See also:scheme," was
See also:born at
See also:Edinburgh in
See also:April 1671 . His
See also:father, a goldsmith and banker, bought shortly before his
See also:death, which took place in his son's youth, the lands of Lauriston near Edinburgh .
See also:John lived at home till he was twenty, and then went to
See also:London . He had already studied
See also:mathematics, and the theory of commerce and
See also:economy, with much
See also:interest; but he was known rather as fop than
See also:scholar . In London he gambled, drank and flirted till in April 1694 a love intrigue resulted in a duel with Beau
See also:Wilson in Bloomsbury Square .
See also:Law killed his antagonist, and was condemned to death . His
See also:life was spared, but he was detained in prison . He found means to
See also:escape to
See also:Holland, then the greatest commercial
See also:country in
See also:Europe . Here he observed with close
See also:attention the
See also:practical working of banking and
See also:financial business, and conceived the first ideas of his celebrated "
See also:system." After a few years spent in
See also:foreign travel, he returned to Scotland, then exhausted and enraged by the failure of the
See also:Darien expedition (1695—1701) . He propounded plans for the
See also:relief of his country in a
See also:work' entitled
See also:Money and
See also:Trade Considered, with a Proposal for supplying the Nation with Money (1705) . This attracted some
See also:notice, but had no practical effect, and Law again betook himself to travel . He visited Brussels,
See also:Paris, Vienna, Genoa, Rome, making large sums by gambling and
See also:speculation, and spending them lavishly .
He was in Paris in 1708, and made some proposals to the
See also:government as to their financial difficulties, but
See also:Louis XIV. declined to treat with a " Huguenot," and d'
See also:Argenson, chief of the
See also:police, had Law expelled as a suspicious character . He had, however, become ' A work entitled Proposals and Reasons for constituting a Council of Trade in Scotland was published anonymously at Edinburgh in 1701 . It was republished at
See also:Glasgow in 1751 with Law's name attached; but several references in the state papers of the
See also:time mention
See also:William Paterson (16,58–1719), founder of the
See also:Bank of England, as the author of the plan therein propounded . Even if Law had nothing to do with the composition of the work, he must have read it and been influenced by it . This may explain how it contains the germs of many of the developments of the " system." Certainly the
See also:suggestion of a central
See also:board, to
See also:great commercial undertakings, to furnish occupation for the poor, to encourage
See also:mining, fishing and manufactures, and to bring about a reduction in the
See also:rate of interest, was largely realized in the Mississippi scheme . See
See also:Bannister's Life of William Paterson (ed . 1858), and Writings of William Paterson (2nd ed., 3 vols., 1859).intimately acquainted with the duke of
See also:Orleans, and when in 1715 that
See also:prince became
See also:regent, Law at once returned to Paris . The extravagant
See also:expenditure of the
See also:late monarch had plunged the
See also:kingdom into apparently inextricable financial confusion . The
See also:debt was 3000 million livres, the estimated
See also:annual expenditure, exclusive of interest payments, 148 million livres, and the income about the same . The advisability of declaring a
See also:national bankruptcy was seriously discussed, and though this plan was rejected,
See also:measures hardly less violent were carried . By a visa, or examination of the state liabilities by a
See also:committee with full
See also:powers of quashing claims, the debt was reduced nearly a
See also:half, the
See also:coin in circulation was ordered to be called in and reissued at the rate of 120 for
See also:loo--a measure by which foreign colliers profited greatly, and a chamber of
See also:justice was established to punish speculators, to whom the difficulties of the state were ascribed . These measures had so little success that the billets d'etat which were issued as
See also:part security for the new debt at once sank 75% below their nominal value .
