January 2, 2026 • 43 mins
Here it is! The second in our special two-part series, where John Stepek and Merryn Somerset Webb tell the extraordinary story of John Law: a fugitive Scots gambler who became the most powerful financier in France and helped invent the modern monetary system.
From murder and exile to paper money, banking revolutions and spectacular collapse, Law’s life reveals why today’s financial system works the way it does—and why it sometimes blows up. It’s history, scandal and monetary theory rolled into one irresistible tale.
Correction: In an earlier version of this podcast, John suggested that the term "bougie," meaning a wax candle, gave rise to the modern-day slang term "bougie," meaning "fancy." In fact, "bougie" is derived from the term "bourgeoisie". Our sincere apologies for this error.
We used a range of sources for this podcast but two key books to read if you'd like to find out more are:
John Law: A Scottish Adventurer of the Eighteenth Century (2018), by James Buchan
John Law: Economic Theorist and Policy-Maker (1997), by Antoin Murphy
See omnystudio.com/listener for privacy information.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:14):
Are you ready for part two of the Joint Law Story.
Speaker 1 (00:16):
I'm ready because I've listened to all of part one,
or rather recorded it with you, John. But anyone who
hasn't done that needs to go back and listen to
part one before they move on to part two.
Speaker 3 (00:26):
Okay, so let's assume you've done that, and let's speak
in chapter four are battled superpower? So in seventeen fourteen,
(00:51):
Join Law arrives in France by his long term girlfriend
Katherine and their son William and their daughter Mary Catherine.
And so at this point the water is any succession
has just ended, and while France didn't exactly lose, it
didn't win either. So as a result of this, is
still one of the most powerful countries in Europe at
this point, but it's economically exhausted and it's very heavily
(01:13):
in debted to debt to GDP is actually sitting at
about one hundred percent. Familiar, Yes, yes, a bit too familiar.
So I mean fixing this is not easy at all, obviously,
as we know from our own experience. But compared with
England in particular, France has got a much more regressive
and efficient fiscal system. So in the tax side of
(01:33):
the things, most of the direct tax burden falls on
peasants and commoners, and the nobility and the upper classes
are largely exempt from that. And the king also sells
the right to collect taxes so effectively privatizes it. He
gets the money up front, Yeah, he gets the money
up front actively, and then they get to keep whatever
they can rake off on top.
Speaker 1 (01:52):
So there's bidding walls for these rights. Right, you can
go and make a stab at how much money you'll
be able to get out of the peasants and bid.
Speaker 2 (01:59):
For it absolute.
Speaker 3 (02:00):
But also the other problem is it means that the
king is selling the right to collect taxes too cheaply.
Usually he's desperate for money because he needed to pay soldiers,
and that's for the kind of state borrowing side of things.
The king likes heavily and selling annuities whose income stream
is secured against future tax revenues, so he's kind of
mortgaging the tax base into the future. Basically, they sell
(02:23):
civil service jobs, so you know things like judges or
you know various other kind of posts and office holdings,
and those are hereditary and they come with various privileges.
Speaker 1 (02:35):
And again it has the same effect. You pay up
front for the job, but then you collect the salary
and definitely.
Speaker 3 (02:39):
Yeah, exactly, it's all somewhat desperate ways actually raise money.
And the other thing is that, you know, he also
depends on short term loans from the tax farmers secured
against the tax revenues that they are going out to get,
so it is, it's all it's very hand to mouth.
And of course the other issue is obviously France is
an absolute monarch case still so to a great extent,
(03:00):
the king can technically default or restructure parts of this
debt if it gets too much, and occasionally will do that,
but the underlying system remains intact because basically, too many
people benefit from the state's quo and they don't really
want it to change. Long story shot, France has got
a narrow tax base in the very haphazard system is
sovereign borrowing, and that also means that funding the war
(03:22):
effort has left it really short the real money, and
so it's ended up issuing a lot of paper iouse
which are called ba data in French, and it's been
using them to pay off its military suppliers to pay
the tax farmers some of the money it owes them,
and pay the wages of the office holders. And so
it means that by the time Law arrives in France,
(03:42):
the place is a wash and something. It's not payper money,
but it is basically io used. That kind of are traded,
and they are sometimes used as a former money between people,
but they trade at massive discounts to their face value.
I mean, we're talking about around seventy percent. And that's
because no one expects to actually get paid in full,
because they don't trust the king to actually kind of
(04:04):
give them the money. And so this is what Laws
kind of like walking into when he lands in Paris
and he rents a big house near the Louvery now,
Law has been in Paris before. He'd pitched his land
bank idea to King Louis the fourteenth and seventeen oh seven,
and he'd been rejected, just as he was in Scotland
(04:25):
and England. But by now louis very elderly, and in
seventeen fifteen he dies. The good news for John Law
is that Louis the fifteenth who's Louis the fourteenths grandson,
and there is only five years old, so they needs
someone to act as regent until he reaches his maturity.
And that person turns out to be Philippe the second,
(04:46):
who's the Duke of Orleans. And this is a guy
that Law had befriended at the gaming tables on his
previous trip to Paris, and Philippe is already quite receptive
to Law's ideas. They're kind of kindred spirits in many ways.
They both enjoy gambling, they're both interested in new ideas.
But in the immediate term, the Duke has got two problems,
and one is that the French finances on such a
(05:07):
state that something just needs to be done about it immediately.
And the other problem he's got is that the vested
interests who kind of benefit from the states quo are
not that keen on the idea of an outsider light
Law coming in to shake things up. So in early
seventeen sixty, my Law is still discussing establishing this bank,
the Duke issues a massive crackdown on the richest people
(05:28):
in France at that time.
Speaker 1 (05:29):
What do you mean by crackdown?
Speaker 3 (05:31):
It's almost as if h and Marc just calls them
all in to do kind of a massive tax audit,
and then if it looks as if you know you're
havn't major money and exactly the way the King approves of,
then you'll have to take a haircut.
Speaker 4 (05:44):
Some of them even go to jail.
Speaker 3 (05:45):
There's a few dead sentences passed, although none of those
actually get carried out. Because the thing is they also
realize that actually, we rely on these guys, so we
need to put the frighteners on them.
Speaker 4 (05:56):
But we can't.
Speaker 1 (05:57):
It's going to say, surely of doing stuff like this
cuts off the supply of new money, you go chuck
people in jail, etcetera, etcetera. Maybe they go lend them
money to the UK or Spain.
Speaker 2 (06:05):
Instead, exactly and so wisely.
Speaker 3 (06:07):
I mean this is interesting because John Law actually he
says to the Duke, look, this is a bad idea
because he knows it will result in a credit crunch.
But the good thing from Law's point of view is
that this basically puts a lot of people out of
the picture who have been objected to the idea of
setting up this kind of alternative way of financing this
state or what they see as a threat, because in
(06:27):
the end the Duke does give them the go ahead
it's a much less ambitcious version of the project that
he eventually wants to get into. But in May seventeen sixteen,
that's when he sets up the General Bank or the
Bonk General as the French call it, and this makes
a small private bank in Paris. For context, you've got
the kind of French colonomy. Prison economy is experiencing physical crisis.
Speaker 1 (06:51):
And you've got a credit crunch because nobody trust anybody anymore.
They didn't want to lend money anymore. Some of them
in jail they ever to take haircuts on their debt.
They're all fit up the back to you the whole time,
So everyone's just sitting on that cash exactly.
Speaker 3 (07:04):
And also the other thing is they key point pushing
through currency devaluations. This is important to what happens next.
So the time metal is money, you get bits of
paper flying the boot at the end of the day.
The reason that bits of paper have any value at
all is because their promises back by gold or silver,
So you get gold to have and copper for lower
(07:25):
value coins. But the coins themselves, they are actually denominated
in the unit of account. So like in Britain, we've
got the pound, sterling, there isn't actually a gold coin
called the pound sterling, but that's what the kind of
coins are denominated in. So in France it's the liverra.
So this is what contracts in wages and debts are
(07:46):
denominated in. So if you are working for someone or
you owe someone money, then they will be described in
a certain amount of levra. But that's how they debase
the currency. Take an example from Longtowan Murphy's book on
John Law. So let's say you get ten gold coins
(08:06):
in seventeen fifteen. That's ten louis door. They're worth one
hundred and forty livres in total, so fourteen livre each.
So you now take them in the nearest mint, and
this is how the revaluation happens. The mint stamps them,
so each of these coins is now a louis d'Or
reform a, but they're now technically worth twenty livre each.
(08:26):
So you came in with one hundred and forty livra,
you go out again with one hundred and sixty livre
because they give you a bit extra to make it
worth your.
Speaker 4 (08:33):
While changing them.
Speaker 3 (08:34):
But the things you came in with ten gold coins,
and you're actually only going out with eight, so it
looks as if you're getting more money you came in with,
but in fact the gold itself has been devalued in
LEVRA terms.
Speaker 1 (08:50):
So why would you take your money in? Well, take
your money in, You take your money in, you give
it to them, they give you back list. It's like
beings like being Paya and.
Speaker 2 (08:58):
The UK these days, exactly exactly.
Speaker 3 (09:01):
I mean it's partly because you have to kind of legally,
but of course what.
Speaker 1 (09:05):
Money you have under your bed, in your safe, well.
