John Law
John Law was an influential Scottish economist and banker, born in Edinburgh in 1671. He gained notoriety after being convicted of murder in a duel and escaping execution, leading him to a life in exile in Europe. Law’s mathematical prowess allowed him to make a living through gambling while he developed ideas in political arithmetic, which later informed modern economic theory. His banking career began when he convinced the French regent to establish France's first bank, the Banque Générale, which pioneered the use of paper money.
Law also founded the Mississippi Company, aimed at settling and trading in North America. However, his ambitious projections led to rampant speculation, culminating in the catastrophic collapse known as the "Mississippi Bubble" in 1720. This event resulted in widespread economic turmoil in France and beyond, leading to Law’s eventual disgrace and flight to England. Despite his tumultuous legacy, Law’s innovative practices in banking and finance laid groundwork for future economic systems, though his failures highlighted the risks of speculative ventures. His complex character continues to provoke discussion among economists and historians.
On this Page
Subject Terms
John Law
Scottish economist and speculator
- Born: April 21, 1671 (baptized)
- Birthplace: Edinburgh, Scotland
- Died: March 21, 1729
- Place of death: Venice (now in Italy)
Cause of notoriety: Law established the Mississippi Company, France’s first joint stock enterprise. A scheme involving the company collapsed when it became evident that the company’s shares had soared because of Law’s fraudulent claims.
Active: 1719-1720
Locale: France and the American colonies
Early Life
John Law, born in Edinburgh, Scotland, in 1671, was the son of William Law, a goldsmith and successful banker, and his second wife, Jean Campbell. At the age of twenty-three, Law was convicted for the murder of Edward Wilson in a duel that has been inconclusively attributed to various circumstances. Law was sentenced to death. However, probably by bribing his jailers, he escaped and fled to Holland. There, he relied on a brilliant mathematical sense to earn money by gambling. He traveled widely, absorbing the tenets of political arithmetic, the forerunner of modern-day economic theory.
Banking Career
When Law relocated in France, he convinced the regent, Philippe I, duc d’Orléans, to support the establishment of France’s first bank, the Banque Générale, which inaugurated the use of paper money. In 1719, the bank, renamed the Banque Royale, was placed under the control of the state, though Law remained its chief officer. Law thereafter formed a joint-stock entity, the Compagnie d’Occident (Company of the West), known popularly as the Mississippi Company. The company sought to settle and trade in a three-thousand-mile swath of the American colonies, from the mouth of the Mississippi River to Canada. At some point, Law began to exaggerate the wealth of the colonies, which subsequently induced wild speculation on the shares of the company. The price of its stock rapidly soared from one hundred livres a share (six hundred dollars in modern-day currency) to ten thousand livres (sixty thousand dollars in modern-day currency). By the summer of 1719, Paris was engulfed in a mania of speculation; on the basis of the extraordinary gains of some investors, the term “a millionaire” was coined.
However, settlers dispatched to the United States were dying from disease, Indian raids, and oppression by the Spanish; anticipated profits were far from being realized. The scheme was kept alive temporarily by printing currency that had inadequate backing. By the summer of 1720, there were 2.5 billion livres of paper money in circulation, while the bank held only 300 million in specie, such as gold and silver, to back up the banknotes.
Impact
History has vindicated John Law’s pioneering reliance on paper money, as well as many of his other economic insights. Nonetheless, he clearly overextended his reach. When the scheme that became known as the “Mississippi Bubble” collapsed in late 1720, Law fled to England in disgrace, lived there for four years, and then relocated to Venice, where he died in genteel poverty in 1729. The collapse caused an economic crisis in France and Europe.
Later, German philosopher Karl Marx would accurately characterize Law as having the mixed character of a swindler and a prophet. The respected economistAlfred Marshall declared that Law was reckless but a most fascinating genius.
Law pioneered many bank practices, but the disastrous results of his overextended speculation put a damper for some time on the adoption of his innovative designs for public involvement in finance through financial investment in business entities.
Bibliography
Gleeson, Janet. Millionaire: The Philander, Gambler, and Duelist Who Invented Modern France. New York: Simon & Schuster, 2000. The author maintains that Law’s intentions were admirable but that he was overcome by poor judgment and a run of bad luck due to circumstances beyond his control.
Hyde, H. Montgomery. John Law: The History of an Honest Adventurer. London: W. Allen, 1969. A writer of numerous biographies, Hyde tells Law’s story in fascinating style but lacks the sources that became available to later commentators on Law’s career.
Minton, Robert. John Law: The Father of Paper Money. New York: Association Press, 1975. Minton claims that Law was a financial genius who careened into disaster after losing his sense of proportion, compounding initial miscalculations by even more reckless tactics.
Murphy, Antoin. John Law: Economic Theorist and Policy Maker. Oxford: Clarendon, 1997. A comprehensive scholarly examination of Law’s ideas, with a particular emphasis on the relationship between the Mississippi Company and Law’s economic principles.
Oudard, Georges. The Amazing Life of John Law, the Man Behind the Mississippi Bubble. Translated by G. E. Massé. New York: Payson & Clar, 1928. Oudard relates the story of Law’s life and work in melodramatic fashion, inventing dialogue and romanticizing Law and his supporters.