John Law Reinvented French Money in 1716 and Bankrupted the Country by 1720

John Law was a Scottish economist, gambler, and convicted murderer who, between 1716 and 1720, talked the French Regency into letting him reinvent the country's monetary system. He founded the Banque Générale in 1716 and persuaded the state to make its paper notes legal tender. He merged his Mississippi Company with the East India and China companies in 1719 to monopolize French overseas trade. By the end of that summer he was, simultaneously, controller-general of finances, head of the central bank, head of the royal mint, and the largest joint-stock company in Europe.

The share price tells the story. Shares traded near their 500-livre face value through mid-1719. They hit 750 in June, 1,000 in July, 3,000 in August, and eventually peaked near 10,000 livres before the end of the year. Demand for shares created demand for currency to buy them, and Law's bank kept printing paper to oblige. By January 1720, monthly inflation in Paris was around 23 percent.

The collapse, when it came, was symmetrical. The price fell to 2,000 livres in September 1720, to 1,000 in December, and back to its 500-livre origin by September 1721. Law was dismissed by Philippe d'Orléans, fled France for Brussels and then Venice, and lived out his last years gambling. The French state eventually paid 514 million livres in indemnities to ruined shareholders, and France did not seriously attempt paper money again for three generations.