Speaker 3 (09:08):
There's an awful lot of informers. I mean, this is
the other thing. It's it's the kind of different, kind
of and quite nasty world. But the things but you're right,
the more aggressive the kind of recoinage is, the more
people avoid it. So the things people do, things like
they smuggle their money out to be stamped in private
workshops in Holland. Some of them even just send out
the country to get melted down and get the money
from that. So basically means that money is kind of
(09:30):
flooding out the country or being hidden in people's basements.
So again that contributes to this credit crunch as well.
But as part of the reason that the General Bank
actually ends up being quite successful. Not a listed company,
but it does issue shares and they form the bank's capital,
and John Law himself has about a quarter of that,
so he stakes a lot of money on the line.
(09:52):
In total, it's six million livre is the capital of
the bank, and he's subscribed for a quarter of that
gives it he's backing as well. It's not clear how
much he personally subscribed for, but it was probably a fair chunk,
and to keep the region happy, a lot of the
financiers who he's been cracking down on also chip in money.
(10:13):
The other reason people are happy to subscribe for the shares,
of course, is that they can swap their heavily discounted
state I'll use the BA data for shares in the
bank at full face value. So the initial capital base
of the bank is relatively small, but despite that, once
it takes off, is pretty successful at reinvigorating trade in
a credit crunch stricken Paris. For a start, he's offering
(10:35):
banking services and making loans at much cheaper rates than
anyone else. But fundamentally what people really like is laws
bank notes. You go in, you put your money in,
and you get a banknote. Back, But the bank notes
are written for basically the amount is silver that you
put in rather than the lever value.
Speaker 4 (10:58):
Of the silver.
Speaker 3 (11:00):
If you put ten silver coins in and get a
bank note back from Law's bank, you can go in
a year later, six months later, and even if the
coin is just being devalued, you will still get ten
silver coins back.
Speaker 1 (11:13):
Okay, so it's better than the other money.
Speaker 2 (11:16):
Why back?
Speaker 3 (11:17):
I find this really fascinating, quite ironic. He starts off
by creating paper money that is harder than the metal
money that.
Speaker 4 (11:25):
Is in circulation.
Speaker 3 (11:27):
Amazing, so people start to feel confidence because basically he
restores sound money in Paris. By doing this, it also
makes its initial shareholders very wealthy. The bank ends up
running the reserve ratio of about twenty five percent, and
the writer James Bucking estimates it could have been making
about a million leave a year writing loans at four
(11:48):
percent interest. So as a result, when the shareholders a
letter bought out by the regent, which we'll get to
in a minute, they've made six times their money.
Speaker 1 (11:57):
Nice, Okay, it's worth doing. That's an easier way to
make money than setting up a par of gaming tables.
Speaker 3 (12:10):
Chapter five, The buff of the Mississippi Company. Okay, so
by early seventeen seventeen, the General Bank has helped alleviate
the immediate credit crunch in France. But it's just the
beginning the laws plans. Now he's can attackled the national
debt and all those dodgy IO used the BA data
(12:31):
that are still flying around, and that's where the next
part of the scheme comes in.
Speaker 1 (12:35):
All right, Okay, don This is a bit I always
find incredibly confusing. If I'm really honest, it's tough for
me to see how we get from this relatively small
bank suddenly taking on the national debt and being this
huge company.
Speaker 3 (12:47):
Yes, I'm not surprised. That is quite confusing, but we'll
do our best to talk you too how it does
that over the course of roughly eighteen ones to two years.
So we're starting Louisiana. I mean, this is not Louisiana
as we know it today. Instead, it's in the area
that encompasses basically like half the landmass of the present
(13:08):
day United States. And what had happened is French fur
traders from Canadian colonies had claimed it for King Louis
in the late sixteen hundreds, and he'd established a small
house post there. So about seventeen seventeen this year that
we're talking about, the right to develop the colony is
owned by one of the big French financiers, one of
the tax farmers basically. But when he's caught up and
(13:30):
the tax crackdown that we mentioned earlier, he gives back
the concession as part payment for his overdue taxes basically,
and it's at that point the Law says, well, look,
I'll take over this concession and then what we'll do
is we'll set up a company, will issue shares, will
allow people to buy the shares with the BEA data,
(13:51):
and that will help us to get rid of that
and consolidate that debt. So basically Law wants to clean
up the public finances.
Speaker 1 (14:01):
Okay, so he must get rid of the outstanding bills.
So he buys this trade monopoly and says, you can
have shares in exchange for the bills. Yes, but then
he has all the bills and everybody else has the shares.
Bills are off the market, but they still exists.
Speaker 3 (14:22):
I know. This is the clever bit. The deal is
that when the bills are swapped for the shares, the
bills get destroyed then return the King will pay the
company of perpetual annuity, which is backed by specific tax revenues.
Is actually a new stamp, its new stamp duty that
they introduced, believe it or not, which will we use
to find a dividend payment of four percent a year.
(14:44):
So what's happening is the shareholder is getting to swap
a rubbish bit of paper I owe you from the
King that they don't have a great daily confidence will
get repaid. And there's getting instead face value swapped rather
than heavily discounted. They're getting a stake in a company
there's promising to pay them four percent a year anyway,
(15:06):
plus the added potential for you know, what happens we
trade and what happens with the colony in the future.
So he's getting the equity steak.
Speaker 1 (15:14):
And you got a stream of the income. Yeah, and
you get the potential for future upside exactly.
Speaker 3 (15:19):
And all you're giving up is an IOU that he
probably didn't expect to get paid anyway. And the king, well,
as the king goes, he's getting to retire loads of
independent kind of short term IOUs that are road to
thousands of individuals for one long term debt that is
owed to just one company. Does that kind of make
(15:40):
some sunds?
Speaker 1 (15:41):
Yes, it helps a lot, thank you.
Speaker 3 (15:46):
So he's one to swop the French national debt for
equity in a colonial exploration company. He's not just making
this up. The company does exist and over the next
couple of years, the invest in ships, they send colonists
off to Louisiana. Gradually he also takes over more parts
(16:09):
of the state, so he gets the monopoly on the
tobacco trade for example. Basically the Mississippi Company does manage
to wash its face.
Speaker 4 (16:18):
Over this time.
Speaker 3 (16:19):
It makes enough money to pay dividends out to its shareholders,
so it's came people happy and the money is coming
in from the tobacco trade and from kind of various
other bits of business that it does. But setting up
a colony is very difficult, in time consuming and capital intensive.
And the truth is there's lots of fairly grim stories
(16:40):
that come out here. The initial settlers are largely poor
and desperate people hoping for a better life. But the
longer run is it drags on and it's not obviously
turning into a massively prosperous area. You get more and
more people being just sent out there, so prisoners being
sent out. There are stories of convicts and prostitutes kind
of getting married on the talk and then sent out. Overall,
(17:02):
there is no point in which Louisiana is economically significant
to France, like even many years into the future. So
while it's definitely a real project, I think it is
also fair to say that it mostly plays a role
as a carrot to attract people to swap their government
debt for equity and I kind of stake in a
blue Sky's company.
Speaker 4 (17:22):
So it's not.
Speaker 3 (17:23):
Successful immediately, and then by December seventeen eighteen, what harms
is that France ends.
Speaker 4 (17:30):
Up going back to war with Spain again.
Speaker 3 (17:33):
This is when Law has got his opportunity to change
the General Bank to the Royal Bank, so basically it
becomes the French Central Bank. Effectively, the other shareholders are
bought out, so this is the point at which they
make six times of money. The king now owns the bank,
and the important thing is that the Royal Bank can.
Speaker 1 (17:55):
Issue How does the king own the bank?
Speaker 3 (18:00):
Basically, the other shareholders are bought out by Law and
the Law then sells the bank to the regent.
Speaker 1 (18:05):
Does he do that because he's got something greater in mind.
Speaker 3 (18:08):
Is useful to understand that he really does want to
see his system take off. He is minted himself, so
at this point he owns a lot of estates in France,
he has plenty of money, and he's thoroughly embedded with
the monarchy.
Speaker 4 (18:26):
Anyway.
Speaker 3 (18:27):
Basically, the whole driving force throughout his intellectual career is
to sever money and credit from gold, because he doesn't
see why a country's entire economy and money supply should
be subject to what he sees is the vagaries of
(18:49):
precious metal supply. And that's one reason why in his
early proposals he wants to back money with land, because
a land can't leave your country and be He kind
of sees it as the source of all the productive
work an economy. But by this point he's going beyond that,
and he said, well, actually there's a lot of impracticalities
(19:11):
to the land, But why do we need anything back
in money at all? We can run an economy basically
just on credit and on paper. As long as there's
not too much paper and too little stuff, then the
credit and the paper will stimulate activity.
Speaker 1 (19:28):
So the king and the bank John Law basically controls
money supply. Yeah, and we're off on as you put it,
the roads were fully fair currency bye by gold.
Speaker 3 (19:40):
And this is what's so revolutionary about laws. Thinking paper
money is self isn't new, But the idea that it's
the state that you should control and manage the money
supply rather than being beholden to underlying the availability of
gold and precious metals and specie is much more radical.
I mean in the way he's kind of enter suppating,
(20:00):
like you know, two hundred years ahead of time. John
Maynard Kensey's view that the gold standard is a barbarous
relic that just gets in the way of efficient economic management.
(20:26):
Chapter six inflating the bubble. So the missis Zippi Company
has been gradually expanding, but May seventeen nineteen's when things
really start getting going. So lawd decays to buy out
the other trading companies in France, and his end goal
is to have the Mississippi Company own everything, every monopoly,
(20:48):
every trading privilege, control of the money supply, and essentially
basically most other state functions all under one roof. So
the first batch in missus Zippy shares is issued at
five hundred lire each and the price hasn't changed much
since then. These are known as Lea Mayer or the Mothers.
