A Very English Deceit

The Secret History of the South Sea Bubbleand the First Great Financial Scandal

Malcolm Balen

Dedication

Karen, Mischa and Katya

Contents

Cover

Title Page

Dedication

Prologue

I | The Dome
II | A National Lottery, and a Rake’s Progress
III | Blunt Advice
IV | Walpole and the Maypole
V | Who Wants to Be a Millionaire?
VI | The New Economy
VII | Greed Is Good
VIII | Paper Fortunes
IX | Bonfire of the Vanities
X | Time and Tide and a Fall from Grace
XI | Not a Penny Stirring
XII | A Lasting Foundation
XIII | In the Darkness of the Night
XIV | Hall of Mirrors
XV | Friends in High Places
XVI | Doubtful and Desperate Debts
XVII | The Architecture of Eternity

Postscript

Bibliography

Index

Acknowledgements

About the Author

Author’s Note

Copyright

About the Publisher

Prologue

Even the Royal Family has joined the ranks of the dot-com investors hoping to make a fortune from Internet shares. Now it has emerged that the Queen has invested £100,000 in the Internet company getmapping.com. When it floats on the stock market next month, it’s expected to be valued at £40 million, so the Queen’s stake will be worth £1.2 million. But there’s growing concern about how successful investments in such stocks will be. An increasing number of City experts believe the Internet bubble will soon burst. Indeed many are comparing it with the first time a shares bubble fuelled by frenzied speculators burst.

Daily Mail, 20 March 2000

CHAPTER I
The Dome

It could be fair to describe what happened at the turn of the millennium as the Great Silicon Valley Swindle, a popular delusion that will take its place in economics textbooks alongside the Dutch Tulip Mania of the seventeenth century and the South Sea Bubble of the eighteenth. Investors appeared convinced that venture capitalists were capable of generating extraordinary returns on technology and consumer Internet companies. The effect was to drive up prices to ridiculous levels for companies that scarcely had business plans, let alone revenues or profits. The scale of subsequent value destruction is colossal. Most of the money that was invested in those twenty-four months is likely to be lost. When apportioning blame, it would be tempting to single out the venture capitalists. They, after all, are the ones who invested the money in business plans for ideas as ridiculous as online dog food.Financial Times, 20 August 2001

London, 1710.

The city is reaching for the heavens.

More than fifty steeples point towards the sky, raised arms above the dark, narrow streets whose dwellings are so low they appear to be at prayer. From the Thames-side terrace at Somerset House, there is a breath-taking sight – the architectural clutter of later centuries is not yet upon us. Lead and stone, cupolas and towers, crosses and columns stand exuberant against the sky. There is, perhaps, a gentle breeze, carrying with it the smell of sea-coal from the north of England which the bargemen are unloading on the river.

Downriver lie the two domes of Greenwich Hospital, identical twins along the water’s edge, each with a supporting army of columns. To the east, in Cheapside, more than two hundred and twenty feet up, a bronze weathervane in the form of a dragon swings gently in the wind. Below it stands the pencil-slim elegance of St Mary-le-Bow. As the church rises beyond its square tower it narrows sharply: a temple of simple columns yields to a balustrade, above which, tapering together like fingers, a dozen stone bows are gathered. The church soars skyward, ever slimmer, until the steeple touches the dragon’s feet. For the elegance of its buildings, and above all for this, the most beautiful of his creations, the city gives thanks to the genius of Christopher Wren, whose brilliance has led him down a path of magnificent architectural variety in the rebuilding programme he has inspired since the Great Fire. He is a mathematician first and foremost, but over the years he has trained himself as an architect, absorbing style and simplicity from France, Italy and Holland, but showing a uniform adherence to the influence of no one but himself.

No sooner has he completed St Bride’s in Fleet Street with an octagonal stairway, four steps high, than he tops Christ Church in Newgate with a square one; to St Magnus Martyr he gives an octagonal tower, and to St Vedast in Foster Lane a concave crown; most dramatically, he allows St Martin to rise above Ludgate with an octagonal tower topped by the longest, slimmest steeple of them all: a black lance to pierce the sky.

But its sharpness on the eye is blunted by the great grey shield of St Paul’s Cathedral which curves towards the clouds. As yet unfinished, its incompleteness serves only to emphasise human frailty and humility which its eventual perfection will deny, sealing off the worshippers, separating them from direct contact with God. The church roof is open to the elements and inside workmen are still perched on scaffolding in the chancel, making mouldings above the vaulting. In a large hut, sculptors are at work on statues which will stand in the space before the church – Queen Anne in white marble on a black pedestal, and round her the kingdoms of her domain. Sir Christopher himself can be seen, clambering into a basket to be hauled skywards to inspect the progress of this monument to his brilliance, an ascent he makes three or four times a week. It is his lifetime’s work. From start to finish, he has overseen his cathedral’s rise from the ashes of the city.

The dome to which he is travelling has an inner and an outer part, constructed like two layers of an onion skin so that if Wren was somehow able to peel away the outer covering, a cupola would still remain, resting on eight piers whose arches form the Whispering Gallery where the dropping of the lightest coin of the realm can be heard more than a hundred feet away. And it might be appropriate on this day, as Big Tom strikes the hour in the cathedral tower, if a coin was dropped in this temple, if the outer skin of the roof was peeled away, to reveal the true object of England’s worship. Not St Paul, carved above the central pediment and the great oak doors, nor God himself, but money.

For below Wren’s feet, among the busy maze of streets where some of the capital’s thousand hackney carriages and chairs jolt past, the early signs of financial madness can be detected. This is the kingdom of the ‘moneyed-men’, the stockjobbers who buy and sell their shares in the coffee houses, which are the heart of London’s new financial district, where not just coffee but tea, chocolate, sherbert, sherry and pale ale are consumed and where news spreads as quickly as the Great Fire itself.

Coffee houses are the most popular public places in London: there are more than two thousand of them, the preserve of men who wish to while away the hours free of the opposite sex. Inside, there are long tables and benches, a roaring fire in the hearth, lines of clay pipes and newspapers spread out to read. There is a warm, secure fug of smoke, and drink, and chatter. It is a male club, where the species can protect its own and ignore the world outside, especially the despairing women who once campaigned ‘against coffee and The Grand Inconveniences to their Sex from the Excessive Use of that enfeebling Liquor’.

The terrain of the moneyed-men, marked out by the coffee houses, is small but profitable, a series of narrow passageways called Exchange Alley, which lie within the maze of narrow streets captured at the intersection of Cornhill and Lombard Street. A minute and a half is all it takes to walk through this lively, noisy financial centre, hemmed in on each side by tradesmen and barbers, lawyers and insurance clerks. On the second floor of Wren’s favourite coffee house, Gangway’s, there is a sale room where the jobbers ply their trade from a rostrum between the hours of eleven and three. Nearby, just down the street, is an upstart bank, grown lean and sharp from the days when it was an import company bringing in the Huguenot steel, which was favoured by swordsmen over its English rival. The bank has expanded through land speculation in Ireland and stands on the brink of power, aiming now to cut down its two rivals, the young Bank of England and the East India Company. In this respect, its name does not disguise its intentions. It is the Sword Blade Bank.

The buying of stocks and shares in Exchange Alley is, as yet, in its infancy. The trade was carried out previously in the Royal Exchange, a stockjobber’s shout away on the other side of Cornhill, but this discomfited the traders in the country’s more conventional merchandise, such as their largest export, wool. So the broken moved to ’Change Alley, as it is known, taking with them their ceaseless noise. Here, the practitioners are already versed in the notion of buying and selling more than they can afford. It is the fashionable new form of gambling. There is a growing sense that shares will go ever upward, like one of Wren’s perfectly balanced spires.

The dealers are raucous and seedy, unscrupulous and rough. Their aim, in the saying of the day, is ‘to sell the bear’s skin before they have caught the bear’: they are selling stock before they have paid for it in the hope that they will be able to meet the cost from the profit – or ‘bubble’ – on the deal. One anonymous observer on a journey through England in the year 1710 watches the moneyed-men of’ Change Alley at work, and reports on the scene to a friend abroad in a series of letters; in one, he comments: ‘You will see fellows, in shabby clothes, selling ten or twelve thousand pounds in stock, though perhaps he mayn’t be worth at the same time ten shillings, and with as much zeal as if he were a director, which they call selling a Bear’s-Skin; and these men find Bubble enough to get bread by it, as the others do by gaming; and some few of them manage it so as to get pretty large estates.’

So the city-dwellers go about their money-making schemes, heads down and voices loud, and ignore Wren’s masterpiece as if it has no connection with their lives. And the truth is that it has little: the cathedral belongs to a world which they do not inhabit; it is a beautiful object of refinement and contemplation in the midst of the daily dirty struggle to survive: to earn enough to eat, drink and keep clean. As they walk, London’s citizens keep close to the walls of buildings, fearful of the water which cascades out of crude spouts from each roof; more fearful still of the sewage pumped into the gutters of the street when the houses’ wells are full.

The pavements are crammed with stalls, sheds and signposts; where they end and the road begins is hard to tell: there are no kerbstones to separate the path from the carriageway, although on the wider streets there is a line of posts and chains or wooden palings. The wide expanse of Tottenham Court Road, stretching north, has been paved for only a few years. London is not all that Wren would wish. ‘Natural beauty is from geometry,’ he has declared, ‘consisting in Uniformity and Proportion. Always the true Test is natural or geometrical Beauty.’ But the city is untidy, disorganised, unsymmetrical, full of chaotic winding streets that snake round and disappear. It is a jumble, a jungle, a teeming maze where the people live cheek by jowl – half a million of them, nearly a tenth of England’s population, crammed together in a city that has not yet spread. Piccadilly, to the west, marks its furthermost boundary.

But the capital is not just a commercial and trading centre. It is a gambler’s paradise. In the inns, bets are taken on brutal, bloody sports: bull-baiting, bear-baiting and cock-fighting, the vicious pastimes of a nation frequently at war. One German visitor to London in 1710 notes, with surprise, the aggressive nature of the English crowds:

In the afternoon we went to see the cockfighting. This is a sport peculiar to the English … a special building has been made for it near ‘Gras Inn’. The people, gentle and simple, act like madmen, and go on raising the odds to twenty guineas and more. It is amazing to see how the cocks hack with their spurs. Their combs bleed terribly and they often slit each other’s crop and abdomen with the spurs … they belong to great Lords who have brought them from Kent and other places and win a great deal of money by their wagers. Towards evening we drove to see the bull-baiting. First a young ox or bull was led in and fastened by a long rope to an iron ring in the middle of the yard; then about thirty dogs, two or three at a time, were let loose on him. Then they brought out a small bear and tied him up in the same fashion. As soon as the dogs had at him, he stood up on his hind legs and gave some terrific buffets. But the worst of all was a common little ass who was brought out saddled with an ape on his back. The ape began to scream most terribly for fear of falling off.

Later the same traveller watches two men fighting for money at the Bear Garden at Hockley in the Hole, on the outskirts of town by Clerkenwell Green, cheered on by spectators who crowd into the galleries of raised seats.

They went for each other with sword and dagger and the Moor got a nasty wound in his hand, which bled freely. When they had attacked each other with broadsword and shield, the good Moor received such a dreadful blow that he could not fight any longer. He was slashed from the left eye right down to his cheek to his chin and jaw with such force that one could hear the sword grating against his teeth. Straightaway not only the whole of his shirt front but the platform too was covered with blood. The onlookers began to cheer and threw down vast quantities of shillings and crowns.

London is a brutal, dirty, lively, joyous place. Plague and fire, and civil war, have done their worst and departed; fear of God is subsiding. Life is rushing back.

But there are warning signs that the established order can still be threatened, that England may not yet be built on firm foundations. Behind the remains of the Palace of Whitehall, torched by a recent fire, lie the marks made by the scaffold where Charles I was beheaded. And despite the splendour of Wren’s church-building, the view from Somerset House is deceptive: a thin layer of dirt has gathered upon his stonework. Already his masterpiece is tarnished, blackened by the smoke from the sea-coal, shipped from the northern mines. The coal, named from its journey rather than its origins, is taxed when it is unloaded at the Port of London in order to raise money to rebuild the city. But it is slowly eating into it instead, discolouring its buildings, clogging the nostrils of its people, coating their tongues and clouding their eyes.

Wren’s professed aim was to defy the corrosive elements and stretch across the centuries, ignoring fashion to appeal to an ideal, immutable form of design. He insisted: ‘Architecture aims at Eternity; and is therefore the only Thing uncapable of Modes and Fashions.’ His great vision was of a cathedral dome that would be grander than any other, capping not only St Paul’s, but his career. It would signify, architecturally, the might of the capital and the grandeur of England. It would lift spirits. And it would celebrate the stability of the country, its monarchy and people, after the trials of the Civil War and then the Glorious Revolution of the previous century.

