A Scottish libertine named John Law rescued France from certain ruin after the death of Louis XIV, the Sun King who had emptied the treasury. However Law then ruined France a second time by basing prosperity on credit; which in hindsight seems to resemble our present fiasco with asset backed commercial paper and mortgage backed securities. It didn’t work then and it didn’t work….
( see link ) …Opinions of John Law clash dramatically. In one view he is a rake and scoundrel who rescues the French government from a financial crisis only to precipitate financial chaos by printing money unsupported by equity and embroiling the French in the Mississippi swindle. In another view he introduces modern economic concepts, including the stock market, and changes the spending practices of businesses and families by inventing credit. He describes all this in “Money & Trade Considered, with a Proposal for Supplying the Nation with Money.” Read More:http://www.britsattheirbest.com/ingenious/ii_18th_century_1700.htm
Law now revealed the second part of his great project which he always referred to simply as “the system.” More generally, it was called “the mississippi.” To provide a commercial base for his bank, to pay its dividends, he created a great holding company, the Compagnie des Indes, which obtained the monopoly of French seagoing trade and of the tobacco business, the operation of the royal mint, and the ownership and exploitation of the Mississippi Valley, from Canada to the Gulf. At the same time, the company took over the collection and administration of taxes. Thus a giant corporation did the business of the state, and to some extent replaced it. An authority, we might call it today. A combo IRS, Federal Reserve Bank and para-public monopoly on trade.
France bubbled with joy and confidence. The old vexatious system of tax farming- by which the right to collect taxes was sold to the highest bidder, who would then mercilessly persecute the taxpayers- was abolished, and most of the tax collectors discharged from their functions. Law planned to substitute a single tax on land for the whole clumsy tax structure. He remitted fifty-two million francs in taxes and annulled internal customs duties on food and fuel. He undertook social services, building hospitals and decreeing free tuition at the University of Paris. He proposed to seize the immense properties of the church and distribute to the poor.
To Americans, a fascinating feature of the System is the colonization of the Mississippi basin. Emigrants were lured by extravagant tales of mountains filled with gold, silver and even emeralds which could be had from the welcoming and civilized natives in exchange for knives, saucepans, looking glasses or flasks of brandy and other alcoholic drinks. A returning official named Cadillac denounced the publicity as dishonest humbug and was promptly jailed. When volunteers held back , vagabonds and prostitutes, as well as the insane were shipped out from Paris.
Law’s agents founded New Orleans, named for the regent; and had the System endured, Law might have created a New France, joined to Canada, strong enough to bar the advance of the English colonists beyond the Appalachians.
Law paid for these activities and privileges by issuing additional shares in the company. These shares could be paid for with bank notes (from his bank) or with government debt.
The value of shares in the Mississippi Company rose dramatically as Law’s empire expanded. Investors from across France and Europe eagerly played in this new market. The financial district in Paris became so agitated at times with investors that soldiers would be sent in at night to maintain order. Shares in the Mississippi Company started at around 500 livres tournois (the French unit of account at the time) per share in January 1719. By December 1719, share prices had reached 10,000 livres, an increase of 1900 percent in just under a year. The market became so seductive that people from the working class began investing whatever small sums they could scrape together. New millionaires were commonplace. Read More:http://mshistory.k12.ms.us/articles/70/john-law-and-the-mississippi-bubble-1718-1720