John Law | |
|---|---|
 John Law, by Casimir Balthazar | |
| Born | (1671-04-21)21 April 1671 |
| Died | 21 March 1729(1729-03-21) (aged 57) |
| Occupation | Economist, banker, financier, author, controller-general of finances |
| Signature | |
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John Law (pronounced[lɑs] in French in the traditional approximation ofLaws, the colloquial Scottish form of the name;[1][2] 21 April 1671 – 21 March 1729) was a Scottish-French[3]economist andfinancier. He rose to power in France where he created a novel financial scheme for French public finances known as Law's System (French:le système de Law) with two institutions at its core,John Law's Bank andJohn Law's Company (also known as the Mississippi company), ending in the devastating boom and bust "Mississippi Bubble" of 1720.
Born in Scotland, Law was an accomplished gambler with an interest in the rules of probability. After killing a man in a duel and being sentenced to death, he fled to mainland Europe. He read economics and made the acquaintance ofPhilippe II, Duke of Orléans, who became regent for the juvenileLouis XV in 1715. In 1716 Philippe approved Law's plan to create a private bank which would take gold deposits in return for bank notes, loaning out the gold. It was structured as a joint-stock company and was bought by the French government in 1718, becoming theBanque royale. In 1717 Law founded another joint-stock company, the Mississippi company, whose purpose was the economic exploitation ofLouisiana as well as other French colonies. Law becameController General of Finances in 1720 and was the richest man in Europe. He had to leave France that same year, as a stock boom turned into a bust. He then lived in various European cities and died in Venice, impoverished.
Whereas Law's System unquestionably ended in failure as a monetary framework, it had lasting influence as an early experiment infiat money. Its soundness remains debated, with some analysts maintaining that it was not fundamentally flawed. Whereas the Mississippi company ended in bankruptcy, whether the collapse of Law's System represented an episode ofsovereign default is ambiguous, given that France's debt situation was largely unchanged.
Law was born into a family of Lowland Scots bankers andgoldsmiths fromFife; his father, William, had purchasedLauriston Castle, a landed estate atCramond on theFirth of Forth and was known as Law ofLauriston. On leaving theHigh School of Edinburgh, Law joined the family business at the age of 14 and studied the banking business until his father died in 1688. He subsequently neglected the firm in favour of extravagant pursuits and travelled to London, where he lost large sums by gambling.[4]
On 9 April 1694, John Law fought aduel with another British dandy, Edward "Beau" Wilson, inBloomsbury Square, London.[5] Wilson had challenged Law over the affections ofElizabeth Villiers. Law killed Wilson with a single pass and thrust of his sword.[5] He was arrested and charged with murder and stood trial at theOld Bailey.[5] He appeared before the infamously sadistic "hanging judge"Salathiel Lovell and was found guilty of murder and sentenced to death.[5] He was initially incarcerated inNewgate Prison to await execution.[5] His sentence was later commuted to a fine, on the grounds that the killing only amounted tomanslaughter. Wilson's brother appealed and had Law imprisoned, but he managed to escape toAmsterdam.[4]
Law urged the establishment of anational bank to create and increase instruments ofcredit and the issue ofbanknotes backed by land, gold, or silver. The first manifestation of Law's System came when he had returned to Scotland and contributed to the debates leading to theTreaty of Union 1707. He wrote a pamphlet entitledTwo Overtures Humbly Offered to His Grace John Duke of Argyll, Her Majesties High Commissioner, and the Right Honourable the Estates of Parliament (1705)[6][7] which foreshadowed the ideas he would propose for establishing new systems of finance, paper money and refinancing the national debt in a subsequent tract entitledMoney and Trade Considered: with a Proposal for Supplying the Nation with Money (1705).[8][9]: 136 Law's propositions of creating a national bank inScotland were ultimately rejected, and he left to pursue his ambitions abroad.[3]
By 1710, Law had married Lady Katherine Knowles or Knollys (1669-1747), daughter ofNicholas Knowles, 3rd Earl of Banbury. They had a daughter, Mary Katherine, who went on to marry her cousin,William Knollys (Banbury MP).
