibles as well, by the way. But everyone in politics knows who's behind it. And despite the fact that his reputation is obviously controversial, he does have some high-profile supporters and his scheme does get a hearing in the Scottish Parliament alongside several others. However, to cut a long and complicated story short, it's not something we need to go into for this podcast. Scotland doesn't go ahead with monetary reform, and instead it somewhat reluctantly agrees to unite with England in 1707. And that's partly to bail out the economy and specifically the elites who'd lost a lot of money in the Darian scheme.

• 34:28Speaker 04

  Okay, so here we are. He's still in Scotland. Is he still in Scotland for the Act of Union?

• 34:32Speaker 05

  He's not, because what happens, well, obviously the Act of Union is coming up, and he's still a fugitive.

• 34:38Speaker 04

  Ah, can't stay in Scotland after it's unified with England.

• 34:42Speaker 05

  Exactly, because it may become part of England. And so that's when he moves to, by looks at it, that's when he moves to Genoa.

• 34:48Speaker 04

  Jeez, presumably his descendants still calling for independence.

• 34:55Speaker 05

  That would explain something.

• 34:59Speaker 05

  So he goes to Genoa. During this time, they've had two kids. And by 1711, he's got 140,000 lira in the bank. Now, according to James Buckings' book, a labourer earns one or two lira a day. So let's call that the minimum wage. Now, the minimum wage in the UK is about 12 quid an hour at the moment. I wasn't going to multiply that to a day, but even if you take 12 quid for an hour and you multiply that by 140,000, then you are looking at a sum of between 850 grand to about 1.7 million. So he's definitely a well-off guy. He's got a lot of liquid assets. And this seems to have been built up through the same sort of things, sort of like running games. Also, I think he's probably

• 35:41Speaker 05

  involved in supplying armies, because again, there's kind of a war going on. And he's also Making a lot of contacts, there's a lot of people, a lot of factions, the Jacobites in Scotland are very fond of him, even though he doesn't really, doesn't seem to have very high convictions in terms of political stuff. It's like, he's kind of nice to the Jacobites because they are nice to him. He's quite a loyal person, really. Somebody helps him out, then he tends to do likewise. But again, you don't get the sense that he's terribly ideological in terms of party politics or anything like that. He's kind of more obsessed with his ideas about monetary and economic reform. Because during this time, he is also

• 36:24Speaker 05

  trying to shop his ideas around. So he's tried in Scotland and failed. He approaches the Duke of Savoy with a similar idea for a kind of central bank type organisation. He nearly gets the scheme going in Turin, but again, that doesn't happen. And so, as far as we can see, France is currently engaged in the War of Succession. That comes to an end in 1713. And at this point, he moves back to France, presumably because you can get in now because they're not at war anymore. And it's also very clear that Louis XIV is on his last legs. There's going to be succession. France is very, very, very badly off. Debt

• 37:07Speaker 05

  is running at something like to 100% of GDP, which reminds me of somewhere else that we can then write now. And so basically, he sees the opportunity to get his ideas maybe taken up in what is actually one of the biggest economies in Europe at this point.

• 37:23Speaker 04

  So France is kind of at, again, this might sound familiar, but reform or crisis stage.

• 37:28Speaker 05

  Absolutely.

• 37:29Speaker 04

  And they decide to go for a reform, or as we will find out later.

• 37:33Speaker 05

  Yeah, a bit of both. Why not both? Exactly.

• 37:38Speaker 05

  So France is desperate for fresh ideas on how to deal with its lack of money. And John Law is desperate to see his ideas put into practice. He's been knocked back by Scotland. He's been knocked back by Savoy. But maybe he can find a home for his thoughts in France. And we'll find out how that went in the next episode.

• 38:06Speaker 02

  Congratulations, you've built a dashboard. But now comes the follow-up question, and the follow-up to the follow-up, and the dashboard for that. Meet Hex. Give everyone the power to ask their own questions, explore data, and build with AI, all in natural language. Because every answer should spark another question, limited only by your curiosity, not your data team's bandwidth. Go deeper than dashboards. Visit hex.ai.

• 38:37Speaker 06

  If you're a business owner, you need a card that can keep up. With the Delta SkyMiles Reserve Business American Express Card, everyday purchases transform into miles you can use towards future travel. So business as usual can lead to a well-deserved getaway. And for a limited time, card members can earn 200,000 bonus miles, the highest miles offered this year. Whether you're traveling for business or planning your next adventure, now's a great time to make every purchase go further. Apply today at www.delta.com/podcast. Offer ends November 4th. Minimum spending requirements and terms apply.

• 39:12Speaker 07

  A business gift should do more than check a box. It should reflect your brand and show someone they're appreciated, recognized, and truly seen. 4imprint offers thousands of high-quality customizable products, like premium apparel, drinkware, tech, and more, making it easy to create a gift that feels meaningful and on-brand. And with 4imprint's expert support and their 360-degree guarantee, you can be 4imprint certain your order will arrive exactly as intended. Explore gifting with confidence at 4imprint.com. 4imprint, for certain. If you listen to financial news, you know a lot of time is spent thinking about what's next. The next opportunity, the next investment, the next move. But sometimes, what matters most

• 39:56Speaker 07

  is being ready for what you never saw coming. For more than 75 years, Cincinnati Insurance has worked with independent agents to help protect businesses, homes, valuables, and more. Because planning for the future isn't only about knowing what's next, it's about making sure you're ready for what you can't predict. Let Cincinnati Insurance make your bad day better. Find an independent agent at cinfin.com.