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LAW, JOHN (1671—1729)
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See also:LAW, See also: He was in Paris in 1708, and made some proposals to the See also:government as to their financial difficulties, but See also: At this crisis Law unfolded a vast scheme to the perplexed regent. A royal bank was to manage the trade and currency of the kingdom, to collect the taxes, and to See also:free the country from debt. The council of See also:finance, then under the duc de See also:Noailles, opposed the plan, but the regent allowed Law to take some tentative steps. By an See also:edict of 2nd May 1716, a private institution called La Banque generate, and managed by Law, was founded. The See also:capital was 6 million livres, divided into 1200 shares of 5000 livres, payable in four instalments, one-See also:fourth in See also:cash, three-fourths in billets d'etat. It was to perform the See also:ordinary functions of a bank, and had See also:power to issue notes payable at sight in the See also:weight and value of the money mentioned at See also:day of issue. The bank was a great and immediate success. By providing for the absorption of part of the state See also:paper it raised the See also:credit of the government. The notes were a most desirable See also:medium of See also:exchange, for they had the See also:element of fixity of value, which, owing to the arbitrary See also:mint decrees of the government, was wanting in the coin of the See also:realm. They proved the most convenient See also:instruments of remittance between the capital and the provinces, and they thus See also:developed the See also:industries of the latter. The rate of interest, previously enormous and uncertain, See also:fell first to 6 and then to 4%; and when another See also:decree (loth April 1717) ordered collectors of taxes to receive notes as payments, and to See also:change them for coin at See also:request, the bank so See also:rose in favour that it soon had a See also:note-issue of 6o million livres. Law now gained the full confidence of the regent, and was allowed to proceed with the development of the " system." The trade of the region about the Mississippi had been granted to a speculator named See also:Crozat. He found the undertaking too large, and was glad to give it up. By a decree of See also:August 1717 Law was allowed to establish the Compagnie de la Louisiane ou d'Occident, and to endow it with privileges practically amounting to See also:sovereignty over the most fertile region of See also:North See also:America. The capital was too million livres divided into 200,000 shares of 500 livres. The payments were to be one-fourth in coin and three-fourths in billets d'etat. On these last the government was to pay 3 million livres interest yearly to the See also:company. As the state paper was depreciated the shares fell much below See also:par. The rapid rise of Law had made him many enemies, and they took See also:advantage of this to attack the system. D'Argenson, now See also:head of the council of finance, with the See also:brothers Paris of See also:Grenoble, famous tax farmers of the day, formed what was called the " See also:anti-system." The farming of the taxes was let to them, under an assumed name, for 481- million livres yearly. A company was formed, the exact counterpart of the Mississippi company. The capital was the same, divided in the same manner, but the payments were to be entirely in money. The returns from the public See also:revenue were sure; those from the Mississippi scheme were not. Hence the shares of the latter were for some time out of favour. Law proceeded unmoved with the development of his plans. On the 4th of See also:December 1718 the bank became a government institution under the name of La Banque royale. Law was director, and the See also: All these Soo-livre shares rapidly rose to 750, or 50.% above par. Law now turned his attention to obtaining additional powers within France itself. On the 25th of See also:July 1719 an edict was issued granting the company for nine years the management of the mint and the coin-issue. For this See also:privilege .the company paid 5 million livres, and the money was raised by a new issue of shares of the nominal value of Soo livres, but with a premium of other 500. The See also:list was only open for twenty days, and it was necessary to See also:present four meres and one See also:fine in See also:order to obtain one of the new shares (petites fines). At the same time two dividends per annum of 6% each were promised. Again there was an See also:attempt to ruin the bank by the See also:commonplace expedient of making a run on it for coin; but the conspirators had to meet See also:absolute power managed with fearlessness and skill. An edict appeared reducing, at a given date, the value of money, and those who had with-See also:drawn coin from the bank