John Law

John Law (1671-1729), Scottish financier and speculator, best known as the founder of the notorious Mississippi scheme.

Law was born in Edinburgh on April 21, 1671, and educated at the University of Edinburgh. In 1694, after a duel, he fled to Amsterdam, where he studied banking. He moved to Paris in 1715 and a year later secured the patronage of the regent of France, the duc d'Orléans. By royal authority, Law founded the Banque Générale, the first bank in France. The new institution issued prodigious quantities of bank notes; in 1717 it was decreed that these notes should be received in payment of taxes. In that same year Law originated the Mississippi scheme, which was intended to raise money for France. His Compagnie de la Louisiane ou d'Occident controlled large grants of land around the Mississippi River and had exclusive rights of trade in the territory for 25 years. In 1719 the company absorbed the rival East India and China Company, and the Banque Générale became the state bank of France. Law was made councillor of state and comptroller general of finances. When the public was invited to invest in shares in the Mississippi venture, a great wave of speculation drove the price of the shares to great heights. At the same time the country was being flooded with paper money from Law's bank. The collapse came in 1720 after a royal decree halved the value of the bank notes; coined money disappeared and prices rose enormously. The shares of Law's company, which had been amalgamated with his bank, sank in price as rapidly as they had risen, and the bank suspended payments. Law was forced to leave France secretly. He settled in Venice, where he died, March 21, 1729, poor and forgotten.

Law's most important writing is Money and Trade Considered (1705), in which he explained his theories of finance. His mistake was that he considered money the cause of public wealth, rather than the result of it, and accordingly believed that the state would prosper by increasing the issuance of paper currency.