John Law (1671–1729): The Edinburgh Gambler Who Ran France's Finances

Each major claim carries one of three labels. established means supported by primary records, official bodies or several independent reliable sources. shared means the core fact is sound but sources disagree on details, dates or interpretation. traditional means widely repeated but not traceable to a primary or independent source.

Law's story has been told as a moral fable for three centuries, first by his enemies and later by economists using him to argue about paper money. Many colourful details, such as the hunchback who rented out his back as a writing desk to share traders, appear in popular histories without primary sources and are labelled here. Exact share prices also vary between accounts.

The goldsmith's son

established John Law was baptised in Edinburgh on 21 April 1671. His father, William Law, was a goldsmith, which in seventeenth-century Edinburgh meant a banker as well as a craftsman, lending money and handling bills. William bought the estate of Lauriston, near Cramond, and the young Law grew up with a practical education in money and a gift for mathematics, which he soon applied at the card table.

established In the early 1690s he moved to London, where he lived as a gambler and man about town. In April 1694 he killed Edward "Beau" Wilson in a duel in Bloomsbury. Law was tried for murder and sentenced to death. The sentence was commuted, but Wilson's family pursued him, and in 1695 he escaped from prison and fled abroad. In Amsterdam he studied the Bank of Amsterdam and the workings of a modern financial centre.

Money and Trade Considered

established Back in Scotland after the failure of the Darien scheme, Law published Money and Trade Considered, with a Proposal for Supplying the Nation with Money in 1705. His central argument was that money is not wealth in itself but a means of exchange, and that a country short of gold and silver could revive its trade if a bank issued paper money backed by land. The Scottish Parliament rejected his plan, and after the Union of 1707 he left again.

established Law's book also contains a notable piece of economic theory. Explaining why water, which is essential, is cheap while diamonds, which are useless, are dear, he argued that value depends on scarcity as well as usefulness, an idea that anticipates later theories of value.

The System

established Louis XIV died in 1715 leaving France crushed by debt. Law, who had befriended the Regent, Philippe d'Orléans, at the gaming tables, was given the chance to put his ideas into practice. In 1716 he founded the Banque Générale in Paris with the right to issue notes. Its notes, convertible and accepted for taxes, were a success, and in 1718 the state took it over as the Banque Royale.

established In 1717 Law took control of the Company of the West, which held the monopoly of trade with French Louisiana, a vast territory along the Mississippi. In 1718 the company's governor in the colony founded New Orleans. Law then merged the company with France's other overseas trading companies into the Compagnie des Indes, popularly called the Mississippi Company, and in 1719 the company took over the collection of taxes and the refinancing of the national debt. Investors exchanged government bonds for company shares, paid for with banknotes printed by Law's bank. This combination of bank, trading monopoly and national debt became known simply as "the System".

established The result was a speculative frenzy. Company shares rose from about 500 livres in 1719 to as much as 15,000 livres in the first half of 1720. Crowds packed the narrow rue Quincampoix in Paris, where shares were traded in the street. In January 1720 Law, who had converted to Catholicism to qualify, was appointed Controller General of Finances, in effect France's finance minister.

traditional Many stories of the boom, such as the hunchback who charged traders to use his back as a desk and the claim that the word "millionaire" was coined in the rue Quincampoix, are colourful but poorly sourced.

shared To populate Louisiana and give the shares substance, the company recruited settlers and, notoriously, shipped convicts, vagrants and women from Paris prisons to the colony in 1719–20, an episode that caused public outrage. The colony never produced the riches promised.

The crash

established The System rested on confidence, and in 1720 confidence broke. Investors began to cash their profits into gold and silver. Law tried increasingly drastic measures: restricting the use of coin, fixing the share price, and finally, in May 1720, an edict halving the value of shares and notes. The public reaction was furious, the edict was withdrawn, and the System unravelled. There were riots in Paris, and Law, dismissed and threatened, left France in December 1720, leaving most of his own fortune behind.

established The collapse coincided with Britain's South Sea Bubble the same year, and together they became Europe's great lesson in financial mania. For decades afterwards the French distrusted paper money and banks, and France did not create a national bank again until the Banque de France in 1800.

Exile and death

established Law spent his last years in poverty and restlessness, in Brussels, Rome, Copenhagen and London, where he received a pardon for the old murder conviction and lived for four years, still gambling and proposing schemes. He died of pneumonia in Venice on 21 March 1729 and is buried in the church of San Moisè.

Fraud or visionary?

shared Law's reputation splits sharply. To his critics he was a gambler who turned a nation's finances into a casino and ruined thousands. To many economists he was a serious and original thinker. Joseph Schumpeter placed him "in the front ranks of monetary theorists of all time". His core ideas, that money is a medium of exchange rather than wealth, that paper money issued by a central bank can stimulate an economy, and that public debt can be managed through financial institutions, are now everyday practice. The fair verdict is that Law understood money better than almost anyone of his time and failed because he expanded the money supply far faster than the economy could support, under political pressure and with no brake on speculation.

• Law's father was an Edinburgh goldsmith, which in those days meant a banker too.
• He was sentenced to death for killing a man in a London duel in 1694.
• New Orleans was founded in 1718 under the company Law controlled.
• Law became a Catholic in order to hold office as France's finance minister.
• His share boom and crash happened in the same year as Britain's South Sea Bubble.
• He is buried in Venice, not Scotland.

• Myth: Law invented paper money or banking. He ran the most ambitious early experiment in state paper money and central banking, but he did not invent either.
• Myth: the hunchback who rented out his back as a desk, and the coining of "millionaire" in the rue Quincampoix. These stories are colourful but poorly sourced, and appear in popular histories without primary evidence.
• Disputed: how high Mississippi Company shares rose. Shares climbed from about 500 livres in 1719 to as much as 15,000 livres in early 1720, but exact prices vary between accounts.
• Myth: Law founded New Orleans. It was founded in 1718 by the company's governor in Louisiana, under the company Law controlled.
• Disputed: whether Law was a fraud or a visionary. Critics call him a gambler who ruined thousands, while many economists see an original thinker whose ideas became standard. The fair verdict is that he understood money well but expanded the money supply far faster than the economy could support.