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celtic hist. newsletter: A Scottish Rake & Economist
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hist-@historicgames.com
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Mar 31, 2008 16:22 PST
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The Celtic History Newsletter
Brought to you by
The Celtic Croft
http://www.kilts-n-stuff.com/
&
MacGregor Historic Games
http://historicgames.com
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John Law, Scottish Rake and Economist
John Law 1671 - 1729 was son of a Scottish goldsmith. But with
apologies to a high school and college friend who majored in
economics, for an economist John Law lived an unexpectedly interesting
life. As a real-life gambler, banker, duelist, royal adviser, exile,
rake and adventurer (who at one point controlled a major portion of
North America), he lived a life that sounds like it was something
created for a Hollywood movie. Law joined the family business at the
age of fourteen and studied the banking business until his father died
in 1688. After a couple of years Law neglected his father;s firm and
traveled to London to continue his studies. He studied mathematics,
commerce and political economy, but was eventually known for pursuing
more extravagant pursuits. In London he gambled, drank and wenched,
and was soon forced to write to his mother asking her to sell off part
of his inheritance to finance his life style.
But in1694 at age 23, Law killed another young dandy, Edward ?Beau?
Wilson, probably over an insult regarding Law's mistress at the time.
Law was apprehended and condemned to death. His sentence was commuted
to a fine, upon the grounds that the offense only amounted to
manslaughter. Wilson's brother appealed and had Law imprisoned but he
managed to escape to Holland. His studies of mathematics had given him
a good grounding in the then emerging theories of chance and
probability and he eventually made his way as a professional gambler
in Amsterdam, Venice, Genoa, and Turin, amassing a fortune in short
order, thanks to his knowledge of the mathematical odds.
However, while Law was becoming comfortably rich, many of Europe's
royal treasuries were nearly broke. Decades of warfare and high taxes
meant there was little currency in circulation, and many of the gold
and silver coins were debased due to the practice of ?shaving? coins
(-filing the precious metal from the edges of the coins) with the
result that merchants constantly haggled over the real value of cash
payments.
As early as 1705, Law believed he had an answer to the economic woes
of Europe. He published a pamphlet arguing for the establishment of
banks that would issue paper money backed by land, or other real
collateral. He realized that much like a gambler's chips that can be
cashed in at the end of the evening, money could be symbolic, with no
intrinsic value of its own if it was backed by something of real, or
stable value. This was not a new idea -the Bank of England had been
issuing banknotes since 1694, and in Amsterdam, similar banks had been
operating for nearly a century. But through his wealth and gambling
connections, Law had the ears of some of Europe's most powerful men,
and upon the death of Louis XIV, Law persuaded the Regent, the Duc
d'Orleans, to allow Law to establish the Banque Generale to issue
paper money backed by deposits and to install Law at its head. Despite
fierce opposition inside and outside of government, the bank was a
success: The banknotes it issued soon commanded a premium. The economy
revived, and Law's the Banque Generale became the nation's premier bank.
Not satisfied with banking eventually wanted to be an empire builder
as well, and saw his chance in France's vast North American
territories. In 1717, he founded the Mississippi Company which was
given the right to all trade between France and its Louisiana colony
for 25 years, and like England?s East India the right to maintain its
own army and navy. A recent biographer has written: "Law held sway,
ruling half of America in all but name."
To underwrite the venture, Law began issuing public shares at 500
livres apiece, and by the time the second installment was due on the
new issue, the share price had doubled to 1,000 livres. What's more,
Law had become in effect France's central banker, and his printers
were working round the clock to print new paper currency with which
speculators could buy more shares in the scheme. By the end of the
year, the price of Mississippi shares was as high as10,000 livres.
Hundreds of thousands of foreigners crowded Paris to play in this
"bull market". In fact, it was during this time that a new word
"millionaire" was coined to describe the people profiting from the
scheme. But, meanwhile, the cost of bread jumped fivefold in a matter
of months.
When share prices finally showed signs of softening, Law, who by then
had been promoted to controller general of France, issued a stream of
edicts designed to keep investors from stampeding out of Mississippi
shares and dumping their paper currency. He outlawed the export of
coinage and the ownership or purchase of gold, silver, or precious
gems. Even silver crucifixes were banned. Finally, in order to support
paper currency, he announced that all gold and silver coins would be
removed from circulation.
In 1720 the end finally came when Law announced that the value of
Mississippi shares would be cut nearly in half, to 5,000 livres.
Simultaneously, the face value of banknotes was also cut 50%. The
resulting riots in Paris lasted for three days. Mississippi shares
crashed, and Law was placed under arrest. Although he was released
briefly to work to rebuild the French economy, by year's end, Law was
forced to flee France forever. He stayed just long enough to see the
government end his experiment with paper money; it would be 80 years
before France would attempt using paper banknotes again. Law died in
1729 in Venice.
For more information about the life of John Law check out the book
?Millionaire : The Philanderer, Gambler, and Duelist Who Invented
Modern Finance? Listed on Amazon at http://tinyurl.com/2246ju
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Watch for updates to our appearance schedules to see us in person in
the coming year:
The Celtic Croft Schedule of Events
http://www.kilts-n-stuff.com/events_list.html
&
MacGregor Historic Games Schedule of Events
http://historicgames.com/Appearances.html
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