The great “Mississippi Scheme” which wrought havoc on the French in 1720 is the central and turning point in the history of John Law, late of Lauriston, Controller-General of Finance in France. His father, William Law (grand nephew of James Law, Archbishop of Glasgow) was a goldsmith in that city.

As in the seventeenth century the goldsmiths were also the bankers and moneylenders of the community, a successful goldsmith might be looked on as on the highroad to great fortune. To William Law in 1671 was born his first son John, who had considerable natural talent in the way of mathematics—and a nature which was such as to nullify their use. As a youth he showed proficiency in arithmetic and algebra, but as he was also in those early days riotous and dissipated, we may fairly come to the conclusion that he did not use his natural powers to their best advantage. He was already a gambler of a marked kind. Before he was of age he was already in debt and was squandering his patrimony. He sold the estate of Lauriston which his thrifty father had acquired,124 and gave himself over to a life of so-called pleasure. His mother, who had family ambitions, bought the estate so that it might remain in the family of its new possessors. He removed himself to London where within a couple of years he was sentenced to death for murder—not a vulgar premeditated murder for gain, but the unhappy result of a duel wherein he had killed his opponent, a boon companion, one Austin who had acquired the soubriquet of “Beau” Austin. Through social influence the death penalty was commuted for imprisonment, and the crime only regarded as manslaughter. He had however to deal with the relatives of the dead man who were naturally vindictive. One of them entered an appeal against the commutation of the sentence. Law, with the characteristic prudence of his time and nationality, did not wait for the leisurely settlement of the legal process, but escaped to the continent where he remained for some years sojourning in various places. Being naturally clever and daring he seems to have generally fallen on his feet. Whilst in Holland he became secretary to an important official in the diplomatic world, from which service he drifted into an employment with the Bank of Amsterdam. Here the natural bent of his mind found expression. Banking in some of its forms is gambling, and as he was both banker and gambler—one by inherited tendency and the other by personal disposition—he began to find his vogue, addressing himself seriously125 to the intricacies and possibilities of the profession of banking. He was back in Scotland in 1701 (a risky venture on his part for his felony had not been “purged”) and published a pamphlet, “Proposals and Reasons for constituting a Council of Trade in Scotland.” This he followed up after some years, with another pamphlet, “Money and Trade considered, with a proposal for supplying the Nation with Money”; and in the same year (1709) he propounded to the Scotch Parliament a scheme for a State Bank on the security of land—a venture which on being tried speedily collapsed. This, like other schemes of that period, was based on the issue and use of paper money.

JOHN LAW
In the meantime, and for five or six years afterwards, he was travelling variously throughout Europe, occupying himself with formulating successive schemes of finance, and in gambling—a process in which he, being both skilled and lucky, amassed a sum of over a hundred thousand pounds. He had varying fortunes, however, and was expelled from several cities. He was not without believers in his powers. Amongst them was the Earl of Stair, then Ambassador to France, who allured by his specious methods of finance, suggested to the Earl of Stanhope that he might be useful in devising a scheme for paying off the British National Debt. After the death of Louis XIV, in 1715, he suggested to the Duke of Orleans, the Regent for the young King (Louis XV), the formation126 of a State Bank. The Regent favoured the idea, but his advisers were against it; it was, however, agreed that Law might found a bank with power to issue notes and accept deposits. This was done by Letters Patent and the Banque Générale came into existence in 1710, and was an immediate success. Its principle was to issue paper money which was to be repayable by coin. Its paper rose to a premium in 1716; in 1717 there was a decree that it was to be accepted in the payment of taxes. This created a new form of cheap money, with the result that there was a great and sudden extension of industry and trade. From this rose the idea of a new enterprise—The Mississippi Company—which was to outvie the success of the East India Company incorporated by Charter in 1600 under the title of “The Governor and Company of the Merchants of London trading to the East Indies,” which after periods of doubtful fortune, and having become consolidated with its rival “The General East India Company”—partially in 1702, and completely in 1708, under the somewhat elephantine name of “The United Company of Merchants of England trading to the East Indies”—was now a vast organization of national importance. To the new French Company for exploiting the Mississippi Valley was made over Louisiana (which then included what were afterwards the States of Ohio and Missouri). The Decree of Incorporation was issued in 1717. The127 Parliament at Paris presently grew jealous of such a concession having been given to a foreigner; and the next year a rumour went about that Parliament was about to have him arrested, tried, and hanged. The Regent met the parliamentary resistance by making (1718) the Banque Générale into the Banque Royale—the King guaranteeing the notes. Law was made Director General; but he was unable to prevent the Regent from increasing the issue of paper money, by which means he managed to satisfy dishonestly his own extravagance. It was a fiscal principle of the time that the State accountants did not go behind the King’s receipt—the acquit de comptant as it was called.
