Before there was Lehman Brothers or Long-Term Capital Management, before tulip mania became a cautionary tale, there was John Law — a Scottish murderer, gambler, and economic theorist who nearly bankrupted France while inventing much of what we now call modern finance.
The gambler's grand theory
Law arrived in France in 1714 with a radical idea: paper money backed by land rather than gold could unlock prosperity. The War of Spanish Succession had left France drowning in debt. Law convinced the Regent, Philippe d'Orléans, that his system could save the nation. He established the Banque Générale in 1716, issuing notes that could be used to pay taxes — instantly creating demand for his paper currency.
But Law didn't stop there. He merged his bank with the Mississippi Company, which held monopoly rights to French Louisiana. The company would develop the territory's supposed riches while its shares served as backing for the currency. It was quantitative easing, a sovereign wealth fund, and a SPAC rolled into one, three centuries before those terms existed.
When financial engineering meets reality
The scheme worked brilliantly until it didn't. Share prices rose from 500 livres to 10,000 in months. Parisians of all classes mortgaged everything to buy stock. The word "millionaire" entered the language to describe the newly rich. Law, now Controller-General of Finances, printed more notes to meet demand, creating a feedback loop: more money chased shares higher, justifying more money printing.
By 1720, the money supply had expanded by 2,500 percent. When investors realized Louisiana contained more mosquitoes than gold, the unwind was savage. Law tried everything modern central bankers would later attempt: banning gold ownership, restricting share sales, forcibly converting bonds to equity. Nothing worked. The shares collapsed to 500 livres. The paper currency became worthless. Law fled France disguised as a woman.
Our take
Law's Mississippi System wasn't just a bubble — it was a preview of every financial innovation and crisis to come. Central banking, fiat currency, equity markets, even the fusion of monetary and fiscal policy that we'd later call Modern Monetary Theory: Law tried them all. His failure traumatized France so deeply that the word "banque" remained toxic for generations. Yet his core insight — that money is fundamentally about confidence, not metal — underpins the entire global economy today. Every central banker wrestling with asset bubbles and every investor chasing the next big thing is walking in John Law's footsteps, hoping this time really will be different.
