Read Online Millionaire: The Philanderer, Gambler, and Duelist Who Invented Modern Finance by Janet Gleeson - Free Book Online
Authors: Janet Gleeson
Tags: Trade and Finance
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and visits to various cities in Italy. Everywhere he went, his life followed a familiar pattern, with gaming and perilous romance recurring themes. But there are also signs that the lure of the gaming salon and boudoir were not alone in absorbing him: John Law quickly rekindled his fascination with economics.
His growing obsession is underlined by the places he visited: Amsterdam, Venice, Genoa, and Turin offered tantalizing cultural and social attractions. All were cities well stocked with rich tourists and residents, where a gamester of Law’s superior ability knew that there would be ample scope to supplement his income. More tellingly, all were key financial centers. Amsterdam, his home for several years, offered idyllic countryside resembling “a large garden, the roads all well paved, shaded on each side with rows of trees and bordered with large canals full of boats”; it had fine civic buildings, immaculate houses, and women “more nicely clean” than their English counterparts. But Law was attracted to it chiefly because the city was the commercial capital of Europe, and its success was due to a bank.
Amid the monetary confusion of the time, the Bank of Amsterdam had achieved the seemingly impossible: it had brought economic stability to the country, boosted trade, and, for a time, made the Netherlands the commercial superpower of the world. Founded in 1609, the bank had simple governing principles. Adulterated coins were the same scourge in mainland Europe as they were in England, and a vast variety—some eight hundred different denominations of gold and silver coins—circulated. Currency could be exchanged in every town and at every fair throughout Europe, but in Amsterdam the bank took deposits in local and foreign coinage, weighed and assessed them for their purity, and in return issued credit notes or bank money—a form of paper money—representing the
intrinsic
value of the metal content of the coins rather than their nominal face value. The bank money, Law astutely observed, provided hefty benefits: “Besides the convenience of easier and quicker payments . . . the bank save[s] the expense of cashiers, the expense of bags and carriage, losses by bad money, and the money is safer than in the merchants’ houses, for ’tis less liable to fire or robbery.” The bank guaranteed credit notes and in its turn was endorsed by the state. Since the value of the notes was assured, the public preferred them to conventional coins, and they usually changed hands for more than face value.
Amsterdam’s bank was not the first to turn to paper as a substitute form of money. Paper notes were invented, like so many ingenious artifacts, by the ancient Chinese, who are known to have used them in the seventh century. In Europe, nearly a thousand years later, tentative trials had been made in 1656 in Sweden, where a Livonian, Johan Palmstruch, was given a royal charter to found a private bank, provided that half of his profits were paid to the Crown. Sweden was rich in copper but poor in silver and gold, and its currency included massive copper sheets, of equivalent worth to silver coin, but so heavy—as much as fifteen kilograms—that people carried them lashed to their backs or needed a horse and cart to transport them. In 1661 Palmstruch and his Stockholm Banco overcame this inconvenience by printing paper notes that represented the value of the metal currency, the first true circulating European banknotes as we understand them today. The project blossomed initially, but the temptation to overissue notes proved irresistible. Six years later, unable to redeem the notes it had produced, the bank foundered and Palmstruch landed in prison, only narrowly escaping execution.
Three decades later in America, there was a further foray into paper money. In 1690 the Massachusetts Bay Colony was forced to use banknotes to pay its soldiers after the failure of a military incursion into Quebec, which had been expected to yield
His growing obsession is underlined by the places he visited: Amsterdam, Venice, Genoa, and Turin offered tantalizing cultural and social attractions. All were cities well stocked with rich tourists and residents, where a gamester of Law’s superior ability knew that there would be ample scope to supplement his income. More tellingly, all were key financial centers. Amsterdam, his home for several years, offered idyllic countryside resembling “a large garden, the roads all well paved, shaded on each side with rows of trees and bordered with large canals full of boats”; it had fine civic buildings, immaculate houses, and women “more nicely clean” than their English counterparts. But Law was attracted to it chiefly because the city was the commercial capital of Europe, and its success was due to a bank.
Amid the monetary confusion of the time, the Bank of Amsterdam had achieved the seemingly impossible: it had brought economic stability to the country, boosted trade, and, for a time, made the Netherlands the commercial superpower of the world. Founded in 1609, the bank had simple governing principles. Adulterated coins were the same scourge in mainland Europe as they were in England, and a vast variety—some eight hundred different denominations of gold and silver coins—circulated. Currency could be exchanged in every town and at every fair throughout Europe, but in Amsterdam the bank took deposits in local and foreign coinage, weighed and assessed them for their purity, and in return issued credit notes or bank money—a form of paper money—representing the
intrinsic
value of the metal content of the coins rather than their nominal face value. The bank money, Law astutely observed, provided hefty benefits: “Besides the convenience of easier and quicker payments . . . the bank save[s] the expense of cashiers, the expense of bags and carriage, losses by bad money, and the money is safer than in the merchants’ houses, for ’tis less liable to fire or robbery.” The bank guaranteed credit notes and in its turn was endorsed by the state. Since the value of the notes was assured, the public preferred them to conventional coins, and they usually changed hands for more than face value.
Amsterdam’s bank was not the first to turn to paper as a substitute form of money. Paper notes were invented, like so many ingenious artifacts, by the ancient Chinese, who are known to have used them in the seventh century. In Europe, nearly a thousand years later, tentative trials had been made in 1656 in Sweden, where a Livonian, Johan Palmstruch, was given a royal charter to found a private bank, provided that half of his profits were paid to the Crown. Sweden was rich in copper but poor in silver and gold, and its currency included massive copper sheets, of equivalent worth to silver coin, but so heavy—as much as fifteen kilograms—that people carried them lashed to their backs or needed a horse and cart to transport them. In 1661 Palmstruch and his Stockholm Banco overcame this inconvenience by printing paper notes that represented the value of the metal currency, the first true circulating European banknotes as we understand them today. The project blossomed initially, but the temptation to overissue notes proved irresistible. Six years later, unable to redeem the notes it had produced, the bank foundered and Palmstruch landed in prison, only narrowly escaping execution.
Three decades later in America, there was a further foray into paper money. In 1690 the Massachusetts Bay Colony was forced to use banknotes to pay its soldiers after the failure of a military incursion into Quebec, which had been expected to yield
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