Law, John

Law, John,

1671–1729, Scottish financier in France, b. Edinburgh. After killing a man in a duel (1694) he fled to Amsterdam, where he studied banking. Returning to Scotland (1700), he proposed to Parliament plans for trade and revenue reforms and published Money and Trade Considered (1705). His ideas and a proposal for a national bank were rejected, and Law went to France. The finances of France were in critical condition at the death of King Louis XIV, and Law succeeded in winning the support of the regent, Philippe II, duc d'OrléansOrléans
, family name of two branches of the French royal line.

The house of Valois-Orléans was founded by Louis, duc d'Orléans (see separate article), whose assassination (1407) caused the civil war between Armagnacs and Burgundians.
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, for a scheme that promised to reduce the public debt and stimulate French trade and industry. Law believed that credit and paper money, by encouraging investment, would regenerate the French economy. In 1716 the regent chartered Law's private Banque générale and authorized it to issue paper currency. In 1717, Law acquired the monopoly of commercial privileges in the French colony of Louisiana and organized the Compagnie d'Occident, or Mississippi Company, which was consolidated (1719) with the French East India Company and other organizations as the Compagnie des Indes.

The Banque générale was made the royal bank in 1718, and its issues of notes were guaranteed by the state. Finally (1720), Law, made controller general of finances, merged the huge stock company with the royal bank and took over most of the public debt and the administration of revenue. A rash of speculation swept France. Numerous small investors bought stock, which soared to heights far beyond what could be expected in returns from the exploitation of the colonies (see Mississippi SchemeMississippi Scheme,
plan formulated by John Law for the colonization and commercial exploitation of the Mississippi valley and other French colonial areas. In 1717 the French merchant Antoine Crozat transferred his monopoly of commercial privileges in Louisiana to Law, who, with
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) and from trade with Asia. The bubble burst suddenly. Well-informed speculators sold their stock at huge profits, setting off a frenzy of selling that ruined thousands of investors. The system collapsed (1720), and Law fled France in disgrace. He died in Venice, where he had supported himself by gambling.

The dizzy speculation caused by Law's system greatly helped to discredit the regency and the idea of a national bank. Although the immediate results of Law's schemes were disastrous, colonial enterprise received a lasting stimulus. His monetary theories have found defenders among later economists.

Bibliography

See biographies by H. M. Hyde (rev. ed. 1969) and J. Gleeson (2000).

Law, John

 

Born Apr. 21, 1671, in Scotland; died Mar. 21, 1729, in Venice. Scottish financier.

Law established what is referred to as the Law system, which was based on the issue of unbacked paper money. Believing that paper money in and of itself has a certain value, Law stated that intensive issuing of such currency would have a favorable effect on business activity and the growth of national wealth. Law’s proposition found support in the court circles of France, which was then on the brink of financial disaster. In 1716 a private bank was established (it was converted into a state bank in 1718), the currency of which was guaranteed in the king’s name, and Law became minister of finance of France. However, as a result of excessive issuing of paper currency not backed by gold or silver, the state bank went broke in 1720, and Law fled abroad. Law’s system played a role in the creation of the concepts of the Physiocrats. “The emergence of Physiocracy was connected both with opposition to Colbertism and, in particular, with the hullabaloo over the John Law system” (K. Marx, see Marx and F. Engels, Soch, 2nd ed., vol. 26, part 1, p. 31).

WORKS

Oeuvres complètes, vols. 1–3. Paris, 1934. (Published by P. Harsin).

REFERENCE

Anikin, A. V. lunost’ nauki Moscow, 1971.

V. I. NEZNANOV

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