At this crisis Law unfolded a vast scheme to the perplexed regent . A royal bank was to manage the trade and currency of the kingdom, to collect the taxes, and to
See also:free the country from debt . The council of
See also:finance, then under the duc de
See also:Noailles, opposed the plan, but the regent allowed Law to take some tentative steps . By an edict of 2nd May 1716, a private institution called La Banque generate, and managed by Law, was founded . The capital was 6 million livres, divided into 1200 shares of 5000 livres, payable in four instalments, one-
See also:fourth in
See also:cash, three-fourths in billets d'etat . It was to perform the ordinary functions of a bank, and had power to issue notes payable at sight in the
See also:weight and value of the money mentioned at
See also:day of issue . The bank was a great and immediate success . By providing for the absorption of part of the state paper it raised the
See also:credit of the government . The notes were a most desirable
See also:medium of
See also:exchange, for they had the
See also:element of fixity of value, which, owing to the arbitrary mint decrees of the government, was wanting in the coin of the
See also:realm . They proved the most convenient
See also:instruments of remittance between the capital and the provinces, and they thus
See also:developed the
See also:industries of the latter . The rate of interest, previously enormous and uncertain, fell first to 6 and then to 4%; and when another decree (loth April 1717) ordered collectors of taxes to receive notes as payments, and to
See also:change them for coin at
See also:request, the bank so
See also:rose in favour that it soon had a note-issue of 6o million livres . Law now gained the full confidence of the regent, and was allowed to proceed with the development of the " system." The trade of the region about the Mississippi had been granted to a speculator named
See also:Crozat .
He found the undertaking too large, and was glad to give it up . By a decree of
See also:August 1717 Law was allowed to establish the Compagnie de la Louisiane ou d'Occident, and to endow it with privileges practically amounting to
See also:sovereignty over the most fertile region of
See also:America . The capital was too million livres divided into 200,000 shares of 500 livres . The payments were to be one-fourth in coin and three-fourths in billets d'etat . On these last the government was to pay 3 million livres interest yearly to the
See also:company . As the state paper was depreciated the shares fell much below
See also:par . The rapid rise of Law had made him many enemies, and they took
See also:advantage of this to attack the system . D'Argenson, now
See also:head of the council of finance, with the
See also:brothers Paris of
See also:Grenoble, famous tax farmers of the day, formed what was called the "
See also:anti-system." The farming of the taxes was let to them, under an assumed name, for 481- million livres yearly . A company was formed, the exact counterpart of the Mississippi company . The capital was the same, divided in the same manner, but the payments were to be entirely in money . The returns from the public revenue were sure; those from the Mississippi scheme were not . Hence the shares of the latter were for some time out of favour .
Law proceeded unmoved with the development of his plans . On the 4th of
See also:December 1718 the bank became a government institution under the name of La Banque royale . Law was director, and the
See also:king guaranteed the notes . The shareholders were repaid in coin, and, to widen the influence of the new institution, the transport of money between towns where it had branches was forbidden . The paper-issue now reached r io millions . Law had such confidence in the success of his plans that he agreed to take over shares in the Mississippi company at par at a near date . The shares began rapidly to rise . The next move was to unite the companies
See also:Des Indes Orientales and De Chine, founded in 1664 and 1713 respectively, but now dwindled away to a
See also:shadow, to his company . The
See also:united association, La Compagnie des Indes, had a practical
See also:monopoly of the foreign trade of France . These proceedings necessitated the creation of new capital to the nominal amount of 25 million livres . The payment was spread over 20 months . Every holder of four
See also:original shares (
See also:meres) could
See also:purchase one of the new shares (filles) at a premium of 50 livres .
All these Soo-livre shares rapidly rose to 750, or 50.% above par . Law now turned his attention to obtaining additional powers within France itself . On the 25th of
See also:July 1719 an edict was issued granting the company for nine years the management of the mint and the coin-issue . For this
See also:privilege .the company paid 5 million livres, and the money was raised by a new issue of shares of the nominal value of Soo livres, but with a premium of other 500 . The
See also:list was only open for twenty days, and it was necessary to
See also:present four meres and one
See also:fine in
See also:order to obtain one of the new shares (petites fines) . At the same time two dividends per annum of 6% each were promised . Again there was an attempt to ruin the bank by the
See also:commonplace expedient of making a run on it for coin; but the conspirators had to meet absolute power managed with fearlessness and skill . An edict appeared reducing, at a given date, the value of money, and those who had with-
See also:drawn coin from the bank hastened again to exchange it for the more
See also:stable notes . Public confidence in Law was increased, and he was enabled rapidly to proceed with the completion of the system . A decree of 27th August 1719 deprived the
See also:rival company of the farming of the revenue, and gave it to the Compagnie des Indes for nine years in' return for an annual payment of 52 million livres . Thus at one
See also:blow the " anti-system " was crushed . One thing yet remained; Law proposed to take over the national debt, and manage it on terms advantageous to the state .
