Undiscovered Scotland

 

John Law lived from 21 April 1671 to 21 March 1729. He was an economist who some have described as the father of finance, responsible for the use of paper money in the world today. He was also a gambler, murderer, playboy and chancer who rose to control, then ruin, the economy of France. The wider picture in Scotland at the time is set out in our Historical Timeline.

Law was the son of a wealthy banking family and was brought up in Fife and at Cramond, west of Edinburgh. His education focused on the areas of political economy, commerce and economics. Law's father died in 1688, and he inherited the family's estates and wealth. Law went to London and gambled away a fortune in a short period of time. In the process, though, he became an expert gambler, using his mathematical and statistical genius to win card games by mentally calculating the odds.

On 9 April 1694, Law's lifestyle got him into deeper trouble. He accepted a challenge from one Edward Wilson to a duel over the affections of Elizabeth Villiers. Villiers was out of both of their leagues, later becoming a mistress of King William and subsequently the Countess of Orkney. But the duel went ahead, Wilson was killed, and Law found himself tried and convicted of murder and sentenced to death. He later managed to negotiate this down to a fine, on the grounds the killing was arguably only manslaughter: whereupon Wilson's family had him briefly imprisoned before he fled to the continent.

In 1705, Law returned to Scotland and published his book Money and Trade considered, with a Proposal for Supplying the Nation with Money. But his proposals for establishing a national bank in Scotland were rejected by the Scottish Parliament. And when the Parliament voted itself out of existence in 1707, Law was suddenly at risk again from the powers in England over the killing of Wilson, so he returned to the continent.

Law spent the next ten years in France and the Netherlands making himself wealthy via a number of financial schemes. In 1715, Law met the Duc d'Orleans, the Regent for the young King of France. At the time, France was emerging from a long series of wars that had left it virtually broke. The outcome was that on 20 May 1716, Law set up the Banque Générale. This was a private bank with three quarters of the capital in the form of government bank notes. The bank became the Banque Royale in 1718, meaning the notes were guaranteed by the King of France.

Meanwhile, in 1717 Law also launched the Compagnie de la Louisiane ou d'Occident which drew together most of France's assets in North America and left Law in effective control of the whole of the huge Mississippi basin. Law's "Mississippi Scheme" to exploit the vast wealth he promised in the region attracted investors from across France and the rest of Europe. By 1719 Law's company had taken over most of France's other overseas interests, becoming the Compagnie des Indes, and he reached an agreement to repay the (large) French national debt, in return for control for nine years of national revenues, and of the French mint. In 1720 Law's colonial trading company merged with the Banque Royale and Law became France's Controller General of Finances.

Shares in the Compagnie de la Louisiane ou d'Occident were originally issued at 500 livres, but those in the successor Compagnie des Indes, had risen rapidly, reaching 10,000 livres during 1719. In 1720 the Company issued a large dividend based on forecasts of future performance and the share price grew briefly to 18,000 livres, before speculators decided to take their profits. Panic ensued when it became clear that the inflated value of the Company - and the the Bank with which it was now merged - far exceeded the available capital. Both the Company and the Bank went bankrupt overnight, bringing about a severe financial crisis in France that impacted right across Europe.

Law fled France, ending his days in Venice in 1729. The catastrophe he inflicted on the French economy was one of the factors behind the French Revolution that followed later in the 1700s.