Having Sparked the First International Stock-Market Boom, John Law Had Also Sparked the First International Bust

In an ironic reversal of the concept of the philosopher’s stone (the substance by which it was believed gold could be made from base metal), he founded the first national bank of issue in France that made money from paper on a previously unknown scale to revive the ailing economy. He formed the most powerful conglomerate the world had yet seen—the Mississippi Company—and encouraged unprecedented numbers of private investors to dabble in its shares. Once initial hesitation had been banished, investors from England, Germany, Holland, Italy, and Switzerland stampeded to Paris to play the markets, and share prices rose from 150 livres to 10,000 in a matter of months. In comparison, the best bull markets of the twentieth century, between 1990 and 1999, when the Dow Jones rose by 380 percent and the Nasdaq by 790 percent, seem paltry. Law sparked the world’s first major stock-market boom, in which so many made such vast fortunes that the word “millionaire” was coined to describe them. Almost overnight he had become rich beyond expectation, a heroic figure, fêted throughout Europe, and promoted in recognition of his achievement to the position of France’s financial controller—the most powerful public position in the world’s most powerful nation.

Pioneers, so they say, usually end up with arrows in their backs. In Law’s case, enemies, inexperience, greed, and destiny conspired against his unconventional genius. The idea that money could be made from speculation rather than drudgery was printed indelibly on the popular consciousness. But having made their fortunes, many began to look for alternative investments, or to feel that paper was no long-term substitute for more traditional, tangible assets. When speculators began to cash in shares and withdraw paper funds to buy estates, jewels, or gold, or to speculate in other escalating foreign share markets, Law, hampered by jealous rivals, was unable to hold back the tide and the stock plummeted as rapidly as it had risen. People who rushed to the bank to convert paper back into coin found insufficient reserves and were left holding an asset that had become virtually worthless.

Over half a million people, equivalent to two-thirds of the entire population of the city of London at the time, claimed to have lost out as a result of John Law. Having sparked the first international stock-market boom, he had also sparked the first international bust. As loudly as he had been lauded a financial savior months earlier, he was branded a knave and ignobly demoted. Sadder, wiser, immeasurably poorer, he spent the rest of his life unsuccessfully trying to convince the world of his integrity, and that the idea behind his schemes was sound. His fall cast long shadows. It was eighty years before France dared again to try to introduce paper money to its economy. For years afterward history judged Law harshly. In the story of money, the chapter on his life embodies the perils of paper, the monumental significance of his economic foresight largely negated by his ultimate failure.

--Janet Gleeson, introduction to Millionaire: The Philanderer, Gambler, and Duelist Who Invented Modern Finance (New York: Simon and Schuster, 1999), e-book.