Law spent ten years moving between France and theNetherlands, dealing in financialspeculations. He had the idea of abolishing minormonopolies and privatefarming of taxes. He would create a bank for national finance and a state company for commerce, ultimately to exclude all private revenue. This would create a huge monopoly of finance and trade run by the state, and its profits would pay off thenational debt.
John Law's system, first endorsed by the RegentPhilippe d'Orléans in May 1716 and developed from then in increasing ambitious stages until 1720, rested on the expansion of monetary supply[10]: 277 through the creation offiat money and a complete overhaul of the French state'srevenue collection,coinage andborrowing, all of which were centralized in Law's Company.[11] Along the way, Law's Company absorbed allFrench colonial trading companies which had developed in fits and starts over the previous century, and started an unprecedented colonization of its own inLouisiana with the foundation ofNew Orleans in 1718. It was renamed theCompagnie des Indes (Indies Company) in 1719, and in February 1720 absorbed the bank that Law had initially established in May 1716.
Law's social standing rose with his financial heft. On 17 September 1719, he converted toCatholicism in the low-profileconvent of the Recollects [fr] inMelun. On 2 December 1719, he was elected an honorary member of theRoyal Academy of Sciences.[12]: 244 The Regent then appointed Law asController-General of Finances on 5 January 1720,[13]: 81 effectively giving him control over external and internal commerce. As Controller-General, Law instituted many reforms, some of which had lasting effects, while others were soon abolished. He tried to break up large land-holdings to benefit the peasants; he abolished internal road and canal tolls; he encouraged the building of new roads, the starting of new industries (even importing artisans but mostly by offering low-interest loans), and the revival of overseas commerce — and indeed industry increased by 60 per cent in two years, and the number of French ships engaged in export went from 16 to 300.[14]
The system started to unravel in 1720 as price inflation started to surge.[15] Law sought to hold the Indies Company's share price at 9,000 livres in March 1720, and then on 21 May 1720 to engineer a controlled reduction in the value of both notes and the shares, a measure that was itself reversed six days later.[9]: 147 [16]: 920 [17] As the public rushed to convert banknotes to coin, Law was forced to close the Banque Générale for ten days, then limit the transaction size once the bank reopened. On 29 May 1720, Law was dismissed as Comptroller-General of Finances.[12]: 285 The queues grew longer, the Indies Company's stock price continued to fall, andfood prices soared by as much as 60 per cent.[15] At the end of 1720, the Regent eventually dismissed Law as Controller General[15] and as head of the Indies Company.
When arriving in Paris in 1714 Law made his home in Place Louis-le-Grand, nowplace Vendôme, in theHôtel de Gramont [fr] where he hosted and entertained various Parisian nobles. On 30 June 1718 he purchased theHôtel Langlée on 19 rue Neuve-des-Petits-Champs, now 46-54rue des Petits-Champs in Paris, and moved there after due renovations. In July 1718, he started buying lots with entrances on the Place Vendôme, and ended up owning most of that square before his downfall.[12]: 171 The Hôtel Langlée was later demolished, and the lots on Place Vendôme sold by the French state in the restructuring following Law's flight from the country.
