John Law (1671 April 21 - 1729 March 21) was a Scottish economist who believed that money was only a means of exchange that did not constitute wealth in itself, and that national wealth depended on trade. He is said to be the father of finance, responsible for the adoptation or use of paper money or bills in the world today.

Law was a gambler and a brilliant mental calculator, and was known to win card games by mentally calculating the odds. An expert in statistics, he was the originator of economic theories, including two major ideas: 'The Scarcity Theory of Value' and 'The Real Bills Doctrine of Money'.

Biography

On April 9, 1694 John Law fought a duel with Edward Wilson. Wilson had challenged Law over the affections of Elizabeth Villiers (later Countess of Orkney). Wilson was killed and Law was tried and found guilty of murder and sentenced to death. His sentenced was commuted to a fine, upon the ground that the offence only amounted to manslaughter. Wilson's brother appealed and had Law imprisoned but he managed to escape to the continent.

Law urged the establishment of a national bank to create and increase instruments of credit, and the issue of paper money backed by land, gold, or silver. He had the almost socialist idea of abolishing minor monopolies and private farming of taxes and creating a bank for national finance and a state company for commerce and ultimately 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. The Conseil des Finances , merchants, and financiers objected to this plan.

In 1716 Banque Générale ("General Bank") was set up by Law. It was a private bank, but ¾ of the capital consisted of government bills and government accepted notes. In August 1717, he bought the Mississippi Company, to help the French colony in Louisiana. In the same year Law floated the Mississippi Company as a joint-stock trading company called the Compagnie d'Occident which was granted a trade monopoly of the West Indies and North America. The bank became the Royal bank (Banque Royale ) in 1718, meaning the notes were guaranteed by the king. The Company absorbed the Compagnie des Indes Orientales, Compagnie de Chine , and other rival trading companies and became the Compagnie Perpetuelle des Indes in 1719. In 1720 the bank and company were united and Law was appointed Controller General of Finances to attract capital. Law's pioneering note-issuing bank was extremely successful until it collapsed and caused an economic crisis in France and Europe.

Law exaggerated the wealth of Louisiana with an effective marketing scheme, which led to wild speculation on the shares of the company in 1719. In February 1720 it was valued for a very high future cash flow at 10,000 livres . Shares rose from 500 livres in 1719 to as much as 15,000 livres in the first half of 1720, but by summer of 1720, there was a sudden decline in confidence, leading to a 97% decline in market cap by 1721. By the end of 1720 Philippe II of Orléans dismissed Law, who then fled from France. Law died a poor man in Venice in 1729.

External links

• John Law
• Project Gutenberg Edition of Fiat Money Inflation in France: How ...