John Law (economist)

John Law (baptised 21 April 1671 – 21 March 1729) was a Scottish economist who believed that money was only a means of exchange which did not constitute wealth in itself and that national wealth depended on trade. He was appointed Controller General of Finances of France under the Duke of Orleans, who served as regent for the youthful king, Louis XV.

John Law
John Law, by Casimir Balthazar
Born(1671-04-21)21 April 1671
Edinburgh, Scotland
Died21 March 1729(1729-03-21) (aged 57)
Venice, Republic of Venice
OccupationEconomist, banker, financier, author, controller-general of finances


In 1716 Law established the Banque Générale, a private bank, in France and which, one year later, was nationalised at his request to become the Banque Royale, the first Central Bank of France. The original private bank was substantially funded by John Law and Louis XV and three-quarters of its capital consisted of government bills and government-accepted notes, effectively making it the first central bank of the nation and was only partially backed by silver making it a fractional reserve bank. He set up and was director of the Mississippi Company, which was funded by the Banque royale. Its eventual chaotic collapse in France has been compared to the early-17th century tulip mania in Holland.[1] The Mississippi Bubble was contemporaneous with the South Sea Company bubble of England which allegedly borrowed ideas from the Mississippi Company design.

Law was a gambler and a brilliant mental calculator. He was known to win card games by mentally calculating the odds. He originated economic ideas such as the scarcity theory of value[2] and the real bills doctrine.[3] Law held that money creation will stimulate the economy, that paper money is preferable to metallic money, and that shares are a superior form of money since they pay dividends.[4]

The term "millionaire" was coined specifically to describe the beneficiaries of Law’s scheme.[5][6]


Early years

Law was born into a family of bankers and goldsmiths from Fife; his father, William, had purchased Lauriston Castle, a landed estate at Cramond on the Firth of Forth and was known as Law of Lauriston. Upon leaving the High School of Edinburgh, Law joined the family business at age fourteen and studied the banking business until his father died in 1688. Law subsequently neglected the firm in favour of more extravagant pursuits and travelled to London to live extravagantly. There, he lost large sums of money in gambling.[7]

On 9 April 1694, John Law fought a duel with another British dandy, Edward "Beau" Wilson, in Bloomsbury Square, London.[8] Wilson had challenged Law over the affections of Elizabeth Villiers. Law killed Wilson with a single pass and thrust of his sword.[8] He was arrested, charged with murder and stood trial at the Old Bailey.[8] He appeared before the infamously sadistic 'hanging judge' Salathiel Lovell and was found guilty of murder, and sentenced to death.[8] He was initially incarcerated in Newgate Prison to await execution.[8] His sentence was later commuted to a fine, upon the ground that the offence only amounted to manslaughter. Wilson's brother appealed and had Law imprisoned, but he managed to escape to Amsterdam.[7]

Economist beginnings

Law urged the establishment of a national bank to create and increase instruments of credit and the issue of banknotes backed by land, gold, or silver. The first manifestation of Law's system came when he had returned to Scotland and contributed to the debates leading to the Treaty of Union 1707. He published a text entitled Money and Trade Considered: with a Proposal for Supplying the Nation with Money (1705).[9][10]:136 Law's propositions of creating a national bank in Scotland were ultimately rejected, and he left to pursue his ambitions abroad.[11]

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.

He had the idea of abolishing minor monopolies and private farming of taxes. He would create a bank for national finance and a state company for commerce, ultimately to exclude all private revenue. This would create a huge monopoly of finance and trade run by the state, and its profits would pay off the national debt. The council called to consider Law's proposal, including financiers such as Samuel Bernard, rejected the proposition on 24 October 1715.[10]:141

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.[12]

The wars waged by Louis XIV left the country completely wasted, both economically and financially. The resultant shortage of precious metals led to a shortage of coins in circulation, which in turn limited the production of new coins. With the death of Louis XIV seventeen months after Law's arrival, the Duke of Orleans finally presented Law with the opportunity to display his ingenuity. Since, following the devastating War of the Spanish Succession, France's economy was stagnant and her national debt was crippling, Law proposed to stimulate industry by replacing gold with paper credit and then increasing the supply of credit, and to reduce the national debt by replacing it with shares in economic ventures.[13] On 1 May 1716, Law presented a modified version of his centralised bank plan to the Banque Générale which approved a private bank that allowed investors to supply one-fourth of an investment in currency and the other parts in defunct government bonds. The second key feature of the proposal centred on the premise that this private bank was able to issue its own currency backed by Louis of gold. This enabled the currency to be redeemed by the weight of silver from the original deposit instead of the fluctuating value of the livres which had been devaluing rapidly.[14]:277

In May 1716 Law set up the Banque Générale Privée ("General Private Bank"), which developed the use of paper money.[15] It was one of only six such banks to have issued paper money, joining Sweden, England, Holland, Venice, and Genoa.[1] The bank was nationalised in December 1718 at Law's request.[14]: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.

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.

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 60% in two years, and the number of French ships engaged in export went from sixteen to three hundred.[16]

Company of the West

Law became the architect of what would later be known as the Mississippi Bubble, an event that would begin with consolidating the trading companies of Louisiana into a single monopoly (The Mississippi Company), and ended with the collapse of the Banque Générale and subsequent devaluing of the Mississippi Company's shares.

