John Law's Company, founded in 1717 by Scottish economist and financierJohn Law, was ajoint-stock company that occupies a unique place in French and European monetary history, as it was for a brief moment granted the entire revenue-raising capacity of the French state. It also absorbed all previous Frenchchartered colonial companies and was popularly known as theCompagnie du Mississippi (Mississippi Company), even though under Law's leadership its overseas operations remained secondary to its domestic financial activity.
In February 1720, the company acquiredJohn Law's Bank, which had been France's firstcentral bank. The experiment was short-lived, and after astock market collapse of the company's shares in the second half of 1720 (theMississippi Bubble), the company was placed under governmentreceivership in April 1721. It emerged from that process in 1723 as theFrench Indies Company, focused on what had been the overseas operations of Law's Company.
Law's Company was formally known, first, as theCompagnie d'Occident (lit. 'Company of the West') from August 1717 to May 1719, then as theCompagnie des Indes (lit. 'Company of the Indies'). It was also popularly referred to as theCompagnie du Mississippi (lit. 'Mississippi Company').
The company was at the center of the broader monetary and fiscal scheme known asLaw's System (French:le système de Law). Initially the System's main entity wasLaw's Bank, but the System and the Company became practically synonymous after the Bank was merged into the Company in February 1720.
The territory ofLouisiana was originally claimed for theKingdom of France byRené Cavelier de La Salle on 9 April 1682, then including all thedrainage basin of theMississippi River (which La Salle called the Colbert River, in honor ofJean-Baptiste Colbert). The first attempt to establish a joint-stock company to develop the territory was made in 1697, but did not succeed.[1]: 138-139 Other attempts failed between 1708 and 1710.[2]
Prominent Parisian financierAntoine Crozat, who already controlled theCompagnie de Guinée [fr] and the associatedslave trade, eventually established a Company of Louisiana (French:Compagnie de la Louisiane) that was granted a 15-year trading monopoly in the territory byLouis XIV on 14 September 1712.[2] Crozat had been persuaded to engage in this venture by adventurerAntoine de la Mothe Cadillac, whom he appointed to lead the company. The company's activity remained limited, however, and Crozat withdrew in early 1717 after being fined by the Chamber of Justice that had been established byAdrien Maurice de Noailles, 3rd Duke of Noailles to castigate financiers associated with the financial recklessness of Louis XIV's late years.[1]: 142–143 By then, Louisiana remained almost entirely undeveloped, with a total population of French colonists numbering only about 500.[3]: 14
The Regency Council approved a proposal from Noailles to approve Law's company on 21 August 1717, andletters patent were issued the following week.[1]: 144 They granted the Company all of Louisiana as afief in perpetuity (i.e., the Company was thevassal of the King for Louisiana), and added a 25-year monopoly on trading between Louisiana and the French mainland as well as on the beaver fur trade in Canada. They allowed the Company to have its own military force, to make treaties with native Americans, and to benefit from French military assistance in conflicts with other European powers. At the end of the initial 25-year period, the Company would retain ownership of Louisiana but would sell any military assets to the King, including forts and equipment.[3]: 14 [4] The company was granted acoat of arms displaying amale allegory of the Mississippi River, leaning on acornucopia.[1]: 145
After some nudging by the Regent, theParlement of Paris registered the edict on 10 September 1717, and the King appointed Law as Director-General two days later.[1]: 148 The shares were offered at 500 livres face value, payable entirely in government debt bills at par (which was highly advantageous, as with the initial subscription for Law's Bank). The subscription was open to the nobility but also to commoners and foreigners.[1]: 146 The public offering started on 14 September 1717 and extended until the end of 1718, for a total 100 millionFrench livres at face value. Depending on accounts, it appears that Law himself subscribed between 10 million and 13.3 million livres (or 10-13.3 percent of the total), and the French state (namely the Regent, the King and four favored servants) subscribed between 30 and 40 million.[1]: 155 [3]: 14
The Company soon started building up its operations. It appointedJean-Baptiste Le Moyne de Bienville as commandant-general of Louisiana's armed forces, who in the spring of 1718 started developing a new settlement which took the nameNew Orleans in honor of the Regent.[1]: 152 By December 1718, it owned a dozen ships and had made several voyages to Louisiana. It soon engaged in a series of acquisitions oftax farming rights and other colonial companies. These included the right to run theFerme du tabac [fr], France'stobacco monopoly, on 1 August 1718, and theCompagnie du Sénégal, on 4 December 1718.[3]: 15 The company held its firstannual general meeting in theHôtel de Mesmes, the seat of Law's Bank on rue Sainte-Avoye, on 27 March 1719 with the Regent as chair and 300 shareholders in attendance.[1]: 199