hastened again to exchange it for the more See also:stable notes. Public confidence in Law was increased, and he was enabled rapidly to proceed with the completion of the system. A decree of 27th August 1719 deprived the See also:rival company of the farming of the revenue, and gave it to the Compagnie des Indes for nine years in' return for an annual payment of 52 million livres. Thus at one See also:blow the " anti-system " was crushed. One thing yet remained; Law proposed to take over the national debt, and manage it on terms advantageous to the state. The mode of See also:transfer was this. The debt was over 1500 million livres. Notes were to be issued to that amount, and with these the state creditors must be paid in a certain order. Shares were to be issued at intervals corresponding to the payments, and it was expected that the notes would be used in buying them. The government was to pay 3% for the See also:loan. It had formerly been See also:bound to pay 8o millions, it would now pay under 50, a clear gain of over 30. As the shares of the company were almost the only medium for investment, the transfer would be surely effected. The creditors would now look to the government payments and the commercial gains of the company for their annual returns. Indeed the creditors were often not able to procure the shares, for each succeeding issue was immediately seized upon, though the 500-livre See also:share was now issued at a premium of 4500 livres. After the third issue, on the 2nd of See also:October, the shares immediately resold at 8000 livres in the See also:Rue Quincampoix, then used as a See also:bourse. They went on rapidly rising as new privileges were still granted to the company. Law had now more than See also:regal power. The exiled Stuarts paid him See also:court; the proudest See also:aristocracy in Europe humbled themselves before him; and his liberality made him the idol of the populace. After, as a necessary preliminary, becoming a See also:Catholic, he was made controller-See also:general of the finances in place of d'Argenson. Finally, in See also:February 1720, the bank was in name as well as in reality united to the company. The system was now See also:complete; but it had already begun to decay. In December 1719 it was at its height. The shares had then amounted to 20,000 livres, See also:forty times their nominal See also:price. A sort of madness possessed the nation. Men sold their all and hastened to Paris to speculate. The See also:population of the capital was increased by an enormous influx of provincials and foreigners. Trade received a vast though unnatural impulse. Everybody seemed to be getting richer, no one poorer. Thosewho could still reflect saw that this prosperity was not real, The whole issue of shares at the extreme See also:market-price valued 12,000 million livres. It would require 600 million annual revenue to give a 5 % See also:dividend on this. Now, the whole income of the company as yet was hardly sufficient to pay 5% on the original capital of 1677 million livres. The receipts from the taxes, &c., could be precisely calculated, and it would be many years before the commercial undertakings of the company—with which only some trifling beginning had been made—would yield any considerable return. See also:People began to sell their shares, and to. buy coin, houses, See also:land—anything that had a stable element of value in . it. There was a rapid fall in the shares, a rapid rise in all kinds of See also:property, and consequently a rapid depreciation of the paper money. Law met these new tendencies by a See also:succession of the most violent edicts. The notes were to See also:bear a premium over specie. Coin was only to be used in small payments, and only a small amount was to be kept in the See also:possession of private parties. The use of diamonds, the fabrication of See also:gold and See also:silver See also:plate, was forbidden. A dividend of 40 % on the original capital was promised. By several ingenious but fallaciously reasoned See also:pamphlets Law endeavoured to restore public confidence. The shares still fell. At last, on the 5th of See also: The rate of interest was , lowered, and the government now only pledged itself to pay 37 instead of 8o millions annually. Finally the bank was abolished, and the company reduced to a See also:mere.trading association. By See also:November the " system " had disappeared. With these last measures Law, it may well be believed, had nothing to do. He See also:left France secretly in December 1720, resumed his wandering life, and died at See also:Venice, poor and forgotten, on the 21st of March 1729. Of Law's writings the most important for the comprehension of the " system " is his Money and Trade Considered. In this work he says that national power and See also:wealth consist in See also:numbers of people, and magazines of home and foreign goods. These depend on trade, and