John Law (economist)
John Law | |
---|---|
Born | Edinburgh, Kingdom of Scotland | 21 April 1671
Died | 21 March 1729 Venice, Republic of Venice | (aged 57)
Occupation | Economist, banker, financier, author, controller-general of finances |
Signature | |
Part of a series on |
Economics |
---|
John Law (pronounced
Early years
Law was born into a family of Lowland Scots bankers and
On 9 April 1694, John Law fought a
Career
Economic theory and practice
Law urged the establishment of a
He spent ten years moving between France and the Netherlands, dealing in financial speculations. Problems with the French economy presented the opportunity to put his system into practice.[citation needed]
He had the idea of abolishing minor
Law made his home in Place Louis-le-Grand, a royal square where he hosted and entertained various Parisian nobles. Gaining the attention of such notable people as the Duke of Orleans, Law quickly found himself a regular in high-stakes gambling parties attended by only the most affluent of Paris. His tall stature and elegant dress allowed Law to charm his way across Europe's financial hubs, from Amsterdam to Venice. These travels heavily influenced Law's theories on monetary policy and the importance of paper money as credit. Law's idea of a centralised bank which would deal in a new form of paper money was years ahead of its time. Despite this forward concept, Law still championed mercantilist beliefs with the promotion of monopolistic companies through government charters.[17]
Centralised bank, Paris
The wars waged by
In May 1716 Law set up the Banque Générale Privée ("General Private Bank") in the rue Quincampoix in Paris, which developed the use of paper money.[20] It was one of only six such banks to have issued paper money in Europe, joining Sweden, England, Holland, Venice, and Genoa.[4] The bank was nationalised in December 1718 at Law's request.[19]: 277
From this new banking platform, Law was able to pursue the monopoly companies he envisioned by having France bankroll the endeavour with 100 million livres in the form of company stock. The founding of the Mississippi Company, later renamed the Occident Company and eventually part of the Company of the Indies, was financed in the same way as the bank.[citation needed]
In this context the regent, Philippe d'Orléans, appointed Law as Controller General of Finances in 1720, effectively giving him control over external and internal commerce. The rapid ascension of this new global monopoly led to massive speculation and stock prices ballooned to over sixty times their original value.[citation needed]
As Controller General, Law instituted many beneficial reforms, some of which had lasting effect, 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.[21]
Law helped in 1719 to refinance the French Indies companies. His nephew, Jean Law de Lauriston, was later Governor-General of Pondicherry.[22]
Mississippi Company
Law became the architect of what would later be known as the
In 1719, the French government allowed Law to issue 50,000 new shares in the Mississippi Company at 500 livres with just 75 livres down and the rest due in seventeen additional monthly payments of 25 livres each. The share price rose to 1,000 livres before the second instalment was even due, and ordinary citizens flocked to Paris to participate.[4]
In October 1719 Law's Company lent the French state 1.5 billion livres at 3 per cent to pay off the national debt, a transaction funded by issuing a further 300,000 shares in the company.[4][23]: 919
Between May and December 1719 the market price of a share rose from 500 to 10,000 livres[19]: 277 and continued rising into early 1720, supported by Law's 4 per cent dividend promise.[15]: 143–4 Under rapidly emerging price inflation,[4] Law sought to hold the 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.[15]: 147 [23]: 920 [24]
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. But the queues grew longer, the Mississippi Company stock price continued to fall, and food prices soared by as much as 60 per cent.[4]
The fractional reserve ratio was one fifth,[25] and a Royal edict to criminalise the sale of gold was decreed.[26] A later Royal edict decreed that gold coin was illegal,[27] which was soon reversed,[28] leading to 50 people being killed in a stampede.[29] The company's shares were ultimately rendered worthless, and initially inflated speculation about their worth led to widespread financial stress, which saw Law dismissed at the end of 1720 from his sinecure as Controller General[4] and his post as Chief Director of the Banque Générale.
Downfall
Speculation gave way to panic as people flooded the market with future shares trading as high as 15,000 livres per share, while the shares themselves remained at 10,000 livres each. By May 1720, prices fell to 4,000 livres per share, a 73 per cent decrease within a year. The rush to convert paper money to coins led to sporadic bank runs and riots. Squatters now occupied the square of Palace Louis-le-Grand and openly attacked the financiers that inhabited the area. It was under these circumstances and the cover of night that John Law left Paris some seven months later, leaving all of his substantial property assets in France, including the Place Vendôme and at least 21 châteaux which he had purchased over his years in Paris, for the repayment of creditors.[citation needed]
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."[30]
The descent of Law came as fast as his rise, leaving an economic power vacuum. Law's theories live on 300 years later and "captured many key conceptual points which are very much a part of modern monetary theorizing."[31]
Later years
Law moved to Brussels on 22 December 1720 in impoverished circumstances when his properties in France were voluntarily confiscated.[15]: 148 He spent the next few years gambling in Rome, Copenhagen and Venice 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 contracted pneumonia and died poor in 1729.[15]: 150 His gravestone is in the San Moisè, Venice.
