The Crime Book

100

See also: Charles Ponzi 102–07 ■ Bernie Madoff 116–21

I

n 1705, Scottish economist John

Law proposed major reforms to

the Scottish banking system to

reduce public debt and stimulate the

economy. These included the use of

paper currency as money instead of

gold. Law’s theory was rejected, but

in 1716, the Duke of Orléans, regent

for the young King Louis XV, invited

him to try it in France, which was

near bankruptcy.

Law founded a national bank

which accepted gold and silver

deposits and issued banknotes

in return. In 1717, he created a

company with exclusive rights to

develop France’s US territories

in the Mississippi River valley;

by 1719, the company controlled

all of the country’s colonial trade.

He then undertook a radical

restructuring of France’s debt. He

devised the “Mississippi Scheme”,

selling shares in his company, the

value of which he had greatly

exaggerated, in exchange for state-

issued public securities. Investors

flocked to buy shares, and their

price rose sharply: issued at

500 livres tournois each (about

£2,000 today), a year later, they

were worth 20 times as much. The

value of the securities grew too.

The scheme led to wild speculation,

and stock markets across Europe

boomed. The French authorities

responded by printing money, but

this caused rampant inflation and

a loss in the value of currency and

securities. In 1720, the value of the

Mississippi stock plunged, causing

a major financial crash. Law fled to

Venice, where he died in poverty

nine years later. ■

IN CONTEXT

LOCATION

France

THEME

Financial bubble

BEFORE

1630s At the height of “tulip

mania” in the Dutch Republic,

speculators trade tulip bulbs

for huge sums of money, until

the market folds overnight.

1720 The British South Sea

Company, which trades with

Spanish America, takes over

Britain’s national debt. But it,

and its shares, collapse, and

thousands of people of all

classes are ruined.

AFTER

1849 William Thompson

commits a series of scams on

strangers in the streets of New

York City. His exploits lead a

newspaper journalist to coin

the term “Confidence Man”

or “con man” for short.

There are good reasons to

think that the nature of money

is not yet rightly understood.

John Law

MONEY... HAS OFTEN

BEEN A CAUSE OF THE

DELUSION OF

MULTITUDES

THE MISSISSIPPI SCHEME, 1716–20

100-101_Mississippi_James_Fisk.indd 100 13/01/2017 15:10