Law, John

(1671-1729)

   Scottish-born financier

   Best known as the founder of the notorious Mississippi scheme, John Law was born in Edinburgh, Scotland, and, after having studied banking in various European countries, settled in Paris in 1715. A year later, he secured the patronage of the regent, the duke of Orléans. By royal edict, Law founded the Banque générale, the first bank in France. This new institution produced large quantities of banknotes, which, in 1717, were ordered to be received in payment of taxes. That same year, Law originated the Mississippi scheme as a plan to raise revenues for France. His Compagnie de la Louisiane ou d'occident controlled large grants of land around the Mississippi River, where it had exclusive trade rights for 25 years. In 1719, the company absorbed the rival company that controlled trade with China and the East indies, and the Banque générale became the state bank of France. Law was made comptroller general of finances and councilor of state. When the public was invited to invest in the Mississippi venture, a great speculative wave drove the price of shares upward. The center of speculation was on the rue Quincampoix in Paris. Simultaneously, France was flooded with paper money from Law's bank. A collapse came in 1720 after a royal decree halved the value of the banknotes. Meanwhile, coined money disappeared and there was an extensive price rise. Shares in Law's company, which had been amalgamated with his bank, sank in price and the bank suspended payments. Law had to leave France secretly (1720) and eventually settled in venice, where he died, forgotten. His most important writing, in which he explained his theories of finance is Considération sur le numéraire et la commerce (1705). The effect of Law's flawed economics would be a crucial factor in the subsequent financial and fiscal developments in France.