February/March 1978 | Volume 29, Issue 2
A Scottish émigré became the most powerful man in the French government, and sold hundreds of thousands of shares in land holdings in the Mississippi Valley
The curious table shown opposite, with its montage of hand-painted scenes, commemorates a grand financial debacle in eighteenth-century France that was commonly known as the Mississippi Bubble. The bubble was blown by John Law, a native of Scotland whose brain worked like a computer and who for a couple of years was the most powerful man in the French government with the possible exception of the Duc d’Orléans, regent for the boy-king Louis XV.
Law, an authentic genius whose ideas are still warmly debated among experts in the arcane field of fiscal policy, went to London in 1691 at the age of twenty, managed to involve himself in a duel over an insult to his English mistress, and killed his opponent with one thrust. Sentenced to be hanged, he escaped from King’s Bench Prison with the help of friends and caught a boat to Holland. There he learned much about banking and money, and for the next several years he traveled widely in Europe, supporting himself and a lady who bore him two children out of wedlock by clever dealings in foreign exchange and by gambling. He wrote a treatise on the wonders of paper money—then a novelty—and turned up in Paris in 1715, after the death of Louis XIV, to push his fiscal theories with the Duc d’Orléans.
Orléans took to Law, and the result was the rapid development of the most comprehensive and radical government financial system theretofore seen in Europe. Law set up a Banque Générale that issued paper money redeemable for fixed values in coin; the regent co-operated by decreeing that taxes must be paid in paper, and in an amazingly short time bank notes with John Law’s signature on them became the chief currency of the realm. But that was only the start. In 1717 Law was granted a monopoly of economic privileges in France’s vast holdings in the Mississippi Valley, and he sold hundreds of thousands of shares in the Compagnie d’Occident, as the new enterprise was called. Law’s steadily increasing power in the French government—he was made controller-general in 1719, after having conveniently turned Catholic combined with heady dreams about the supposed riches of “Mississippi” brought on a fantastic fever of speculation in the shares. Beautiful ladies and distinguished nobles fell over each other in the scramble to buy in and get rich, and the common herd came roaring close behind, as greedy as their betters. On the rue Quincampoix, the Wall Street of the occasion, shares zoomed from a par of five hundred livres each to as much as eighteen thousand, and Law was lionized everywhere.
Unhappily, the actuality behind all this was not an El Dorado of gold- and silverplated mountains, as was generally imagined, but a severely underdeveloped wilderness. (Law, although he never went to America, understood this in part, and had the regent ship hundreds of jailbirds, drunks, and other derelicts to Louisiana as the nucleus of a labor force; not surprisingly this failed to work out well.) Before long, outrageous inflation in the cost of everything made some people realize that the balloon could not expand forever: they began to sell their shares as fast as they had bought them. The madness then reversed itself, and amidst general panic the price of Law’s shares swished down like the blade of a guillotine. In desperation, the government devalued Law’s paper money by half, which only made matters worse. The master financier had to get out of the country to save his skin, and he spent the remaining nine years of his life in relatively ignominious wandering.—