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