When Louis XIV died in 1715 after a 72-year reign, he left France culturally dominant but financially ruined. The royal accountants discovered a national debt of roughly 3 billion livres, while annual tax revenue stood at only about 145 million livres. Interest payments alone consumed nearly all government income, paralyzing trade and crushing the peasantry under taxes. The new king, Louis XV, was only five years old, leaving the Duke of Orléans as regent to confront a kingdom that was hopelessly insolvent.
Desperate for a solution beyond the usual medieval remedies of bankruptcy or currency debasement, the regent turned to an unlikely savior. John Law was a Scottish gambler, a fugitive who had fled London decades earlier after killing a romantic rival in a duel. But Law was also a self-taught economist with a radical theory: money was not wealth itself, but merely the medium by which wealth was exchanged. France, he argued, was suffering from a severe deflationary crisis—there simply were not enough gold and silver coins circulating to facilitate trade.
In May 1716, Law established the Banque Générale, the first central bank in French history. He issued paper banknotes, promising they were fully backed by gold and silver and redeemable at any time. Because Law guaranteed his notes would hold a fixed weight of silver—unlike official coins, whose value fluctuated with government whims—merchants quickly came to prefer paper. Trade thawed, taxes flowed, and the regent was delighted.
This was only the first phase. To absorb the mountain of government debt, Law needed a vehicle. He turned to Louisiana, France’s vast North American territory stretching from the Gulf of Mexico to Canada. In 1717, the regent granted Law a trading monopoly over the region, and Law formed the Company of the West, later known as the Mississippi Company.
The deal was simple: the company would develop Louisiana, find gold and silver mines like those the Spanish had discovered in Mexico, and establish profitable plantations. To attract investors, Law launched an aggressive propaganda campaign. Beautiful engravings depicted Louisiana as a garden of Eden, with docile natives offering gold and emeralds to settlers. The reality—a swampy, fever-ridden wilderness—was concealed.
Law priced the first shares at 500 livres each, but allowed investors to pay with government debt bonds, which were trading at a fraction of their face value because the crown could not pay interest. The offer was irresistible: worthless government paper for a share of a company that supposedly owned half of America. The first issue sold out immediately. Law then merged his bank with the company and used the printing presses to lend investors paper money at low interest rates, specifically so they could buy more shares.
The loop was self-reinforcing: printed money bought shares, buying pressure pushed prices up, and rising prices attracted more borrowers. By 1719, Paris had descended into madness. A single share, originally 500 livres, smashed through 1,000, then 2,000, then 5,000. The center of the frenzy was the Rue Quincampoix, a narrow street that became the Wall Street of the 18th century.
Guards had to clear the crowds at night. Aristocrats, soldiers, servants, and priests screamed prices at each other in the mud. One legend tells of a hunchback who made a fortune renting out his back as a writing desk. Another tells of a woman who deliberately crashed her carriage near Law’s dinner table just to speak with him about shares.
Servants became richer than their masters. The word “millionaire” was coined to describe them. By late 1719, the share price hit 10,000 livres, and the company was valued at more than all the gold and silver in Europe. Law was appointed controller general of finances, effectively running the entire French economy.
On paper, he had saved France: the crippling national debt had vanished, converted into Mississippi shares. But the hype was moving faster than reality. Louisiana was a disaster, and Law needed to show progress. He swept the prisons of Paris, chaining up thieves, murderers, and debtors to be shipped to America.
He rounded up prostitutes and homeless women and forced them to marry the prisoners before dragging them onto the ships. It is estimated that fewer than 20 percent of those sent survived the journey and conditions in the colony. The Garden of Eden was a graveyard. Law suppressed reports from the colony, censored letters, bribed newspaper editors, and kept the presses running.
But a bubble relies entirely on faith. In late 1719, the smart money began to exit. Wealthy investors sold their shares at the peak and demanded gold from the bank. When the Prince de Conti sent three wagons to the bank demanding gold for his paper notes, Law paid him but was terrified.
