In 1716, France was plagued by crippling government debts and currency shortages. To solve the crisis, the French Regent turned to John Law, a Scottish gambler and finance wizard who proposed using paper currency to jumpstart the economy. With the Regent’s blessing, Law established a bank and began issuing paper notes that were supposedly redeemable in hard currency such as gold and silver. A year later, he formed the Mississippi Company, a trading venture that was given a monopoly over France’s Louisiana territory and its rumored deposits of gold. Law began selling stock in the company in exchange for government backed bonds and paper notes, and public interest quickly reached a fever pitch. Over less than a year, the price shot up from 500 livres to 18,000.
Law’s scheme initially boosted the economy and made many people wealthy, but his Mississippi Company never succeeded in finding riches in the Americas. His bank also overprinted paper money to meet the public’s demand to buy stock, which sent inflation soaring. The whole system came crashing down in 1720, after suspicious investors went to redeem their paper notes and found there was only enough gold in France to cover a fraction of their claims. Bank runs ensued, and the value of Mississippi Company shares plummeted. Many new millionaires were pauperized over night. Law, meanwhile, was forced to flee the country in disguise out of fear for his life. Continue Reading from History
