John Law was the architect of the plan to consolidate French colonial trading companies, including those in Louisiana, into a single monopoly, the Company of the Indies.
Gambler, swindler, statistician, genius—all have been used to describe one of pre-revolutionary France’s most notable and notorious figures: John Law. Law is most associated with the collapse of the Mississippi Bubble, his inflationary stock scheme based on the supposed value of Louisiana lands that resulted in a severe economic downturn in France. Less remembered are Law’s extraordinary contributions in the realm of high finance, including the creation of France’s first national bank—which was also the first national bank to print and circulate paper money—and the French Company of the Indies.
Born in Cramond, Scotland, in April 1671, Law spent much of his early adulthood frequenting the gaming tables of Amsterdam, Genoa, Paris, and Venice, where he used his mathematical genius to amass a substantial fortune. Time spent in Europe’s financial capitals also afforded him access to the worlds of finance and economic theory.
In 1714 Law took up permanent residence with his common-law wife, Katherine (Knowles) Seigneur, in a lavishly furnished house on Paris’s exclusive Place Louis-le-Grand. He likely chose the newly constructed square because the residences lining it were home to some of the most influential financiers in Paris, including Antoine Crozat, whose company had maintained exclusive rights to trade in the Louisiana colony since 1712. By the time Law settled in Paris, he was already on his way to establishing himself as one of the period’s most influential economic theorists. In 1705 he had published Money and Trade Considered with a Proposal for Supplying the Nation with Money, a treatise Law hoped would cure Scotland’s economic ills. Law’s proposal centered on the creation of a land bank, which would by design alleviate the country’s shortage of coins through the issuance of paper money backed by the value of land. Though Law published the treatise anonymously, his authorship was well known by the time it was considered—and rejected—by the Scottish Parliament in the summer of 1705. His reputation as a gambler and worse (sentenced to death for killing a man in a duel, he had escaped from London’s King’s Bench prison in the 1690s) preceded him.
The following year Law sought an audience with Louis XIV in France, where a severe specie (currency of gold and silver) shortage, repeated military engagements, and a mounting state debt combined to put Europe’s most populous nation on increasingly precarious financial footing. In Mémoire touchant les monoies et le commerce Law proposed the creation of a French national bank that would issue paper money, increase available credit, and promote trade (objectives known collectively as Law’s “System”), but he failed to get the proposal past the king’s controller-general. In 1707 two more submissions were rejected. Not until Law took up permanent residence in Paris were any of his proposals entertained in earnest by the king and his ministers. But just as Law faced the unfamiliar prospect of seeing his financial plans adopted, Louis XIV died on September 1, 1715.
The Creation of Law’s “System”
Louis’s death left France in the hands of his five-year-old great-grandson, whose reign would be overseen by the regent, Philippe, duc d’Orléans, until he reached the age of majority at 13. The regent inherited a financial crisis of epic proportions. France’s treasury was bankrupt. State debt topped two billion livres, not including annual interest payments to its creditors of ninety million livres, and the treasury had borrowed against future tax revenues through 1718. The entire financial system was on the verge of collapse, a situation that left the regent predisposed to consider Law’s proffered solutions.
Law’s ascent in the months and years following the death of Louis XIV was meteoric. Within two months his proposal to create a national bank was heard before the finance council. The following summer, the bank became a reality. In August 1717 Law’s newly formed trading company, the Company of the West (Compagnie d’Occident), took over Crozat’s Louisiana charter with hopes of establishing a French version of the British colonial Chesapeake settlements in the Mississippi Valley. A year later the regent awarded Law’s company a nine-year monopoly of all tobacco trade within the French empire.
To raise capital and fund the acquisition of smaller companies, the Company issued a series of shares. Proceeds from each stock issuance were intended to create greater solvency. By the summer of 1719 Law’s company had absorbed the Company of the East Indies and the Royal China and Africa Companies. It also acquired the Senegal Company, a slave trading entity whose resources and contacts Law hoped to exploit in order to bring enslaved laborers to Louisiana. The resulting conglomerate, the French Company of the Indies (Compagnie des Indes), had the most far-ranging geographic scope in the history of European trading companies. To finance the expansion Law released more share issuances. At the same time, the bank issued 50 million livres of banknotes to ensure that there was enough cash in circulation to cover new share purchases, and Law pledged to personally underwrite the new share issue. Loosened subscription requirements, an increased money supply, and Law’s personal investment bolstered public confidence.
The public’s appetite for company shares in the fall of 1719 seemed insatiable. Between September 26 and October 4, 1719, Law released four additional issuances. Through the beginning of 1720 share values continued to rise, peaking just days after Law’s appointment to France’s highest administrative office: controller-general of France.
The Mississippi Bubble
Rather than ensuring the success of his System, Law’s appointment represented the beginning of its demise. Big investors, sensing an impending fall in stock prices, began to cash in their shares shortly before his appointment. By refusing to accept banknotes in return for their shares, they nearly emptied the bank of specie. At the same time, rumors of the discouraging state of affairs in Louisiana—where immigration was low and the production of investment-worthy tobacco nonexistent—swirled. Distrust of Law grew; public confidence in his System wavered. As company stock plummeted, shareholders rushed to cash in shares, and the mint printed more banknotes to meet demand, causing widespread inflation. On November 27 the bank closed its doors. By December, the System had collapsed, despite Law’s efforts to stabilize the credit markets and restore public confidence.
Law’s fall from favor over the course of 1720 was as striking for its speed as his rise had been some five years earlier. By late December 1720 he had fled France, the nation’s economic apparatus was in shambles, and thousands were left holding worthless paper notes. Law spent the last years of his life in Venice, hounded by shareholders and creditors, before dying of pneumonia on March 21, 1729.
For Louisiana the ramifications of Law’s fall from favor were mixed. Satirical images and derisory texts depicting the colony as a debauched, thoroughly desperate place circulated throughout Europe, causing an already anemic flow of immigrants to nearly dry up. The importation of enslaved Africans, too, slumped in the years immediately following Law’s expulsion, dropping from over 1,100 captives in 1721 to less than 100 between 1722 and 1724. Yet the same system that led to financial chaos in France led ultimately to increased stability in Louisiana. The collapse of the System, though spectacular in its speed and magnitude, did not destroy the Company of the Indies.
Unlike the bank, the Company emerged from the chaotic, three-year reorganization period that ended in 1723 as a largely profitable entity. This was possible because, prior to the collapse, company directors, led by Law, had invested profits from shares sold into the nuts and bolts of trade—ships, trade goods, port facilities, and people. In Louisiana, where the reorganized Company maintained its administrative and trade monopoly until 1731, company investments resulted in the largest influx of capital, goods, and enslaved Africans since the colony’s founding.