For all his splendid dreams, however, it was as hard for Wren to raise money for his great project as it was to quarry the blocks of stone for the cathedral’s construction. The Act of 1670 which allotted St Paul’s four and a half pennies in tax for every chaldron, or twenty-five hundred-weight of coal, brought it only some £4,000 a year, and in 1677 the cathedral’s commissioners were forced to mount an appeal to the nation. Even the monarch was enlisted to the cause. Sermons were preached around the country, collections taken, and gradually the ordinary people sent in their pennies and their pounds to the rebuilding fund. Still, the greatest building the country had seen was in danger of being left uncompleted – until the workmen themselves came up with the solution: they suggested that their wages should be considered as a loan to the building project, and they would work instead for the interest on the money they were due. By the end of 1697, more than £24,000 was owed to them, including £1,500 to the master carver Grinling Gibbons. The cathedral slowly rose.

Thirty years after he first started, Wren’s task is nearly done. Above the Derbyshire lead and Kentish timber of his dome, a ball and lantern top out his mighty work, three hundred and fifty-five feet above the streets. His is the largest, most beautiful cathedral in England, a fitting homage to the patron saint of the City of London whose wealth has helped make the country one of the grandest on the globe. Out of a total of three-quarters of a million pounds, it has cost Sir Christopher Wren £2,000 of his own money, a small fortune for the times.

Soon, however, such a sum will appear to be a trifle. The financial world is about to be turned upside-down in the streets below.

Ten years after Wren completed his cathedral, to mark his vision of eternity, a city which had survived plague and fire to prosper as a mercantile centre – a city which, to the untrained eye, had risen gloriously from its ashes – was beginning to live only for the moment, chasing financial liberation by buying shares in extraordinary new projects that had no foundation. The Age of Reason, which held that science could explain all, was giving way, indeed was being unceremoniously elbowed aside, by the Age of Insanity. The country was rushing headlong into enterprises founded on little more than an understanding of human greed and corruptibility. By speculating on the stock market, a humble bookseller trading near the cathedral churchyard would win a third of the total cost of building St Paul’s.

An age inspired by the genuine achievement of men like Christopher Wren and Isaac Newton had the misfortune to collide at full speed with the age of the moneyed-men. Hundreds of projects were launched in these vertiginous times. Here was invention, inspiration and downright fraud, all merging in a pot-pourri of frenzied activity. Schemes arose thick and fast with just enough scientific credibility to fool the layman. ‘Projectors’ – as such speculators were known – were held to want money

For a wheel for perpetual motion

For extracting silver from lead

For carrying on a trade in the river Oronooko

For trading in hair

For paving the streets of London

For furnishing funerals to any part of Great Britain

For insuring and increasing children’s fortunes

The country appeared to have discovered a new industry with new rules of credit which held out the prospect of immense riches, removing traditional class barriers to wealth. It was an exciting, vibrant era in which huge fortunes could be created overnight by a simple share launch.

One of the most famous projects was launched by James Puckle, who designed a flintlock machine-gun for making a ‘total revolution in the art of war’. The Puckle gun was mounted on a tripod and fired nine shots a minute, one after the other and three times faster than a soldier’s musket. Puckle had two versions of his design. One weapon, intended for use against Christian enemies, fired conventional round bullets. The second, designed to be used against the Muslim Turks, fired square bullets, which were believed to cause more painful wounds.

But some of the schemes were not half as sensible as this. There was even said to be a ‘Company for carrying on an undertaking of Great Advantage but no-one to know what it is’. Crowds of investors were reported to have surrounded the company’s office in Cornhill, snapping up shares at £2 each. Some of the schemes were swindles, others were hoaxes – not with a view to making money but simply to illustrate the country’s madness. Spread by greed and by the newspapers’ zeal in reporting daily on the changing prices of shares, the new way to make money without having to do an honest day’s toil appeared to be obsessing the whole country.

Speculators scrambled to invest in the thousands of new projects, launched in the wake of the grandest scheme of them all, a scheme which would grow to such a size it seemed as if there was not enough money in the kingdom to support it. Some would make or lose up to a quarter of a million pounds in the madness of 1720, when shares in some ventures rose as high as the cathedral itself. Few investors kept their feet firmly on the ground; many felt under pressure to join in as they watched their neighbours climbing a new social ladder through the sudden acquisition of riches. Politicians, the clergy, landowners and the poor all joined in the scramble. Social mobility appeared to race out of control, with barriers between the classes seemingly removed by the chance of easy money. Women, defying convention, invested too – to claim, albeit briefly, an equal place in society. A there porter in Exchange Alley was said to have made £2,000 – ten times the annual income of an entire well-to-do family and a hundred times his own likely yearly earnings. Investors flocked to Britain from Holland and France. The canton of Bern in Switzerland made a corporate decision to invest. The streets of Exchange Alley heaved with desperate souls seeking to place their money in the mushrooming schemes. Fortunes, it appeared, could be made overnight.

The story of the events of 1720 holds more than just the elements of greed and pathos. It was, to those on the edges of the affair, so ridiculous that it inspired a generation of satirists to make fun of the human condition. And it was cruel, causing suffering among many families across the land. Ultimately, it showed England at its most corrupt, exposing the poisonous underbelly of the monarchy, of the ruling classes and of the elected politicians.

The three actors in the drama would be John Blunt, the aspiring son of a Kent shoemaker; John Law, a Scottish gambler; and Robert Walpole, a scheming Whig politician from Norfolk with an ambition as large as his girth. Blunt and Law would, in very different ways, lead the search for the alchemy that would overturn the vast debts of two nations and fill ordinary people’s pockets to overflowing. From 1710 to 1720 their careers would collide, and the impact would change the political and economic direction of two great countries, England and France. One was a shallow schemer, who conned a nation; the other a brilliant economist, far ahead of his times, whose intellectual theories blinded him to reality; but both would be condemned as charlatans when their inventions failed. On the backs of their triumphs and disasters, Walpole would, through cunning and ability, rise to unparalleled political power.

When reality returned, as inevitably it would, the old industries of shipping, farming and land-ownership, too dull for the exciting times of the stock-market ride, would once more be seen to be the places to put hard cash. The same would be true of the trade of which Wren was the architectural master: bricks and mortar would come back into favour. Those who had transferred their allegiance to the share market would be left to bemoan their fate and mourn their thumping losses. The Duke of Portland quietly applied for, and was granted, the governorship of Jamaica. A more ignominious position for a member of the eighteenth-century aristocracy can scarcely be imagined. But he needed to draw a salary.

CHAPTER II
A National Lottery, and a Rake’s Progress

Edwin Thrasher was stony-broke before he won, and one day he touched the ring that his father left him when he died, and said, ‘Dad, please send me some money.’ That afternoon he won £50,000 on an Instants scratch card. ‘Fun Facts About Winners’, the UK National Lottery website

With hindsight, it was five shillings’ worth of metal that changed the course of history.

In April 1694, in the London suburb of Bloomsbury, two men walked purposefully out of a tavern, glancing around in case there were any bystanders. Within a few paces, they had drawn their swords to settle their differences over a woman they both loved. It was over as quickly and silently as it began. The younger man made a single quick thrust; his rival fell to the ground, and was left dying, alone in Bloomsbury Square.

Within a day the survivor was arrested and thrown into Newgate jail. Within a fortnight he was in court to hear the charge against him: that ‘of his malice aforethought and assault premeditated he made an assault upon Edward Wilson with a certain sword made of iron and steel of the value of five shillings with which he inflicted one mortal wound of the breadth of two inches and depth of five inches, of which said wound the said Edward Wilson then and there instantly died’.

John Law, ‘Beau’ Law, scion of the Laws of Lauriston, gambler and ladies’ man, was sentenced to hang. There was little time to lose if his life was to be saved. According to the official version of events, Law was handed the means of escape by friends: they managed to supply him with a file with which he cut through the bars of his cell; also, drugs which he somehow managed to slip into his guards’ food or drink, to put them to sleep; and, for when he had achieved both these tasks, Law’s friends had a carriage waiting outside the prison, ready to whisk him away. Shortly after New Year’s Day, 1695, Law jumped thirty feet from his prison wall, and, although he apparently sprained his ankle on landing, he made it to the carriage and was promptly driven to the coast and smuggled aboard a boat to Holland. It appeared, in every detail, to be a daring escape, and one which became more and more colourful in the telling.

Soon afterwards, the newspapers were supplied with this description of the man on the run: ‘Captain John Lawe, a Scotchman, lately a prisoner in the King’s Bench for Murther, aged 26, a very tall black lean Man, well-shaped, about Six foot high, large Pockholes in his Face, big High-Nosed, speaks broad and low, made his Escape from the said Prison. Whoever secures him so he may be delivered at the said prison shall have £50 paid immediately by the Marshal of the King’s Bench.’ Descriptions can be misleading: Law had a clear complexion, and his nose was not large. Nor was his voice broad and low, and neither, for that matter, was he a captain. It appeared that influential friends had persuaded the newspapers to run a misleading description. Escape routes from justice, in the seventeenth century, could be arranged for the influential.

For the best part of two decades, John Law would wheel around Europe in exile. A quarter of a century would pass before he returned to London to receive a royal pardon. A quarter of a century in which he became the most important politician in Europe, a millionaire who invented a financial system that would capture the shattered economy of England’s greatest enemy and transform it into the most powerful in the Western world.

Many countries, but especially England and France, had empty coffers and restive taxpayers, mainly because they had failed to shake off their habit of waging expensive wars against each other. Since 1688, the English government had been almost permanently in combat against the French and Spanish. As the wars ground on, so the national debt had spiralled out of control, matched only by the harshness of the taxes on the country’s landowners and the crippling generosity of the government’s rate of interest to its moneylenders. All men were ‘led by their profit’, declared the banker Sir Josiah Child. The new breed of unprincipled, self-serving ‘moneyed-men’ was doing fast business in the coffee houses of’ Change Alley, growing fat on the interest on their loans.

In 1693 Parliament, for the first time, had guaranteed the government’s debt, removing the responsibility and authority for it from the monarch. The cost of borrowing money soon came to dominate political life. Within a year, in April 1694, Parliament voted to establish the Bank of England as an expedient to get the government out of financial trouble. Under its charter, the Bank was required to lend more than £1 million to the government, although in return it was guaranteed a profitable 8 per cent interest a year on its money. The Bank was also given permission to issue its own paper currency, and soon Exchequer bills and promissory notes were introduced to manage the debt.

Trading companies, too, were tapped for loans by the government. The East India Company was forced to pay heavily for its charter: £2 million in 1698 to see off a rival syndicate, and another £1 million in 1708 when these two companies merged. The Bank of England and the East India Company were the country’s two great financial institutions, the pillars of the City, the props on which a financially enfeebled government relied. They sharpened the divide between the landowners who paid tax and the moneyed-men of the City. But as for signs of progress in the great wars for which all this money was being spent, there were none.

The country considered it was fighting for its independent future, both politically and as a trading nation. The changing alliances in Europe were as complicated as the fighting was interminable, but England had, for some twenty years, battled to bring Louis XIV of France to heel, to stop him from dominating Europe, and it hoped, too, to capture the valuable trade in gold and silver with Latin America. During the course of the conflict, international allegiances had shifted like the sand, washed away by many deaths and many broken promises.

For more than twenty years there had scarcely been a break in the campaigning season, and still the roll-call of valour and ignominy was evenly balanced: a desperate defeat at the Battle of Beachy Head in 1690; a famous victory over the French fleet at La Hogue in 1692, triumph at Barcelona and Vigo Bay, failure at Brest and Cadiz, then success at Blenheim, Ramillies, Oudenarde and Tournai. On and on went the wars, a ghastly and never-ending ritual punctuated only by the failure of desultory peace proposals. All this was scarcely a good return on England’s crippling taxes. More taxes are calculated to have been imposed between 1702 and 1714 than in the previous three reigns put together. The writer Jonathan Swift, who backed the Tory politicians who opposed the wars, noted in his Journal to Stella that ‘few of this generation can remember anything but war and taxes …’tis certain we are the most undone people in Europe’.

As the wars rumbled on, an army of two hundred thousand men had to be supported, and inevitably the greatest burden fell on the landowners. They were forced to hand over a fifth of their income in land tax to pay for the war effort, which they did reluctantly; and they faced heavy local taxes too. So desperate was the government for money that it would regularly raise loans on the future collection of taxes, rather than waiting for the money to come in. The battle with the enemy across the Channel was eventually reflected in a fight for the political control of England, for the grass roots of one political party – the Tories – lay in the old landed interest and the conservative rural squirearchy, which wanted peace; while the Whigs, whose leadership was aristocratic and who were in a majority in the House of Lords, had come to represent the new financial and mercantile interests which were making money from the war with France.

