John Law (economist)

John Law
Born	Template:Birth date Scotland
Died	March 21, 1729(1729-03-21) (aged 57) Venice, Italy
Occupation(s)	Economist, financier
Known for	Law's System, Mississippi Company, Mississippi Bubble

John Law (21 April 1671 – 21 March 1729) was a Scottish-French economist and financier who gained recognition in France by introducing an innovative financial model known as Law's System (). The foundation of this system rested on two key entities: John Law's Bank and the Mississippi Company (also referred to as John Law's Company), which eventually triggered the disastrous "Mississippi Bubble" in 1720.

Originating from Scotland, Law was a skilled gambler with a keen interest in probability theory. After killing a man during a duel and receiving a death sentence, he fled Europe. While abroad, he pursued studies in economics and secured the backing of Philippe II, Duke of Orléans, the regent for Louis XV. In 1716, Philippe authorized Law’s initiative to create a private bank that accepted gold deposits in exchange for issuing banknotes, lending out the deposited gold. This joint-stock bank was nationalized by the French government in 1718, becoming the Banque royale. In 1717, Law established the Mississippi Company to economically develop Louisiana and other French territories. By 1720, he had been appointed Controller-General of Finances and was considered the richest individual in Europe. Nevertheless, the stock market bubble burst that same year, compelling Law to leave France. He spent his final years wandering through various European cities and died impoverished in Venice.

Although Law's System ultimately failed as a monetary mechanism, it is historically important as an early attempt at implementing fiat money. Its success remains a topic of debate; some contend it was not inherently flawed. While the Mississippi Company went bankrupt, whether this collapse amounted to a sovereign default is uncertain since France’s overall debt levels remained mostly stable.

Early years

Law was born into a family of Lowland Scots bankers and goldsmiths from Fife; his father William owned Lauriston Castle, an estate located at Cramond on the Firth of Forth. After completing his education at the High School of Edinburgh, Law entered the family banking enterprise at age 14 and trained there until his father passed away in 1688. Following this, he neglected the business and instead indulged in extravagant pursuits and gambling losses in London.

On 9 April 1694, Law engaged in a duel with Edward "Beau" Wilson in Bloomsbury Square, London, over Elizabeth Villiers. Law fatally wounded Wilson with one thrust, was arrested, tried at the Old Bailey, and sentenced to death by Judge Salathiel Lovell. His sentence was later reduced to a manslaughter fine. After being imprisoned following an appeal by Wilson's brother, Law managed to escape to Amsterdam.

Economic theoretician

Law championed the creation of a national bank aimed at expanding credit instruments and issuing banknotes secured by land or precious metals. Upon returning to Scotland, he participated in discussions leading up to the Treaty of Union 1707 and authored Two Overtures Humbly Offered to His Grace John Duke of Argyll, Her Majesties High Commissioner, and the Right Honourable the Estates of Parliament (1705), where he presented ideas further developed in Money and Trade Considered: with a Proposal for Supplying the Nation with Money (1705). His suggestions for establishing a Scottish national bank were declined, prompting him to seek opportunities abroad.

For approximately ten years between France and the Netherlands, Law engaged actively in financial speculation. He advocated eliminating small monopolies and private tax farming systems in favor of instituting a state-controlled national bank alongside a commerce company. This state monopoly would oversee finance and trade operations, utilizing its profits to reduce national debt.

Law's Financial Framework

In May 1716, Regent Philippe d'Orléans approved John Law's financial scheme, which increased the money supply via fiat currency and centralized the French government's revenue collection, minting, and borrowing under Law's Company. This enterprise consolidated all French colonial trading entities and spearheaded major colonization initiatives in Louisiana, establishing New Orleans in 1718. Renamed the Compagnie des Indes in 1719, it merged with Law’s banking institution by February 1720.

