John Law (economist)
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John Law (usually pronounced Jean Lass by contemporary French people) (baptised 21 April 1671 – died 21 March 1729) was a Scottish economist who believed that money was only a means of exchange that did not constitute wealth in itself and that national wealth depended on trade. He was appointed Controller General of Finances of France under King Louis XIV.
In 1716 Law established the Banque Générale in France, a private bank, but three-quarters of the capital consisted of government bills and government-accepted notes, effectively making it the first central bank of the nation. He was responsible for the Mississippi Bubble and a chaotic economic collapse in France.
Law was a gambler and a brilliant mental calculator. He was known to win card games by mentally calculating the odds. He originated economic ideas such as "The Scarcity Theory of Value" and the "Real bills doctrine".
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Biography
Law was born into a family of bankers and goldsmiths from Fife; his father had purchased a landed estate at Cramond on the Firth of Forth and was known as Law of Lauriston. Law joined the family business at age fourteen and studied the banking business until his father died in 1688. Law subsequently neglected the firm in favour of more extravagant pursuits and travelled to London, where he lost large sums of money in gambling.Template:Citation needed
On 9 April 1694, John Law fought a duel with Edward Wilson. Wilson had challenged Law over the affections of Elizabeth Villiers. After Law killed Wilson, he was tried and found guilty of murder and sentenced to death. His sentence was commuted to a fine, upon the ground that the offence only amounted to manslaughter. Wilson's brother appealed and had Law imprisoned, but he managed to escape to Amsterdam.
Law urged the establishment of a national bank to create and increase instruments of credit and the issue of banknotes backed by land, gold, or silver. The first manifestation of Law's system came when he had returned to Scotland and contributed to the debates leading to the Treaty of Union 1707. He published a text entitled Money and Trade Consider'd with a Proposal for Supplying the Nation with Money (1705)
He spent ten years moving between France and the Netherlands, dealing in financial speculations. Problems with the French economy presented the opportunity to put his system into practice.
He had the idea of abolishing minor monopolies and private farming of taxes. He would create a bank for national finance and a state company for commerce, ultimately to exclude all private revenue. This would create a huge monopoly of finance and trade run by the state, and its profits would pay off the national debt. The council called to consider Law's proposal, including financiars such as Samuel Bernard, rejected the proposition on 24 October 1715
The wars waged by Louis XIV left the country completely wasted, both economically and financially. The resultant shortage of precious metals led to a shortage of coins in circulation, which in turn limited the production of new coins. It was in this context that the regent, Philippe d'Orléans, appointed John Law as Controller General of Finances.
As Controller General, Law instituted many beneficial reforms (some of which had lasting effect, others of which were soon abolished). He tried to break up large land-holdings to benefit the peasants; he abolished internal road and canal tolls; he encouraged the building of new roads, the starting of new industries (even importing artisans but mostly by offering low-interest loans), and the revival of overseas commerce—and indeed industry increased 60% in two years, and the number of French ships engaged in export went from sixteen to three hundred.
Since, following the devastating War of the Spanish Succession, France's economy was stagnant and her national debt was crippling, Law proposed to stimulate industry by replacing gold with paper credit and then increasing the supply of credit, and to reduce the national debt by replacing it with shares in economic ventures. Though they ultimately failed, his theories were 300 years ahead of their time and "captured many key conceptual points which are very much a part of modern monetary theorizing".
Mississippi Company
Law would become the architect of what would later be known as the "The Mississippi Bubble"; an event that would begin with the consolidation of the trading companies of Louisiana into a single monopoly (The Mississippi Company), and ended with the collapse of the Banque Generale and subsequent devaluing of The Mississippi Company's shares. The company's shares were ultimately rendered worthless, and initially inflated speculation about their worth led to widespread financial stress, which saw Law dismissed from his post as Chief Director of the Banque Generale. Law ultimately fled the country.
Later years
Law initially moved to Brussels in impoverished circumstances. He spent the next few years gambling in Rome, Copenhagen and Venice but never regained his former prosperity. Law realised he would never return to France when Orléans died suddenly in 1723 and was granted permission to return to London having received a pardon in 1719. He lived in London for four years and then moved to Venice where he contracted pneumonia and died a poor man in 1729.
Books
- John Law: Economic Theorist and Policy-Maker by Antoin E. Murphy (Oxford University Press, 1997) is the most extensive account of Law's writings. It is given credit for completing the transformation of opinion about Law from a con man (see Mackay below) to an important economic theorist and successful financial leader.
- Millionaire: The Philanderer, Gambler, and Duelist Who Invented Modern Finance by Janet Gleeson (2000). (ISBN 0-684-87295-1) is a straightforward biography.
- The Poker Face of Wall Street by Aaron Brown (John Wiley & Sons, 2006) credits Law for the inspiration of the modern futures exchange and also the game of Poker.
- John Law - The History of an Honest Adventurer by H. Montgomery Hyde (W. H. Allen, 1969) is one of the earliest favorable accounts of Law's ideas.
- John Law, the father of paper money by Robert Minton (Association Press, 1975) treats Law's financial innovations that led to modern paper money.
- Crime, Cash, Credit and Chaos by Colin McCall (Solcol, 2007) examines the events and circumstances that became Law's dramatic and tragic life.
- Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay is a colorful negative account of Law's financial activities in France. First published 1841, and still available, including as a free Kindle text.
Films
Richard Condie's 1978 National Film Board of Canada animated short John Law and the Mississippi Bubble is a humorous interpretation.
See also