that on money, of which a greater quantity employs more people; but credit, if the credit have a circulation, has all the beneficial effects of money. To create and increase instruments of credit is the See also:function of a bank. Let such be created then, and let its notes be only given in return for land sold or pledged. Such a currency would See also:supply the nation with abundance of money; and it would have many advantages, which Law points out in detail, over silver. The hank or See also:commission was to be a government institution, and its profits were to be spent in encouraging the export and manufacture of the nation. A very evident See also:error lies at the See also:root of the " system." Money is not the result but the cause of wealth, he thought. To increase it then must be beneficial, and the best way is by a properly secured paper currency. This is the See also:motive force; but it is to be applied in a particular way. Law had a profound belief in the omnipotence of government. He saw the evils of See also:minor monopolies, and of private farming of taxes. He proposed to centre foreign trade and See also:internal finance in one huge monopoly managed by the state for the people, and carrying on business through a plentiful supply of paper money. He did not see that trade and commerce are best left to private enterprise, and that such a scheme would simply result in the profits of speculators and favourites. The " system " was never so far developed as to exhibit its inherent faults. The madness of speculators ruined the plan when only its See also:foundations were laid. One part indeed might have been saved. The bank was not necessarily bound to the company, and had its note-issue been retrenched it might have become a permanent institution. As See also:Thiers points out, the edict of the 5th of March 1730, which made the shares convertible into notes, ruined the bank without saving the company. The shares had risen to an unnatural height, and they should have been allowed to fall to their natural level. Perhaps Law See also:felt this to be impossible. He had See also:friends at court whose interests were involved in the shares, and he had enemies eager for his overthrow. It was necessary to succeed completely or not at all; so Law, a gambler to the core, risked and lost everything. Notwithstanding the faults of the " system," its author was a financial See also:genius of the first order. He had the errors of his time; but he propounded many truths as to the nature of currency and banking then unknown to his contemporaries. The marvellous skill which he displayed in adapting the theory of the " system " to the actual See also:condition of things in France, and in carrying out the various financial transactions rendered necessary by its development, is absolutely without parallel. His profound self-confidence and belief in the truth of his own theories were the reasons alike of his success and his ruin. He never hesitated to employ the whole force of a despotic government for the definite ends which he saw before him. He left France poorer than he entered it, yet he was not perceptibly changed by his sudden transitions of See also:fortune. See also:Montesquieu visited him at Venice after his fall, and has left a description of him touched with a certain pathos. Law, he tells us, was still the same in character, perpetually planning and scheming, and, though in poverty, revolving vast projects to restore himself to power, and France to commercial prosperity. The fullest See also:account of the Mississippi scheme is that of Thiers, Law et son systeme des finances (1826, See also:American trans. 1859). See also Heymann, Law and sein System (1853); See also:Pierre Bonnassieux, See also:Les Grandes Compagnies de commerce (1892) ; S. Alexi, John Law and sein System (1885); E. See also:Levasseur, Recherches historiques sur le systeme de Law (1854) ; and Jobez, Une See also:Preface au socialisme, ou le systeme de Law et la See also:chasse aux capitalistes (1848). Full See also:biographical details are given in See also:Wood's Life of Law (Edinburgh, 1824). All Law's later writings are to be found in Daire, Collection des principaux economistes, vol. i. (1843). Other See also:works on Law are: A. W. Wiston-Glynn, John Law of Lauriston (1908); P. A. Cachut, The Financier Law, his Scheme and Times (1856) ; A. Macf.See also:Davis, An See also:Historical Study of Law's System (See also:Boston, 1887) ; A. See also:Beljame, La See also:Pronunciation du nom de See also:Jean Law le financier (1891). See also E. A. Benians in Camb. Mod. Hist. vi. 6 (1909). For minor notices see See also:Poole's See also:Index to See also:Periodicals. There is a portrait of Law by A. S. Belle in the National Portrait See also:Gallery, London. (F. Additional information and CommentsThere are no comments yet for this article.
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