Law’s prominence rose in tandem with his expanding financial influence. He embraced Catholicism in September 1719 and was inducted as an honorary member of the French Academy of Sciences that December. In January 1720, he was appointed Controller-General of Finances, granting him authority over commerce and enabling him to introduce reforms such as dismantling large estates, eliminating internal tolls, enhancing infrastructure, providing low-interest loans to emerging industries, and boosting overseas trade. Within two years, industrial production surged by 60%, and French export vessels increased from 16 to 300.

However, the system began to unravel in 1720 amid escalating inflation. In March, Law attempted to maintain the Indies Company's share price at 9,000 livres but quickly abandoned a planned controlled devaluation. Public pressure to redeem banknotes for coin led to a ten-day bank closure and restrictions on transactions when it reopened. On 29 May 1720, Law was removed from his role as Comptroller-General. Stock values plummeted while food prices increased by as much as 60%. By the end of the year, the Regent dismissed him from all official roles, including leadership of the Indies Company.

Real Estate Holdings and Titles

Upon his arrival in Paris in 1714, Law took up residence at Place Louis-le-Grand (now place Vendôme) within the Hôtel de Gramont (Paris), where he hosted members of the Parisian aristocracy. On , he acquired the Hôtel Langlée located at 19 rue Neuve-des-Petits-Champs (present-day 46-54 rue des Petits-Champs) and moved there following renovations. Beginning in July 1718, Law purchased several properties with frontage on Place Vendôme, eventually controlling most of the square prior to his downfall. The Hôtel Langlée was later demolished, and the Place Vendôme properties were sold by the French government during post-crisis asset reallocation.

Law built an extensive collection of country estates throughout Normandy and other regions. On , he procured the from Nicolas Desmarets. On , he bought the Château de Tancarville from Louis Henri de La Tour d'Auvergne, comte d'Evreux. Later in 1719, he acquired estates such as Toucy, Valençay, and ; followed in 1720 by purchases including Orcher, , Guermantes, and .

On , Law obtained ownership of the western section of the former Palais Mazarin, known as the Hôtel de Nevers. In September 1719, he negotiated acquisition of the remaining Palais Mazarin properties—six houses along rue Vivienne—ultimately securing control over the entire city block encompassing the Hôtel Tubeuf. In 1720, Law moved the Indies Company’s headquarters there. By late October that year, this location became the official venue for the Paris stock exchange, succeeding previous temporary sites elsewhere. He commissioned Venetian artist Giovanni Antonio Pellegrini to embellish the Hôtel de Nevers’ first-floor gallery for shareholder assemblies. Following Law's collapse, the reorganized French Indies Company continued operations at Hôtel Tubeuf; meanwhile, Hôtel de Nevers was transferred in 1725 to house the Royal Library, now part of the Bibliothèque nationale de France (Site Richelieu).

Certain property acquisitions conferred noble titles upon Law such as Marquess of Toucy; nevertheless, he rarely used these titles except for occasional mention as Count of Tancarville. Assertions that he pursued or held a "Duke of Arkansas" title connected to his Mississippi ventures are unsupported by any documentation.

Later years and death

Following the confiscation of his French estates, Law relocated to Brussels on 22 December 1720, facing financial hardship. In the years that followed, he engaged in gambling activities across Rome, Copenhagen, and Venice, but was unable to restore his former fortune. After the unexpected demise of Orléans in 1723, Law received a pardon (granted in 1719) and was allowed to return to London, where he resided for four years before moving to Venice. He ultimately passed away in 1729 from pneumonia in poverty. His burial site is located at San Moisè, Venice.

Legacy and assessment

Law’s contributions to monetary theory emphasized that the issuance of money can drive economic expansion. He championed the use of paper currency over precious metals and regarded dividend-yielding shares as a more effective form of money. Among his theoretical innovations were the scarcity theory of value and the real bills doctrine.

The downfall of Law’s financial system bore resemblance to the 17th-century tulip mania and occurred concurrently with England’s South Sea bubble, which is said to have drawn inspiration from his model.