The mode oftransfer was this . The debt was over 1500 million livres . Notes were to be issued to that amount, and with these the state creditors must be paid in a certain order . Shares were to be issued at intervals corresponding to the payments, and it was expected that the notes would be used in buying them . The government was to pay 3% for the
See also:loan . It had formerly been bound to pay 8o millions, it would now pay under 50, a clear gain of over 30 . As the shares of the company were almost the only medium for investment, the transfer would be surely effected . The creditors would now look to the government payments and the commercial gains of the company for their annual returns . Indeed the creditors were often not able to procure the shares, for each succeeding issue was immediately seized upon, though the 500-livre
See also:share was now issued at a premium of 4500 livres . After the third issue, on the 2nd of
See also:October, the shares immediately resold at 8000 livres in the Rue Quincampoix, then used as a bourse . They went on rapidly rising as new privileges were still granted to the company . Law had now more than
See also:regal power .
The exiled Stuarts paid him
See also:court; the proudest aristocracy in Europe humbled themselves before him; and his liberality made him the idol of the populace . After, as a necessary preliminary, becoming a Catholic, he was made controller-general of the finances in place of d'Argenson . Finally, in
See also:February 1720, the bank was in name as well as in reality united to the company . The system was now
See also:complete; but it had already begun to decay . In December 1719 it was at its height . The shares had then amounted to 20,000 livres,
See also:forty times their nominal price . A sort of madness possessed the nation . Men sold their all and hastened to Paris to speculate . The population of the capital was increased by an enormous influx of provincials and foreigners . Trade received a vast though unnatural impulse . Everybody seemed to be getting richer, no one poorer . Thosewho could still reflect saw that this prosperity was not real, The whole issue of shares at the extreme market-price valued 12,000 million livres .
It would require 600 million annual revenue to give a 5 %dividend on this . Now, the whole income of the company as yet was hardly sufficient to pay 5% on the original capital of 1677 million livres . The receipts from the taxes, &c., could be precisely calculated, and it would be many years before the commercial undertakings of the company—with which only some trifling beginning had been made—would yield any considerable return .
See also:People began to sell their shares, and to. buy coin, houses, land—anything that had a stable element of value in . it . There was a rapid fall in the shares, a rapid rise in all kinds of
See also:property, and consequently a rapid depreciation of the paper money . Law met these new tendencies by a succession of the most violent edicts . The notes were to bear a premium over specie . Coin was only to be used in small payments, and only a small amount was to be kept in the possession of private parties . The use of diamonds, the fabrication of gold and
See also:plate, was forbidden . A dividend of 40 % on the original capital was promised . By several ingenious but fallaciously reasoned
See also:pamphlets Law endeavoured to restore public confidence . The shares still fell .
At last, on the 5th of
See also:March 1720, an edict appeared fixing their price at 9000 livres, and ordering the bank to buy and sell them at that price . The fall now was transferred to the notes, of which there were soon over 2500 million livres in circulation . A large proportion of the coined money was removed from the kingdom . Prices rose enormously . There was everywhere
See also:distress and complete financial confusion . Law became an
See also:object of popular hatred . He lost his court influence, and was obliged to consent to a decree (21st May 1720) by which the notes and consequently the shares were reduced to half their nominal value . This created such a commotion that its promoters were forced to recall it, but the
See also:mischief was done . What confidence could there be in the depreciated paper after such a measure ? Law was removed from his
See also:office, and his enemies proceeded to demolish the " system." A vast number of shares had been deposited in the bank . These were destroyed . The notes were reconverted into government debt, but there was first a visa which reduced that debt to the same
See also:size as before it was taken over by the company .