So the Law announces a new issue known as lay
(21:09):
Fee or the Daughters, and this is to raise funds
to buy the trading companies and pay for some more ships.
But what he does is he allows people who buy
these and installments so you only have to put ten
percent down. In other words, you can leverage up your bets.
He also underwrites the share issue himself to post confidence
in it, and as a result, it actually ends up
(21:29):
being oversubscribed. That's what they then do is they actually
restrict the initial offering to the people who already own
shares in others, people who already own the mothers, so
they're the ones that can get in on the ground.
And people start to get a bit more excited about
all this, partly because there's a wider bubble going on
people are getting excited about stocks in general, but also
(21:50):
because Law has been printing lots of banknotes and people
need somebody to.
Speaker 4 (21:54):
Put that money.
Speaker 3 (21:55):
And so as the share price starts to go up,
so it goes up from about five hundred to six hundred,
and then in June. Some months later they kind of
they've gone up further, and by mid July they're up
to one thousand and all this time he's issuing kind
of extra notes and this actually continues throughout that year,
and that you've got the mares, then you've got the fear.
(22:16):
Then you end up getting the issues called the Legrong fear.
And it's all very profitable because people can also sell
their rights to.
Speaker 1 (22:24):
These, They can sell the right to buy them.
Speaker 4 (22:26):
They can sell the right to buy them as.
Speaker 1 (22:28):
They're effectively selling options.
Speaker 3 (22:30):
Exactly, so you're selling options as well, and so people
getting more and more excited about getting in on the
ground with this because the people who owned the mares
have now seen the value of those shares kind of
maybe doubled or more in the space about three months.
The big kind of turning point is when in August
(22:51):
he says, right, we're going to raise one point two
billion lavor and we're going to buy the whole national debt.
We're going to buy the outstanding be A data, we're
going to get ready the annuities. Ideally, we're going to
get ready the jobs for the boys. Basically, they kind
of hang us on roles that are in the Royal
(23:14):
Court and also take over tax collection. So it's going
to buy the right which is currently private with someone else,
is going to buy that right off the king, the
right to collect tax, so basically putting everything under the
Mississippi Company, from the money supply to tax collection to
(23:37):
managing the national debt.
Speaker 1 (23:39):
Okay, so we've got the beginning of a bubble going here. Yeah,
shares going up a lot, Everyone's beginning to get excited. Yeah,
shares going up in other countries to all over the place.
Speaker 3 (23:51):
Yes, And so this is proably when the kind of
real kind of excitement takes off. Chapter seven, Fun and
the rue Can Campois.
Speaker 4 (24:13):
This is where it all starts to go a bit nuts.
Speaker 3 (24:17):
And most of the kind of stories from around this
time are focused around the rue Can camp Follo, which
is a like exchange alley in London. It's where everyone
goes to trade shares. It's kind of rowdy, it's kind
of messy. It's very much all the talk of the town.
I guess it's like crypto boys. Maybe there's one clerk
(24:38):
at the British embassy who says that the streets just
crowded from early morning to late at night with princes
and princesses and dukes and peers and duchesses in the world.
Speaker 4 (24:48):
All that is great.
Speaker 3 (24:49):
In France, they cell estates and they point jewels to
purchase Mississippi. All the news of this town is stopped jobbing.
The French heads seemed turned to nothing else at present.
But the other thing that people are noticing is that
prices are going up, so rising land prices, and this
is because obviously the money supply is exploding as well.
(25:10):
There's a local duke who notes that rising prices are
encouraging agricultural workers to cultivate land hasn't previously been farmed,
so it's becoming worth people's wild to go out and
work on the harder land because the price of it
is going up. I mean of the share price keeps
going up and up and up, like for example, in
(25:32):
in October, the highest six thousand, five hundred and the
lowest four thousand, six hundred. It's quite volatile. In November
there's a higher nine thousand, eight hundred and the lowest
six thousand, seven hundred.
Speaker 1 (25:42):
It's really moving.
Speaker 3 (25:44):
Yeah, And also people are coming in as well. So
between November eighteenth and the twenty second, the share price
surduced from seven thousand, two fifty to nine thousand because
one British invoice is a great number of people came
from the provinces and they all all arrived at once
in the street on Saturday last.
Speaker 4 (26:01):
So basically there's are.
Speaker 3 (26:02):
Many people are coming weighed buying the shares. They're able
to do it in leverage, and you're also able to
do it via futures. So I kind of type of
futures market has been set up where traders are basically
saying we'll take missus Zippy stock off your hands in
March next year, so March seventeen twenty for twelve thousand,
(26:25):
five hundred liv. So these traders are better in March,
the share price will have risen from nine thousand to
obviously more than twelve thousand, five hundred, because otherwise they
wouldn't be offering twelve and a half thousand for it.
So you're seeing actually a lot of kind of financial
innovation alongside.
Speaker 1 (26:45):
Yeah, I'm always nervous of the phrase financial innovation, jon
as you know, and here it comes right And one
of the things you say this is when we first
get the word millionaires, it's used.
Speaker 3 (26:57):
Or it appears to have been used first in the
kind of the same local newspaper, and Voltaire uses the
world as well. Basically says, if you all lost your
minds the taught company Paris, and the talk is of
nothing but millions.
Speaker 1 (27:09):
Okay, so we've got a millionaires. They're all over the place.
This is temporarily good.
Speaker 4 (27:15):
Really good.
Speaker 3 (27:16):
But obviously he's driving up prices as well. Retail prices
are going up, and that's not ideal for people who
haven't been speculating in the shares. But I mean, obviously
Law is kind of enjoying himself. He's popular, he's kind
of widely liked. In January seventeen twenty, he's made controller
generality phenoes. So basically he's made the equivalent of the
(27:37):
Prime Minister, Chancellor, Exchequer kind of rolled into one. So
I think, so this is kind of the magazine cover moment.
He's basically the most powerful man in friends. It's certainly
one of the richest private citizens in Europe and there
for the world. And so the only way is down.
Chapter eight laws fall from Grace for the first quarter
(28:03):
of seventeen twenty. It seems as if it's still rumbling along.
This is the point at which he starts to demonetize
gold and silver. So if you're spending over a certain
amount of money, it has to be in bank notes,
not in gold or silver. He wants to stop gold
and silver being taking a basis of the kind of
(28:26):
money system people are, okay, we're trading in their golden
silver at first, much for the same reason that they
wear whenever he originally set up the General Bank, because
there's coinfidence in paper money, and there's also a sense
that it's more immune to devaluation than coinage. But equally
a lot of people have now made quite a bit
(28:47):
of profit. People are noticing prices generally going up, and
Law himself, I think is keenly aware that he's printed
too much money. I think the first point at which
he starts to panic is is a bit later in January,
and one thing that he's doing he's watching the futures market,
and at this point the share price shares peaks at
(29:10):
ten one hundred livre. So Law, because he is worried
about the a the extent of the speculation, which is
quite disruptive and rowdy, also about the money supply, wants
to flood the futures market with a different kind of
contract called a prime, and this is basically a futures
(29:31):
contract that says, in March, you'll be able to buy
Missus Ippy shares for ten thousand round thirteen thousand. So
the idea here is he's basically trying to encourage people
to realize that the shares aren't going to go any
higher and they should stop bidding them up. But what
happens instead is that people actually buy the primes and
(29:52):
then start to pay a premium for the primes because
they're like, oh, wait a minute, this gives me an
option buy the shares for much cheaper than they're definitely
going to pay in three months time, and so they
start to do that, and not only that, they actually
start to sell their underlying shares to buy the derivatives.
So that actually puts pressure on the share price of
the Mississippi Company, pushes it down, while at the same
(30:15):
time people are paying well over the odds, like two
and three hundred percent of the price of the primes
to kind of get the option that kind of buying.
Speaker 4 (30:22):
These shares in the future.
Speaker 3 (30:23):
So that's one thing that kind of starts to I
guess show that a he's rattled and start to actually
rattle the wider market, and then the next month options
trading is banned. Law has always been during his rise
quite pro the free market, so he's objected to various
(30:45):
coercive measures in the past, but now that he is
realizing that his system make any trouble, he's not remotely
above using coercion or attempting to use coercion to get
people to do what he wants and get it to work.
Speaker 1 (31:00):
Don't like him anymore, all they'll be honest, he was always.
Speaker 4 (31:02):
A murder Yeah, he's obvious. I mean to be fun.
Speaker 2 (31:05):
That probably was self defense, standing up for my man.
Speaker 4 (31:07):
Yeah.
Speaker 3 (31:08):
And then so in February again they also the attempts
to suppress specie get much more aggressive, and so the
metal coin needs just devalued again and to other to
encourage people to swap their specie, their golden silver for
paper notes. And then he bands diamonds and jewelry stop
people from turning their their gains into metal. But the
(31:29):
great thing is there's a loophole for church ornaments. So
suddenly golden silver crucifixes just become really popular. They start
paying people big rewards to inform on their neighbors and
their friends. But obviously this all makes people a bit
more paranoid about what's going on, and so they kind
of like they want to convert their shares into gold.
(31:49):
They want to basically get their paper money turned into
something else.
Speaker 1 (31:53):
I feel like that, John, we all felt like that.
