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ick here for Full Issue of EIR Volume 15, Number 3, January 15,
1988
1988 EIR News Service Inc. All Rights Reserved. Reproduction in
whole or in part without permission strictly prohibited.
Meet Joh Law: auor of eMissisippi Bubble 'recoveby Nancy
Spannaus
If the reators of todays huge bubble of nanal paper feltte need
of a model for hat they were about to do, t s lkelythat they tued
to the story of the most famous ue-reator of all, Sotsman John Law.
Law s vewed alteateyas the "father of paper money a "nanal genus,
and oneof the bggest swndlers of all tme. Insane as they may behs
emulators learly beleve that he was successful.
As we revew the hstory of Law's taeover of the -nanes of the
naton of France n the early 18th century wesuggest that you note
the parallels wth the ourse of the"reovery over the past ve years.
Could t be that thesponsors of John Law are the drect anestors of
those whohave produced our urrent nancal "mrale?
Crating the Mississippi BubbleThe years between 1716 and 1720 n
France wtnessed a
legendary nrease n the nanal founes of that naton
only to onlude wth a crash whh brought t lose to na-tonal run.
The last perod of that "recovery s nown as theMsssspp Bubble but
that was only the ulmnaton of apress whereby lunacy had already
aken over Frane'snanes.
The author of ths "recovery was a wellnown gamblerby the name of
John Law. At the begnnng of 1716 Lawwas just an ndependently
wealthy "gentleman who hadnally reeved permsson to set up a prvate
ban wth theright to ssue bank notes. At the onluson, Law had
becoeFrane's hghest nanal ocer the Comptroller Generalwth the power
to ollet all taxes and regulate the nanes
of the entre naton.Law reeved hs rght to establsh a prvate bank
n 17 16
hrough the poltal nuene of the Duke of Orleans, thenregent for
the nfant Kng of Frane. Law had rst sought therght to set up a
natonal bank wth the rght to manage trade,collet taxes, and ssue
paper money, but the Counl of Statedened ths extraordnary request.
Its grantng of the rght tossue lmted amounts of paper money to
Law's private banwas unusual enogh n a perod where onage and sewere
the normal means of payment.
In 1717 Law's ban notes beame usable n paying taxes
8 Eonoms
and dutes. By 1718 Law h sueeded n gettng the lmtso s ssane of
aper money removed, and hs bank tuednto a state ank. At that tm, he
had the perfet opportuntyto mlement hs "theory tht the wealth of
the naton wouldnrease n proporton to the amount of credt whh was
putnto rulaton. Te stage as set for the huge expanson ofpaper.
Law's nreasng power were related to the fat that heaepted
greatly devalued govement paper as part of theaptal for hs
ventures, prmsng to mae t worthwhleonce agan. Wth ths foot i the
door he receved anotherconcesson n 1717the rht to form a Company of
Lou-sana or sssspp Company wth full rghts to trade anddevelopment n
that Frenh olony.
Immedately Law proceeded to onentrate on buldngthe founes of the
Mssssp Company. One of hs majorbenefators was the press of the day
whh began to publsh
stores about the untapped rhes of the Msssspp Valleyn an effo to
both encourae nvestment and rerut olo-nsts to go and "harvest ths
wealth. The stores ranged fromunbelevable to fantastc, ut they d
sueed n rapdlynreasng the pre of the stocs of the ompany.
In tandem wt the nresed subsrptons, Law steadlyexpanded the
ompany's sures of wealth wthn France.He purhased frm the govement
the tobao monopoly,the right to mne salt and eentually the prvlege
of collet-ng all taxes pad drectly to e xhequer. He also
expandednteatonal onessons ludng the slave tade so thatby d1719 he
had a vrtul monopoly on the foregn trade
of Frane.The values of the sto n hs ompany began to soar.
Startng wth the share pri of 500 lvres n July, the prerose
astronomcaly:
September: 5,lvresshareNovember: 10,0 lvre/shareDeember:
20,lvre/shareSmultaneously the pre of real estate s
onservatvely
estimatedt have doubed, pled and quntpled; f prcesrse, and
"busness transatons multpled. One of the ma-or rowth areas was
gamlng, n addton to the fat that
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On the oe hand Law was sonsored by a strong fatonof the nana
ete. Ths ete was determed to erh tsefthugh any ootng sheme avaabe
ad thus t foud theever onma Law to be a usefu too. For the shor
termths ete sueeded wg out a umber of ts omettorsand makg a g It
was oy whe te reay of thedsrpany betwee te ae vaues ad the rea
weath ofte naton fored tsef to the fore that the ete was fored
todump its man.
No shoud t be assumed that Laws sosors were e-eay just the Freh
ete. Ther s ame evdene thatthe gamber was ostat otat wth the obty
of Itaynoaby Prne Cot ad of ngad. And athough he ddnot expty wor fo
them hs hadg of the nanes ofFane edounded heavy to ther beet It s
aso mostintestng that ngad was red off by a smar boodog-ge the
South Sea Bubbe aroxmatey the same years
n other wods the fat that an nteatona nanaeite dtates oy ontrary
to the terest of atos as
thugh e Inteatona oetary Fund and neatonaanke today s by o means
new.
But the s another rason for Laws suess that evenmor pie t the
andau nni it th i e at that e ete was abe to howogge a geion of the
popuaton of metroota Frane nto patii-ig in hi game. The inanty o
the gowth o the vue the tks of the ssssp Comany had to be obvous
tonyone who thought seriousy ot to menton the reorientatin o the
ountry to gambing and speuaton. Yet a greatde o Frane was swet u
nto ssssp manauntthe od of the nevtabe ash fored tsef upon
them.
What aows a popuato to jon n to "get rih quiae mntaty that esut
in the destion ofit nation? Perhaps there a some aroud today who
mghthave ome nght nto the answer to that queston.
10 onoms
Cency Rtes
The dollar in deuscemarks Yok la fxg
1
180
170V " -160
50
4 /
e dor y Yok a fx
60
I
10J29
(
4
Bts pond n dolas ork la an fg
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.
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EIR Januy 15 1988