Law fought the market with tyranny. He convinced the regent to ban the export of gold, then to make it illegal for any citizen to own more than 500 livres in coin. Police conducted warrantless searches of homes, and informants were rewarded for betraying neighbors and masters who hid gold. Servants denounced employers; brothers denounced brothers.
Finally, Law banned the manufacturing and selling of gold jewelry and silverware entirely, trying to erase precious metals from French consciousness. The terror briefly worked, but it created hyperinflation. With gold banned and paper flooding the streets, prices of real goods skyrocketed. Bread doubled, then tripled in cost.
Millionaires found their paper fortunes could barely buy dinner. Law tried to stabilize the stock by pegging it: the bank would buy any share for 9,000 livres. This meant printing infinite money to buy worthless stock. The presses ran day and night, and the money supply exploded.
On May 24, 1720, Law issued the infamous Edict of May. It announced that share values would be reduced from 9,000 to 5,000 livres over the coming months, and that paper banknotes would be cut in half. Law saw this as a controlled landing. The public saw it as theft.
Trust evaporated instantly. Paris exploded in mob violence, with crowds screaming for Law’s head. The regent was forced to revoke the edict just six days later, but the spell was broken. Law was stripped of his title and placed under house arrest in the Palais-Royal.
The system entered a death spiral. The bank stopped converting paper to coin entirely, and the share price crashed from 9,000 to 5,000, then to 2,000. On July 17, 1720, a massive crowd gathered outside the bank, desperate to convert paper notes into coins to buy bread. In the crush, fifteen people were trampled or suffocated to death.
The mob carried the bodies of three victims to the Palais-Royal, holding the corpses up to the windows and screaming, “Behold the fruit of your system. ” The ten-year-old King Louis XV saw his subjects waving dead bodies at him. It was the closest France had come to revolution in centuries. In December 1720, a secret arrangement was made: Law would not be executed, but exiled.
Under cover of darkness, he slipped out of the palace with his son, carrying only a few hundred gold coins and a single diamond ring. He crossed into Brussels and never set foot in France again. The cleanup was brutal. The government ordered everyone holding paper money or company shares to bring them for inspection.
A tribunal known as the Visa investigated over half a million households, confiscating wealth from those deemed profiteers and giving honest investors government bonds worth a tiny fraction of their losses. The process culminated in a massive bonfire in the Place Vendôme, where billions of livres of Law’s banknotes were burned before a cheering crowd. The immediate depression was severe, but the long-term damage was worse. The trauma of 1720 poisoned French finance for generations.
The French developed a deep cultural hatred of paper money, stock markets, and central banks. While Britain refined its financial system, borrowing cheaply to build the Royal Navy and fuel the Industrial Revolution, France hoarded gold under floorboards and refused to create another central bank for eighty years. This financial backwardness proved lethal for the monarchy. Throughout the 18th century, France fought expensive wars against Britain.
Britain borrowed from its own people through a trusted central bank; France squeezed the peasants with taxes because no one trusted the king’s credit. By 1789, the crown was bankrupt again. King Louis XVI tried to raise taxes, and the people refused. The result was the French Revolution.
In a very real sense, the guillotine that severed Louis XVI’s head was sharpened by Law’s failure seventy years earlier. John Law spent his final nine years as a wanderer. He went to London, then Munich, and finally Venice, living in a small rented apartment and gambling in casinos for small stakes. He never stopped believing in his system, writing letters to the French government insisting his ideas were sound.
They never replied. In 1729, Law caught pneumonia and died poor and alone in Venice. His epitaph, written by a sarcastic French poet, read: “And here lies that celebrated Scotsman, that peerless calculator who by the rules of algebra sent France to the poor house. ”
Law was not a con man in the traditional sense.
He was a visionary who was right about the future—the world eventually did move to paper money, central banks, and credit economies. His mistake was ignoring human nature. He treated the economy like a laboratory experiment, pushing it until it exploded. The Mississippi bubble remains the ultimate cautionary tale of financial hubris, a reminder that when the line between investment and gambling blurs, disaster is inevitable.
France recovered, but the scars never truly healed.