The rate of interest was , lowered, and the government now only pledged itself to pay 37 instead of 8o millions annually . Finally the bank was abolished, and the company reduced to amere.trading association . By
See also:November the " system " had disappeared . With these last measures Law, it may well be believed, had nothing to do . He
See also:left France secretly in December 1720, resumed his wandering life, and died at Venice, poor and forgotten, on the 21st of March 1729 . Of Law's writings the most important for the comprehension of the " system " is his Money and Trade Considered . In this work he says that national power and
See also:wealth consist in numbers of people, and magazines of home and foreign goods . These depend on trade, and that on money, of which a greater quantity employs more people; but credit, if the credit have a circulation, has all the beneficial effects of money . To create and increase instruments of credit is the
See also:function of a bank . Let such be created then, and let its notes be only given in return for
See also:land sold or pledged . Such a currency would supply the nation with abundance of money; and it would have many advantages, which Law points out in detail, over silver . The hank or commission was to be a government institution, and its profits were to be spent in encouraging the export and manufacture of the nation .
A very evidenterror lies at the
See also:root of the " system." Money is not the result but the cause of wealth, he thought . To increase it then must be beneficial, and the best way is by a properly secured paper currency . This is the
See also:motive force; but it is to be applied in a particular way . Law had a profound belief in the omnipotence of government . He saw the evils of minor monopolies, and of private farming of taxes . He proposed to centre foreign trade and
See also:internal finance in one huge monopoly managed by the state for the people, and carrying on business through a plentiful supply of paper money . He did not see that trade and commerce are best left to private enterprise, and that such a scheme would simply result in the profits of speculators and favourites . The " system " was never so far developed as to exhibit its inherent faults . The madness of speculators ruined the plan when only its
See also:foundations were laid . One part indeed might have been saved . The bank was not necessarily bound to the company, and had its note-issue been retrenched it might have become a permanent institution . As
See also:Thiers points out, the edict of the 5th of March 1730, which made the shares convertible into notes, ruined the bank without saving the company .
The shares had risen to an unnatural height, and they should have been allowed to fall to their natural level . Perhaps Law
See also:felt this to be impossible . He had friends at court whose interests were involved in the shares, and he had enemies eager for his overthrow . It was necessary to succeed completely or not at all; so Law, a gambler to the core, risked and lost everything . Notwithstanding the faults of the " system," its author was a financial
See also:genius of the first order . He had the errors of his time; but he propounded many truths as to the nature of currency and banking then unknown to his contemporaries . The marvellous skill which he displayed in adapting the theory of the " system " to the actual
See also:condition of things in France, and in carrying out the various financial transactions rendered necessary by its development, is absolutely without parallel . His profound self-confidence and belief in the truth of his own theories were the reasons alike of his success and his ruin . He never hesitated to employ the whole force of a despotic government for the definite ends which he saw before him . He left France poorer than he entered it, yet he was not perceptibly changed by his sudden transitions of
See also:fortune . Montesquieu visited him at Venice after his fall, and has left a description of him touched with a certain pathos . Law, he tells us, was still the same in character, perpetually planning and scheming, and, though in poverty, revolving vast projects to restore himself to power, and France to commercial prosperity .
The fullestaccount of the Mississippi scheme is that of Thiers, Law et son systeme des finances (1826,
See also:American trans . 1859) . See also Heymann, Law and sein System (1853);
See also:Pierre Bonnassieux,
See also:Les Grandes Compagnies de commerce (1892) ; S . Alexi, John Law and sein System (1885); E .
See also:Levasseur, Recherches historiques sur le systeme de Law (1854) ; and Jobez, Une Preface au socialisme, ou le systeme de Law et la
See also:chasse aux capitalistes (1848) . Full
See also:biographical details are given in
See also:Wood's Life of Law (Edinburgh, 1824) . All Law's later writings are to be found in Daire, Collection des principaux economistes, vol. i . (1843) . Other
See also:works on Law are: A . W . Wiston-Glynn, John Law of Lauriston (1908); P . A .
Cachut, The Financier Law, his Scheme and Times (1856) ; A . Macf.
See also:Davis, An
See also:Historical Study of Law's System (Boston, 1887) ; A .
See also:Beljame, La Pronunciation du nom de
See also:Jean Law le financier (1891) . See also E . A . Benians in Camb . Mod . Hist. vi . 6 (1909) . For minor notices see
See also:Index to
See also:Periodicals . There is a portrait of Law by A . S .
Belle in the National PortraitGallery, London . (F .
LAW RELATING TO THEATRES
WILLIAM LAW (1686-1761)
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