Taxes, however, were not the only source of revenue to a government in financial difficulty. The Whig government had tried to capitalise, on behalf of the Exchequer, on the rage for gambling. It launched a national lottery in 1694, selling tickets for £10 each, with a first prize of £1,000 a year for sixteen years.

The national lottery was not a lottery as we understand it today, because the competitors could not lose. Purchasers of tickets were automatically entitled to a government annuity, an annual payment at a fixed rate of interest for many years ahead, in return for the money they had subscribed through the lottery. But, in addition, if they were lucky, they could win a much bigger sum. Rather than a game of chance, the lottery was a device to attract people to lend money to the government for a guaranteed rate of return, but with the bait of prize money. It was an exercise in creating a cash flow for the government, rather than a profitable enterprise for the Treasury. Adventurers, as they were called, bought tickets which entitled ‘the Bearer to an annuity of one Pound or (by Chance) to a greater yearly sum for Sixteen Yeares’. It was worth taking the chance: no stake money could be lost, and there were 2,500 ‘fortunate’ tickets, with one prize of £1,000 a year, nine at £500 and twenty at £100. The bulk of the prizes, two thousand in all, were worth £10 yearly to the winners.

For gamblers, the national lottery draw was as popular in the seventeenth and eighteenth centuries as it is today. The draw took place in front of excited crowds in a public place, sometimes at the Banqueting House in London. Two huge wheels, more than six feet high, turned slowly in the centre of the floor. As they rotated, a large wooden box, containing thousands of tickets, started spinning, then faster and faster until it became a blur. At a given signal the wheels were halted, and, when the box stopped moving, the winning tickets were removed through its small wooden doors.

In 1710, a German visitor to London, one von Uffenbach, the traveller who had also witnessed the country’s blood-sports, watched a lottery draw and was struck by the scale and professionalism of the enterprise. Then, as now, it was vital to prevent fraud. Twenty members of the lottery team sat at long, narrow tables to cut up the tickets, which were engraved in copper and printed by the sheet, with intricate flourishes pricked out around the numbers. To guard against cheating, the sheets were firmly screwed down to the tables, and cut with penknives, using perforated rulers so that the tickets had a jagged edge. When a winner claimed a prize, his ticket, and that held by the promoters, were put together to see if the two matched. ‘The most curious things of all,’ noted von Uffenbach, ‘are the two great machines into which the tickets are thrown, jumbled together and drawn … The machine was a great round box of excellent workmanship, which was suspended in the middle on two iron nails, so that it could be turned round easily with little trouble by means of the iron handles at the side.’

The lottery held out the prospect of riches and social advancement impossible via humdrum work. Newspapers trumpeted stories about the lucky winners in their columns, stoking up people’s hopes that they too would get rich quickly – that, in a game which required no skill, it might be their destiny to become wealthy.

The lottery merged seamlessly with the culture of gambling on the stock market and soon the stockjobbers were dealing not just in shares, but in lottery tickets too. The lottery also infected the age, helping to spark hundreds of seedy schemes and scams. The advertising columns of the press were filled with get-rich-quick schemes run by people from all walks of life. Epsom had a lottery ‘performed by Mr Cope the undertaker’. Bellamy’s Chichester Lottery offered a £500 prize for a five-shilling ticket. There was a ‘New Monthly Chance’ in which it was ‘impossible for the adventurer to lose all his money’, the draw to take place at the Barbadoes Coffee House in Exchange Alley. ‘The Fair Adventure or Even and Odd’ claimed to have 5,000 prizes, out of only 10,000 tickets, ‘The New Golden Adventure’ a prize for every four tickets. A lawyer from Middle Temple organised a lottery to sell his law books; a chemist ran a lottery advertising his medicinal wares: ‘Warham’s Invention: where all are winners’. Women, too, seized their opportunity. In the Flying Post of 26 May 1698, this advertisement appeared: ‘A New Lottery, call’d, The Lady’s Invention; or Six Pence well ventured; Whereby the Adventurer, if fortunate, for 6d only, may get £1000 and £2000 for 1s 6d … This being an Invention of the Female Sex, several Ladies of Quality have ventured considerable Sums in it. Tickets to be had at most eminent Coffee-Houses’.

This last was almost certainly a fraud, one of many which forced the Whigs at the turn of the century to ban lotteries altogether. But the damage had already been done. The lowest return on an initial investment in the 1694 lottery was 60 per cent. It was simply storing up financial trouble for future generations, which would have to repay the debt. In effect, the wars were being paid for on the never-never, the result of a tacit conspiracy among the politicians to pay high rates of interest on huge debts which could never be quitted. But the rules were about to change.

In 1710, after much manoeuvring behind the scenes, the Tories wrested power from the Whigs. The new Chancellor of the Exchequer, Robert Harley, had become Queen Anne’s favourite, not least because he had befriended her chambermaid and through her had insinuated his way into his monarch’s affections. But he had also managed to overturn the government because, unlike the Whigs, he was pledged to peace. The task facing Harley was enormous and could be measured by the debts he had inherited. In total the government owed more than £8 million, of which the Navy alone owed half. Yet Harley could find only £5,000 in the Exchequer’s kitty.

One problem was that the size of the nation’s debt had outpaced the development of any centralised machinery to process taxes. The Treasury, for example, relied on sticks made out of hazel to account for its loans. These ‘tallies’, as they were called, were split in the middle and notched according to the amount of money that had been loaned, with the depositor retaining one half and the Treasury the other. Such was the country landowners’ belief in the financial incompetence of the outgoing Whig government that they were convinced the Treasury must have mislaid their money. Robert Walpole wrote that ‘in every coffee-house and ale-House I may hear it with confidence asserted that thirty-five millions were lost to the public during the late administration’. Though the rumour was false, it seemed too plausible not to be true – why else were taxes so high and still more money needed to feed the great maw of the military machine?

When he took office, Harley knew he needed a plan to bail out the country and keep himself in power. But to find the money he so desperately needed there were few places to which he could turn. Poor Harley found it was virtually impossible to borrow money from the Bank of England or the East India Company, because of establishment opposition to the newcomer in power. The Whig-dominated City thought a Tory government was bad for business and put obstacles in his way. The election of directors, too, both to the Bank and to the East India Company, was in the grip of the Whigs. The Governor of the Bank of England, his deputy and all twenty-four directors were all Whigs, as were twenty out of the twenty-four directors of the East India Company. The Bank had even tried to persuade the Queen to block Harley’s appointment, by giving her an ultimatum: if she sacked the Whig government it would refuse to hand over a £100,000 loan it had promised. The Queen stood firm and went ahead anyway.

So while the Tories had ousted the Whigs, they were effectively in office but not in power: they simply couldn’t raise the large sums of money they needed to replenish the Exchequer’s coffers. Grudgingly, the Bank granted Harley a £50,000 loan, only half the amount he requested. In these circumstances it was not surprising that Harley’s brother Edward maintained there was a conspiracy among ‘the Bank, stock jobbers and moneyed men of the City who are all engaged to sink the credit of the government’.

In fact, Harley could not even rely on support from within his own party. The more radical Tories, inflamed by the punishment of a radical cleric whose trial had been the catalyst for the Whigs’ downfall, wanted to impeach the previous government. Harley, who was a mainstream Tory rather than a High Tory, refused. Jonathan Swift noted: ‘The ministry is upon a very narrow bottom, and stands like an Isthmus between the Whigs on one side, and violent Tories on the other. They are able seamen, but the tempest is too great, the ship too rotten, and the crew all against them.’ Add together Harley’s struggle against the country’s overwhelming debts and the obstructiveness of the City, and there was every incentive for him to look outside traditional political or financial circles for new ideas. Unable to join the two main City institutions, he resolved to beat them. In these straitened times, it is unsurprising that he welcomed advice from outside the establishment.

Two men were to offer very different solutions: John Blunt and John Law.

John Law was well brought up and should have known better than to get himself into the trouble that had seen him exiled. His father, William, was a goldsmith who had made so much money from banking that he had bought two large estates, Lauriston and Randlestone, on the outskirts of Edinburgh. With Lauriston came a family castle, which William Law bequeathed to John along with most of his estate when he died in 1683. When John left school he took a keen interest in the business his father had left behind. At the same time, perhaps in the absence of paternal control, he began to develop a taste for women and gambling – becoming, as one contemporary put it, ‘nicely expert in all manner of debaucheries’. Luckily for him, women found him fairly irresistible: tall and dark, he was so good-looking they called him ‘Beau Law’ or ‘Jessamy John’, to indicate he was a fop or a dandy.

Law decided, while still a teenager, to try his luck in London, no doubt influenced by the stories he had heard of its racy social life. He moved into rooms in St Giles-in-the-Fields, a mixed area which included Bloomsbury and Covent Garden. In many ways, St Giles matched Law’s changeable personality: it could not quite decide whether it was respectable, including as it did many members of the fashionable set, or rough, with its narrow, dirty alleys which were home to Irish immigrants and French refugees. Here, Law lost no time in conducting himself in a way that reflected both sides of his character: he took a mistress, a certain Mrs Lawrence, but also made sure he made the acquaintance of Thomas Neale, the Master of the Mint and one of the leading ‘projectors’ of the day – the name given to men who promoted the cause of the new ideas and businesses that abounded in the capital. Neale was also Groom Porter to the King, which meant he was responsible for providing cards and dice at court. It was not hard to see why Law was keen to meet him.

Law spent most of his nights in the clubs and gaming houses of London. But he was no idle gambler. He began to investigate the odds of throwing a sequence of numbers with the dice, and studied the patterns of games like ‘hazard’ – a form of craps – which were very popular. His early calculations were not successful. He was forced to sell his castle, and his mother bailed him out by buying the estates from him. At the same time, Law kept up his interest in banking and in particular addressed the issue of whether a national bank should be established to take over from the goldsmiths, like his father, who generally held money for the merchants of the day.

The two sides of Law’s engaging personality were to collide – and in spectacular fashion. All his plans, and hopes for the future, were ended by the duel that he came to fight in Bloomsbury in April 1694.

His rival in love, Edward Wilson, was a man whose taste for high living exceeded even that of Law, and in the wake of his death his lifestyle became the subject of much comment in the newspapers, the London Journal declaring that ‘Mr Wilson was the wonder of the time he lived in; from low circumstances he was on a sudden exalted to a very high pitch for in a gay dress, a splendid equipage and vast expense, he exceeded all the Court. How he was supported, few (very few indeed) truly know; and those who have undertaken to account for it, have only done it from the darkness and uncertainty of conjecture. But in the midst of gaiety, he fell by the hand of the then private Mr Law, and not fairly neither.’

One theory for Wilson’s giddy lifestyle, which was based on no discernible income, is that he was the lover of Elizabeth Villiers, the mistress of the King, and that she was subsidising his standard of living. It may also explain why the King apparently took an interest in Law’s trial. However, the reports of the proceedings make no mention of Miss Villiers: ‘The matter of fact was thus. There was some difference happened to arise between Mr Lawe and the deceased concerning a woman, one Mrs Lawrence, who was acquainted with Mr Lawe; upon which on 9th of April instant, they met at Bloomsbury Square, and there fought a duel in which Mr Wilson was killed.’

Whatever the cause of the fight, the consequence was clear. Wilson lay dead, and Law had to flee for his life.

Law’s departure, though enforced, was not without its consolations. Exile proved profitable: within a few years he had made a fortune by gambling. He was not just making money – he was making his own money: so high were the stakes he placed that he even arranged for special gold counters to be minted. He was frequently to be seen arriving at the gaming tables carrying £6,000 worth of coins. Nonetheless he built up his wealth carefully, playing to a system and using his mathematical skills to calculate the odds. In Italy he won £20,000, and by the time he reached France in 1714, four years after Harley came to power in England, he had £90,000 to his name. He was seriously, independently, wealthy – the equivalent of a multimillionaire today.

But Law was not the dilettante his background suggested. While he was in Amsterdam, rather than simply trying to make money, though he did that too, he began to think seriously about it as a theory. The Dutch, too, had suffered from the financial problems with which Harley was wrestling in London. But they were far ahead of the English in their economic thinking. The Bank of Amsterdam, a government bank owned by the city, had been established specifically to help oil the wheels of commerce. Most countries faced the same problem, which was how best to guarantee the value of their currency. To try to secure a basis for international trade, a handbook was published listing the 500 gold and 340 silver coins which were circulating in the world. But traders complained that coins were frequently ‘clipped’ to reduce their metallic content, so their values fluctuated. England had been forced to call in all its silver coinage in 1696 and remint it, but paper money had been issued at an alarming rate to finance the war effort, out of all proportion to the coins in circulation.