Speaker 4 (31:56):
We feel like that now.
Speaker 3 (31:57):
But really the big clanger, and this is where he
really does seem you have either not thought it through
or just just not really realized what was going to happen.
So in May he issues and order. So the Missus
Zippy shares are training at about nine thousand lever and
he says, right, there's too much money floating about Frans.
(32:20):
We need to rain in the money supply. What we're
going to do is we're going to have to value
the shares. The shares are going to be fixed, the
ships are can be fixed at five thousand levs, half
of what it is just now. I said, But it's
okay because the banknotes are going to be reduced in
value by the same amount, so you still you still
get the same relative amount. So this is really just
(32:41):
an adjustment. And of course everybody goes ballistic because there's
people that have done things like soldier houses to you know,
buy the missus Ippi shares. So he's basically announced a
massively deflationary measure that sends everyone into a panic, which
is understandable because he's single handedly ruining them. So this
(33:05):
is the point where he really gets ato serious trouble
where the regent, because the other issue is that the
people who don't like what he's doing, you know, the
people who kind of live on annuities and on jobs
for the boys, are starting to get the Regent's here again,
partly because the Regent is kind of getting a little
(33:26):
bit nervous about what's going on and.
Speaker 1 (33:29):
Feeling John Laura is pretty busy and doesn't have the
suck up time he had previously.
Speaker 2 (33:35):
Yeah, I there's that too.
Speaker 3 (33:36):
He's forced to reverse it, and then he's actually put
under house arrest for a short period of time, and
it looks as if he might end up in the
bas tale.
Speaker 2 (33:45):
But what basically happens is that because no one else.
Speaker 3 (33:51):
Knows how the system works, the Regent decides to get
them back in. But at this point it's very much
a case of he's no longer in charge. It's about
how do we unwind this in the most in the
best way without kind of destroying the entire economy. This
(34:12):
is when things actually start to go from quite bad
to worse. Plague breaks out in Marseille, which is one
of France's most important port cities. It's absolutely devastating. Tens
of thousands of people die. It was extremely bad for
the French economy, and it also adds to the laws
on popularity because the problem is that in that circumstance,
(34:32):
when you get a quantity quarantined plague city. Although he
sends something like one hundred thousand paper lever to help,
nobody wants to paper money. They all want specially they
want gold and silver because in extremists that's the only
way that you can pay for supplies the kind of
in this necessities of life. So he's kind of ends
up almost getting the blame not so much for the plague,
(34:54):
but for one of the reasons of why it ends
up being just as bad as it is, and then
real over the next six months, he's kind of fighting
a rear guard action.
Speaker 4 (35:05):
The share price keeps falling.
Speaker 3 (35:08):
His kind of rivals in the core demand the return
of annuities, so the king starts to raise money by
giving out annuities again. The banknotes are gradually demonetized. Gold
and silver make a comeback, and basically by December, most
(35:28):
of his system has been unwound, despite his kind of
best efforts to try and slow the process or thinking
different ways to kind of reintroduce it, and he has
only become more and more unpopular. His carriage is attacked
in the street more than once. So yeah, so basically
he's extremely unpopular and it just gets to the point
(35:49):
where his presence in France is no longer sustainable. In December,
he turns round to the region, offers his resignation, offers
to leave the country, and there are a lot of
people saying, look, you should arrest this guy, you should
buying him up. He really he's ruined the country, but
he's still got close friends in the court, and also
(36:10):
at the end of the day, the region is up
to his eyeballs in the system as well. The Regent's
kind of made money from it. He's the one that's
put all this faith in Law. So basically they allow
Law to leave along Bay's son William. Chapter nine the aftermath.
(36:47):
So that's the story of Law is ignominious leaving a France,
but it's not actually the end of his story. He
goes to Venice for a little while and then he
heads to London. He's got friends there that can support
him financially, and with this point he's also received an
official pardon from King George. And he's still hoping he
gets the called to France and reinstated, and also obviously
(37:07):
to recover at least some of the wealth that he's
left there. But meanwhile, back in France, the state is
getting to work on unwinding the system. It embarks on
something that becomes known as the Visa of seventeen twenty one.
Every security issued by law, from bank notes to his
shares has to be submitted. They basically annaudit, and then
(37:28):
he gets stamped or a visa put on it saying
how much you're actually going to get back. You get
a haircut according to in theory, how honestly your money
was earned. It's a form of very lucrative virtue signal
and for the state, but really in practice what it
means is that the kind of deserving widows and the
nobility practically get all the money, whereas kind of like
(37:50):
uncouth common speculators get kind of ninety five percent haircuts
and are ruined end up cutting. I think it's about
two point two billion lever of outstanding pay down to
one point seven billion. And meanwhile, the Mississippi Company's taken
into administration and it's eventually actually found to be a
going concern.
Speaker 4 (38:08):
It's not it's been run.
Speaker 3 (38:10):
Acceptably, but it's which is focused from the Louisiana colonization
to just trading with Asia, which.
Speaker 4 (38:16):
Is more profitable, and who am is it now?
Speaker 3 (38:19):
The original shareholders do get it back, but obviously with
a massive haircut taken. I think it takes about three
or four years for the administration process to go through.
Not sure what its lifespan is, but it does end
up being a going concern for a while. But in
the immediate aftermath, law is actually still hoping to return
to France, and at one point in kind of like
(38:40):
seventeen twenty.
Speaker 1 (38:41):
Does not give up. This man, does he?
Speaker 3 (38:43):
He doesn't give up, and it looks as if he
might actually get back. But then the Duke of Orleans
dies in seventeen twenty three, and that's that well, and
that's that the young king is now of age.
Speaker 4 (38:57):
He takes over and basically there's no more.
Speaker 3 (39:00):
That's it. Kind of Law's role as a I guess
a kind of financial wiz is then over. It ends
up back in Venice with his son still raised to
cat and they still write to each other. He's still
quite a successful gambler, but it really is, you know,
it's a massive fault.
Speaker 1 (39:17):
At his peak, it was kind of the Elon Musk
of the seventeen hundreds. I think, insanely intelligent, hugely innovative,
massively creative, intense relationship with the leader, this kind of stuff.
Speaker 3 (39:33):
I think that's a good analogy. I think Law was
probably more relatable to most people than than Musk, Like
Musk seems to kind of get on a lot of
people's nerves, whereas I get the feeling that John Law
was actually you know, you get the impression that even
these kind of like enemies kind of liked him. I
think it was quite quite clubbable. But but yeah, I
(39:56):
think Musk is probably the closest, more than the equivalent
in terms of proximity to the state, and also a
real fondness for financial engineering. And then he dies in
seventeen twenty nine of pneumonia. That's where the French day,
I mean, the ironic thing is so when Law came
in seventeen sixteen, the French government's kind of debty G
D Peira show was one hundred percent, and by the
(40:18):
time the Visa twenty one had given everyone massive haircuts,
the debty gd Peira show was down to about fifty percent.
He was successive work semi solvent again, but only by
completely shafting everyone that invested in anything to do with
John Law, and obviously, over the longer run that wasn't
very helpful for France's kind of perceived credit worthiness. And
(40:40):
then as far as Louisiana goes, in eighteen oh three,
Napoleon sold it to Thomas Jefferson for two point five
million pounds, so he'd have to pay mansion tax on
that today. And the story, the story of John Law draws.
Speaker 4 (40:56):
To his clothes.
Speaker 1 (40:58):
It's appassed John, I should ask. It was a long
and fascinating story, with some joy in the middle and
significant misery at the end. Yes, what do we learn
that we should hang on to a gold ignore everyone
who tells us that gold doesn't matter.
Speaker 3 (41:13):
I think there are two main lessons here. The most
obvious one is own gold. That's what everyone turns to
when money breaks down. But the other is that if
you want to run a few councy system, you need
strong institutions with checks and balances that people can trust.
And even then it's still very fragile, as we've learned
in plenty of occasions, and the problems. Law was trying
to impose something like a modern day monetary system almost
(41:36):
overnight on into a country that simply didn't have the
political infrastructure to cope with that. So it's not surprising
that it blew up as soon as confidence evaporated. And
then I think the other question is longer term impact.
I don't think it's fair to trace the French Revolution
back to Law, because if anything, the revolution results from
the sort of the same power and balances that.
Speaker 4 (41:57):
Undermine his scheme.
Speaker 3 (41:59):
But I do I think you can view Law as
a major fact on France losing ground to Britain over
the course of the rest of the eighteenth century because
his system collapse and basically puts the French off financial
innovation for good. So Britain, by contrast, already has the
Bank of England and it's already get more checks and
balances at a political level, So even after the south
Sea bubble pops, it's better able to manage its national
(42:21):
debt and to raise funds, and that means that overall
Britain's able to spend more on warfare, which means it
ends up having a better navy, and it's ultimately it
overtakes France as the European and global superpower of the time.
Speaker 4 (42:35):
Those are all useful life lessons.
Speaker 2 (42:37):
Thanks John, I think so true.
Speaker 1 (42:46):
Oh there you go, John Lohey wanted a legacy, didn't he?
And I suppose you didn't really think about.
Speaker 3 (42:50):
It like this, you know, I mean the scotsman kind
of putting the spokes in the French army. I don't know.
Speaker 1 (42:58):
Interesting, you couldn't imagine he did on purpose?
