Chances Are by Michael Kaplan Page B

balance, the country risked all its wealth on an attempt to establish a trading colony on the swampy, mosquito-cursed coast of what is now Panama. It was doomed from the start: isolated and attacked by the stronger players, Spain and England, the little venture succumbed in months to famine and fever, quickly sinking back into the tropical ooze and taking every last coin in the kingdom with it.
    Why, reasoned Law, could not countries behave like him? If they wanted to play the game of nations, why did they need to put gold or exotic goods on the table first? After all, you don’t need to cash out until the game’s over—and the economic game never is. Chips— credit —that’s the proper medium for countries to gamble in.
    When Law arrived in Paris, the government of France was in the hands of a gambling regent, the Duc d’Orléans—and, though rich, its finances were in dreadful shape. Those who had funds hoarded them, so there was no money available for investment. Law proposed a solution based on credit: the Banque Royale, backed by state bonds, which would issue paper money, exchangeable for cash and acceptable for payment of taxes. These paper bills were a great success, so Law issued more, staking France’s new industries to their place at the table.
    As Archie Karas demonstrated, when you’re on a run, you don’t stick with the same game forever. Law diversified, acquiring the monopoly rights to trade with France’s Mississippi colony. He knew from Scotland’s experience that this would take a large investment to provide its potentially gigantic return, but he also knew that France was in the mood for just such investment. The Banque Royale issued shares in the Compagnie des Indes; investors needed to hold shares in the bank to buy shares in the company. An entire system of belief, of gambler’s swank on the largest scale, was marshaling and energizing the powers of the greatest nation on earth.
    The problem was that people believed in Law too much and assumed that shares in the Compagnie des Indes —so rare and so desirable—must be priceless. Across the land, people sold their chateaux, their fields, their beasts, and hurried to Paris to buy the magic stock. By the end of 1719, the market value of the company was 12 billion livres, while its income was barely sufficient to pay 5 percent on the nominal capital of one billion. And despite the pictures of friendly Indians handing over furs and emeralds in the company prospectus, Mississippi was still undeveloped forest and swamp.
    Law had attempted to win on a bluff; the apparent assets of his system—the government’s credit, the wealth of America, his own strange Northern financial genius—were the open cards, creating a belief that he held the perfect hand. As long as he could keep raising—issuing stock and bills that traded for more than their face value—he could win. He could run down the government’s debt and get the wheels of trade moving as well. But in liquidating all their assets, the French people saw him, raise for raise. He had met a bigger bankroll, and he lost.
    The end was terrible; in February 1720, the well-informed Duc de Bourbon drove up to the bank and redeemed his notes for a carriage full of gold. Panic quickly spread. There were terrible riots outside the Bank’s headquarters: duchesses, screeching for their lost investments, beat a way through the crowds with their fans. The shares of the company collapsed, pulling down the paper money of the bank, then the credit of the government. Heaps of the worthless banknotes were burned by the public executioner. Hard currency went out of circulation; Law had, for the moment, made France as cash poor as Scotland.
    Law failed, but gambler’s swank still reigns in finance. Why should your bank have chandeliers? Why does your stockbroker work in a marble and glass tower? Because they are playing on your behalf.