The Western Company was enlarged in 1718 by a grant of a monopoly of tobacco, and of the rights of trading ships and merchandise of the Company of Senegal. In 1719, the Banque Royale absorbed the rights of the East India and China Companies, and then assumed the all-embracing title of Compagnie des Indes. The next year it took in the African Company; and so through that the whole of the non-European trade of France. In 1719, the management of the Mint was handed over to Law’s Company; and he was thus enabled to manipulate the coinage. In the same year he had undertaken to pay off the French National Debt, and so become the sole creditor of the Nation. He already exercised the functions of Receiver General and had revenue-farming abolished128 in its favour. He now controlled the collection and disposal of the whole of the State taxation. At this stage of his adventure, Law seemed a good fiscal administrator. He repealed or reduced pressing taxes on useful commodities, and reduced the price of necessaries by forty per cent. so that the peasants could increase the value of their holdings and their crops without fear of coming later into the remorseless grip of the tax-farmer under the infamous metayer system. Free-trade was in the Provinces practically established. This, so far as it went, was all Law’s doing. Turgot, who later got credit for what had been done, only carried out what the Scotch financier had planned.
Law had promised high dividends to the speculators in his scheme, and had so far paid them; so it was no wonder that “The System” raised its head again. In 1719–20, all France seemed to flock to Paris to such a degree and with such unanimity of purpose, that it was difficult to obtain room to go on with the necessary work of the Mississippi Scheme. In such matters, resting on human greed which throws all prudence to the winds, the pressure is always towards the centre; and the narrow street of Quin cam poix became a seething mass, day and night, of speculators in a hurry to buy shares. The time for trying to sell them had not yet arrived.
Naturally such a locality rose in value, and as demand emphasises paucity of space, extraordinary129 prices ruled. Even a small share in the lucky street, where fortunes could be made in an hour, rose to fabulous value. Houses formerly letting for forty pounds a year now fetched eight hundred pounds per month. And no wonder, when shares of the face value of five hundred livres sold for ten thousand! When there is such an overwhelming desire to buy, then is the opportunity for sellers to realise, and the time for such speculation on the one side, and for such commerce on the other, is naturally short and the need pressing.
At the beginning of 1720 everything seemed to be increasing in a sort of geometric ratio. After a dividend of forty per cent. had been declared, shares of five hundred value rose to eighteen thousand. Greed, and the opportunity for satisfying its craving, turned the heads of ordinarily sensible people. The whole world seemed mad. It appeared right enough that the financial wonder-worker who had created such a state of things should be loaded with additional honours. It was only scriptural that he who had already multiplied his talents should be entrusted with more. There was universal rejoicing when John Law—exiled foreigner and condemned murderer—was appointed, in January, 1720, Controller-General of the whole finances of France. Naturally enough, even the hard head of the canny Scot began to manifest symptoms of giving way in the shape of becoming exalté. And naturally enough his enemies—financial,130 political and racial—did not lose the opportunities afforded them of taking advantage of it. Tongues began to wag, and all sorts of rumours, some of them reconcilable with common sense and easily credible, others outrageous, began to go about. Lord Stair reported that Law had boasted that he would raise France on the ruins of England and Holland, to a greater height than she had ever reached; that he could crush the East India Company and even destroy British trade and credit when he chose. Stair resented this, and he and Law from being close friends became enemies. To appease the incensed and at present all-powerful Law, the powers that were recalled Lord Stair.