Speaker 3 (43:03):
It surely too cynical. Thanks for listening to our special
two part series and Join Law. We'd love to hear
your thoughts, so please do send us questions or comments
to Merion Money at bloombard dot net. And if you
enjoyed these episodes or any of our episodes, don't forget
to rate, review and subscribe and share with friends. This
(43:24):
episode was hosted by me Join Stepic alongside Merion's Somerset Web.
It was produced by Summer Sadie and Moses and Dam
with help from Amy Keane. Sound designed by Blake Maples
and Robert Williams.
Speaker 1 (43:38):
Right, Can I get walk with the dog now
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:14):
Are you ready for part two of the Joint Law Story.
Speaker 1 (00:16):
I'm ready because I've listened to all of part one,
or rather recorded it with you, John. But anyone who
hasn't done that needs to go back and listen to
part one before they move on to part two.
Speaker 3 (00:26):
Okay, so let's assume you've done that, and let's speak
in chapter four are battled superpower? So in seventeen fourteen,
(00:51):
Join Law arrives in France by his long term girlfriend
Katherine and their son William and their daughter Mary Catherine.
And so at this point the water is any succession
has just ended, and while France didn't exactly lose, it
didn't win either. So as a result of this, is
still one of the most powerful countries in Europe at
this point, but it's economically exhausted and it's very heavily
(01:13):
in debted to debt to GDP is actually sitting at
about one hundred percent. Familiar, Yes, yes, a bit too familiar.
So I mean fixing this is not easy at all, obviously,
as we know from our own experience. But compared with
England in particular, France has got a much more regressive
and efficient fiscal system. So in the tax side of
(01:33):
the things, most of the direct tax burden falls on
peasants and commoners, and the nobility and the upper classes
are largely exempt from that. And the king also sells
the right to collect taxes so effectively privatizes it. He
gets the money up front, Yeah, he gets the money
up front actively, and then they get to keep whatever
they can rake off on top.
Speaker 1 (01:52):
So there's bidding walls for these rights. Right, you can
go and make a stab at how much money you'll
be able to get out of the peasants and bid.
Speaker 2 (01:59):
For it absolute.
Speaker 3 (02:00):
But also the other problem is it means that the
king is selling the right to collect taxes too cheaply.
Usually he's desperate for money because he needed to pay soldiers,
and that's for the kind of state borrowing side of things.
The king likes heavily and selling annuities whose income stream
is secured against future tax revenues, so he's kind of
mortgaging the tax base into the future. Basically, they sell
(02:23):
civil service jobs, so you know things like judges or
you know various other kind of posts and office holdings,
and those are hereditary and they come with various privileges.
Speaker 1 (02:35):
And again it has the same effect. You pay up
front for the job, but then you collect the salary
and definitely.
Speaker 3 (02:39):
Yeah, exactly, it's all somewhat desperate ways actually raise money.
And the other thing is that, you know, he also
depends on short term loans from the tax farmers secured
against the tax revenues that they are going out to get,
so it is, it's all it's very hand to mouth.
And of course the other issue is obviously France is
an absolute monarch case still so to a great extent,
(03:00):
the king can technically default or restructure parts of this
debt if it gets too much, and occasionally will do that,
but the underlying system remains intact because basically, too many
people benefit from the state's quo and they don't really
want it to change. Long story shot, France has got
a narrow tax base in the very haphazard system is
sovereign borrowing, and that also means that funding the war
(03:22):
effort has left it really short the real money, and
so it's ended up issuing a lot of paper iouse
which are called ba data in French, and it's been
using them to pay off its military suppliers to pay
the tax farmers some of the money it owes them,
and pay the wages of the office holders. And so
it means that by the time Law arrives in France,
(03:42):
the place is a wash and something. It's not payper money,
but it is basically io used. That kind of are traded,
and they are sometimes used as a former money between people,
but they trade at massive discounts to their face value.
I mean, we're talking about around seventy percent. And that's
because no one expects to actually get paid in full,
because they don't trust the king to actually kind of
(04:04):
give them the money. And so this is what Laws
kind of like walking into when he lands in Paris
and he rents a big house near the Louvery now,
Law has been in Paris before. He'd pitched his land
bank idea to King Louis the fourteenth and seventeen oh seven,
and he'd been rejected, just as he was in Scotland
(04:25):
and England. But by now louis very elderly, and in
seventeen fifteen he dies. The good news for John Law
is that Louis the fifteenth who's Louis the fourteenths grandson,
and there is only five years old, so they needs
someone to act as regent until he reaches his maturity.
And that person turns out to be Philippe the second,
(04:46):
who's the Duke of Orleans. And this is a guy
that Law had befriended at the gaming tables on his
previous trip to Paris, and Philippe is already quite receptive
to Law's ideas. They're kind of kindred spirits in many ways.
They both enjoy gambling, they're both interested in new ideas.
But in the immediate term, the Duke has got two problems,
and one is that the French finances on such a
(05:07):
state that something just needs to be done about it immediately.
And the other problem he's got is that the vested
interests who kind of benefit from the states quo are
not that keen on the idea of an outsider light
Law coming in to shake things up. So in early
seventeen sixty, my Law is still discussing establishing this bank,
the Duke issues a massive crackdown on the richest people
(05:28):
in France at that time.
Speaker 1 (05:29):
What do you mean by crackdown?
Speaker 3 (05:31):
It's almost as if h and Marc just calls them
all in to do kind of a massive tax audit,
and then if it looks as if you know you're
havn't major money and exactly the way the King approves of,
then you'll have to take a haircut.
Speaker 4 (05:44):
Some of them even go to jail.
Speaker 3 (05:45):
There's a few dead sentences passed, although none of those
actually get carried out. Because the thing is they also
realize that actually, we rely on these guys, so we
need to put the frighteners on them.
Speaker 4 (05:56):
But we can't.
Speaker 1 (05:57):
It's going to say, surely of doing stuff like this
cuts off the supply of new money, you go chuck
people in jail, etcetera, etcetera. Maybe they go lend them
money to the UK or Spain.
Speaker 2 (06:05):
Instead, exactly and so wisely.
Speaker 3 (06:07):
I mean this is interesting because John Law actually he
says to the Duke, look, this is a bad idea
because he knows it will result in a credit crunch.
But the good thing from Law's point of view is
that this basically puts a lot of people out of
the picture who have been objected to the idea of
setting up this kind of alternative way of financing this
state or what they see as a threat, because in
(06:27):
the end the Duke does give them the go ahead
it's a much less ambitcious version of the project that
he eventually wants to get into. But in May seventeen sixteen,
that's when he sets up the General Bank or the
Bonk General as the French call it, and this makes
a small private bank in Paris. For context, you've got
the kind of French colonomy. Prison economy is experiencing physical crisis.
Speaker 1 (06:51):
And you've got a credit crunch because nobody trust anybody anymore.
They didn't want to lend money anymore. Some of them
in jail they ever to take haircuts on their debt.
They're all fit up the back to you the whole time,
So everyone's just sitting on that cash exactly.
Speaker 3 (07:04):
And also the other thing is they key point pushing
through currency devaluations. This is important to what happens next.
So the time metal is money, you get bits of
paper flying the boot at the end of the day.
The reason that bits of paper have any value at
all is because their promises back by gold or silver,
So you get gold to have and copper for lower
(07:25):
value coins. But the coins themselves, they are actually denominated
in the unit of account. So like in Britain, we've
got the pound, sterling, there isn't actually a gold coin
called the pound sterling, but that's what the kind of
coins are denominated in. So in France it's the liverra.
So this is what contracts in wages and debts are
(07:46):
denominated in. So if you are working for someone or
you owe someone money, then they will be described in
a certain amount of levra. But that's how they debase
the currency. Take an example from Longtowan Murphy's book on
John Law. So let's say you get ten gold coins
(08:06):
in seventeen fifteen. That's ten louis door. They're worth one
hundred and forty livres in total, so fourteen livre each.
So you now take them in the nearest mint, and
this is how the revaluation happens. The mint stamps them,
so each of these coins is now a louis d'Or
reform a, but they're now technically worth twenty livre each.
(08:26):
So you came in with one hundred and forty livra,
you go out again with one hundred and sixty livre
because they give you a bit extra to make it
worth your.
Speaker 4 (08:33):
While changing them.
Speaker 3 (08:34):
But the things you came in with ten gold coins,
and you're actually only going out with eight, so it
looks as if you're getting more money you came in with,
but in fact the gold itself has been devalued in
LEVRA terms.
Speaker 1 (08:50):
So why would you take your money in? Well, take
your money in, You take your money in, you give
it to them, they give you back list. It's like
beings like being Paya and.
Speaker 2 (08:58):
The UK these days, exactly exactly.
Speaker 3 (09:01):
I mean it's partly because you have to kind of legally,
but of course what.
Speaker 1 (09:05):
Money you have under your bed, in your safe, well.
Speaker 3 (09:08):
There's an awful lot of informers. I mean, this is
the other thing. It's it's the kind of different, kind
of and quite nasty world. But the things but you're right,
the more aggressive the kind of recoinage is, the more
people avoid it. So the things people do, things like
they smuggle their money out to be stamped in private
workshops in Holland. Some of them even just send out
the country to get melted down and get the money
from that. So basically means that money is kind of
(09:30):
flooding out the country or being hidden in people's basements.
So again that contributes to this credit crunch as well.
But as part of the reason that the General Bank
actually ends up being quite successful. Not a listed company,
but it does issue shares and they form the bank's capital,
and John Law himself has about a quarter of that,
so he stakes a lot of money on the line.
