It was the early 18th Century in France. The death of the regent, King Louis XIV, in 1715, saw him leave behind a ruined economy. He had been an extravagant king, imprudent about the economics of running a country. He’d spent recklessly on the Versailles Palace, and add to this the Franco Dutch war had led to the nation being steeped in massive debt, of three billion livres with an annual income of 145 million livres against an expenditure of 142 million livres.
This left only three million livres to pay the massive 220 million livre interest on the royal debt. This dismal scenario had the billets d’etat (the equivalent of modern treasury bills) and billets de monaie (floating and war debt) being traded at a massive discount which went to almost 80 per cent of their face value.
In a vain bid to tackle this, taxes were exorbitant. The country was bankrupt. Into this dismal scenario, entered a Scotsman, John Law, and he is the legend that this column will speak about.
It was a strange quirk of fate that led a Scotsman to France. John Law was born in Edinburg in 1671, into a respectable family. His father was a banker and a goldsmith, and the young John Law was inducted into his father’s firm at the age of 14, and worked for three years with his father to learn the basics of banking. He had an extraordinary mind for numbers, and quickly grasped the principles of banking. His father passed away in 1688, and Law decided that perhaps, this was the right time for him to step out into the world.
With the financial security provided by his estate Lauriston, inherited from his father, he withdrew from the banking business and went to London to make his fame and fortune. In London, however, he fell into disreputable company and began putting his mathematical skills to use at gambling houses.
Initially, luck favoured him and he made so much money that those around observed his moves and copied them in the hope of making the money he did. Sadly though, he began taking higher and higher bets, betting his money injudiciously and soon wagered so big as to lose his entire estate.
He also saw his luck run out on his personal front, a romantic dalliance with an unnamed woman led to the challenge of a duel for her affections. As luck would have it, Law shot his opponent dead on the spot and was arrested for murder. He was sentenced to death, a sentence passed on the very same day that he was arrested but providentially for him, his sentence was converted to a fine and he managed to escape imprisonment by the skin of his teeth.
(To be continued in the next column.)
- Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay, 1841
- John Law and the Mississippi Bubble – 300 Years Later: Mises Wire, Mises Institute. Mises.org
- History of Hard Money: The Mississippi Bubble, Vaulted.com
Kirit Manral is a professional trader, and has been running a mentorship program in trading since 2019, with mentees from around the globe. He can be found on Twitter at @KiritManral