Cultural references
Sharon Condie and
In 1864 William Harrison Ainsworth published the novel John Law based on his career.[33] John Law is the focus of Rafael Sabatini’s 1949 novel The Gamester.[34]
John Law is referenced in Voltaire’s 'Dictionnaire Philosophique', as part of the entry on reason.[35]
John Law is the subject of the section entitled "Fragment d'un ancien mythologiste" in "Lettre CXLII" of Montesquieu’s epistolary novel "Lettres Persanes" published in 1721.
See also
- Assignat, a bank note system of the French Revolution
References
- ^ Espinasse, Francis (1892). Lee, Sidney (ed.). Dictionary of National Biography. Vol. 32. London: Smith, Elder & Co. pp. 230–234. . In
- ^ Estudes Romanes Dediees a Gaston Paris (in French). Slatkine. 1976. pp. 487 to 506, especially p. 501.
- ^ Collier's Encyclopedia (Book 14): "Law, John", p. 384. P. F. Collier Inc., 1978.
- ^ a b c d e f g "Crisis Chronicles: The Mississippi Bubble of 1720 and the European Debt Crisis -Liberty Street Economics". libertystreeteconomics.newyorkfed.org. 10 January 2014.
- ISBN 9781118827369.
- ^ Humphrey, Thomas M. (1982). "The Real Bills Doctrine" (PDF). Federal Reserve Bank of Richmond Economic Review: 5. Retrieved 15 January 2019.
- ^ "Federal Reserve Bank of Chicago, The Life and Times of Nicolas Dutot, November 2009" (PDF).
- ISBN 9780198286493.
- ^ Henriques, Diana (23 July 2000). "A Big Idea About Money". New York Times. Retrieved 30 January 2019.
- ^ a b Mackay, Charles (1848). "1.3". Memoirs of Extraordinary Popular Delusions and the Madness of Crowds. London: Office of the National Illustrated Library.
- ^ ISBN 978-1934619087.
- ^ Law, John (1705). Two Overtures Humbly Offered to His Grace John Duke of Argyll, Her Majesties High Commissioner, and the Right Honourable the Estates of Parliament. Edinburgh.
- ^ Patterson, William (1750). The Writings of William Paterson ... Founder of the Bank of England, Volume 2. London: Effingham Wilson (published 1858). Retrieved 28 January 2021.
- ^ Law, John (1750). Money and Trade Consider'd with a Proposal for Supplying the Nation with Money, First Published in Edinburgh in 1705. Glasgow: A. Foulis. Retrieved 26 June 2015. via Internet Archive
- ^ ISBN 0-330-35527-9.
- ^ Collier's Encyclopedia (Book 14): "Law, John", p. 384. P. F. Collier Inc., 1978.
- ^ Robert, Harms. The Diligent: A Voyage through the Worlds of the Slave Trade. pp. 43–54.
- ISBN 9780198286493.
- ^ JSTOR 30034460.
- ISBN 978-1-56000-715-9, p. 118.
- ^ Will and Ariel Durant, The Age of Voltaire, Simon & Schuster, 1965, p. 13.
- ^ William Dalrymple The Anarchy: The Relentless Rise of The East India Company, Bloomsbury Publishing, 2019.
- ^ JSTOR 41375433.
- ISBN 9780865977426.
- ^ "John Law and the Mississippi Company" (5:55 of 9:44)
- ^ "John Law and the Mississippi Company" (6:45 of 9:44)
- ^ "John Law and the Mississippi Company" (7:35 of 9:44)
- ^ "John Law and the Mississippi Company" (7:55 of 9:44)
- ^ "John Law and the Mississippi Company" (8:00 of 9:44)
- ^ Henry Thornton (1802): An enquiry into the nature and effects of the paper credit of Great Britain ('Paper credit')
- ISBN 9780198286493.
- ^ Ohayon, Albert (22 June 2011). "John Law and the Mississippi Bubble: The Madness of Crowds". NFB.ca Blog. National Film Board of Canada. Retrieved 22 June 2011.
- ^ Carver, Stephen James. The Life and Works of the Lancashire Novelist William Harrison Ainsworth, 1850-1882. Edwin Mellen Press, 2003. p.378-79
- ^ Match, Richard (4 September 1949). "Economic Swordplay; THE GAMESTER. By Rafael Sabatini". New York Times. Retrieved 23 March 2021.