(09:52):
In total, it's six million livre is the capital of
the bank, and he's subscribed for a quarter of that
gives it he's backing as well. It's not clear how
much he personally subscribed for, but it was probably a fair chunk,
and to keep the region happy, a lot of the
financiers who he's been cracking down on also chip in money.
(10:13):
The other reason people are happy to subscribe for the shares,
of course, is that they can swap their heavily discounted
state I'll use the BA data for shares in the
bank at full face value. So the initial capital base
of the bank is relatively small, but despite that, once
it takes off, is pretty successful at reinvigorating trade in
a credit crunch stricken Paris. For a start, he's offering
(10:35):
banking services and making loans at much cheaper rates than
anyone else. But fundamentally what people really like is laws
bank notes. You go in, you put your money in,
and you get a banknote. Back, But the bank notes
are written for basically the amount is silver that you
put in rather than the lever value.
Speaker 4 (10:58):
Of the silver.
Speaker 3 (11:00):
If you put ten silver coins in and get a
bank note back from Law's bank, you can go in
a year later, six months later, and even if the
coin is just being devalued, you will still get ten
silver coins back.
Speaker 1 (11:13):
Okay, so it's better than the other money.
Speaker 2 (11:16):
Why back?
Speaker 3 (11:17):
I find this really fascinating, quite ironic. He starts off
by creating paper money that is harder than the metal
money that.
Speaker 4 (11:25):
Is in circulation.
Speaker 3 (11:27):
Amazing, so people start to feel confidence because basically he
restores sound money in Paris. By doing this, it also
makes its initial shareholders very wealthy. The bank ends up
running the reserve ratio of about twenty five percent, and
the writer James Bucking estimates it could have been making
about a million leave a year writing loans at four
(11:48):
percent interest. So as a result, when the shareholders a
letter bought out by the regent, which we'll get to
in a minute, they've made six times their money.
Speaker 1 (11:57):
Nice, Okay, it's worth doing. That's an easier way to
make money than setting up a par of gaming tables.
Speaker 3 (12:10):
Chapter five, The buff of the Mississippi Company. Okay, so
by early seventeen seventeen, the General Bank has helped alleviate
the immediate credit crunch in France. But it's just the
beginning the laws plans. Now he's can attackled the national
debt and all those dodgy IO used the BA data
(12:31):
that are still flying around, and that's where the next
part of the scheme comes in.
Speaker 1 (12:35):
All right, Okay, don This is a bit I always
find incredibly confusing. If I'm really honest, it's tough for
me to see how we get from this relatively small
bank suddenly taking on the national debt and being this
huge company.
Speaker 3 (12:47):
Yes, I'm not surprised. That is quite confusing, but we'll
do our best to talk you too how it does
that over the course of roughly eighteen ones to two years.
So we're starting Louisiana. I mean, this is not Louisiana
as we know it today. Instead, it's in the area
that encompasses basically like half the landmass of the present
(13:08):
day United States. And what had happened is French fur
traders from Canadian colonies had claimed it for King Louis
in the late sixteen hundreds, and he'd established a small
house post there. So about seventeen seventeen this year that
we're talking about, the right to develop the colony is
owned by one of the big French financiers, one of
the tax farmers basically. But when he's caught up and
(13:30):
the tax crackdown that we mentioned earlier, he gives back
the concession as part payment for his overdue taxes basically,
and it's at that point the Law says, well, look,
I'll take over this concession and then what we'll do
is we'll set up a company, will issue shares, will
allow people to buy the shares with the BEA data,
(13:51):
and that will help us to get rid of that
and consolidate that debt. So basically Law wants to clean
up the public finances.
Speaker 1 (14:01):
Okay, so he must get rid of the outstanding bills.
So he buys this trade monopoly and says, you can
have shares in exchange for the bills. Yes, but then
he has all the bills and everybody else has the shares.
Bills are off the market, but they still exists.
Speaker 3 (14:22):
I know. This is the clever bit. The deal is
that when the bills are swapped for the shares, the
bills get destroyed then return the King will pay the
company of perpetual annuity, which is backed by specific tax revenues.
Is actually a new stamp, its new stamp duty that
they introduced, believe it or not, which will we use
to find a dividend payment of four percent a year.
(14:44):
So what's happening is the shareholder is getting to swap
a rubbish bit of paper I owe you from the
King that they don't have a great daily confidence will
get repaid. And there's getting instead face value swapped rather
than heavily discounted. They're getting a stake in a company
there's promising to pay them four percent a year anyway,
(15:06):
plus the added potential for you know, what happens we
trade and what happens with the colony in the future.
So he's getting the equity steak.
Speaker 1 (15:14):
And you got a stream of the income. Yeah, and
you get the potential for future upside exactly.
Speaker 3 (15:19):
And all you're giving up is an IOU that he
probably didn't expect to get paid anyway. And the king, well,
as the king goes, he's getting to retire loads of
independent kind of short term IOUs that are road to
thousands of individuals for one long term debt that is
owed to just one company. Does that kind of make
(15:40):
some sunds?
Speaker 1 (15:41):
Yes, it helps a lot, thank you.
Speaker 3 (15:46):
So he's one to swop the French national debt for
equity in a colonial exploration company. He's not just making
this up. The company does exist and over the next
couple of years, the invest in ships, they send colonists
off to Louisiana. Gradually he also takes over more parts
(16:09):
of the state, so he gets the monopoly on the
tobacco trade for example. Basically the Mississippi Company does manage
to wash its face.
Speaker 4 (16:18):
Over this time.
Speaker 3 (16:19):
It makes enough money to pay dividends out to its shareholders,
so it's came people happy and the money is coming
in from the tobacco trade and from kind of various
other bits of business that it does. But setting up
a colony is very difficult, in time consuming and capital intensive.
And the truth is there's lots of fairly grim stories
(16:40):
that come out here. The initial settlers are largely poor
and desperate people hoping for a better life. But the
longer run is it drags on and it's not obviously
turning into a massively prosperous area. You get more and
more people being just sent out there, so prisoners being
sent out. There are stories of convicts and prostitutes kind
of getting married on the talk and then sent out. Overall,
(17:02):
there is no point in which Louisiana is economically significant
to France, like even many years into the future. So
while it's definitely a real project, I think it is
also fair to say that it mostly plays a role
as a carrot to attract people to swap their government
debt for equity and I kind of stake in a
blue Sky's company.
Speaker 4 (17:22):
So it's not.
Speaker 3 (17:23):
Successful immediately, and then by December seventeen eighteen, what harms
is that France ends.
Speaker 4 (17:30):
Up going back to war with Spain again.
Speaker 3 (17:33):
This is when Law has got his opportunity to change
the General Bank to the Royal Bank, so basically it
becomes the French Central Bank. Effectively, the other shareholders are
bought out, so this is the point at which they
make six times of money. The king now owns the bank,
and the important thing is that the Royal Bank can.
Speaker 1 (17:55):
Issue How does the king own the bank?
Speaker 3 (18:00):
Basically, the other shareholders are bought out by Law and
the Law then sells the bank to the regent.
Speaker 1 (18:05):
Does he do that because he's got something greater in mind.
Speaker 3 (18:08):
Is useful to understand that he really does want to
see his system take off. He is minted himself, so
at this point he owns a lot of estates in France,
he has plenty of money, and he's thoroughly embedded with
the monarchy.
Speaker 4 (18:26):
Anyway.
Speaker 3 (18:27):
Basically, the whole driving force throughout his intellectual career is
to sever money and credit from gold, because he doesn't
see why a country's entire economy and money supply should
be subject to what he sees is the vagaries of
(18:49):
precious metal supply. And that's one reason why in his
early proposals he wants to back money with land, because
a land can't leave your country and be He kind
of sees it as the source of all the productive
work an economy. But by this point he's going beyond that,
and he said, well, actually there's a lot of impracticalities
(19:11):
to the land, But why do we need anything back
in money at all? We can run an economy basically
just on credit and on paper. As long as there's
not too much paper and too little stuff, then the
credit and the paper will stimulate activity.
Speaker 1 (19:28):
So the king and the bank John Law basically controls
money supply. Yeah, and we're off on as you put it,
the roads were fully fair currency bye by gold.
Speaker 3 (19:40):
And this is what's so revolutionary about laws. Thinking paper
money is self isn't new, But the idea that it's
the state that you should control and manage the money
supply rather than being beholden to underlying the availability of
gold and precious metals and specie is much more radical.
I mean in the way he's kind of enter suppating,
(20:00):
like you know, two hundred years ahead of time. John
Maynard Kensey's view that the gold standard is a barbarous
relic that just gets in the way of efficient economic management.
(20:26):
Chapter six inflating the bubble. So the missis Zippi Company
has been gradually expanding, but May seventeen nineteen's when things
really start getting going. So lawd decays to buy out
the other trading companies in France, and his end goal
is to have the Mississippi Company own everything, every monopoly,
(20:48):
every trading privilege, control of the money supply, and essentially
basically most other state functions all under one roof. So
the first batch in missus Zippy shares is issued at
five hundred lire each and the price hasn't changed much
since then. These are known as Lea Mayer or the Mothers.
So the Law announces a new issue known as lay
(21:09):
Fee or the Daughters, and this is to raise funds
to buy the trading companies and pay for some more ships.
But what he does is he allows people who buy
these and installments so you only have to put ten
percent down. In other words, you can leverage up your bets.
