The Rise and Fall of John Law's Company

John Law's Company was a financial institution that rose to fame in the early 18th century. It was established in 1716 in Scotland, but its operations soon shifted to France.

The company's initial success can be attributed to its innovative approach to banking, which allowed it to issue paper money and create a sense of economic stability. This was a bold move, especially considering the lack of trust in paper money at the time.

Law's company was granted a royal charter in 1716, giving it the authority to print and issue paper money. This move marked a significant departure from traditional banking practices.

As the company's influence grew, so did its power, and it began to issue large amounts of paper money, which helped to fuel economic growth in France.

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John Law's Company was a trading company that held monopoly rights to trade with Louisiana and had exclusive privileges to conduct trade with the region. It was granted a 25-year monopoly on trading between Louisiana and the French mainland, as well as on the beaver fur trade in Canada.

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The company was given a coat of arms displaying a male allegory of the Mississippi River, leaning on a cornucopia. This symbolized the company's connection to the Mississippi River and the promise of riches that it held.

John Law, the founder of the company, was appointed as its Director-General in 1717. He played a crucial role in shaping the company's operations and was instrumental in its success.

The company's shares were offered to the public at 500 livres face value, payable entirely in government debt bills at par. This was a highly advantageous offer, as it allowed investors to exchange their debt for shares in the company.

The public offering of the company's shares started on 14 September 1717 and extended until the end of 1718, raising a total of 100 million French livres at face value. This was a significant amount of money, and it gave the company a strong financial foundation.

Here is a breakdown of the company's subscriptions:

The company used its financial resources to build up its operations, including appointing Jean-Baptiste Le Moyne de Bienville as commandant-general of Louisiana's armed forces. He developed a new settlement in Louisiana, which was named New Orleans in honor of the Regent.

The company's success was short-lived, however, as the value of its shares skyrocketed and led to a speculative frenzy in France and Europe. The company's shares eventually became worthless, leading to a financial crisis in France.

The Mississippi Company's shares were initially offered to the public at 500 livres, with investors able to pay for three-quarters of their subscription with depreciated government debt.

The General Bank, which Law had previously established, was nationalized and renamed the Royal Bank in December 1718, allowing an unlimited amount of money to be printed.

The stock value of the Mississippi Company remained stable initially, but after Law increased the money supply, the value of Mississippi shares shot up, reaching almost 10,000 livres.

People trusted the company completely, rushing to turn their estates and houses into paper, with the result that everything but paper cost more.

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The territory of Louisiana was originally claimed for the Kingdom of France by René Cavelier de La Salle on 9 April 1682, then including all the drainage basin of the Mississippi River.

The first attempt to establish a joint-stock company to develop the territory was made in 1697, but did not succeed. Other attempts failed between 1708 and 1710.

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Antoine Crozat established a Company of Louisiana in 1712, which was granted a 15-year trading monopoly in the territory by Louis XIV on 14 September 1712.

Crozat had been persuaded to engage in this venture by adventurer Antoine de la Mothe Cadillac, whom he appointed to lead the company.

The company's activity remained limited, however, and Crozat withdrew in early 1717 after being fined by the Chamber of Justice.

By then, Louisiana remained almost entirely undeveloped, with a total population of French colonists numbering only about 500.

Law saw the potential to absorb all overseas trading rights of France into one firm through mergers and acquisitions, giving him a virtual monopoly on all long-distance French commerce.

Coffeehouses were like today's Twitter, where news was spread and opposition plotted, and they were also known as "penny universities" where you could learn a lot by hearing discussions in the house.

A great speculator is not a gambler, and Law's scheme was a prime example of this - he risked less than his stake, unlike a gambler who stakes his entire capital on a single cast of the dice.

The term "millionaire" was first coined in Paris to describe the early beneficiaries of Law's dazzling scheme, which created a lot of wealth for some people.

Law exaggerated the wealth of Louisiana through effective marketing, which led to good demand for his company's shares, making his scheme even more successful.

The bubble was a masterclass in financial manipulation, courtesy of John Law. He required applicants for new issues of Mississippi Company shares to already own shares from earlier subscriptions, creating a self-fulfilling prophecy of demand.

Law's Royal Bank printed an astonishing 1 billion livres of paper money in 1719, with eight printers working around the clock to meet the demand. The banknotes were so plentiful that the manufacturers couldn't keep up with the demand for paper.

The total amount of banknotes in circulation reached 2 billion by May 1720, a fifty-fold increase from the General Bank's issuance, and roughly double the quantity of gold and silver coins in circulation. This was a staggering amount of money, and it had a profound impact on the economy.

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The Royal Bank provided loans to speculators with Mississippi stock as collateral at a 2% interest rate, further fueling the bubble. The Mississippi Company also used loans from the Royal Bank to purchase its own stock, creating a vicious cycle of debt and speculation.

By February 1720, around 800 million livres of banknotes had been created to purchase Mississippi Company shares, driving up the share price and creating the illusion of a successful company.

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The market price of company shares reached the peak of 10,000 livres, but it was short-lived.

Inflation reached a staggering 23% in January 1720, thanks to the sudden doubling of the money supply in France. This was a result of shareholders selling their shares, which flooded the market with cash.

The company's reckless spending continued, with the purchase of the Banque Royale in February 1720 and the Compagnie de Saint-Domingue in September 1720. This move further exacerbated the inflation problem.

By the end of 1720, the price of shares had plummeted to 1,000 livres, and by September 1721, it had dropped to 500 livres, where it had been at the beginning.

Philippe d'Orléans had dismissed John Law from his positions by the end of 1720. Law then fled France for Brussels and eventually settled in Venice, where he resorted to a life of gambling to make a living.

The Company was placed in receivership in April 1721, but it managed to restructure and emerge in March 1723, with a focus on overseas trading and colonial development.