This is an intriguing book involving a very famous diamond and a massive derivative style transaction set against the backdrop of the world's first stock market booms and collapses those of the Mississippi System and the South Sea Bubble. It is centered on two larger than life characters. The first is Thomas Pitt Junior, Lord Londonderry (henceforth Londonderry), who at various stages of his life was a stockjobber, a military commander, a Whig MP, a considerable estate owner in England, Ireland, and the West Indies, and, finally, governor of the Leeward Islands. The second is John Law, the architect of the Mississippi System, who briefly became prime minister of France in 1720 notwithstanding the fact that he had been sentenced to death earlier in London for killing a man in a duel. There is a wide cast of secondary characters including Londonderry's father, Governor Pitt, who had been governor of Madras, the powerful James Stanhope, a brother-in-law of Londonderry, Joseph Edward Gage, one of the biggest Mississippi speculators (alongside his partner, Lady Mary Herbert), George Middleton who was John Law's banker in London, and a retinue of courtiers and politicians always on the lookout for ways of improving their station in life. For a period, both the Mississippi System and the South Sea Bubble, which developed because of the earlier success of the Mississippi Company, appeared to provide a new source of wealth for the eager crowds that bought and sold shares in the rue Quincampoix in Paris or in Exchange Alley in London.

The diamond was no ordinary diamond. It would later be a prominent part of Marie Antoinette's jewelry and still later, Napoleon had it placed in the hilt of his sword for his self-enthronement as Emperor of France in December 1804. Governor Pitt purchased it in India for £22,000 in 1702 when the diamond weighed 426 carats (0.188 pounds). It was cut down to a flawless “classic solitaire” of 140.5 carats and Pitt attempted to sell it for £210,750 to Queen Anne and later George I, both of whom decided not to purchase it. Lord Londonderry brought it to France and successfully managed to sell it to Philippe duc d'Orléans, the regent of France during the minority of the future Louis XV, in 1717 for £125,000. John Law effectively acted as the agent on the French side in the acquisition of the diamond and arranged the payments for the diamond in installments—the final installment to be paid in June 1719. Problems arose with the payment of the final installment when the French bill of exchange for payment of the diamond was returned protested. Londonderry was sent by his father to Paris to settle the matter. There at a dinner in late August 1719, attended by the British Ambassador, Lord Stair, Londonderry impetuously attacked John Law over the matter. Law apparently “went berserk” over the matter as the bill was just the remaining £10,000 to the £125,000 purchase. By the end of the dinner, Pitt left with a contract for John Law to sell him, a year hence, £100,000 of East India Company stock at 11 percent under the current price. This meant that Londonderry had agreed to purchase 1,000 shares of East India £100 stock for a price of £180,000 in August of 1720. If the price of East India fell, Law would be the winner. If it rose, Londonderry would be in profit. The question arises as to why this wager was struck. Was it as Stair suggested that John Law, who was then at the height of his powers involved in the final leg of his grandiose architecture for the Mississippi System, namely the conversion of the French national debt into shares of the Mississippi Company, wished to show to all that his scheme would be so successful that it would destroy confidence in English shares? Or was there some other reason for this massive futures style contract between Londonderry and Law?

Larry Neal, already the author of another book of this period, The Rise of Financial Capitalism: International Capital Markets in the Age of Reason (1990), provides a meticulously detailed account of the Law-Londonderry financial transaction in “I Am Not Master of Events.” The author first became intrigued about the issue when handling the late Earl Hamilton's papers relating to John Law. Hamilton researched on Law for many decades but, unfortunately, did not produce the series of books that he was planning on John Law. Hamilton did write a paper on “John Law of Lauriston Banker, Gamester, Merchant, Chief’ in the American Economic Review (May 1967) where he did refer to this massive bet undertaken between Law and Londonderry. Working in the archives of Coutts Bank, where the papers of George Middleton are located, and, more importantly, the Chancery Masters’ Exhibits in the National Archives at Kew, Neal provides his readers with a very rich source of material on financial transactions during these two stock market booms that metamorphosed into bubbles. Unfortunately, he discovered that at one stage Londonderry physically removed the records relating to him in George Middleton's archives. This, along with the destruction of many of Law's papers by an opportune fire in Paris—the eighteenth-century equivalent of today's shredding machines—the complete story of the Law/Londonderry transaction is still subject to conjecture.

Neal's conjecture about the transaction is fascinating. He believes that Law used the dinner of late August 1719 as an opportunity to placate Londonderry's father, Governor Pitt—then based in Jamaica—about the protested bill. Neal feels that Law introduced the East India futures transaction as a type of “douceur” to improve the financial relationships between the French Crown, the purchaser of the diamond, and Governor Pitt. He provides a serious of fascinating letters from Governor Pitt that come tantalizingly close to supporting this view. Neal adds a further reason in that Law wanted to maintain good contacts with the British political establishment, through Londonderry's relationship with Stanhope, in order to be able to return to Britain if his System collapsed in France.

Yet, I wonder about this. In late August 1719 France was starting to experience Lawian euphoria. The share price of the Mississippi Company had risen many times from its original market price of around 170 livres (rather than the nominal price of 500 livres that Neal uses) to over 5,000 livres. It would rise further to a high of over 10,000 by January of 1720 when Law would be made the equivalent of prime minister of France. Did Law in late August 1719 still feel that the French finances were in such a poor state that it would be better for him to arrange for the payment of the final installment of the Regent Diamond through a complicated futures transaction between Londonderry and himself rather than sending another bill of exchange to Pitt to cover the outstanding amount?

Another possibility is that Law, enraged by Londonderry's behavior, decided at the dinner to teach him a lesson by sticking him in a contract that Law really believed would cost Londonderry dearly. Law strongly believed in the supremacy of his System and most probably felt that its success would encourage shareholders to move out of English and into the Mississippi Company. If this happened, then Londonderry would end up owing him a considerable sum of money. Furthermore, Law, ever the supreme marketeer, would have known that his wager with Londonderry would be reported to “le tout Paris” and give a further indication to the investing public that he was more confident than ever in the success of the System. Around this time, Law wrote that he was probably the richest man who ever lived. I do not believe that he was thinking of the possibilities of his System collapsing at this stage.

Law made a serious mistake here. He failed to recognize that the British might be forced to copy his System—such was its apparent success—and that this would push up the price of South Sea shares in the South Sea Bubble of 1720. As South Sea rose, so also, albeit on a lesser scale, did East India stock so that when the wager matured in August 1720 the price of East India was £340 and Law was in desperate financial difficulties. Neal provides a fascinating account of how Londonderry, an astute financial operator, laid off a great part of the wager prior to its maturity thereby guaranteeing profit from it. If he had kept it all to maturity, he would have made a great deal more but the problem of counterparty risk then arose because by the late Summer of 1720 Law's System was in tatters and Law was unable to pay the outstanding amount on the wager. In early 1721 Law wrote to his art dealer in Venice that he was “no longer master of events,” a quotation used by Neal for the title of the book.

Larry Neal has provided a very high carat quality book on this financial episode. His intensive work at the coal face of the archives in Kew provides readers with a fascinating account of the financial transactors trying to enrich themselves during the first financial bubbles in 1719/20. Remove their wigs and give them mobile phones and we would see many parallels with today's transactors. Plus ça change, plus c'est la meme chose.