The Bank of Amsterdam tackled the problem simply but effectively. It put the coins on the scales and allowed credit according to their real value, their weight, by replacing them with promissory notes. Such pieces of paper were, to all intents and purposes, early banknotes and they became a popular form of currency because their value was guaranteed: they could not be debased. Indeed, they sometimes changed hands at a premium because their value was always honoured. It made Law think: ‘This Bank is a secure place where merchants may give in money and have credit to trade with. Besides the convenience of easier and quicker payments, the banks save the expense of bags and carriage and losses by bad money.’

Law’s eyes were opened to the possibilities such a bank would bring. Why else, he considered, was Holland more prosperous than England or Scotland, even though it had fewer natural resources? Why else did its ships dominate both the North Sea and the South Seas? The reason, surely, was that the Bank of Amsterdam had loaned money to the Dutch East India Company, not in return for coins, duly weighed and bagged, but against its own assessment of the Company’s trading prospects and reputation. Indeed, the Bank actually owned half of the Company; it was effectively creating money by buying ships to carry out trade to bring back goods to make more money. It was a virtuous circle, and one which would not exist without the Bank.

Law began to work out his own theories concerning money, theories he would eventually get a chance to put into practice on a national scale. Holland was Europe’s largest printing centre and books were readily available, so during his exile he had read widely. For the moment, his thoughts were practical ones and confined to his writings. He set out to make his case for a paper currency, for a form of credit that could not be clipped, debased or altered in any form. His great revelation was that money was not intrinsically valuable. It was simply a means to an end, and one which ultimately reflected the strength, or weakness, of a country’s economy. ‘Money,’ he declared, ‘is not the value for which goods are exchanged, but the value by which they are exchanged.’ But Law did not want to remain an idle theoretician. He wanted to put his ideas into practice; and he wanted to return home.

Scotland was still, in 1705, constitutionally separate from England though it was moving towards union; the two countries shared the same crown, but had a separate government and parliament. So Law set his mind on persuading the Scottish Parliament, and by extension Queen Anne and her government, of his intellectual credentials to try to win his pardon. It was a back route out of exile and into London’s thinking.

Scotland’s great weakness was that it had separate commercial arrangements from England, and these arrangements had failed. Its economy had been shattered not by the wars which had eaten into the English coffers, but by overweening ambition and misplaced adventurism. In 1698, a Scottish fleet belonging to the Company of Scotland Trading to Africa and the Indies, known more popularly as the Darien Company, had sailed for Central America, backed by a fair wind, exclusive trading rights granted by the Scottish Parliament, and half the nation’s money. With great difficulty and considerable hardship, the adventurers established a settlement in Darien, in the eastern swamplands of the Isthmus of Panama. It was a disaster waiting to happen. Disease took hold; there wasn’t enough food; the settlers were divided among themselves. Then the Spanish attacked and captured the tiny foothold. Of the two thousand intrepid souls who set out on the Darien venture, only three hundred returned; and of the £400,000 investment, drawn from the Scottish economy, nothing was left. The dream of colonial trade had brought the country to its knees. There was to be no respite from the heavens. At home, the harvest failed again.

The Bank of Scotland, which had been founded a year after the Bank of England in 1695, with only a modest capital base of £100,000 sterling, was faced with a yawning trade deficit and dwindling reserves of gold and silver. It printed £1 notes, in order to meet payments with paper currency rather than metal, but it also revalued its crown coins, which were worth 5s 6d, to make them worth 6 shillings. In doing so, it succeeded only in producing a run on the bank, with so many customers trading in their banknotes for coins that they exhausted its reserves. By December 1704, payments had to be suspended, an ignominious blow to Scottish pride and financial independence.

In the eighteenth century there was little or no understanding of economic cycles, but Law, in exile, provided a full analysis of the problem and his own radical solution: he wanted to increase the money supply to produce full employment. His view was that the Bank should have carried out precisely the opposite process to the one it had implemented: it should, he thought, have devalued its coins by sixpence to make them worth 5 shillings. He predicted that customers would rush to exchange their crowns for paper notes before the rate changed. The vaults would have filled up with coins once more, and the danger would have been averted.

Law applied his mind to economic problems generally, and to Scotland’s in particular, in a forty-thousand-word document called Money and Trade Considered with a Proposal for Supplying the Nation with Money. It was an overview, written anonymously by a ‘Scots gentleman’ and printed and published in Edinburgh, of the role money played in trade, and the benefits that could accrue from a credit-based economy. But it was also, Law hoped, his ticket home.

Money and Trade is the work of a great thinker, but one who could express himself in everyday language. It is a treatise of startling clarity and economic insight, written by a man who was still just thirty-four. First, John Law established the historical background to the development of money: the use of barter, and the use of silver. Both depended for their basis on an analysis of supply and demand: ‘Water is of great use, yet of little value; because the quantity of water is much greater than the demand for it. Diamonds are of little use, yet of great value, because the demand for diamonds is much greater than the quantity of them. Goods change their value, from any change in their quantity, and in the demand for them. If oats be in greater quantity than last year, and the demand the same, or lesser, oats will be less valuable.’

Law may have been the first economic writer to use the concept of demand – he was certainly one of the first. He wanted to show how economies had outgrown the concept of bartering and even the use of silver. He pointed his readers towards what he considered to be the essential quality that money should have: stability. In contrast, he showed how the value of silver could change if supply outstripped demand, or if its quality was diminished. Sometimes there was too much of it, so its value fell, and sometimes it was debased by European governments. Instead, land was, in Law’s view, a more stable instrument of economic prosperity. Land was, he opined, more valuable than silver because it produced everything, and silver was only a product.

Law then moved on to the lessons he had learned first-hand in Amsterdam. Banks, he declared, offered the best method of improving trade and increasing the supply of money, because of the way they could facilitate credit. To move away from corrupted, debased coinage, he proposed the replacement of metal coins by banknotes: ‘The paper money proposed being always equal in quantity to the demand, the people will be employed, the country improved, manufacture advanced, trade domestic and foreign will be carried on, and wealth and power attained.’

Initially, Law proposed a land bank, where paper money would be backed by the value of land. Notes were to be issued by the bank to the value of land that was sold. As he developed his argument, the colonial ambitions of the trading companies, whose financial aspirations became so entangled with the economies of European countries at that time, were implicitly blown away: their search for foreign booty was effectively deemed by Law to be absurd. France and Spain were ‘masters of the mines’, leaving other nations to buy their silver at high prices even though they had ‘a more valuable money’ of their own – paper, backed by land. Truly, declared Law, ‘the nature of money has not been rightly understood’.

Inauspiciously, it was on Friday 13 July 1705 that the Scottish Parliament, riven by factional fighting, agreed to hear Law’s proposals for a land bank and paper money. But its main business that day, to Law’s misfortune, was to debate the possibilities of the union with England, and here Parliament’s hand was being forced both by the economic straits it found itself in and by the terms of the bill which had been placed before it. The proposed Alien Act was designed to allow the Queen to appoint commissioners to work for the union. But if the Parliament voted to reject the move, the Scots would be deemed to be aliens, and their exports to England banned. With the economy destroyed by the Darien venture, the bill was deliberately framed to concentrate minds. Law’s proposals would inevitably be seen, at best, as a radical alternative to union, and at worst as an irrelevant sideshow. Moreover, it was unlikely that any discussion in the Scottish Parliament could ever be straightforward.

Passions ran high. Two members became so exercised by the issue of paper money that they challenged each other to a duel. Finally, Law’s proposals were rejected: the forcing of paper money upon the country was deemed to be ‘unfit for this nation’. Instead of striking out on a radical solution to its economic difficulties, which arguably might have delivered the financial stability the country needed and with it independence, the Scottish Parliament chose the path of least resistance, concentrating instead on joining the country to England in the Act of Union. Under its terms, one Parliament of Great Britain would replace the two of Scotland and England. Self-rule would be ceded by a piece of paper; it could, just perhaps, have been established by paper banknotes.

For Law, this was a bitter blow. His theories remained academic and his future once more lay in exile. Without a royal pardon, he could not even return to Scotland if it was to be formally united to the English nation. Once more he appealed to the Queen; once more, on her government’s advice, she turned him down. Within weeks of the Scottish Parliament rejecting his scheme, it voted to appoint commissioners to arrange the union with England. Law was at heart a patriot who wanted to use his intellect to benefit his homeland. Thwarted, he could only turn his thoughts abroad, destined to circulate his economic theories among more accommodating heads of state who admired his genius and were content to ignore the youthful duel which had forced him into exile.

Within a few years, Harley’s new government in England, faced with the burden of its ever-growing war debt, turned to a man with no intellectual convictions whatsoever, but a burning desire to make money for himself.

CHAPTER III
Blunt Advice

George Soros became frustrated because his huge wealth seemed to give him no political influence in the West. He realized he needed to become a public personality. In the late summer of 1992, a time of great pressure on European institutions, he didso with a vengeance. He shorted, betting that the pound would not be able to hold its value against other currencies traded within the Exchange RateMechanism. On Sept. 16, with Soros and others selling pounds, the British government responded by raising interest rates 2 percentage points to attract buyers. By evening sterling had been forced from the ERM. Soros scooped up $1 billion from that escapade and became known all over the world as the Man Who Broke theBank of England. ‘I had no platform,’ he says today. ‘So I deliberately [did] the sterling thing to create a platform. Obviously people care about the man who made a lot of money.’Time.com, 1 September 1997

John Blunt was not a handsome man. He was fat and pompous, and a very different character from John Law. Unlike with Law, there would be no madcap chase for the wilder things in life, nor any occasion when, through gambling, he would have to sell his family home or be bailed out by his mother. He had one aim in life, which was to better himself through business. His would be a focused search for wealth and power. Unlike Law, he had no intellectual backbone – he simply had a desire to get rich quick.

But John Blunt did have one redeeming quality. Whilst he was loud and overbearing, he possessed great self-confidence, even charisma; he was on the make but charming – a man bursting with ideas and energy, who dominated any group. His gift was for making money, and he would prove himself to be an inspired promoter of companies. Within a decade he would become rich from backing a project to bring water into London, despite the rivalry of the New River Company, and another for the manufacture of linen. Within a decade, too, he would move closer to the political world, winning election in the City as a councillor in the Cornhill ward, which included Exchange Alley. Blunt was religious, a Baptist by faith, and as the years went by the three worlds of business, politics and religion would merge seamlessly to his advantage.

Blunt was the son of a reasonably well-off shoemaker in Rochester; but he had come up, if not the hard way, then via a route that was tougher than Law’s relatively privileged upbringing in Scotland. He had started his working life as a humble member of the Worshipful Company of Scriveners, serving his apprenticeship in Holborn, London. Fittingly, for someone who wanted to aim high, his company’s coat of arms was an eagle, coloured gold, standing on a red book, its wings raised, poised to soar. Blunt’s choice of profession may have been a deliberate step in his planned path to power and influence. The scriveners were originally a kind of legal assistant, calligraphers with a monopoly on the paperwork for buying and selling houses. Gradually this gave them inside knowledge of the business affairs of merchants and landowners, and they became brokers who negotiated loans, an early type of merchant banker or land speculator. Such was the range of their financial activities that they seemed to occupy no firm place in society; one scrivener might tidy up the legal affairs of large estates, to the chagrin of the lawyers, while another might make his living by acting as a moneylender.

It was, in all, a fitting profession for a man on the make. During his long apprenticeship to Daniel Richards in Birchin Lane, on the perimeter of Exchange Alley, where he wrote letters for a groat (or sixpence), Blunt built up a view of English society, steeping himself in the knowledge of who was rich and who was poor, and those who seemed well-to-do but were just keeping up appearances. But few scriveners became as rich as the goldsmith-bankers like John Law’s father, who could lend large sums on credit, and make much more in return. The motto of the scriveners through the years was Scribite scientes – ‘Write, learned men.’ For Blunt, this was just a means to an end. He wanted to be the exception to the rule that few scriveners rose to great wealth or eminence in the City. In 1689, at the age of twenty-five, he left his apprenticeship to seek out new opportunities. Within four months of leaving his apprenticeship, he was married, a first step on the ladder towards social respectability – the string of affairs which John Law had enjoyed was not for Blunt. His choice of bride was Elizabeth Court, who came from a solid Warwickshire family. Blunt had married above himself, but not indecently so. A second marriage further up the social scale, to the daughter of a former Governor of Bengal, would come later.