On 23 February 1720, the Compagnie des Indes and the Banque Royale were united, thus linking the ends of the financial chain. “The System” was now complete.
When Aladdin set the Genius, who had hitherto worked so willingly, the final task of hanging a roc’s egg in the centre of the newly-created palace, he brought the whole structure tumbling about his ears. So it was with John Law and the egregious Mississippi Scheme. His idea was complete and perfect. But the high sun when it reaches its meridianal splendour begins from that instant its downward course.
The reaction was not long in manifesting itself. Usually in such matters there is a pause before the131 great driving-wheels reverse their motion, and the backward motion, beginning slowly, gathers way as it progresses. But in this case human intelligence and not soulless machinery was the propulsive force of reaction. The speculators had begun to work before the onward movement had come to an end or even begun to slacken. They were loaded up with a vast amount of stocks whose value, even if there had been money to redeem them, was severely limited, whereas they had purchased at prices varying between the first rise above nominal value and that reached by the last desperate speculator. It is not wise to hold such inflated stock too long, and in a crisis sailing-master Wisdom orders Quarter-master Caution to take a trick at the helm. When the bare idea of unification of financial interests was mooted, the wise holders of stock commenced to unload. When this movement began its progress was rapid—so long as there was anything to be moved. The first class to feel it were the bankers. The specie ran out like the pent-up water from a burst reservoir, till in an incredibly short time there was not sufficient remaining to afford the money-change needed in daily life. The advisers and officials of the State, seriously alarmed, began at once to take strong measures supported by royal decrees. Then as ruin began to stare the whole nation in the face more and more with every hour, desperate expedients were resorted to. The value of the currency132 was made by every stratagem, dishonest trick, and unscrupulous exercise of power, to fluctuate so that such differences or margins as arose might be grasped forthwith for national use. Payments in bullion, except for very small amounts, were forbidden. The possession of anything over five hundred livres in specie was deemed an offence punishable by confiscation, partial or wholesale, and by fine. Domiciliary visits were paid to seek evidence of offence and to enforce the new laws, and informers in this connection were well paid.
Then began a war, between public oppression and individual trickery, to defend acquired rights and evade unjust demands. The holders of paper money, unable to realise in specie, tried to protect themselves by purchasing goods of intrinsic value. Precious metals, jewels, and such like were bought in such quantities that the supplies diminished and the prices grew, until to avoid immediate ruin, such purchases were proclaimed illegal and prohibited. Then ordinary commodities of lesser values were tried as means of barter, till their prices too rose to such an extent that trade was paralysed. In order to meet the growing danger a still more desperate expedient was resorted to. A decree was issued the effect of which would be to reduce—gradually it was hoped—the obligation of bank notes to one-half their nominal value. This completed the panic, for here was a position which could not be guarded against by any prudence or wisdom.133 No one could henceforth by any possibility be financially safe. The speculators who had already realised were alone safe. Bona fide investors, if not already overwhelmed by disaster, saw the tide of ruin rising rapidly around them. Nothing within the power of the state could now be done to check or even lessen the state of panic; not even the reversal of the late decree in ten days after its issue. To make matters still worse the Banque at this very time suspended payment. Probably in a wild endeavour to do something which would avert odium from itself by saddling the responsibility on someone else, the Government procured the dismissal of Law from the Controller-Generalship of Finance. However—strange to say—he was very soon appointed by the Regent as Intendant-General of Commerce and Director of the ruined bank. The much-vaunted, idolised, and believed-in “System” had now fallen hopelessly and was ruined forever. Law was everywhere attacked and insulted with such unmitigated rancour that he had to leave the country. He had invested the bulk of the great fortune which he had by no............