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 nineteen 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.[1]

In October 1719 Law's Company lent the French state 1.5 billion livres at 3% to pay off the national debt, a transaction funded by issuing a further 300,000 shares in the company.[17]:919[1]

Between May and December 1719 the market price of a share rose from 500 to 10,000 livres[14]:277 and continued rising into early 1720, supported by Law's 4% dividend promise.[10]:143–4 Under rapidly emerging price inflation,[1] 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 6 days later.[17]:920[18][10]:147

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 percent.[1]

The fractional reserve ratio was one fifth,[19] and a Royal edict to criminalise the sale of gold was decreed.[20] A later Royal edict decreed that gold coin was illegal,[21] which was soon reversed,[22] leading 50 people to be stampeded to death.[23] 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[1] and his post as Chief Director of the Banque Générale.


Speculation gave way to panic as people flooded the market with future shares trading as high as fifteen thousand livres per share, while the shares themselves maintained at ten thousand livres each. By May 1720, prices fell to 4,000 livres per share, a 73% decrease within a year. The rush to convert paper money to coins led to sporadic bank hours 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 twenty-one Chateaux which he had purchased over his years in Paris, for the repayment of creditors.

The descent of a relatively unknown man 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".[24]

Later years

Law initially moved to Brussels on 22 December 1720 in impoverished circumstances as his properties in France were voluntarily confiscated.[10]: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 received a pardon in 1719. He lived in London for four years and then moved to Venice, where he contracted pneumonia and died a poor man in 1729.

Cultural references

Sharon Condie and Richard Condie's 1978 National Film Board of Canada (NFB) animated short John Law and the Mississippi Bubble is a humorous interpretation. The film was produced by the NFB at its newly opened Winnipeg studio. It opened in Canadian cinemas starting in September 1979 and was sold to international broadcasters. The film received an award at the Tampere Film Festival.[25]

John Law is the focus of Rafael Sabatini's 1949 novel "The Gamester"


See also


  1. Federal Reserve Bank of New York: "Crisis Chronicles: The Mississippi Bubble of 1720 and the European Debt Crisis" (Narron and Skeie)
  2. Geman, Helyette (29 December 2014). Agricultural Finance: From Crops to Land, Water and Infrastructure. John Wiley & Sons. ISBN 9781118827369.
  3. Humphrey, Thomas M. (1982). "The Real Bills Doctrine" (PDF). Federal Reserve Bank of Richmond Economic Review: 5. Retrieved 15 January 2019.
  4. Federal Reserve Bank of Chicago, The Life and Times of Nicolas Dutot, November 2009
  5. Murphy, Antoine (1997). John Law: Economic Theorist and Policy-maker. Clarendon Press. p. 3. ISBN 9780198286493.
  6. Henriques, Diana (23 July 2000). "A Big Idea About Money". New York Times. Retrieved 30 January 2019.
  7. Mackay, Charles (1848). "1.3". Memoirs of Extraordinary Popular Delusions and the Madness of Crowds. London: Office of the National Illustrated Library.
  8. Adams, Gavin John (2012). Letters to John Law. Newton Page. pp. xiv, xxi, liii. ISBN 978-1934619087.
  9. 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
  10. Buchan, James (1997). Frozen Desire: An inquiry into the meaning of money. Picador. ISBN 0-330-35527-9.
  11. Collier's Encyclopedia (Book 14): "Law, John", p. 384. P.F. Collier Inc, 1978.
  12. Robert, Harms. The Diligent: A Voyage through the Worlds of the Slave Trade. pp. 43–54.
  13. Antoin E Murphy (1997). John Law. Oxford U. Press. p. 105.
  14. Velde, François R. (May 2007). "John Law's System". American Economic Review. 97 (2). JSTOR 30034460.
  15. BACKHOUSE, Roger, Economists and the economy: the evolution of economic ideas, Transaction Publishers, 1994, ISBN 978-1-56000-715-9, p. 118
  16. Will and Ariel Durant, The Age of Voltaire, Simon & Schuster (1965), p. 13
  17. Lande, Lawrence; Congdon, Tim (January 1991). "John Law and the invention of paper money". RSA Journal. 139 (5414). JSTOR 41375433.
  18. Hayek, F A (1991). The Trend of Economic Thinking. Liberty Fund. p. 162. ISBN 9780865977426.
  19. "John Law and the Mississippi Company" (5:55 of 9:44)
  20. "John Law and the Mississippi Company" (6:45 of 9:44)
  21. "John Law and the Mississippi Company" (7:35 of 9:44)
  22. "John Law and the Mississippi Company" (7:55 of 9:44)
  23. "John Law and the Mississippi Company" (8:00 of 9:44)
  24. Antoin E Murphy (1997). John Law. Oxford U. Press. p. 1.
  25. Ohayon, Albert. "John Law and the Mississippi Bubble: The Madness of Crowds". Blog. National Film Board of Canada. Retrieved 22 June 2011.

Further reading


  • Adams, Gavin John (2017). John Law: The Lauriston Lecture and Collected Writings. Newton Page. 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.
  • Adams, Gavin John (2012). Letters to John Law. Newton Page. 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.
  • Defoe, Daniel (2013). John Law and the Mississippi Scheme: An Anthology. Newton Page. 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 (2000). The Moneymaker. Bantam Books. ISBN 978-0857501134.. An accessible biography of John Law.
  • 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.
  • Thiers, Adolphe (2011). The Mississippi Bubble: A Memoir of John Law. Newton Page Classics. 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.
  • 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.[1]


  • Anonymous (1720). Het Groote Tafereel der Dwaasheid. Amsterdam.. A contemporary satire on the financial crisis in 1720.
  • 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.
  • Greig, David (1999). The Speculator. Methuen. ISBN 978-0413743107. A costume drama based on John Law's life.
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