He also underwrites the share issue himself to post confidence
in it, and as a result, it actually ends up
(21:29):
being oversubscribed. That's what they then do is they actually
restrict the initial offering to the people who already own
shares in others, people who already own the mothers, so
they're the ones that can get in on the ground.
And people start to get a bit more excited about
all this, partly because there's a wider bubble going on
people are getting excited about stocks in general, but also
(21:50):
because Law has been printing lots of banknotes and people
need somebody to.
Speaker 4 (21:54):
Put that money.
Speaker 3 (21:55):
And so as the share price starts to go up,
so it goes up from about five hundred to six hundred,
and then in June. Some months later they kind of
they've gone up further, and by mid July they're up
to one thousand and all this time he's issuing kind
of extra notes and this actually continues throughout that year,
and that you've got the mares, then you've got the fear.
(22:16):
Then you end up getting the issues called the Legrong fear.
And it's all very profitable because people can also sell
their rights to.
Speaker 1 (22:24):
These, They can sell the right to buy them.
Speaker 4 (22:26):
They can sell the right to buy them as.
Speaker 1 (22:28):
They're effectively selling options.
Speaker 3 (22:30):
Exactly, so you're selling options as well, and so people
getting more and more excited about getting in on the
ground with this because the people who owned the mares
have now seen the value of those shares kind of
maybe doubled or more in the space about three months.
The big kind of turning point is when in August
(22:51):
he says, right, we're going to raise one point two
billion lavor and we're going to buy the whole national debt.
We're going to buy the outstanding be A data, we're
going to get ready the annuities. Ideally, we're going to
get ready the jobs for the boys. Basically, they kind
of hang us on roles that are in the Royal
(23:14):
Court and also take over tax collection. So it's going
to buy the right which is currently private with someone else,
is going to buy that right off the king, the
right to collect tax, so basically putting everything under the
Mississippi Company, from the money supply to tax collection to
(23:37):
managing the national debt.
Speaker 1 (23:39):
Okay, so we've got the beginning of a bubble going here. Yeah,
shares going up a lot, Everyone's beginning to get excited. Yeah,
shares going up in other countries to all over the place.
Speaker 3 (23:51):
Yes, And so this is proably when the kind of
real kind of excitement takes off. Chapter seven, Fun and
the rue Can Campois.
Speaker 4 (24:13):
This is where it all starts to go a bit nuts.
Speaker 3 (24:17):
And most of the kind of stories from around this
time are focused around the rue Can camp Follo, which
is a like exchange alley in London. It's where everyone
goes to trade shares. It's kind of rowdy, it's kind
of messy. It's very much all the talk of the town.
I guess it's like crypto boys. Maybe there's one clerk
(24:38):
at the British embassy who says that the streets just
crowded from early morning to late at night with princes
and princesses and dukes and peers and duchesses in the world.
Speaker 4 (24:48):
All that is great.
Speaker 3 (24:49):
In France, they cell estates and they point jewels to
purchase Mississippi. All the news of this town is stopped jobbing.
The French heads seemed turned to nothing else at present.
But the other thing that people are noticing is that
prices are going up, so rising land prices, and this
is because obviously the money supply is exploding as well.
(25:10):
There's a local duke who notes that rising prices are
encouraging agricultural workers to cultivate land hasn't previously been farmed,
so it's becoming worth people's wild to go out and
work on the harder land because the price of it
is going up. I mean of the share price keeps
going up and up and up, like for example, in
(25:32):
in October, the highest six thousand, five hundred and the
lowest four thousand, six hundred. It's quite volatile. In November
there's a higher nine thousand, eight hundred and the lowest
six thousand, seven hundred.
Speaker 1 (25:42):
It's really moving.
Speaker 3 (25:44):
Yeah, And also people are coming in as well. So
between November eighteenth and the twenty second, the share price
surduced from seven thousand, two fifty to nine thousand because
one British invoice is a great number of people came
from the provinces and they all all arrived at once
in the street on Saturday last.
Speaker 4 (26:01):
So basically there's are.
Speaker 3 (26:02):
Many people are coming weighed buying the shares. They're able
to do it in leverage, and you're also able to
do it via futures. So I kind of type of
futures market has been set up where traders are basically
saying we'll take missus Zippy stock off your hands in
March next year, so March seventeen twenty for twelve thousand,
(26:25):
five hundred liv. So these traders are better in March,
the share price will have risen from nine thousand to
obviously more than twelve thousand, five hundred, because otherwise they
wouldn't be offering twelve and a half thousand for it.
So you're seeing actually a lot of kind of financial
innovation alongside.
Speaker 1 (26:45):
Yeah, I'm always nervous of the phrase financial innovation, jon
as you know, and here it comes right And one
of the things you say this is when we first
get the word millionaires, it's used.
Speaker 3 (26:57):
Or it appears to have been used first in the
kind of the same local newspaper, and Voltaire uses the
world as well. Basically says, if you all lost your
minds the taught company Paris, and the talk is of
nothing but millions.
Speaker 1 (27:09):
Okay, so we've got a millionaires. They're all over the place.
This is temporarily good.
Speaker 4 (27:15):
Really good.
Speaker 3 (27:16):
But obviously he's driving up prices as well. Retail prices
are going up, and that's not ideal for people who
haven't been speculating in the shares. But I mean, obviously
Law is kind of enjoying himself. He's popular, he's kind
of widely liked. In January seventeen twenty, he's made controller
generality phenoes. So basically he's made the equivalent of the
(27:37):
Prime Minister, Chancellor, Exchequer kind of rolled into one. So
I think, so this is kind of the magazine cover moment.
He's basically the most powerful man in friends. It's certainly
one of the richest private citizens in Europe and there
for the world. And so the only way is down.
Chapter eight laws fall from Grace for the first quarter
(28:03):
of seventeen twenty. It seems as if it's still rumbling along.
This is the point at which he starts to demonetize
gold and silver. So if you're spending over a certain
amount of money, it has to be in bank notes,
not in gold or silver. He wants to stop gold
and silver being taking a basis of the kind of
(28:26):
money system people are, okay, we're trading in their golden
silver at first, much for the same reason that they
wear whenever he originally set up the General Bank, because
there's coinfidence in paper money, and there's also a sense
that it's more immune to devaluation than coinage. But equally
a lot of people have now made quite a bit
(28:47):
of profit. People are noticing prices generally going up, and
Law himself, I think is keenly aware that he's printed
too much money. I think the first point at which
he starts to panic is is a bit later in January,
and one thing that he's doing he's watching the futures market,
and at this point the share price shares peaks at
(29:10):
ten one hundred livre. So Law, because he is worried
about the a the extent of the speculation, which is
quite disruptive and rowdy, also about the money supply, wants
to flood the futures market with a different kind of
contract called a prime, and this is basically a futures
(29:31):
contract that says, in March, you'll be able to buy
Missus Ippy shares for ten thousand round thirteen thousand. So
the idea here is he's basically trying to encourage people
to realize that the shares aren't going to go any
higher and they should stop bidding them up. But what
happens instead is that people actually buy the primes and
(29:52):
then start to pay a premium for the primes because
they're like, oh, wait a minute, this gives me an
option buy the shares for much cheaper than they're definitely
going to pay in three months time, and so they
start to do that, and not only that, they actually
start to sell their underlying shares to buy the derivatives.
So that actually puts pressure on the share price of
the Mississippi Company, pushes it down, while at the same
(30:15):
time people are paying well over the odds, like two
and three hundred percent of the price of the primes
to kind of get the option that kind of buying.
Speaker 4 (30:22):
These shares in the future.
Speaker 3 (30:23):
So that's one thing that kind of starts to I
guess show that a he's rattled and start to actually
rattle the wider market, and then the next month options
trading is banned. Law has always been during his rise
quite pro the free market, so he's objected to various
(30:45):
coercive measures in the past, but now that he is
realizing that his system make any trouble, he's not remotely
above using coercion or attempting to use coercion to get
people to do what he wants and get it to work.
Speaker 1 (31:00):
Don't like him anymore, all they'll be honest, he was always.
Speaker 4 (31:02):
A murder Yeah, he's obvious. I mean to be fun.
Speaker 2 (31:05):
That probably was self defense, standing up for my man.
Speaker 4 (31:07):
Yeah.
Speaker 3 (31:08):
And then so in February again they also the attempts
to suppress specie get much more aggressive, and so the
metal coin needs just devalued again and to other to
encourage people to swap their specie, their golden silver for
paper notes. And then he bands diamonds and jewelry stop
people from turning their their gains into metal. But the
(31:29):
great thing is there's a loophole for church ornaments. So
suddenly golden silver crucifixes just become really popular. They start
paying people big rewards to inform on their neighbors and
their friends. But obviously this all makes people a bit
more paranoid about what's going on, and so they kind
of like they want to convert their shares into gold.
(31:49):
They want to basically get their paper money turned into
something else.
Speaker 1 (31:53):
I feel like that, John, we all felt like that.
Speaker 4 (31:56):
We feel like that now.
Speaker 3 (31:57):
But really the big clanger, and this is where he
really does seem you have either not thought it through
or just just not really realized what was going to happen.
So in May he issues and order. So the Missus
Zippy shares are training at about nine thousand lever and
he says, right, there's too much money floating about Frans.
