A.D. 1716
LOUIS ADOLPHE THIERS
Known under the various titles of the "Mississippi Scheme," the "Mississippi Bubble," and the "System," the financial enterprise originated by John Law, under authority of the French government, proved to be the most disastrous experiment of the kind ever made by a civilized state.
Louis XIV ended his long reign in 1715, leaving his throne to his great-grandson, a child of five years, Louis XV. The impoverished country was in the hands of a regent, Philippe, Duke of Orléans, whose financial undertakings were all unfortunate. John Law, the son of a Scotch banker, was an adventurer and a gambler who yet became celebrated as a financier and commercial promoter. After killing an antagonist in a duel in London, he escaped the gallows by fleeing to the Continent, where he followed gaming and at the same time devised financial schemes which he proposed to various governments for their adoption. His favorite notion was that large issues of paper money could be safely circulated with small security.
Law offered to relieve Orléans from his financial troubles, and the Regent listened with favor to his proposals. In 1716 Law, with others, organized what he called the General Bank. It was ably managed, became popular, and by means of it Law successfully carried out his paper-currency ideas. His notes were held at a premium over those of the government, whose confidence was therefore won. Two years later Law's institution was adopted by the state and became the Royal Bank of France. The further undertakings of this extraordinary "new light of finance," the blowing and bursting of the great "bubble," are recorded by Thiers, the French statesman and historian, himself eminent as his country's chief financier during her wonderful recovery after the Franco-German War.
Law was always scheming to concentrate into one establishment his bank, the administration of the public revenues, and the commercial monopolies. He resolved, in order to attain this end, to organize, separately, a commercial company, to which he would add, one after another, different privileges in proportion to its success, and which he would then incorporate with the General Bank. Constructing thus separately each of the pieces of his vast machine, he proposed ultimately to unite them and form the grand whole, the object of his dreams and his ardent ambition.
An immense territory, discovered by a Frenchman, in the New World, presented itself for the speculations of Law. The Chevalier de la Salle, the famous traveller of the time, having penetrated into America by Upper Canada, descended the river Illinois, arrived suddenly at a great river half a league wide, and, abandoning himself to the current, was borne into the Gulf of Mexico. This river was the Mississippi. The Chevalier de la Salle took possession of the country he had passed through for the King of France, and gave it the beautiful name of Louisiana.
There was much said of the magnificence and fertility of this new country, of the abundance of its products, of the richness of its mines, which were reported to be much more extensive than those of Mexico or Peru. Law, taking advantage of this current of opinion, projected a company which should unite the commerce of Louisiana with the fur trade of Canada. The Regent granted all he asked, by an edict given in August, 1717, fifteen months after the first establishment of the bank.
The new company received the title of the "West Indian Company." It was to have the sovereignty of all Louisiana on the condition only of liege homage to the King of France, and of a crown of gold of thirty marks at the commencement of every new reign. It was to exercise all the rights of sovereignty, such as levying troops, equipping vessels-of-war, constructing forts, establishing courts, working mines, etc. The King relinquished to it the vessels, forts, and munitions of war which belonged to the Crozat Company,[27] and conceded, furthermore, the exclusive right of the fur trade of Canada. The arms of this sovereign company represented the effigy of an old river-god leaning upon a horn of plenty.
Law revolved in his mind many other projects relating to his Western company. He spoke, at first mysteriously, of the benefits which he was preparing for it. Associating with a large number of noblemen, whom his wit, his fortune, and the hope of considerable gains attracted around him, he urged them strongly to obtain for themselves some shares, which would soon rise rapidly in the market. He was himself soon obliged to buy some above par. The par value being five hundred francs, two hundred of them represented at par a sum of one hundred thousand francs. The price for the day being three hundred francs, sixty thousand francs were sufficient to buy two hundred shares. He contracted to pay one hundred thousand francs for two hundred shares at a fixed future time; this was to anticipate that they would gain at least two hundred francs each, and that a profit of forty thousand francs could be realized on the whole. He agreed, in order to make this sort of wager more certain, to pay the difference of forty thousand francs in advance, and to lose the difference if he did not realize a profit from the proposed transfer.