Canada and the World
Current Events with a Canadian Perspective
Last update
10 January 2012
John Law: an Economist
Who was far from Dull
As practitioners of what’s called the “dismal science” economists are not noted as sparkling personalities;
there are always exceptions
The New School in New York City describes John Law as an “economist, gambler, banker, murderer, royal advisor, exile, rake, and adventurer.” The great economist Alfred Marshall also said he was “reckless, and unbalanced, but most fascinating genius.”
John Law’s Early Life
John Law (left) was born in 1671. He came from a family of Scottish bankers that
owned Lauriston Castle and its considerable estate in Aberdeenshire.
His was a privileged background growing up in a house that overlooked the Firth of Forth.
At the age of 14 he was already working in the family business but left to gain an education in political economy, economics, and banking in London.
Trouble Stalks the Young Banker
For a man of Law’s somewhat volatile temperament, London was a place where trouble could easily be found.
He became an accomplished gambler using his math skills to calculate odds and seems to have been something of a ladies man. It was the latter pursuit that almost ended his life prematurely.
As recorded by mapforum.com “In 1694, however, he was forced to flee to Amsterdam, after killing an opponent in a duel.”
It seems Edward Wilson and John Law were competing for the affections of one Elizabeth
Villiers, Countess of Orkney. She was a high-
After Law skewered Wilson in a dual he was tried, found guilty of murder, and sentenced to hang. Probably on account of his high status and connections, the sentence was reduced to a fine and Law took off for Holland until things quietened down a bit.
Law Writes on Economics
He returned to Scotland, banking, and writing about economics. He was concerned about value and how it is calculated and devised a solution for a famous paradox.
How is it that diamonds have always been valued more highly than water when life can’t exist without water but can without diamonds?
In his Essay on a Land Bank, Law…decided the solution lay in supply and demand. Any changes in the value of goods, he said, were due to a change in the quantity supplied or demanded.
In Money and Trade Considered Law states that, “The prices of goods are not according to the quantity in proportion to the [sales], but in proportion to the demand.”
France’s First Paper Money
But, the restless Law was soon back on the European continent and, by 1715, he was a favourite at the French Court.
Louis XIV had bankrupted France by borrowing gold to build his palace at Versailles (below) and fight wars. John Law came up with a solution to the financial embarrassment of the monarchy.
He would open the Banque Generale and issue paper money backed by gold and silver.
Mississippi History Now reports that “Law believed that paper notes would increase the money in circulation, which, in turn, would increase commerce. These conditions would help revitalize and rehabilitate the finances of the French government.”
The Mississippi Bubble
In 1717, Law started up the Mississippi Company, with the exclusive right to all the trade with France’s vast possessions in North America.
France’s Louisiana territory proved attractive to investors and Law had no trouble selling shares in the venture. But, as pointed out in a National Film Board animation “The Louisiana venture itself never quite got off the ground; it remained an undeveloped swamp.”
But, that didn’t seem to matter to investors. They kept buying and trading shares,
their value sky-
One day, a nobleman tried to turn his paper money back into gold and discovered the government had been printing more paper notes than it could back with precious metal.
Then, in 1720, in an action that has a familiar ring to it, the whole shaky edifice came tumbling down, which as the New School explains plunged “France and Europe into a severe economic crisis.”
John Law disguised himself as a woman and fled the country.
Sources
“John Law, 1671 -
“John Law and the Mississippi Scheme.” mapforum.com.
“John Law and the Mississippi Bubble.” Jon Moen, Mississippi Historical Society, October 2001.
“John Law and the Mississippi Bubble.” National Film Board, 1978.
© Canada and the World, January 2012
All rights reserved
THE FATE
OF LOUISIANA
Named after King Louis XIV the Louisiana territory was claimed by the French in the late 17th century.
However, France lost the Seven Years’ War (1756-
As a result, all the Louisiana territory east of the Mississippi went to Britain, while Spain got all of the land west of the river.
The state of Louisiana today covers only a small fraction of the original French colony.
“The story of John Law, the financial adviser to the regent of France in the early 18th century has so many modern parallels...”
July 14, 2010
THE FATE
OF JOHN LAW
After the Louisiana Bubble burst, a penniless John Law escaped to Brussels.
He spent the next few years of his life gambling in Europe’s major cities although keeping well clear of France; there were too many people who wanted his neck on a chopping block.
He never recovered financially and died a pauper in Venice in 1729.