- ^ "The Project Gutenberg eBook of Voltaire's Philosophical Dictionary". www.gutenberg.org.
Further reading
Non-fiction
- ISBN 9781934619087. A collection of early eighteenth-century political propagandist pamphlets documenting the hysteria surrounding John Law's return to Britain after the collapse of his Mississippi Scheme and expulsion from France. It also contains a very useful chronology and extensive biographical introduction to John Law and the Mississippi Scheme.
- ISBN 9781934619155. Includes the entire first lecture on the life of John Law to be delivered by the author at Law's ancestral home of Lauriston Castle, and other accounts of John Law's life and the Mississippi Scheme by some of the most popular writers of the last 250 years, including: Bram Stoker; Washington Irving, Charles Mackay; Adam Smith; and Voltaire.
- Buchan, James (2018). John Law: A Scottish Adventurer of the Eighteenth Century. MacLehose Press. p. 528. ISBN 9781848666078. A biography/memoir of John Law's life and how he built his way to becoming an "economist abroad" in France, yet oversaw a debilitating bank run/financial crisis in the early 18th century.
- "The rise and fall of an alchemical Scottish economist". The Economist. 13 September 2018.
- ISBN 978-1934619070. Contains Defoe's contemporary accounts of the euphoria and excess of the first ever stock market boom unleashed by John Law and his Mississippi Scheme and his remarkable insight into the European economic crises of the 1720s. It includes: The Chimera (1720), The Case of Mr. Law Truly Stated (1721), and Selected Journalism (1719–1722).
- Gleeson, Janet (1999). The Moneymaker. London: Bantam Press. ISBN 978-0-59304-498-8.
- US edition: Millionaire: The Philanderer, Gambler, and Duelist Who Invented Modern Finance (2001). New York: Simon & Schuster. ISBN 978-0-68487-295-7.
- US edition: Millionaire: The Philanderer, Gambler, and Duelist Who Invented Modern Finance (2001). New York: Simon & Schuster.
- Hyde, H. Montgomery (1948). John Law: The History of an Honest Adventurer. Home & Van Thal. A post-war account of John Law.
- Lanchester, John, "The Invention of Money: How the heresies of two bankers became the basis of our modern economy", The New Yorker, 5 & 12 August 2019, pp. 28–31.
- Mackay, Charles (1841). Extraordinary Popular Delusions and the Madness of Crowds. Richard Bentley. A negative account of John Law.
- Minton, Robert (1975). John Law: The Father of Paper Money. Association Press. ISBN 978-0809619047.
- Murphy, Antoin E. (1997). John Law: Economic Theorist and Policy-Maker. Oxford University Press. ISBN 9780198286493. The most extensive account of Law's writings. It is given credit for restoring the reputation of Law as an important economic theorist.
- Pollard, S. (September 1953). "John Law and the Mississippi Bubble". History Today 3#9 pp. 622–630. JSTOR j.ctt6wpz4m.
- ISBN 978-1934619056. An account of the euphoria and wealth John Law created by engineering the first stock market boom, and the despair, poverty and destroyed lives that followed its crash.
- Velde, Francois R. (2003). Government Equity and Money: John Law's System in 1720 France. Available at SSRN: Government Equity and Money: John Law's System in 1720 France or .
Fiction/satire
- LM Shakespeare (2023). Monsieur Law. ISBN B0C6GZKF2J. France, following the death of Louis XIV, was bankrupt, but into the court of the Regent there arrived a Scot called John Law, whose courage combined with a brilliant financial intellect briefly fired the whole country with a wild excitement which very nearly succeeded. This is history in the genre of Munich and Wolf Hall.
- Anonymous (1720). Het Groote Tafereel der Dwaasheid (in Dutch). Amsterdam. A contemporary satire on the financial crisis in 1720.
- Ainsworth, William Harrison (1864). John Law: The Protector. London: Chapman and Hall. A fictionalised biography.
- Sabatini, Rafael (1949). The Gamester. Houghton Mifflin. A sympathetic fictionalised account of Law's career as financial adviser to the Duke of Orléans, Regent under Louis XV.
- ISBN 978-0413743107. A costume drama based on John Law's life.
External links
- John Law on mapforum.com
- Project Gutenberg Edition of Fiat Money Inflation in France: How ...
- John Law: Proto-Keynesian, by Murray Rothbard
- Texts on Wikisource:
- "Law, John". Encyclopædia Britannica (11th ed.). 1911.
- "Law, John". The New Student's Reference Work. 1914.
- John Law collection at The Historic New Orleans Collection
- Works by John Law at LibriVox (public domain audiobooks)