Blunt was seeking his fortune in an England humming with new ideas. In the 1690s, the moneyed-men, grown rich on lending to the government, had begun to promote an extraordinary range of companies. The catalyst had been the success of a sea captain, one Captain Phipps, who had salvaged Spanish silver by the ton and precious jewels by the sackful from the bottom of the sea off the island of Hispaniola in the West Indies. He returned to England in triumph and to an instant knighthood: his backers had made an extraordinary 10,000 per cent profit on the adventure, a sum close to £200,000 – many millions of pounds today. Inspired by the captain’s success, copycat diving companies had arisen by the dozen, many of which came to London to show off their new deep-sea devices in a public demonstration on the Thames. The novelist and pamphleteer Daniel Defoe invested, and lost, £200 in one diving firm; he also owned a brick and tile factory on marshland near Tilbury, and, more quixotically, seventy civet cats – a leading scientist had once advocated breeding them for the secretion of their glands, which was a basic essence in the manufacture of perfume. The many other projects calling for investors to back them ranged from the Night Engine Company, which patented a burglar alarm, to the ‘Company for the Sucking-Worm Engines’ which had invented a machine to put out fire. Until 1697 when the impecunious government debased the coinage, puncturing investor confidence and putting many firms out of business, the stock market thrived. One coffee trader, John Houghton, published a twice-weekly paper listing share prices, taking care to explain to his readers the mysteries of the new profession: ‘The manner of the trade is this: the monied-man goes among the brokers and asks how stocks go? And upon information, bids the broker buy or sell so many shares of such and such stocks if he can, at such and such prices. Then he tries what he can do among those that have stocks, or the power to sell them, and if he can, makes a bargain.’

In such a speculative age, Blunt, with his glib personality and gift of the gab, was a man of his time, just as Law was far ahead of it. His initial route to power was through a company whose original business matched the bellicose nature of the times: the Sword Blade Company.

At the turn of the century, the Sword Blade Company had spotted a gap in the arms market. The English rapier, heavy and flat, was considered both by combatants and by those who wished, more peaceably, merely to make a fashion statement, to be less effective and less pleasing on the eye than the French equivalent, which had a grooved blade. From 1691 the Sword Blade Company, helped by some imported Huguenot craftsmen, was granted a charter to make French blades in England. But the company was soon to widen its horizons and change direction. It moved to Birchin Lane, and John Blunt became its company secretary. Working with him were three men who would play leading roles in the development of the South Sea Company: the goldsmith Elias Turner would become the Governor of the Company; Jacob Sawbridge, the Deputy Governor; and the third was George Caswall, whose family had held the Leominster seat in Parliament for more than a hundred years.

The Sword Blade Company was a child of its aggressive times, an exploiter of the government’s financial difficulties, and the progenitor of the most corrupt financial institution the country was ever to spawn. The company’s first step was to buy up large tracts of Ireland, at the bottom of the market, acquiring for about £200,000 land worth £20,000 a year in rents. To bankroll its purchase, it decided to issue stock in the company. It did so in a complicated but highly profitable manner, announcing that it would exchange its stock not for money but for government debts called ‘army debentures’. Debentures were slips of paper given to people who had lent money to the government, a type of IOU issued by the Paymaster of the Forces to raise money for the constant state of war. The debts were unsecured, however, and had fallen in value since they first came on the market.

The Sword Blade’s idea was to call in as many debentures as it could from the people who had lent the government money, by offering them what looked like a profitable exchange deal. The debentures stood at 85 on the stock market, and their holders were offered, in return, Sword Blade shares worth 100. How then could the company make a profit? The answer was that it had, effectively, rigged the market through what today would be called ‘insider trading’. It simply bought up as many debentures as cheaply as it could before announcing its plans, knowing that the scale of its share-swap scheme would cause their price to rise. By this method, the company made an estimated profit of around £25,000. The government, too, was satisfied. As well as buying land from it, the company lent it some £20,000 at a low level of interest as a ‘sweetener’ to facilitate the business between them. Through its financial adventures it became the Sword Blade Bank. It was a key moment in its history, the turning point in what became a growing, and corrupt, entanglement with affairs of state.

The Bank of England looked on unamused. Its banking monopoly had been enshrined in an Act of 1697, and now it seemed the Sword Blade Company was acting as a land bank, not just as a land corporation. Treasury lawyers pored over the case, and pronounced in favour of the Bank, but no action was ever taken. The deal had been too profitable for the government. But there was worse to come for the Bank of England. A mysterious syndicate, its backers unknown but almost certainly including partners from the Sword Blade Company, offered to lend the government £1.5 million. The Bank could clearly see the danger of such a manoeuvre by its unknown rival. Its charter had only three more years to run, and only by offering to match the size of the loan, and by cutting interest rates to 4.5 per cent, did it see off the threat to its position. Its reward was the extension of its charter to 1732.

This early skirmish between the two rivals presaged what would be in 1720 their all-out hostility, and the government seemed to be the beneficiary, paying less for its money than before. But the charter’s extension still proved to be a problem for the Chancellor, Robert Harley. The government had, by confirming the Bank’s monopoly, tied itself to a single banking institution to raise money for its conflicts and, over the next three years, the Bank increasingly struggled to deliver. What else could Harley do?

In 1710, battling with the nation’s finances, he was impressed by the acumen of John Blunt, and the profit he was making. Harley began to discuss the issue of the national debt with Blunt in the hope of finding a radical solution. The first proposal that his new ally put forward, however, was distinctly traditional. Just five years after John Law had produced what would turn out to be one of the greatest analyses of the eighteenth century as a possible cure for Scotland’s economic ills, Blunt persuaded Harley to resurrect the old Whig solution of the lottery; and to let him run a far bigger game than the one which had captured von Uffenbach’s attention in the Banqueting House back in 1710, one which offered even bigger cash prizes and was more a game of chance. It would capitalise on the general fever for gambling and have the delightful side-effect, if it succeeded, of wresting some financial control from the Whig-dominated Bank of England. On 3 March 1711, the new lottery was launched.

Ostensibly, it was the traditional way of raising loans, to be paid back through yearly payments, or annuities, at a guaranteed rate of interest. One hundred and fifty thousand numbered tickets, costing £10 each, were to be sold, inscribed with the legend: ‘This ticket entitles the bearer to ten Pounds to be paid in due course with Interest to commence from the Nine and twenty Day of September One thousand seven hundred and eleven or a better chance’ – that is, a prize. Interest was to be paid at 6 per cent. But Blunt had made big changes to the scale of the prize money. There were 25,000 prizes to be won, with the smallest at £20 and the largest at a staggering £12,000. The first and last tickets drawn out of the box would win an extra £500. In total, more than £678,000 – nearly as much as it cost to build St Paul’s Cathedral – was to be given away in prize money. Not surprisingly, the lottery was a tremendous success. One knight of the realm complained to a friend who asked him to buy tickets: ‘You may assure yourself that I used my endeavours to have put your money in the Lottery, but it was impossible to do it though I was very early that morning in the City, and a vast number of persons was disappointed as well as myself … As for buying up tickets, I cannot tell how to advise you, such advantage is made of them by the stock-jobbers.’

John Blunt was on his way to the top, but at a price. The lottery was the first to raise huge sums for the state, triggering a succession of similar enterprises over the next decade, while weighing down the government with the annuities it was obliged to pay to the subscribers. By raising the stakes with such large prize money, the lottery also prepared the ground for the grand speculation of 1720. Eventually, there was to be an explosion of investment which made Wren’s continual pleas for cash to fund his dome seem like requests for loose change, rather than the serious financial commitment that Parliament invariably resisted.

After the triumph of his first lottery, Blunt immediately marketed his second, known as ‘the Adventure of Two Millions’ or ‘the Classis’. Never before had the state attempted to hold a lottery on this scale; the tickets cost £100, which was half the annual income of a middle-class family and ten times the income of a manservant. The top prize was £20,000, the equivalent of the multimillion-pound jackpot today. The tickets were within the reach of only the very rich, except when the stockjobbers sold shares in them. But Blunt’s revolutionary idea was to divide the draw into five ranks, or classes, each with a different level of prizes. In the First Classis (or section), 1,330 tickets would win prizes ranging from £110 to £1,000. Then the prize money was stepped up: in the Second Classis, 2,670 tickets would win between £115 and £3,000; in the Third Classis there were 4,000 prizes, from £120 to £4,000; in the Fourth Classis, 5,340 tickets would win £125 to £5,000; and in the final draw, the Fifth Classis, there were 6,660 winning tickets with prizes ranging from £130 to the top prize, again, of £20,000. In effect, there were five different lotteries, draw succeeding draw so as to build the excitement to fever pitch. If their number did not come up, investors would not know whether to be pleased or disappointed until the last ticket of the fifth and final draw was produced from the box to win the biggest prize of all.

The Sword Blade Company was in charge of marketing the game, and all the tickets were sold within nine days. In this short space of time, Blunt’s two lotteries raised £3.5 million. Some investors were either very lucky, or bought heavily: the Duchess of Newcastle won eleven times, the Dukes of Rutland and Buckingham eight times. In the Second Classis an apothecary from Reading, Robert Dean, won the top prize of £3,000; in the Third, a gentleman from Westminster, Thomas Layton, the £4,000 jackpot. In the Fourth, Thomas Scawen, an alderman from London, won the £3,000 prize; another London merchant, John Upton, £4,000; and a gentleman from Northamptonshire, John Hunt, the top prize of £5,000. In the Fifth Classis, ‘The Hon. Thomas Cornwallis of St Martins in ye Fields, esquire’ won £3,000; a London scrivener, James Colebrook, £4,000, and Samuel Strode, a London surgeon, £5,000. The final ticket to be drawn belonged to Thomas Weddell, a merchant of Gray’s Inn, who scooped the £20,000 jackpot.

Encouraged by their success, Blunt and Harley now set to work on their most ambitious scheme of all: to try to find a way to reduce the national debt. The government owed money everywhere, in a confusing tangle of loans. There were the goldsmiths and moneyed-men who had lent it money; there were the holders of lottery tickets, and the holders of the Treasury’s notched hazel tallies; then there was money raised by the Army, the Navy, the customs, the Commissioners of Victualling – the government’s obligations seemed endless.

Harley’s idea was to found a trading company. It was a move that appeared conventional enough. Trade and war were the unholy twins of commerce. It suited both the financial nostrums and the bellicosity of England to develop a new company which would trade abroad and, if necessary, kill natives in order to repatriate the proceeds. Daniel Defoe, who was a lifelong admirer of Sir Walter Raleigh, had long been captivated by the spirit of Elizabethan adventurism and impressed by the vast profits that Spain was still coining from its colonies. Galleons from Mexico and South America were held to carry dazzling cargoes of gold, silver and jewels, but Defoe had consistently argued that there was an even greater profit to be made if the trade was better managed. There is no evidence that Blunt and Harley were swayed by Defoe’s arguments, but he reflected the spirit of the times. There was, the pair agreed, a huge commercial prize to be won in South America, offering a ready market for English cloth, with an endless supply of gold and silver in payment.

But Harley was also taking a politically radical step: he intended the proposed trading company to become a new financial institution to rival the Bank of England and the East India Company. On 2 May 1711, when he announced the new company’s formation, he declared that not only would it trade in the South Seas but it also aimed to take over the ‘floating’ portion of the national debt, put at £9 million: this was the debt that could be paid off if the government had enough money, rather than the fixed sums it had agreed to pay to annuitants for many years ahead at generous rates of interest. The company would ask the government’s creditors to exchange the money they were owed, directly, for shares in the new trading venture. To help service the interest on the debt, the company itself would be paid more than half a million pounds a year by the government.

Harley’s spirits were high, and found a ready outlet in symbolism. The company was awarded a coat of arms, designed by the College of Heralds and emblazoned with the motto A Gadibus usque Auroram – ‘From Cadiz [still held to be the empire’s last outpost] to the Dawn’. And, in keeping with its heraldry, it was given a suitably grandiose, if overly optimistic, monopoly on trade. It was granted the right to the ‘sole trade and traffick, from 1 August 1711, into unto and from the Kingdoms, lands etc. of America, on the east side from the river Aranoca, to the southernmost part of the Terra del Fuego, on the west side thereof, from the said southernmost part through the South Seas to the northernmost part of America, and unto, into and from all countries in the same limits, reputed to belong to the Crown of Spain, or which shall hereafter be discovered’.

Ominously, however, there would have to be a peace deal with Spain and France if the lands which were ‘reputed to belong to the Crown of Spain’ were to yield their supposed riches to the company’s trading vessels. There were therefore two big catches: peace had to be struck on advantageous terms; and the conceded territories had to yield the fabulous wealth which it was so fondly imagined they possessed. The government’s propaganda machine, ably spearheaded by Daniel Defoe and Jonathan Swift, went into action. They printed lists of exports which might prove suitable on the markets of South America, from silk handkerchiefs to Cheshire cheese, and they spun stories of South American wealth, the ready market for exports and the generous profits to be made from the slave trade. Portugal had been actively engaged in the traffic in African slaves for more than two centuries; Spain had built a lucrative sugar empire by importing slave labour to the New World. Harley was right to think the profits could be immense: between 1698 and 1708 a stake in the Portuguese slave trade to Jamaica had earned the English government £200,000 a year in bullion. Within half a century, Britain would be shipping a third of a million slaves to the New World and the national economy would depend on the trade.