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In May 1719, Law expanded his acquisition spree by purchasing the long-bankruptEast Indies Company, as well as theCompagnie de la Chine that had been relaunched in 1712.[1]: 201 The Compagnie d'Occident reimbursed the two companies' debts and financed the acquisition by issuing new shares underwritten by Law 's Bank, illustrating the growing synergy between the two ventures. On 21 May 1719, a royal edict issued by the Regent endorsed the transaction and gave the nameCompagnie des Indes to the merged entity.[1]: 202-203 Among other things, this gave Law's company for the first time its own harbour, shipyard and arsenal in mainland France atLorient, which had been developed by the East Indies Company since 1666.[1]: 205 The company ambitiously developed the facilities at Lorient, which had stagnated in the previous few decades.[5]: 87
That expansion of the company's geographical scope, by triggering the issuance of new shares, also marked the start of a momentous rise in the value of the shares, which until then had stay around their par level of 500 livres. The shares were traded in the open-air market in a section ofrue Quincampoix [fr] in Paris, which had developed in the late years of Louis XIV's reign first as a trading venue for discounted state debt bills. The price reached 750 livres on 17 June, 1,000 livres on 21 July, 2,000 livres the following week, and 3,000 livres on 17 August.[1]: 205-212 The full sequence of acquisitions during the heated summer of 1719 included:
The latter two were part of a broader set of transactions that made Law's Company the collector of all taxes and owner of all debt owed to and by the French kingdom, while still being technically a joint-stock company. Simultaneously, its privileges were extended to last a full half-century to 1 January 1770.[1]: 214
The company remained profitable and solvent until the collapse of the bubble.[6] Its value temporarily soared to the equivalent of $6.5 trillion today, which would make it the second most valuable company in history behind theDutch East India Company.[7][8] The popularity of company shares was such that they sparked a need for more paper bank notes, and when shares generated profits the investors were paid out in paper bank notes.[9] On 30 December 1719, Law's Company held its second general meeting, still at theHôtel de Mesmes with 1,200 shareholders attending as well as the Regent; his eldest sonLouis;Louis Henri, Duke of Bourbon; and other grandees.[1]: 248 In early 1720, the Company relocated to theHôtel de Nevers, which Law had purchased in 1719 with the intent to donate it to the company.[1]: 235
Bénard de la Harpe and his party leftNew Orleans in 1719 to explore theRed River. In 1721, he explored the Arkansas River. At the Yazoo settlements in Mississippi he was joined by Jean Benjamin who became the scientist for the expedition.[citation needed] The Mississippi Company arranged ships to bring in 800 more settlers, who landed in Louisiana in 1718, doubling the European population. Law encouraged some German-speaking people, includingAlsatians andSwiss, to emigrate. They gave their names to theGerman Coast and theLac des Allemands in Louisiana.[citation needed]
Prisoners were deported from Paris to Mississippi beginning in September 1719, and encouraged by Law to marry young women recruited in hospitals.[10] In May 1720, after complaints from the Mississippi Company and the concessioners about this class of French immigrants, the French government prohibited such deportations. However, there was a third shipment of prisoners in 1721.[11]
The company was involved in theAtlantic slave trade, importing African slaves along the Mississippi River to points as far North as modern Illinois.[12]
The market price of company shares eventually reached the peak of 10,000 livres. As the shareholders were selling their shares, the money supply in France suddenly doubled, and inflation burgeoned. Inflation reached a monthly rate of 23% in January 1720.[13] The company further purchased theBanque Royale, in February 1720, and theCompagnie de Saint-Domingue [fr] and the monopoly on France'sslave trade, in September 1720.[3]: 17
The "bubble" burst at the end of 1720.[13] By September 1720 the price of shares in the company had fallen to 2,000 livres and to 1,000 by December. By September 1721 share prices had dropped to 500 livres, where they had been at the beginning.
By the end of 1720, Philippe d'Orléans had dismissed Law from his positions. Law then fled France for Brussels, eventually moving on to Venice, where his livelihood was gambling. He was buried in the churchSan Moisè in Venice.[14]
The Company, together with the bank it owned and managed, was placed inreceivership in April 1721.[3]: 36 It emerged from that process in March 1723,[3]: 42 , by which time all its operations were in Overseas trading and colonial development. As part of the restructuring, the French state paid the company an indemnity of 514 million livres to make it whole, and it kept its prior shareholders; its trading and navigation privileges were confirmed by a series of royal edicts in June 1725 which closed the restructuring.[15]: 11 It kept operating as theFrench Indies Company until eventual liquidation in 1770.
Law devalued shares in the company in several stages during 1720, and the value of bank notes was reduced to 50 percent of their face value. ... The fall in the price of stock allowed Law's enemies to take control of the company by confiscating the shares of investors who could not prove they had actually paid for their shares with real assets rather than credit. This reduced investor shares, or shares outstanding, by two-thirds.
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