(32:20):
We need to rain in the money supply. What we're
going to do is we're going to have to value
the shares. The shares are going to be fixed, the
ships are can be fixed at five thousand levs, half
of what it is just now. I said, But it's
okay because the banknotes are going to be reduced in
value by the same amount, so you still you still
get the same relative amount. So this is really just
(32:41):
an adjustment. And of course everybody goes ballistic because there's
people that have done things like soldier houses to you know,
buy the missus Ippi shares. So he's basically announced a
massively deflationary measure that sends everyone into a panic, which
is understandable because he's single handedly ruining them. So this
(33:05):
is the point where he really gets ato serious trouble
where the regent, because the other issue is that the
people who don't like what he's doing, you know, the
people who kind of live on annuities and on jobs
for the boys, are starting to get the Regent's here again,
partly because the Regent is kind of getting a little
(33:26):
bit nervous about what's going on and.
Speaker 1 (33:29):
Feeling John Laura is pretty busy and doesn't have the
suck up time he had previously.
Speaker 2 (33:35):
Yeah, I there's that too.
Speaker 3 (33:36):
He's forced to reverse it, and then he's actually put
under house arrest for a short period of time, and
it looks as if he might end up in the
bas tale.
Speaker 2 (33:45):
But what basically happens is that because no one else.
Speaker 3 (33:51):
Knows how the system works, the Regent decides to get
them back in. But at this point it's very much
a case of he's no longer in charge. It's about
how do we unwind this in the most in the
best way without kind of destroying the entire economy. This
(34:12):
is when things actually start to go from quite bad
to worse. Plague breaks out in Marseille, which is one
of France's most important port cities. It's absolutely devastating. Tens
of thousands of people die. It was extremely bad for
the French economy, and it also adds to the laws
on popularity because the problem is that in that circumstance,
(34:32):
when you get a quantity quarantined plague city. Although he
sends something like one hundred thousand paper lever to help,
nobody wants to paper money. They all want specially they
want gold and silver because in extremists that's the only
way that you can pay for supplies the kind of
in this necessities of life. So he's kind of ends
up almost getting the blame not so much for the plague,
(34:54):
but for one of the reasons of why it ends
up being just as bad as it is, and then
real over the next six months, he's kind of fighting
a rear guard action.
Speaker 4 (35:05):
The share price keeps falling.
Speaker 3 (35:08):
His kind of rivals in the core demand the return
of annuities, so the king starts to raise money by
giving out annuities again. The banknotes are gradually demonetized. Gold
and silver make a comeback, and basically by December, most
(35:28):
of his system has been unwound, despite his kind of
best efforts to try and slow the process or thinking
different ways to kind of reintroduce it, and he has
only become more and more unpopular. His carriage is attacked
in the street more than once. So yeah, so basically
he's extremely unpopular and it just gets to the point
(35:49):
where his presence in France is no longer sustainable. In December,
he turns round to the region, offers his resignation, offers
to leave the country, and there are a lot of
people saying, look, you should arrest this guy, you should
buying him up. He really he's ruined the country, but
he's still got close friends in the court, and also
(36:10):
at the end of the day, the region is up
to his eyeballs in the system as well. The Regent's
kind of made money from it. He's the one that's
put all this faith in Law. So basically they allow
Law to leave along Bay's son William. Chapter nine the aftermath.
(36:47):
So that's the story of Law is ignominious leaving a France,
but it's not actually the end of his story. He
goes to Venice for a little while and then he
heads to London. He's got friends there that can support
him financially, and with this point he's also received an
official pardon from King George. And he's still hoping he
gets the called to France and reinstated, and also obviously
(37:07):
to recover at least some of the wealth that he's
left there. But meanwhile, back in France, the state is
getting to work on unwinding the system. It embarks on
something that becomes known as the Visa of seventeen twenty one.
Every security issued by law, from bank notes to his
shares has to be submitted. They basically annaudit, and then
(37:28):
he gets stamped or a visa put on it saying
how much you're actually going to get back. You get
a haircut according to in theory, how honestly your money
was earned. It's a form of very lucrative virtue signal
and for the state, but really in practice what it
means is that the kind of deserving widows and the
nobility practically get all the money, whereas kind of like
(37:50):
uncouth common speculators get kind of ninety five percent haircuts
and are ruined end up cutting. I think it's about
two point two billion lever of outstanding pay down to
one point seven billion. And meanwhile, the Mississippi Company's taken
into administration and it's eventually actually found to be a
going concern.
Speaker 4 (38:08):
It's not it's been run.
Speaker 3 (38:10):
Acceptably, but it's which is focused from the Louisiana colonization
to just trading with Asia, which.
Speaker 4 (38:16):
Is more profitable, and who am is it now?
Speaker 3 (38:19):
The original shareholders do get it back, but obviously with
a massive haircut taken. I think it takes about three
or four years for the administration process to go through.
Not sure what its lifespan is, but it does end
up being a going concern for a while. But in
the immediate aftermath, law is actually still hoping to return
to France, and at one point in kind of like
(38:40):
seventeen twenty.
Speaker 1 (38:41):
Does not give up. This man, does he?
Speaker 3 (38:43):
He doesn't give up, and it looks as if he
might actually get back. But then the Duke of Orleans
dies in seventeen twenty three, and that's that well, and
that's that the young king is now of age.
Speaker 4 (38:57):
He takes over and basically there's no more.
Speaker 3 (39:00):
That's it. Kind of Law's role as a I guess
a kind of financial wiz is then over. It ends
up back in Venice with his son still raised to
cat and they still write to each other. He's still
quite a successful gambler, but it really is, you know,
it's a massive fault.
Speaker 1 (39:17):
At his peak, it was kind of the Elon Musk
of the seventeen hundreds. I think, insanely intelligent, hugely innovative,
massively creative, intense relationship with the leader, this kind of stuff.
Speaker 3 (39:33):
I think that's a good analogy. I think Law was
probably more relatable to most people than than Musk, Like
Musk seems to kind of get on a lot of
people's nerves, whereas I get the feeling that John Law
was actually you know, you get the impression that even
these kind of like enemies kind of liked him. I
think it was quite quite clubbable. But but yeah, I
(39:56):
think Musk is probably the closest, more than the equivalent
in terms of proximity to the state, and also a
real fondness for financial engineering. And then he dies in
seventeen twenty nine of pneumonia. That's where the French day,
I mean, the ironic thing is so when Law came
in seventeen sixteen, the French government's kind of debty G
D Peira show was one hundred percent, and by the
(40:18):
time the Visa twenty one had given everyone massive haircuts,
the debty gd Peira show was down to about fifty percent.
He was successive work semi solvent again, but only by
completely shafting everyone that invested in anything to do with
John Law, and obviously, over the longer run that wasn't
very helpful for France's kind of perceived credit worthiness. And
(40:40):
then as far as Louisiana goes, in eighteen oh three,
Napoleon sold it to Thomas Jefferson for two point five
million pounds, so he'd have to pay mansion tax on
that today. And the story, the story of John Law draws.
Speaker 4 (40:56):
To his clothes.
Speaker 1 (40:58):
It's appassed John, I should ask. It was a long
and fascinating story, with some joy in the middle and
significant misery at the end. Yes, what do we learn
that we should hang on to a gold ignore everyone
who tells us that gold doesn't matter.
Speaker 3 (41:13):
I think there are two main lessons here. The most
obvious one is own gold. That's what everyone turns to
when money breaks down. But the other is that if
you want to run a few councy system, you need
strong institutions with checks and balances that people can trust.
And even then it's still very fragile, as we've learned
in plenty of occasions, and the problems. Law was trying
to impose something like a modern day monetary system almost
(41:36):
overnight on into a country that simply didn't have the
political infrastructure to cope with that. So it's not surprising
that it blew up as soon as confidence evaporated. And
then I think the other question is longer term impact.
I don't think it's fair to trace the French Revolution
back to Law, because if anything, the revolution results from
the sort of the same power and balances that.
Speaker 4 (41:57):
Undermine his scheme.
Speaker 3 (41:59):
But I do I think you can view Law as
a major fact on France losing ground to Britain over
the course of the rest of the eighteenth century because
his system collapse and basically puts the French off financial
innovation for good. So Britain, by contrast, already has the
Bank of England and it's already get more checks and
balances at a political level, So even after the south
Sea bubble pops, it's better able to manage its national
(42:21):
debt and to raise funds, and that means that overall
Britain's able to spend more on warfare, which means it
ends up having a better navy, and it's ultimately it
overtakes France as the European and global superpower of the time.
Speaker 4 (42:35):
Those are all useful life lessons.
Speaker 2 (42:37):
Thanks John, I think so true.
Speaker 1 (42:46):
Oh there you go, John Lohey wanted a legacy, didn't he?
And I suppose you didn't really think about.
Speaker 3 (42:50):
It like this, you know, I mean the scotsman kind
of putting the spokes in the French army. I don't know.
Speaker 1 (42:58):
Interesting, you couldn't imagine he did on purpose?
Speaker 3 (43:03):
It surely too cynical. Thanks for listening to our special
two part series and Join Law. We'd love to hear
your thoughts, so please do send us questions or comments
to Merion Money at bloombard dot net. And if you
enjoyed these episodes or any of our episodes, don't forget
to rate, review and subscribe and share with friends. This
(43:24):
episode was hosted by me Join Stepic alongside Merion's Somerset Web.
It was produced by Summer Sadie and Moses and Dam
with help from Amy Keane. Sound designed by Blake Maples
and Robert Williams.
Speaker 1 (43:38):
Right, Can I get walk with the dog now
Host
Merryn Somerset Webb
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