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Portrait: John Law, a Scottish-French economist and financier

Wednesday, 26 March 2025 - 11:00 am (CET/MEZ) Berlin | Author/Destination: Editorial / Redaktion
Category/Kategorie: Portrait Reading Time:  6 minutes

🔊 Listen to this Post John Law was a Scottish-French economist and financier. He served as Controller General of Finances under Philippe II, Duke of Orléans, who was regent for the juvenile Louis XV of France, and promoted a novel financial scheme for French public finances known as Law’s System (French: le système de Law) with two institutions at its core, John Law’s Bank and John Law’s Company.

Whereas Law’s System unquestionably ended in failure as a monetary framework, it had lasting influence as an early experiment in fiat money. Its soundness remains debated, with some analysts maintaining that it was not fundamentally flawed. Whereas the Mississippi company ended in bankruptcy, whether the collapse of Law’s System represented an episode of sovereign default is ambiguous, given that France’s debt situation was largely unchanged.

Law urged the establishment of a national bank to create and increase instruments of credit and the issue of banknotes backed by land, gold, or silver. The first manifestation of Law’s System came when he had returned to Scotland and contributed to the debates leading to the Treaty of Union 1707. He wrote a pamphlet entitled Two Overtures Humbly Offered to His Grace John Duke of Argyll, Her Majesties High Commissioner, and the Right Honourable the Estates of Parliament (1705) which foreshadowed the ideas he would propose for establishing new systems of finance, paper money and refinancing the national debt in a subsequent tract entitled Money and Trade Considered: with a Proposal for Supplying the Nation with Money (1705). Law’s propositions of creating a national bank in Scotland were ultimately rejected, and he left to pursue his ambitions abroad. Law spent ten years moving between France and the Netherlands, dealing in financial speculations. He had the idea of abolishing minor monopolies and private farming of taxes. He would create a bank for national finance and a state company for commerce, ultimately to exclude all private revenue. This would create a huge monopoly of finance and trade run by the state, and its profits would pay off the national debt.

John Law’s system, first endorsed by the Regent Philippe d’Orléans in May 1716 and developed from then in increasing ambitious stages until 1720, rested on the expansion of monetary supply through the creation of fiat money and a complete overhaul of the French state’s revenue collection, coinage and borrowing, all of which were centralized in Law’s Company. Along the way, Law’s Company absorbed all French colonial trading companies which had developed in fits and starts over the previous century, and started an unprecedented colonization of its own in Louisiana with the foundation of New Orleans in 1718. It was renamed the Compagnie des Indes (Indies Company) in 1719, and in February 1720 absorbed the bank that Law had initially established in May 1716.

Law’s social standing rose with his financial heft. On 17 September 1719, he converted to Catholicism in the low-profile convent of the Recollects in Melun. On 2 December 1719, he was elected an honorary member of the Royal Academy of Sciences. The Regent then appointed Law as Controller-General of Finances on 5 January 1720, effectively giving him control over external and internal commerce. As Controller-General, Law instituted many reforms, some of which had lasting effects, while others were soon abolished. He tried to break up large land-holdings to benefit the peasants; he abolished internal road and canal tolls; he encouraged the building of new roads, the starting of new industries (even importing artisans but mostly by offering low-interest loans), and the revival of overseas commerce — and indeed industry increased by 60 per cent in two years, and the number of French ships engaged in export went from 16 to 300.

The system started to unravel in 1720 as price inflation started to surge. Law sought to hold the Indies Company’s share price at 9,000 livres in March 1720, and then on 21 May 1720 to engineer a controlled reduction in the value of both notes and the shares, a measure that was itself reversed six days later. As the public rushed to convert banknotes to coin, Law was forced to close the Banque Générale for ten days, then limit the transaction size once the bank reopened. On 29 May 1720, Law was dismissed as Comptroller-General of Finances. The queues grew longer, the Indies Company’s stock price continued to fall, and food prices soared by as much as 60 per cent. At the end of 1720, the Regent eventually dismissed Law as Controller General and as head of the Indies Company.

Read more on Wikipedia John Law (Smart Traveler App by U.S. Department of State - Weather report by weather.com - Global Passport Power Rank - Travel Risk Map - Democracy Index - GDP according to IMF, UN, and World Bank - Global Competitiveness Report - Corruption Perceptions Index - Press Freedom Index - World Justice Project - Rule of Law Index - UN Human Development Index - Global Peace Index - Travel & Tourism Competitiveness Index). Photos by Wikimedia Commons. If you have a suggestion, critique, review or comment to this blog entry, we are looking forward to receive your e-mail at comment@wingsch.net. Please name the headline of the blog post to which your e-mail refers to in the subject line.

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