Aided by his propagandists, Harley’s plan succeeded in capturing the imagination of investors. Some of them were political opponents who saw a chance to make money. Some were Dutch or Italian financiers, some were merchants, some were goldsmiths. Blunt and his team of directors also bought thousands of pounds’ worth of shares, believing they would make their fortune from the enterprise. Intellectuals such as Swift and Isaac Newton held stock, as did a large number of women. So too, curiously, did government departments.

But if Harley was genuinely attracted by the bold adventurism of the project, by the prospect of faraway riches which would replenish the war-weary coffers of the Exchequer, there were to be other consequences far closer to home. Blunt had won for himself a political and financial lever, a place in society and a position in the City. The Bank of England, officially, might have managed to protect its position, but a rival had been born and – whether it considered it or not – the Bank could not predict what sort of creature it might become. A company which had begun life by making sword blades had turned to land speculation. From land, it was now venturing out to sea. Where next?

On 10 September 1711 the South Sea Company was formally created, with Harley as its Governor. Nine of the thirty appointments were political, and five came from the Sword Blade Bank itself.

Not one of them had any experience of trading with South America.

For now, the political and financial path which had led to the formation of the company appeared to be one and the same. Harley genuinely wanted peace with Spain and France, and believed he could extract, as its price, the right to trade in the southern seas. But first he had to negotiate a deal. Peace, if it was to be struck, had to be struck quickly, so as to enable the South Sea Company to trade successfully and pay off the portion of the national debt it had shouldered. Harley had already begun the process, but he had failed to inform Parliament, and he did not yet have its consent.

Harley had the support of his party and of the country: both thought the war had to end. But the Whig-dominated House of Lords was in a rage, and mobilised for attack. Their aim was to bring down the Tory ministry in a political contest that ranged the old aristocratic Whig order against the upstart who was running the country. In some desperation, Harley tried to delay the return of Parliament, which was in recess. But confrontation at some point was inevitable, a sure sign of which was the propaganda war unleashed by Harley and his pet pamphleteer, Daniel Defoe.

For polemical persuasiveness Defoe had few equals. In his pamphlets on The Balance of Europe, an Essay upon the National Credit of England, and in Reasons why this Nation ought to put a Speedy END to this Expensive WAR, where Defoe argued his most trenchant case of all, the ink flowed as thick and fast as the imagery:

How have we above twenty years groaned under a long and a bloody war? How often has our most remote view of peace gladdened our souls and cheered up our spirits. Our stocks have always risen and fallen, as the prospects we had of that amiable object were near or remote.

Now we see our treasure lost, our funds exhausted, all our public revenues sold, mortgaged, and anticipated, vast and endless interests entailed upon our posterity, the whole kingdom sold to usury, and an immense treasure turned into an immense debt to pay; we went out full, but we are returned empty.

But even with Defoe on his side, Harley faced a struggle to get his policy accepted. When he could avoid a vote on his peace moves no longer, he found himself defeated by a majority of one. His policy lay in tatters. But Harley was adamant that he would not be forced from office, and circumvented the Lords’ hostility by creating a dozen peers to back his peace policy, and with it secure the future of the fledgling South Sea Company. Emboldened, he moved against his Whig enemies by charging the Duke of Marlborough and Robert Walpole with corruption over the Army’s accounts, sending Walpole to the Tower.

For Harley it was now imperative to circumvent Parliament and strike a peace deal, whatever the cost. Despite the peace negotiations led by the poet and diplomat Matthew Prior the spring campaign against the French was about to start, with the Duke of Ormonde leading British, German and Dutch forces in Flanders. So the British politicians decided to sabotage their own battle plan. The allied forces were ordered by the leading Tory minister Henry St John, Viscount Bolingbroke, to avoid fighting. Worse still, and with official sanction, via a go-between he revealed the battle plan to the French foreign minister. Then he sent the infamous ‘Restraining Orders’ to the Duke of Ormonde: ‘It is the Queen’s positive command to your Grace that you must avoid engaging in any siege, or hazarding a battle, till you have further orders from Her Majesty.’ Ormonde was in an impossible position: he was the leader of an army which had been forced to keep the peace by not fighting at all. He was not even allowed to tell his allies, but was ordered to make excuses for the attack’s delay, until finally – to the amazement of the allies – the French and British announced their truce.

But the French now advanced on the allied army, capturing town after town, inflicting defeat after defeat on a force which, until the British treachery, had confidently expected to win the war. It was one of the most discreditable episodes in British history. It was peace, but not with honour. In the light of future events it was appropriate that it was on the back of this disgrace that the South Sea Company was launched. Bonfires were lit around the country to celebrate its foundation.

But political and financial interests now started, unnoticed, to spin apart. They were two halves of a lottery ticket which at first sight appeared to join but whose flourishes failed to match. In September 1711, Harley addressed the South Sea directors but, significantly, failed to admit he had abandoned his peace demands for trading settlements in South America. In January 1712, the South Sea directors, secure in their ignorance, informed Harley, now Earl of Oxford, that they wanted to raise an expeditionary force of four thousand soldiers, forty transport ships, twenty men-of-war, plus store ships and hospital ships. Harley, keeping his secret to himself, began to stay away from the directors’ meetings. By September, twelve hundred tons of merchandise lay rotting in London warehouses, awaiting dispatch to the South Seas.

In March 1713, eighteen months after he had conceived the South Sea Company, a peace deal was finally signed at Utrecht. Harley had triumphed over the old generation, steeped in war. But in return for the decades of fighting, Britain had won a comparatively trifling prize: a thirty-year slaving contract, and a licence to send a single merchant ship a year on a direct mission to one of the seven ports where the Company was allowed to set up trading stations, but not to establish settlements: Buenos Aires, Caracas, Cartagena, Havana, Panama, Portobello and Vera Cruz. Britain had won no territorial guarantees near the South Seas as a result of the peace treaty. The war was over, though, and Harley stood at last unchallenged on the political stage.

But the child of Harley’s peace project, the South Sea Company, was in fact becalmed. The next year, seven ships, including the Hope and the Liberty, carried more than 2,500 slaves – voyages financed by the Company raising £200,000 in bonds. But it never made a profit in its cargo of human flesh, not least because the Spanish charged such heavy taxes. Then Queen Anne declared that she had the right to keep a quarter of any profits. But the Company must take its share of the blame for its failure to make money: in 1714 it took woollens to Cartagena, where there was no market for them, rather than to Vera Cruz, where there was, so they were left behind to be eaten by the moths and rats. By default, if not intention, the Company had become nothing more than a financial corporation, a ship to float the national debt. As a trading enterprise, it effectively lay at anchor.

By 1713, Harley, too, was going nowhere. The political combination of middle-ground Tories he had put together had proved to be a temporary structure without firm foundations. Harley was hemmed in, too, on the other side, by the Tory hardliners in the October Club, whose members drank together in Westminster and proudly took their name from the month in which the strongest beer was brewed. Their constant harassment of the government to try to shake it out of its moderation on occasions ground the Commons’ business to a halt. With the war over, and with credit seemingly restored, Harley could not give his party what it most wanted: clear and decisive Tory leadership. He had not even managed to rid himself of the national debt: by the end of his rule, the government owed another £9 million from the lotteries which Harley had continued to run. Ironically, this sum exactly matched the amount of government debt the South Sea Company had taken over.

The pressure told. Like many a politician, he had found solace in drink. On 25 July 1714 Anne was finally forced to sack Harley from his post. She told the Lords he ‘neglected all business; that he was seldom to be understood; that when he did explain himself she could not depend upon the truth of what he said; that he never came to her at the time she appointed; that he often came drunk; that lastly, to crown all, he behaved himself toward her with ill manner, indecency and disrespect’. She would not reign long without him: she was dead within the week.

The Hanoverian era was upon the country and with it a change in political power. George I had a distaste for the Tories matched only by the contempt he held for a foreign kingdom which could never match his beloved homeland. Harley was to be impeached for ‘high treason and other crimes and misdemeanours’. In contrast, his Whig rival, Robert Walpole, who had been sent to the Tower for corruption, had been handed a route back to office. Before he left his prison, he penned a note to his sister Dorothy:

Dear Dolly,

I am sure it will be a satisfaction to you to know that this barbarous injustice being only the effect of party malice, does not concern me at all and I heartily despise what I shall one day revenge, my innocence was so evident that I am confident that those who voted me guilty did not believe me so.

His enemies should have taken note. Robert Walpole would prove to have a long memory.

CHAPTER IV
Walpole and the Maypole

The most fundamental overhaul ever carried out on the rules governing the way members of the royal family run their business lives was announced by Buckingham Palace last night. In an attempt to ensure that family members do not exploit their position for financial gain, the palace said new safeguards would ensure a ‘complete separation’ between official engagements andcommercial projects. ‘It is entirely in tune with today’s world that members of the royal family should be allowed to pursue careers, including in business, if that is what they wish to do,’ a Palace statement saidlast night.Observer, 8 July, 2001

King George I exhibited his eagerness to take over his new throne by dawdling all the way from Hanover to London. Weeks went by before his pernickety nature was satisfied with the detailed preparations for his forthcoming ordeal. When he finally set out, he made sure he stopped all the way along his route to receive the congratulations which befitted his new status and which put off the point at which he could no longer avoid stepping on to the timber-clad deck of the royal yacht for the sea journey to the grey, cold, inhospitable island which it was now his fate to rule. So disagreeable was this prospect that he clung to Holland as if it was home, meandering through its cities and basking in the receptions he was accorded, so that he did not embark for England until 27 September 1714, nearly two full months after Anne’s death.

The British weather retaliated, responding to George’s preconceived view of his kingdom as a damp and chilly outpost by exceeding his expectations. Dense fog shrouded London on his arrival, drifting ethereally over the waters of the Thames as his yacht neared port, wrapping itself around Wren’s masterpieces and obscuring the soaring cathedral. George could no more make out the spiritual grandeur of the city’s horizon than his bulging blue eyes could penetrate the narrow, twisting streets to glimpse the temporal realities of his subjects’ lives. So slow was his progress that he was forced to come ashore at night. Then he was rowed to Greenwich in his barge to avoid damage to the royal yacht. As he stepped ashore, to be greeted by ranks of fawning politicians, George could just make out the symmetrical splendour of Wren’s seamen’s hospital. But his kingdom was still a mystery. Even when the clinging fog finally relented, and throughout the rest of his reign, it remained so.

On dry land, the torchlit reception which greeted George appeared both to lend some atmosphere to the occasion and to give appropriate recognition to his new-found status. The Whigs, loyal throughout their parliamentary difficulties to the House of Hanover, were there in force to reap their reward. George singled out their standard-bearer, the Duke of Marlborough, for attention, while Harley was relegated to the background, his hopes that the King intended to rule without favourites or party already dead. With George the power of the Whigs would come irresistibly flooding back.

For the leading players in the South Sea drama which was about to unfold, the ground had also shifted. John Blunt had to court the new regime, as he had courted Harley, but Robert Walpole, at the age of thirty-eight was back in power. He held office first as Paymaster of the Forces, and then, within a year, as Chancellor of the Exchequer, posts which allowed him to see at first hand the debts of the nation, and which also gave him a licence to line his own pockets.

Political stability was absent at the start of George’s reign. He was a contingent king, an interloper who had taken the throne after a political battle of wills, not through divine right or the hereditary principle. His presence assured the Protestant succession, but not the warm embrace of his new countrymen. Both sides in this convenient compact eyed each other warily, not knowing quite what to expect; neither felt an emotional pull towards the other. George was an administrative convenience, a fruit grafted on to Anne’s barren reign, a foreigner who would have to win the respect of his citizens, but who possessed neither the charm nor the intellect to do so. Cruelly, the traveller and letter-writer Lady Mary Wortley Montagu noted: ‘The King’s character may be comprised in a very few words. In private life he would have been called an honest block-head.’

This was an exaggeration. George was a complicated man, not clever but not entirely stupid either; idle, but energetic enough to want to rule in his own way without interference, and short-tempered enough to cast out those who did not fall into line. At fifty-four, he was not in the full flush of youth; nor was he handsome, but he more than made up for this with an extraordinary appetite for women which was to make him an object of ridicule in his kingdom – less for his sexual charge per se, more for the way he chose to express it: the objects of his desire were, by common consent, downright ugly. Added to which, there was something positively medieval about his family background. His wife Sophia had once taken a lover, perhaps in retaliation for her husband’s considerable dedication to his extramarital activities. George’s revenge was terrible to behold. The lover, the Swedish Count von Königsmark, disappeared after he was lured to a false rendezvous with his lady. George probably ordered the murder, though he was away in Berlin when it happened. Sophia was divorced and incarcerated in the Castle of Ahlden, near Hanover, forbidden to see her children again. For her, there was no fairy-tale rescue by a handsome prince. For thirty-two years she languished there until her death, while George frolicked with his mistresses.