Law also acquired a number of suburban estates and properties inNormandy and farther away from Paris, amassing a significant land and real estate portfolio. On 30 April 1718, he purchased theChâteau de la Marche [fr] fromNicolas Desmarets. On 30 June 1718, the same day as his acquisition of the Parisian Hôtel Langlée, he bought theChâteau de Tancarville fromLouis Henri de La Tour d'Auvergne, comte d'Evreux.[12]: 169-171 Law then acquired the estates ofToucy,Valençay andRoissy [fr] in the second half of 1719, andOrcher,Effiat [fr],Guermantes andYville [fr] in the course of 1720.[12]: 423-424
On 10 May 1719 Law purchased the western part of the formerPalais Mazarin known as theHôtel de Nevers.[12]: 201 In September 1719, he negotiated withPaul Jules de La Porte [de] to purchase the rest of the Palais Mazarin, and bought six houses bordering rue Vivienne on the western side, then went on to acquire the entire city block including theHôtel Tubeuf.[12]: 235 In 1720, Law relocated the Indies Company there. In late October of that year, the site also became the official location for theParis stock exchange, following the closure of the market's previous incarnation at rue Quincampoix on 22 March 1720 (even though unregulated trading lingered there) and subsequent short-lived venues onplace Vendôme and in the garden of theHôtel de Soissons.[12]: 274, 315, 335 Law commissioned Venetian painterGiovanni Antonio Pellegrini to redecorate the first-floor gallery of the Hôtel de Nevers for the purpose of hosting the company's shareholders meetings.[12]: 236 After Law's downfall, the restructuredFrench Indies Company remained in the Hôtel Tubeuf and the stock market in that building's rear garden bordering rue Vivienne, while the Hôtel de Nevers was granted in 1725 to the Royal Library which later became theBibliothèque nationale de France (now itsSite Richelieu).
Some of the acquisitions gave Law the right to use nobility titles, such as Marquess of Toucy.[18] Law appears not to have taken advantage of that option, however, except in isolated cases of notarized documents that refer to him as Count of Tancarville.[12]: 170 He has been occasionally said to have claimed or aimed at the title of "Duke of Arkansas" for his company's endeavors in the Mississippi valley,[19][20] but this assertion, generally made in the United States, has no documentary basis.[12]: 208
Law moved toBrussels on 22 December 1720 in impoverished circumstances when his properties in France were voluntarily confiscated.[9]: 148 He spent the next few years gambling inRome,Copenhagen andVenice but never regained his former prosperity. Law realised he would never return to France when Orléans died suddenly in 1723 and Law was granted permission to return to London, having been pardoned in 1719. He lived in London for four years and then moved to Venice, where he contractedpneumonia and died poor in 1729.[9]: 150 His gravestone is in theSan Moisè, Venice.
Law had lasting influence as a monetary theorist. He held that money creation stimulated an economy, paper money was preferable to metal, and dividend-paying shares a superior form of money.[21] He propounded ideas such as thescarcity theory of value[22] and thereal bills doctrine.[23]
The chaotic collapse of Law's System has been compared to the 17th-centurytulip mania parable in Holland.[15] The Mississippi bubble coincided with theSouth Sea bubble in England, which allegedly took ideas from it.
Henry Thornton explained why Law's scheme failed: "He forgot that there might be no bounds to the demand for paper; that the increasing quantity would contribute to the rise of commodities: and the price of commodities require, and seem to justify, a still further increase."[24]
Law's nephew,Jean Law de Lauriston, was later Governor-General ofPondicherry.[25]
The term "millionaire" was coined for beneficiaries of Law's scheme.[26][27]
While most of Law's system was directed at domestic financial reform, its overseas impact was also notable, including the founding ofNew Orleans on behalf of the Compagnie d'Occident in 1718. More broadly, it has been assessed that "Law's was the most determined French colonial enterprise until the capture of Algiers in 1830".[12]: 152
Sharon Condie andRichard Condie's 1978National Film Board of Canada (NFB)animated shortJohn Law and the Mississippi Bubble is a humorous interpretation. The film was produced by the NFB at its newly openedWinnipeg studio. It opened in Canadian cinemas starting in September 1979 and was sold to international broadcasters. The film received an award at theTampere Film Festival.[28]
In 1864William Harrison Ainsworth published the novelJohn Law based on his career.[29]John Law is the focus ofRafael Sabatini's 1949 novelThe Gamester.[30]
John Law is referenced inVoltaire's 'Dictionnaire Philosophique', as part of the entry on reason.[31]
John Law is the subject of the section entitled "Fragment d'un ancien mythologiste" in "Lettre CXLII" ofMontesquieu's epistolary novel "Lettres Persanes" published in 1721.
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