On a spring morning in 1694, a tall, well-dressed young Scot named John Law killed a man in a London duel and was sentenced to hang. The dead man was Edward "Beau" Wilson, a society dandy; the quarrel remains murky, the trial was swift, and Law's murder conviction should have ended his story on the gallows. Instead he escaped from prison, fled to the Continent, and spent two decades gambling his way through Europe's card rooms — calculating odds faster than anyone at the table — while nursing a much grander idea. The son of an Edinburgh goldsmith — the bankers of their day — he had grown up around ledgers and lending before he ever picked up a sword, and he understood credit from both sides of the table. Money, he had concluded, did not need to be silver or gold. It needed only to be trusted. Give him a kingdom, and he would prove it.
He set out the theory in 1705 in a tract called Money and Trade Considered, arguing that paper currency issued by a national bank could revive commerce in a way scarce coin never could. Scotland politely declined the experiment. France, however, was desperate. When Louis XIV died in 1715 he left the most magnificent state in Europe effectively bankrupt, crushed by the debts of his wars. The new Regent, Philippe, Duke of Orléans — who ran France for the boy king Louis XV, and knew Law from the gaming tables — was willing to try almost anything. In 1716 Law opened the Banque Générale, and its paper notes, reliably convertible into coin, were soon preferred to the clipped and debased metal currency itself.
The System
Then came the second, audacious half of the scheme. In 1717 Law launched the Compagnie d'Occident, holding a monopoly on trade with France's vast Louisiana territory along the Mississippi. Piece by piece he bolted on the tobacco monopoly, the rival trading companies for Africa and the East, the royal mint and the right to collect France's taxes, while his bank was elevated into the Banque Royale, its notes guaranteed by the crown. By 1719 bank, company and state had fused into what contemporaries simply called the System: the public swapped depreciated government debt for shares in a company that was, in effect, France itself. A muddy new settlement founded near the mouth of the Mississippi in 1718 flattered the patron — New Orleans, named for the Duke of Orléans.
The share price did the rest. Stock issued at 500 livres was changing hands for around 10,000 by late 1719, and the narrow rue Quincampoix, where dealing spilled into the street, became the most frenzied address in Europe. Footmen, cooks and coachmen made fortunes overnight, and Parisians coined a new word for the winners: millionnaire. One much-repeated story has a hunchback earning a living by renting out his back as a portable writing desk for share contracts — quite possibly embellished, but it catches the mood exactly. In January 1720 Law, a Protestant-born convicted killer who had prudently converted to Catholicism, was appointed Controller-General of Finances. The fugitive gambler now ran the French economy.
The unravelling
The System's flaw was brutally simple: the bank had printed far more notes than it held in coin, and the shares were priced at multiples of anything Louisiana could plausibly earn. The colony was advertised as a paradise of gold mines and willing settlers; in reality it was a fever-ridden swamp being stocked partly with deported convicts and vagrants. When great holders quietly began converting shares and notes back into gold, Law fought back with decrees — restricting private holdings of coin and jewels — and then, in May 1720, with an edict scheduling notes and shares to be devalued by half. Confidence, the sole foundation of his money, evaporated overnight. The edict was withdrawn within days, but the panic proved irreversible; that summer, people were crushed to death in the queues outside the bank.
By December 1720 Law had slipped out of France with the Regent's connivance, leaving behind his fortune and a nation in shock. He died in Venice in 1729, living off his card winnings to the end. That same crash year, 1720, Britain endured the South Sea Bubble — the two are endlessly confused in quizzes, but Law's was the grander experiment: not merely a mania in shares, but the first full-dress demonstration of what happens when a state finances itself with a printing press. France took the lesson hard; for generations afterwards its financiers shunned the very word banque. John Law had asked a whole country to run on pure belief — and for four astonishing years, it did.
Quiz nuggets
- John Law killed Edward "Beau" Wilson in a London duel in 1694 and escaped a death sentence by fleeing abroad.
- His Banque Générale (1716) and Compagnie d'Occident (1717) fused into the "System" that ran France's money and debt.
- The word millionnaire was coined in Paris during the 1719 share mania centred on the rue Quincampoix.
- New Orleans, founded in 1718, was named after Law's patron, Philippe, Duke of Orléans, Regent of France.
- The Mississippi Bubble burst in 1720, the same year as Britain's South Sea Bubble; Law died in Venice in 1729.