What if John Law's System had survived 1720?
The Scot John Law's Royal Bank and Company of the Indies collapsed with the Mississippi Bubble that swept France in 1720. What if his paper money had weathered the panic?
What actually happened
When Louis XIV died in 1715 the French crown was crushed under debts of billions of livres. The Regent, Philippe, Duke of Orléans, opened the way for John Law, a gambler and monetary theorist from Edinburgh. With a past that included killing a man in a duel in London in 1694 and escaping from prison, Law founded the General Bank in 1716, which became the Royal Bank in 1718. He founded the Company of the West, holding the Louisiana trade, merged it with the East India Company and others into the Company of the Indies in 1719, and pushed through a vast plan to convert the king's debt into company shares.
The shares soared from summer 1719. Shares with a face value of 500 livres rose to nearly 10,000 by the end of the year, and the Rue Quincampoix in Paris was thronged with speculators day and night; the word “millionaire” was coined at this time. Law became Controller-General in January 1720, merged the bank and the company, and even issued decrees forbidding people to hold much gold and silver coin. In March he fixed the share price at 9,000 livres and had the bank buy at that price, which poured out a corresponding flood of new paper money.
On 21 May 1720 a decree to cut the value of notes and shares by half in stages was issued and withdrawn six days later. Confidence had already collapsed. All summer people crowded the bank in the Rue Vivienne trying to change notes into gold, some being crushed to death, and by autumn the paper had lost its power as money. In December Law left Paris for Brussels, and he died poor in Venice in 1729. The Pâris brothers, put in charge of the clean-up, settled investors' claims at heavily reduced values.
The turning point
Few today see Law's System as a fraud from the start. Economic historians such as Antoin Murphy and François Velde judge that the idea itself, converting the king's debt into shares and making up for a shortage of metal coin with paper, anticipated modern central banking and public debt management. The problems were speed and design. Many point especially to the decision of March 1720 to fix the share price and have the bank buy without limit, which in effect turned shares into paper money and made the money supply explode.
Politics also shaped the outcome. The Parlement of Paris and the traditional financiers, the Pâris brothers, were hostile to Law from the start, and the Regent shielded him to the end but could not protect him after the chaos of the May decree. Given that London's South Sea Bubble also burst the same year, 1720 was a year when all Europe paid the price of learning a new kind of finance. The counterfactual that things would have gone differently had Law stopped the presses early and let the share price go is actually debated among economic historians.
The world that might have been
In Crown & Plough the alternative reads: in spring 1720 John Law stopped the presses and set a price at which the bank would buy and sell shares. The Parlement and the Pâris brothers hounded him, but the Regent stood by him to the end. The share price fell by about half and stopped there, and the Royal Bank's notes remained money used alongside gold coin. In the game France's army grows and Paris develops a little more, and word spreads that only the South Sea Company's shares in London have crashed. In both worlds the last great plague lands at Marseille.
In the altered world that follows, in 1722 La Nouvelle-Orléans at the mouth of the Mississippi becomes the capital of Louisiana, and the Company of the Indies' ships bring farming families from Alsace and the Rhineland, and slave ships with them. In 1726 Cardinal Fleury, in charge of finances, does not like Law but does not close the Royal Bank, and interest on French government debt falls below that of the Dutch. By around 1744 the shipyards of Brest and Toulon run without pause on bonds issued through the bank, and the French fleet puts as many ships of the line to sea as the Royal Navy. La Nouvelle-Orléans becoming Louisiana's capital in 1722 matches real history.
A player who started as John Law has a different ending ahead: the story of a spring when the bank held, La Nouvelle-Orléans, the king's single denier, the Regent's death in 1723 and the ledgers of peace, growing old as the old man of the Place Vendôme.
Ripples through time
In real history the collapse of Law's System left France with a deep distrust of banks and paper money. Throughout the 18th century the crown relied on tax farmers, the sale of offices and expensive loans, and while Britain borrowed cheaply for its wars through the Bank of England and its bond market, France borrowed more dearly. Many historians count this fiscal gap among the distant roots of the royal bankruptcy that led to the Revolution of 1789. The Banque de France was founded only in 1800.
Another turning point of the same era is the War of the Spanish Succession, which asks whether France and Spain would share one crown. A large part of the mountain of debt Law inherited was the cost of that very war.
Play this turning point
Choose the scenario Rue Quincampoix, which begins as John Law in 1719. In autumn 1719's “The third issue”, printing as many shares and notes as you can brings in gold but raises the odds of collapse; stopping the issue and capping the quantity of notes raises the odds that the System holds a lot; and converting the king's remaining debt into 3 per cent bonds also raises them.
If you started the Age of the Sun King and the Baroque in another position, in the Currents of History story The Mississippi and South Sea bubbles siding with the Mississippi Company adds weight to the System holding. In 1719 a French character, or one living near France, gets “The Royal Bank's counter”: holding on to your notes and shares adds weight to the System, while handing your notes in at the counter for gold adds weight to collapse. This turning point opens when the player is not ruling France.
Play this turning point → Start the scenario “Rue Quincampoix” →
Questions and answers
What was the Mississippi Bubble?
The soaring and crash of the shares of John Law's Company of the Indies (usually called the Mississippi Company) in 1719–1720. Shares with a face value of 500 livres rose to nearly 10,000 and then collapsed from May 1720, and many investors lost their fortunes. With London's South Sea Bubble of the same year, it is counted among the classic financial crises of the early modern age.
What became of John Law?
He left France in December 1720 and wandered between Brussels and other cities, and in London he was pardoned for the duel of 1694. He died of pneumonia in Venice in 1729, leaving almost no fortune.
Is La Nouvelle-Orléans connected with John Law?
Yes. New Orleans was founded in 1718 by Bienville under Law's Company of the West, and the company ran a huge publicity campaign to send settlers to Louisiana. In 1722 it became the capital of Louisiana.
Sources and further reading
John Law, Money and Trade Considered (1705); Saint-Simon, Memoirs. Modern accounts: Antoin Murphy, John Law: Economic Theorist and Policy-Maker; François Velde, “Government Equity and Money: John Law's System in 1720 France”; Janet Gleeson, The Moneymaker.
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