The two mistresses he brought with him to England were both, in their own ways, improbable recipients of their monarch’s favours. Baroness Eremengarda Melusina von der Schulenburg was tall and bony. She was called ‘the Maypole’ by the King’s subjects; Madame Carlotte Sophia Kielmansegge, fifty and fat, was known as ‘the Elephant’. As a child, the writer Horace Walpole was scared witless by her: ‘I remember being terrified at her enormous figure … [she] was as corpulent and ample as the Duchess was long and emaciated. Two fierce black eyes, large and rolling beneath two lofty arched eyebrows, two acres of cheeks spread with crimson, an ocean of neck that overflowed and was not distinguished from the lower parts of her body, and no part restrained by stays – no wonder that a child dreaded such an ogress!’

Money, or the lack of it, was still the driving force in politics, and with the presence of the royal mistresses it became even more so. Their grasping nature, the rapidly acquired debts of the new monarch and the shattering of the government Exchequer through war combined to form a corruption which wrapped itself around the very institutions of state. In this the strangeness of King George I also played a part. He was a foreigner, who spoke little or no English; an outsider, who had brought with him not just his own women to share the royal bed, but his own placemen who staffed his court and who needed to be bribed. An American businessman, William Byrd, attended court in the hope of being appointed Governor of Virginia and was advised to bribe one of the leading German courtiers, while the future Duke of Chandos oiled his way through the early years of George’s reign in order that his brother could become cashier of the Salt Office, dishing out 250 lottery tickets here, 400 guineas there. In 1715 he gave £3,000, an enormous sum, to Madame Kielmansegge, followed by a ring for her daughter. The Maypole, in particular, saw that she could make serious money out of her status. She sold the patent for copper coinage in Ireland for £14,000 and she also sold peerages. George’s arrival on the throne had accentuated the establishment’s tendency towards corruption.

The King’s mistresses also played their part in overturning the established political order, to promote the men who were to prove susceptible to the overtures of the South Sea Company. The catalyst for political change was the legal obstacle the two consorts faced in their desire to make their mark on British society, a desire which began to undermine, insidiously, Walpole’s return to office. The mistresses wanted to acquire the status which would be the true sign that they had been accepted by their adoptive country, that their foreign accents and their physical unattractiveness would no longer be the butt of jokes. They considered that the best social defence they could gain against such cruelty was to become aristocrats. But the Act of Settlement of 1701 prevented them from receiving titles or any position of profit under the Crown.

This did not, however, prevent them from working out a cunning way round the difficulty. Madame Schulenburg decided to become naturalised, and campaigned to be granted an Irish title. So it was that the Maypole was transformed into the Duchess of Munster. This merely spurred her rival for the King’s affections into a fury of action. The Elephant too became naturalised, and after much trumpeting of her cause was rewarded with the tide Countess of Darlington, though not until 1722. Here was the formal recognition that the Maypole and the Elephant stood at the pinnacle of society. But it didn’t entirely work. The mistresses were too comic, the King too foreign, for the country to stand in awe. Indeed, the King’s preference for these women was just too alien for popular taste, as the balladeers made clear in scatological vein:

At St James’s of late

On a great bed of State

A dismal Disaster did happen;

For Munster’s good Grace

In her Brunswick’s Embrace,

was taken indeed, but not napping.

But, alas! In this Hurry,

While with too much Fury,

The rampant old lecher embrac’d her

Her Ladyship’s Weight

(which we all know is great)

Brought down on ’em both, the Bed’s Tester.

In the face of such ridicule, the attainment of titular aristocracy was never going to be enough to sate the mistresses’ ambition. The Maypole continued her campaign for social acceptance, deciding that an Irish title was not enough and that she wanted an English one instead. Her preferred route was to exploit the jockeying for position among the ambitious politicians in and around the government.

She had several men to choose from, all of them eager for power. Charles, the third Earl of Sunderland, was a court man to the tips of his well manicured fingers. It was in his blood: he was the son of a minister to three kings and connected through marriage to perhaps the greatest family of them all, the Marlboroughs. He was cunning and clever, self-possessed and rich; he spoke French fluently, and floated easily through the European courts; indeed, he lived and breathed court life, at ease with himself and with greatness. But Sunderland, though he could offer George a window on the world which the introverted king could not see for himself, was not the only Whig with ambitions. James Stanhope, who later became the first Earl Stanhope, was already a master of foreign diplomacy, the war hero who had fought valiantly in the War of the Spanish Succession as commander of the British forces and who had been imprisoned for a year. Politically, he was the friend of everyone, but he was committed to no one.

Sunderland and Stanhope were ranged against Charles, the second Viscount Townshend, who had been appointed by George as his first minister. He had none of Sunderland’s sophistication: indeed, upon his retirement a decade hence he would become known as ‘Turnip Townshend’ because of his passion for experimental farming. But what he lacked in finesse he made up for with hard work, notably as a commissioner negotiating the union with Scotland and as an ambassador to the Netherlands.

Townshend’s key political ally was his brother-in-law, Robert Walpole. Walpole, like John Blunt, was physically unattractive. He was short and stout, and had a large head. At first glance, his features appeared to be coarse – a double chin, bushy black eyebrows and a thick lower lip. His eyes were large and wide-spaced, giving him an air of openness, even vulnerability. He played on his looks by affecting the demeanour of a blunt-speaking, unsophisticated Norfolk squire, even munching his little red homegrown apples during debates in the House of Commons. He had let it be known that he always opened his gamekeeper’s letters before any official communication. But appearances were deceptive. Walpole was equally at home in London as he was in the country, relishing the life of a city socialite, and he would rise smoothly through the political ranks. He was a political amphibian, a countryman with Whig ambitions, a Westminster politician with roots, a man who quickly saw the merit of using his rustic image as a camouflage for ambition. His political brain was as sharp as Huguenot steel. He would not have been so trusted had he been lean.

From a modest upbringing, Walpole came to amass riches on a scale never fully explained, living in splendour and taste on his country estate at Houghton, where he built a small palace, and at Orford House, his Chelsea residence, which overlooked the Thames. More than £100,000, the equivalent of many millions today, passed through his bank account when he became Paymaster-General, the most lucrative post in government. Ten acres were added to the grounds of his Chelsea house, where he kept brightly coloured parakeets and goldfinches, and gifts of jewellery were showered on his friends and relatives.

In 1715, George’s yearning for his beloved Hanover played a crucial role in helping to shift the balance of power in Sunderland’s direction, and away from Townshend and Walpole. With the King now abroad, ambition had to travel too. Sunderland was quick off the mark, his speed belying his affected casualness. He set off for Aix-les-Bains with alacrity, covering his tracks by claiming the need of a health cure. Conveniently, it was only a short distance from there to Hanover and the King. So while Sunderland was able to plot with his ruler, helped by the whispering campaign led by the King’s mistresses, the brothers-in-law were stuck at home, without any hope of influencing the King: Townshend and Walpole were now effectively in exile, with the country run from Europe.

On the King’s return, a journey much delayed by bad weather, the duo were sacked in favour of Sunderland and Stanhope, who were to be the government’s two key figures throughout the year 1720. Walpole had been outmanoeuvred this time not by the Tories, but by his own party.

He was in the wilderness again.

John Blunt, surveying the new political landscape, had wasted no time in pressing his cause with George I. He was keen to make the South Sea Company part of the new establishment, and with it secure his own place in society. In order to do this, he wanted to bring some famous names into the Company’s orbit. In place of Harley, he persuaded the Prince of Wales himself to become its Governor in 1715. It was a recognition both of the changed political times and of Blunt’s desire for the royal imprimatur. For the Prince, it was a useful way of making money, given the high running costs of being royal.

George I, too, was amenable to Blunt’s overtures and acquired a large shareholding in the South Sea Company for himself. It did not take long for the Company to change its composition: in the first year of the reign, leading Tory politicians were voted out as directors by the shareholders, to be replaced by Whig businessmen. Even the Duke of Argyll, a Whig and a loyal Hanoverian, became a director of the South Sea Company – an extraordinary step for a man of such social standing and a sign of Blunt’s ability to capture the upper echelons of society with his schemes. But there was another sign, too, of the Company’s future direction: half a dozen of its directors, including Blunt, had begun their careers with the original Sword Blade Bank, and had an eye on manipulation of the markets rather than any genuine interest in trade. The deaths, three months apart in 1718, of two great men among the directors, the sub-Governor Bateman and the Deputy Governor Shepheard, tipped the balance of the Court of Directors firmly towards the Sword Blade men, and away from the experienced financiers.

In 1715, to cement its place in the Hanoverian order, the Company had declined the interest payments which were due from the government for servicing the national debt. This had saved the Treasury more than £1 million, and in return the Company was allowed to increase its capital size by the same amount, so that it now had several thousand shareholders, more than either the Bank of England or the East India Company. In the same year, for the first time, its share price reached par, the value at which the stock had been launched under Harley. Four years later, in 1719, the Company was also allowed, through an Act of Parliament, to convert a further part of the government’s debt into shares. Unlike Harley, who had merely converted the floating debt (the debt that could be paid off if the Treasury could afford it), the government proposed to sell off that part of the debt to which it was committed for years ahead: this was called the funded, or ‘irredeemable’, debt. By transferring its subscribers to a stock-market holding in the Company, this new small-scale conversion scheme aimed to remove the burden on the Treasury created by the lottery of 1710. Two-thirds of the annuitants eventually took up the offer, and under the terms of the deal the Company agreed to lend the government more than half a million pounds. As a reward, the Company was allowed to sell extra stock for itself, on a rising market, to increase its reserves of cash.

By 1719, therefore, the Company’s capital size had risen past the £12 million mark – and this was financially absurd. In the previous two years, forty-five ships had carried a total of thirteen thousand slaves for the Company under the slaving contract, but it had still not made a profit. Nor had it made any money on its direct trade with South America. Yet, paradoxically, the financial health of the Company, as the dispenser of half the entire joint-stock capital in the country, was vital to the economic security of the nation. And it readily embraced this nonsensical reality: its desire to develop the Sword Blade Bank, from which it had emerged, grew stronger than its attempts to sell its goods abroad. Robert Knight, the general manager of the bank, was appointed as the Company’s cashier and became the main conduit between the two sides of the operation, his advancement a tangible sign that the Company was more eager to pursue its role as the holder of the national debt than as a trading concern.

Even as its trading base shrank to nothing overseas, the Company’s political horizons grew wider. Its domestic ambitions were reflected in its plan to move into a magnificent flat-fronted building on the north-east corner of Threadneedle Street. More than thirty windows, on three levels, enabled the directors in South Sea House to look down on to the financial district at its feet; there was a dark basement below the iron railings at the front, while a colonnaded entrance made a grand statement of its claim to be an accepted part of the establishment. Appropriately, its rival, the Bank of England, stood at the other end of the street.

To the Bank’s chagrin, the connection between the Company and the government was close, and becoming closer. John Aislabie, as Chancellor of the Exchequer, appointed Francis Hawes, one of the Company directors, to be Receiver-General of Customs; four directors were also MPs, and another six had posts that had connections with the public purse. These men provided a key link between the Company and the institutions which controlled public money. The South Sea Company had become a fully fledged member of Britain’s political, financial and social order, and, in recognition, the Company’s newly launched ship was called The Royal Prince. The Prince himself, and his courtiers, were treated to a lavish party on board, to celebrate the ship’s impending departure for the South Seas in search of the bottomless riches on which the Company’s foundation was supposedly predicated.

It should have been a big moment in the Company’s history. But the royal establishment which Blunt was courting was far from united. The King’s frequent absences in Hanover had made him ever more intolerant of his son, suspicious as he was that the Prince had been manoeuvring against him, and resentful of having to return to the foreign land he had inherited against his better judgement. All the signals pointed towards there being a familial explosion, and, given the curious nature of George’s family history, it duly came in the happiest of circumstances.

In November 1717, the Prince’s beautiful wife Caroline of Anspach had given birth to a baby boy, her fifth child. Instead of celebrating, however, the King and his son fell out in spectacular fashion. It was, strictly speaking, the King’s right as ruler to name the boy’s godparents; but the Prince wished to do so himself, and chose the Queen of Prussia and the Duke of York. The ensuing fall-out was dramatic. The King banished the Prince and his wife from the palace without their children. A few weeks later, the baby boy died. The Hanover family seemed genetically programmed for disaster.

The political impact of the schism was immediate: George had, through his intemperate actions, forced his son into internal exile. A rival court was established, with the Prince choosing Leicester House at St Martin’s in London as his base, barely a mile from St James’s Palace. No longer was the King in total command of all he surveyed. This time, dissent had a focus, a rival power base in which the thwarted ambitions of the powerless and the embittered could find expression. The political tensions were reflected most obviously in the South Sea Company’s make-up, with the rivalry between the King and his son reflected in the efforts made by their respective candidates, in 1718, to be elected to the Court of Directors. Walpole and Townshend’s candidates stood against the government, and by implication the King, with some success. Harley’s brother Edward wrote: ‘the King’s people … have lost it for sub- and deputy-governors of the South Sea, and those who are reckoned of the Prince’s party have carried it’.

