The Exchange : Who was John Law? Learn all about him at the Museum Showcase in New Orleans

Who was John Law? Learn all about him at the Museum Showcase in New Orleans

At the National Money Show in New Orleans, May 9-11, the ANA Museum Showcase will feature an exhibit dedicated to John Law and the Mississippi Bubble. Law is infamous for his financial and economic tactics, which helped France's economy boom, then subsequently bust. The story of John Law and the Mississippi Bubble is typically summed up in thick historical textbooks and documentaries. The purpose of this blog is simply to acquaint the audience with who Law was and the basics of the Mississippi Bubble.

 

 

John _Law -Casimir _Balthazar _mg _8450

(John Law often used his mathmatical brilliance to win card games)

 

Law, a Scottish economist, was born April 21, 1871, into a family of bankers and goldsmith. At the young age of 14, Law began to study banking and finances. By the age of 18, Law moved to London. While there, Law was involved in a confrontation with Edward Wilson, which stemmed from the two men competing for the affections of an unnamed woman. The two men engaged in a duel, resulting in the death of Wilson and the arrest of Law. Law was sentenced to death; however, he was able to escape prison and shortly thereafter lived in Amsterdam.

 

Upon his returned to Scotland he revealed his idea of establishing bank notes which were backed by land, gold, or silver. His idea was rejected by Scotland; shortly thereafter, he left the country.

 

During this time-period, France finished multiple wars that left its economy in terrible financial shape. In 1715, King Louis XIV died and his sole heir to the throne was a minor, hence the Duke of Orleans became regent of France.

 

Law was a close acquaintance of the Duke and saw an opportunity. The Duke was aware of the financial and economic savvy Law possessed and regularly took his advice.

 

In 1716, Law convinced the French government to allow him to open a bank that would issue bank notes (paper money) to be supported by gold and silver. The idea was that it would generate an increase in money circulation and increase commerce. Yet, most importantly he believed the bank notes would revive France's trade and economic power. His proposal to open a bank was granted, resulting in the Banque Generale.

 

As a result, overseas commerce increased by 60 percent and the number of French ships drastically rose from 16 to more than 3,000.

 

In 1717, Law acquired what would later be known as The Mississippi Company, a trading company, which he decided to merge with the Banque Generale. To fund the Mississippi Company's projects, he chose to sell shares of the company in exchange for cash or state bonds.  Those who invested in the Mississippi Company saw their shares prices skyrocket. It was then that the term millionaire was coined in France due to many individuals quickly gaining large amounts of wealth. In order to fund the purchases of shares in the company, Law made a critical mistake when he opted to print more bank notes. This contributed to inflation, which reached a monthly rate of nearly 23 percent in January of 1720.  

 

Law then decided to devalue the shares in the company and the value of the bank notes was reduced to half of face value.

 

Shares that had peaked so high now fell at an alarming rate. In September of 1721, they decreased down to 500 livres, which is where they originally began. 

 

The rise and rall of the Mississippi Company became known as the Mississippi Bubble. The French government would not reissue paper money for 80 years.

 

To learn more about John Law and the Mississippi Bubble, stop by the ANA Showcase at the National Money Show. If that doesn't quench your thirst for knowledge on this subject then attend Money Talks on Friday, May 10, where Erin Greenwood, curator and historian at The Historic New Orleans Collection, will lead the topic discussion, "The Rise and Fall of John Law."

 John Law Medal 1o _150x 150

 

(Token issued in 1720 satirizes Laws' critics as being envious of his success)

 

Written by Brandon Ortega at 00:00

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