Henry Thornton attributed the failure of Law’s experiment to an uncontrolled increase in paper credit, which led to inflation in commodity prices.

Law’s nephew, Jean Law de Lauriston, subsequently held the post of Governor-General of Pondicherry.

The designation "millionaire" traces its origins to those who profited from Law’s financial ventures.

Although Law primarily focused on domestic financial reform, his system had notable international repercussions, including the establishment of New Orleans through the Compagnie d'Occident in 1718. This endeavor is recognized as "the most determined French colonial enterprise until the capture of Algiers in 1830."

Cultural references

The 1978 animated short John Law and the Mississippi Bubble, created by Sharon Condie and Richard Condie at the National Film Board of Canada’s Winnipeg studio, presents a humorous interpretation of Law’s story. It premiered in Canadian theaters in September 1979, was distributed internationally, and received an accolade at the Tampere Film Festival.

In literature, Law’s life inspired William Harrison Ainsworth’s 1864 novel John Law. He also features prominently in Rafael Sabatini’s 1949 work The Gamester.

Furthermore, John Law is mentioned in Voltaire’s Dictionnaire Philosophique under the entry for reason and appears within Montesquieu’s epistolary novel "Lettres Persanes" (1721), specifically in the section titled "Fragment d'un ancien mythologiste."

See also

• Johan Palmstruch
• William Paterson (banker)
• Assignat, the banknote system implemented during the French Revolution

Further reading

• Adams, Gavin John (2012). Letters to John Law. Newton Page. This compilation features early 18th-century political pamphlets that capture the panic surrounding John Law's return to Britain following the collapse of the Mississippi Scheme, accompanied by a timeline and biographical notes.
• Adams, Gavin John (2017). John Law: The Lauriston Lecture and Collected Writings. Newton Page. Includes the inaugural lecture held at Law’s family estate along with works by prominent figures such as Bram Stoker, Washington Irving, Adam Smith, and Voltaire.
• Buchan, James (2018). John Law: A Scottish Adventurer of the Eighteenth Century. MacLehose Press. A detailed biography exploring Law’s emergence as a French economist and his involvement in a significant financial upheaval.
  • The Economist review: "The rise and fall of an alchemical Scottish economist" (2018).
• Defoe, Daniel (2013). John Law and the Mississippi Scheme: An Anthology. Newton Page. Contains firsthand narratives of the initial stock market surge and its consequences.
• Gleeson, Janet (1999). The Moneymaker. Bantam Press. Published in the US as Millionaire: The Philanderer, Gambler, and Duelist Who Invented Modern Finance (2001).
• Hyde, H. Montgomery (1948). John Law: The History of an Honest Adventurer. Home & Van Thal. Edition revised in 1969.
• Lanchester, John. "The Invention of Money: How the heresies of two bankers became the basis of our modern economy," The New Yorker, August 2019.
• Mackay, Charles (1841). Extraordinary Popular Delusions and the Madness of Crowds. Richard Bentley.
• Minton, Robert (1975). John Law: The Father of Paper Money. Association Press.
• Murphy, Antoin E. (1997). John Law: Economic Theorist and Policy-Maker. Oxford University Press. Credited with rehabilitating Law’s standing as an economic thinker.
• Pollard, S. (1953). "John Law and the Mississippi Bubble", History Today 3#9 pp. 622–630.
• Thiers, Adolphe (2011). The Mississippi Bubble: A Memoir of John Law. Newton Page Classics. Documents the ascent and decline of wealth generated by Law’s stock market expansion.
• Velde, Francois R. (2003). Government Equity and Money: John Law's System in 1720 France. Accessible through SSRN or DOI.

External links

• John Law on mapforum.com
• Project Gutenberg Edition of Fiat Money Inflation in France
• John Law: Proto-Keynesian, by Murray Rothbard
• John Law collection at The Historic New Orleans Collection