Crucially, the row between the King and his son led directly to George I, as an act of revenge, assuming the role of Governor of the South Sea Company. It was the highest accolade the ambitious directors could have sought for their upstart venture, but it was dangerous territory for the monarchy. It signified not just royal approval of the enterprise, but royal entanglement too. By his presence at the head of the company, the King had signalled that the business was to be trusted. But the obverse might be proved, too. If for any reason the Company failed, where did this leave a monarch unloved by his people, assailed by Jacobite incursions, and viewed with intense suspicion, if not animosity, by members of a dispossessed Tory party? The Company, launched by the Tories, had effectively been reinvented as a Whig project, with the King as its guarantor.

The omens were not good. War with Spain broke out again at the end of 1718, and with it the South Sea Company’s last hopes that it would live up to its motto and travel ‘from Cadiz to the dawn’, that it would trade with faraway lands and bring home booty to compare with the Elizabethan adventurers’. Instead, its seven overseas trading posts were seized by Spain. The Royal Prince, its hold crammed with cargo, lay at anchor and could not sail for Spanish America. A full two years were to pass before she made her maiden voyage, to Vera Cruz, at which point the Spanish fleet attacked her: so she gave up and languished in port for half a dozen years more. A second ship, named The Royal George in honour of the King, was launched in 1718 but war prevented her, too, from setting sail. The Company now looked not to a faraway dawn for inspiration, nor to Cadiz, though that was nearer the mark.

Instead, it was the ambitious economic theories of the Scottish outcast John Law that helped to change the destiny of the South Sea Company. Under his leadership, France was transforming its fortunes with a speed and skill that George’s indebted government, and the South Sea Company of which he was now head, could only admire and fear. ‘I wish to God,’ complained a despairing British diplomat in France to an under-secretary back home, ‘there may be something done quickly to put our affairs in order before it is too late; and that the great men of Britain would think of something else than merely of tripping up one another’s heels.’

The unthinkable had happened – France was winning the peace. War had been replaced by something which proved to be far more dangerous for Britain: economic rivalry.

CHAPTER V
Who Wants to Be a Millionaire?

Britain’s financial markets are in the grip of an unprecedented stock-buying fever as punters rush to buy almost any share with a whiff of the Internet about it. The City has been caught on the hop and cannot cope with the surge in demand. People report spending up to a day waiting for a free line to some stockbrokers and then having to wait up to an hour more before it is answered. The City regulator is right to warn people of the risks, but that won’t be enough to stem this get-rich-quick boom as punters everywhere stake their claims to some of the instant fortunes made by Internet start-up companies.Guardian, 11 December 1999

After the Scottish Parliament’s rejection of his dream of introducing paper money, John Law had escaped once more across the Channel, only pausing in his flight, or so it is recounted, to win an estate worth more than £1,000 a year by gambling. True or not, it would have been of little comfort to him, for there is no doubting the severity of the setback Law had suffered. He was clearly condemned to a life of permanent exile unless the union of England and Scotland failed or the Act of Settlement, which excluded the exiled Catholic James II from the throne, was overturned, for only a political sea-change, it seemed, could now grant him passage home. This was painful enough, but equally hurtful was the knowledge that his cogent analysis of the benefit paper money could bring to a country might not now be put into practice. Law was not only physically in exile, he was in intellectual exile too, fated to be a perpetual academic rather than a participant, forever denied the chance to put his certitude into practice.

So sure was Law that his intellectual vision was accurate, however, that he determined to succeed despite the hand he had been dealt. Just as he had developed a system at the gaming tables that had made him personally wealthy, so he was certain that his system for a whole country would bring it riches too. Neither activity, in his own mind, was a gamble: in both cases his system was a certainty. An enlightened ruler, he was sure, would share his vision, and accordingly he had set out across Europe to try to find a country more amenable to his project. If his homeland could not see the merits of his proposals then he would show what it was missing: as a patriot, he had done his best to convince his own people to take up his ideas.

For nine years, from 1706 to 1715, Law had trudged across Europe, vainly trying to convince a succession of monarchs and ministers to back him with their money. Until 1713, the closest he came to success was in Turin, where he suggested to the Duke of Savoy, Victor Amadeus that he should be allowed to establish a state bank in Savoy-Piedmont. He designed a bank that would issue paper notes and also act as a trading corporation to buy and sell property. It would lend money at a fixed rate of interest and the gold and silver in the ducal treasury would act as its reserves, backing, in tangible form, the authority of Law’s paper currency, which would bear the royal coat of arms. To guard against inflation, Law ruled that there must be a strict ratio between the notes in circulation and the reserves. While the bank would have the power to print notes, he declared that the vaults must never hold less than three-quarters of the value of the paper money it had released into the world beyond.

Victor Amadeus was easily swayed by Law and took little convincing, but the project ran into immediate political difficulties. The powerful finance minister objected, and when the Duke was forced to back down Law once more packed his bags and took off in search of a country that would adopt his system: first, it is said, to Vienna to try to convince the Emperor of his plans; then to The Hague, where he applied his mind, successfully, to making as much money as possible from the state lotteries; finally, in the summer of 1713, he reached France with a fortune put at more than 1.5 million livres. (There were about 14 livres to the £.)

France would be the making, and the breaking, of John Law and his project. The country’s economy was, if anything, in a worse state than England’s. Two wars lasting more than a quarter of a century had left it crippled. In 1715, after the War of the Spanish Succession had ended, the national debt was as high as three billion livres, and the budget rejected all attempts to persuade it to balance. The failure added another eighty or ninety million livres a year in interest payments to the runaway overspend, and the government was living hand to mouth. It could keep going only by anticipating its revenue, begging for advances on future taxes it would levy – and already taxes had been committed three or four years in advance. Louis XIV was forced into the humiliation of borrowing eight million livres from one of the country’s leading financiers, Samuel Bernard, for thirty-two million livres’ worth of credit notes. So dire was its predicament that a full two-thirds of the nation’s running costs were met either by the time-honoured practice of selling offices or by borrowing money. But the King could not pay his creditors and they, in turn, could not pay anyone else. One contemporary commentator wrote that ‘the shortage of credit was universal, trade was destroyed, consumption was cut by half, the cultivation of lands neglected, the people unhappy, the peasant badly dressed and nourished’. Some of the country’s representatives abroad had not been paid regularly for years, nor had they much prospect of ever seeing their money: the finance minister suggested it would take eleven years to balance the books. Indeed, so parlous was the state of the nation’s finances that the Council of Regency, presided over by the Duke of Orleans, which ran the country on the death of Louis XIV, had even considered declaring the state bankrupt.

Before Louis XIV died Law had presented him with plans for a state bank to issue paper money along the lines of the bank he had so nearly established for Victor Amadeus in Turin. He would pay off the national debt by issuing stock, with the shares to be redeemed after twenty-five years, and he promised to cut interest rates from 7 per cent to 5 per cent. Few gamblers, if any, can break a bank; fewer still can create one with wealth gained from the tables. But Law offered to pay for the cost of establishing the bank himself, from his gambling riches, and to give half a million livres to the poor if the project failed. Perhaps with his rejection by the Scottish Parliament in mind, he also declared he would restore French credit to a higher level than that of Great Britain. So hopeful was he of a positive outcome to his proposals that he had even drafted the letters patent authorising the bank’s creation for the King to sign. But Louis had turned him down.

On Louis’s death, power passed to the Duke of Orleans, who, as Regent, held the throne on behalf of the child-king, Louis XV. The Duke was more amenable to Law’s project than the late King had been, and perhaps more realistic too about the condition of the country and the stark choices it now faced. His finance minister opined that ‘we have found matters in a more terrible state than can be described; both the King and his subjects ruined, nothing paid for several years past and confidence entirely gone’. Desperate times needed desperate measures. On 1 May 1716, Law was finally offered the chance he had been seeking for most of his adult life. A decade after his rejection in Edinburgh, he was given the opportunity to put his ideas into practice. Now in his forties, he was no longer a young gambler, but well on the way to statesmanship.

The Banque Générale was based in Law’s own home, a sign both that it was his fiefdom and of its modest beginnings. It had a narrow capital base of only just over 4 million livres, or £300,000, and less than a tenth of this was held in cash, but it was a start. Law finally issued his much vaunted paper money, on the understanding that at any time it could be exchanged for ‘coin of the weight and denomination of that day’. It was the first time in France’s history that banknotes had been in circulation, and it was one of only six states in the world that had paper money, joining the club of which Sweden, Genoa, Venice, Holland and Great Britain were members. It was the first time, however, that paper money was being used in a systematic and disciplined way – not just as a means of representing money, but as money itself. Law wanted to move to an economy where coins were no longer in circulation, to a metalless financial system where banknotes were the only form of currency. His System – and it was always given a capital S – was potentially harsh. The penalty for forging or altering the paper currency that bore John Law’s signature was death. By this signal Law, and implicitly the Regent, declared that the project would work only if the rules were stringently obeyed. Break the link between the paper currency and the financial integrity and solidity of the bank which it represented, and the System was corrupted, and doomed to failure. Fail to honour the banknotes by being unable to pay in metal, should anyone demand it, and the paper was fit only for the bonfire.

The newspapers condemned Law as a charlatan, but gradually he won over the public’s confidence. Two factors helped him: his sharpness of purpose, which meant he could accurately anticipate what would appeal to his customers, and, crucially, the Regent’s support. By offering to pay bills through his bank, free of charge and in any part of the country, Law showed his customers that his System could work, and that his experiment could apply to the whole country and not just to Paris. The Regent’s support was public and to the point: in broad daylight he deposited a pile of coins at the bank worth a million livres.

At first, the public was suspicious of the new paper banknotes, but gradually the project began to catch hold, not least because of the financial backing offered at the highest level. The Regent’s confidence bred confidence among his people: the initial scepticism of the French citizens was finally overcome when they saw that the banknotes were the one type of currency that could not be randomly diminished by clipping or devaluation. Law’s bank soon reduced its discount rate and began to lend money to businesses. Trade picked up; industry gathered pace; and so did Law’s career. At Law’s request, the Regent ruled that his tax collectors in the provinces were to send their money to Paris in the form of the bank’s notes, and to accept the notes for any coins they had in their own treasuries. At a stroke, the Regent helped Law see off the vested interests of the revenue collectors, who had formed a joint-stock company which became known as the Anti-System, to oppose him. Soon, taxpayers were forced to pay their dues in paper. Thus the currency spread throughout the nation.

But Law wanted more. He knew that a bank did not have to be the passive recipient of other people’s money. It could be instead a driving force of the economy, a motor which could create wealth by granting credit. Gold and silver, fool’s gold and silver, would no longer be needed. The ultimate prize was worth the inevitable political and economic battles that lay ahead. His project could end the depression and deflation which had so addled Europe in the new century.

England could only look on with alarm.

When Queen Anne died, so did the Tory party as an immediate fighting force. As the remnants of Harley’s supporters made their way to the opposition benches, or even, in Henry St John, Viscount Bolingbroke’s case, into Jacobite exile, so too there was a changing of the guard amongst His Majesty’s representatives and diplomats abroad. Matthew Prior, the peace negotiator, had stayed on in Paris after successfully completing the negotiations which led to the peace deal of the Treaty of Utrecht, the diplomatic ‘triumph’ built on military ignominy, which had provided the dishonourable foundations of the South Sea Company’s rise to prominence. But on George I’s accession, Prior was dispatched to spend more time on his poetry, and in his place came John Dalrymple, the Earl of Stair. With Law in Paris too, in the city there were now two Edinburgh men of similar mien: perhaps, to Law’s eventual discomfort, too similar.

Stair, like Law, was a mixture of the cavalier and the puritan. It was said that he had forced his wife to marry him by hiding in her bedroom, so that only a wedding ceremony could save her reputation. But he was, as if in contrast, a stern defender of his country’s honour and almost from the start he took a watching brief over Law’s activities. Stair was the first person Law had sought out on his arrival in Paris, pressing him to intercede with the government in London: brimming with ideas and with the accumulated wealth of a thousand gaming tables, Law had informed the Earl that he still wished to serve his own country, that he wanted to put his talents at the disposal of the King, but not for personal gain. Stair had agreed to help, writing to the Secretary of State, James Stanhope, who was the most powerful figure in Sunderland’s government: ‘there is a countryman of mine named Law of whom you have no doubt often heard. He is a man of very good sense, and who has a head fit for calculations of all kinds beyond anybody. Could not such a man be useful in devising some plan for paying off the national debts? He is a man of very solid good sense, and in the matters he takes himself up with, certainly the cleverest man that is.’

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