Business humbugs⁠—​John Law⁠—​The Mississippi scheme⁠—​Johnny Crapaud as greedy as Johnny Bull.

In the “good old times,” people were just as eager after money as they are now; and a great deal more vulgar, unscrupulous, and foolish in their endeavors to get it. During about two hundred years after the discovery of America, that continent was a constant source of great and little money humbugs. The Spaniards and Portuguese and French and English all insisted upon thinking that America was chiefly made of gold; perhaps believing, as the man said about Colorado, that the hardship of the place was, that you have to dig through three or four feet of solid silver before the gold could be reached. This curious delusion is shown by the fact that the early charters of lands in America so uniformly reserved to the King his proportion of all gold and silver that should be found. And if gold were not to be had, these lazy Europeans were equally crazy about the rich merchandise which they made sure of finding in the vast and solitary American mountains and forests.

In a previous letter, I have shown how one of those delusions, about the unbounded wealth to be obtained from the countries on the South Sea, caused the English South Sea bubble.

A similar belief, at the same time, in the neighboring country of France, formed the airy basis of a similar business humbug, even more gigantic, noxious, and destructive. This was John Law’s Mississippi scheme, of which I shall give an account in this chapter. It was, I think, the greatest business humbug of history.

Law was a Scotchman, shrewd and able, a really good financier for those days, but vicious, a gambler, unprincipled, and liable to wild schemes. He had possessed a good deal of property, had traveled and gambled all over Europe, was witty, entertaining, and capital company, and had become a favorite with the Duke of Orleans and other French nobles. When the Duke became Regent of France at the death of Louis XIV, in 1715, that country was horribly in debt, and its people in much misery, owing to the costly wars and flaying taxations of the late King. When, therefore, Law came to Paris with a promising scheme of finance in his hand, the Regent was particularly glad to see him, both as financier and as friend.

The Regent quickly fell in with Law’s plans; and in the spring of 1716, the first step⁠—not, however, so intended at the time⁠—toward the Mississippi Scheme was taken. This was, the establishment by royal authority of the banking firm of Law & Co., consisting of Law and his brother. This bank, by a judicious organization and issue of paper money, quickly began to help the distressed finances of the kingdom, and to invigorate trade and commerce. This success, which seems to have been an entirely sound and legitimate business success, made one sadly mistaken but very deep impression upon the ignorant and shallow mind of the Regent of France, which was the foundation of all the subsequent trouble. The Regent became firmly convinced, that if a certain quantity of bank bills could do so much good, a hundred thousand times as many bills would surely do a hundred thousand times as much. That is, he thought printing and issuing the bills was creating money. He paid no regard to the need of providing specie for them on demand, but thought he had an unlimited money factory in the city of Paris.

So far, so good. Next, Law planned, and, with the ever ready consent of the Regent, effected, an enlargement of the business of his bank, based on that delusion I spoke of about America. This enlargement was the formation of the Mississippi Company, and this was the contrivance which swelled into so tremendous a humbug. The company was closely connected with the banks, and received (to begin with) the monopoly of all trade to the Mississippi River, and all the country west of it. It was expected to obtain vast quantities of gold and silver from that region, and thus to make immense dividends on its stock. At home, it was to have the sole charge of collecting all the taxes and coining all the money. Stock was issued to the amount of one hundred thousand shares, at $200 (five hundred livres) each. And Law’s help to the Government funds was continued by permitting this stock to be paid for in those funds, at their par value, though worth in market only about a third of it. Subscriptions came in rapidly⁠—for the French community was far more ignorant about commercial affairs, finances, and the real resources of distant regions, than we can easily conceive of nowadays; and not only the Regent, but every man, woman, and child in France, except a very few tough and hardheaded old skeptics, believed every word Law said, and would have believed him if he had told stories a hundred times as incredible.

Well, pretty soon the Regent gave the associates⁠—the bank and the company⁠—two other monopolies: that of tobacco, always monstrously profitable, and that of refining gold and silver. Pretty soon, again, he created the bank a state institution, by the magnificent name of The Royal Bank of France. Having done this, the Regent could control the bank in spite of Law (or order either); for, in those days, the kings of France were almost perfectly despotic, and the Regent was acting king. I have mentioned the Regent’s terrible delusion about paper-money. No sooner had he the bank in his power, than he added to the reasonable and useful total of $12,000,000 of notes already out, a monstrous issue of $200,000,000 worth in one vast batch, with the firm conviction that he was thus adding so much to the par currency of France.

The Parliament of France, a body mostly of lawyers, originating in the Middle Ages, a steady, conservative, wise, and brave assembly, was always hostile to Law and his schemes. When this great expansion of paper-currency began, the Parliament made a resolute fight against it, petitioning, ordaining, threatening to hang Law, and frightening him well, too; for the thorough enmity of an assembly of old lawyers may well frighten anybody. At last, the Regent, by the use of the despotic power of which the Kings of France had so much, reduced these old fellows to silence by sticking a few of them in jail.

The cross-grained Parliament thus disposed of, everything was quickly made to “look lovely.” In the beginning of 1719, more grants were made to Law’s associated concerns. The Mississippi Company was granted the monopoly of all trade to the East Indies, China, the South Seas, and all the territories of the French India Company, and of the Senegal Company. It took a new and imposing name: “The Company of the Indies.” They had already, by the way, also obtained the monopoly of the Canada beaver-trade. Of this colossal corporation, monopolizing the whole foreign commerce of France with two-thirds or more of the world, its whole home finances, and other important interests besides, fifty thousand new shares were issued, as before, at $100 each. These might be bought as before, with Government securities at par. Law was so bold as to promise annual dividends of $20 per share, which, as the Government funds stood, was one hundred and twenty percent per annum! Everybody believed him. More than three hundred thousand applications were made for the new shares. Law was besieged in his house by more than twice as many people as General Grant had to help him take Richmond. The Great Humbug was at last in full buzz. The street where the wonderful Scotchman lived was busy, filled, crowded, jammed, choked. Dangerous accidents happened in it every day, from the excessive pressure. From the princes of the blood down to cobblers and lackeys, all men and all women crowded and crowded to subscribe their money, and to pay their money, and to know how many shares they had gotten. Law moved to a roomier street, and the crazy mob crowded harder than ever; so that the Chancellor, who held his court of law hard by, could not hear his lawyers.

A tremendous uproar surely, that could drown the voices of those gentlemen! And so he moved again, to the great Hotel de Soissons, a vast palace, with a garden of some acres. Fantastic circumstances variegated the wild rush of speculation. The haughtiest of the nobility rented mean rooms near Law’s abode, to be able to get at him. Rents in his neighborhood rose to twelve and sixteen times their usual amount. A cobbler, whose lines had fallen in those pleasant places, made $40 a day by letting his stall and furnishing writing materials to speculators. Thieves and disreputable characters of all sorts flocked to this concourse. There were riots and quarrels all the time. They often had to send a troop of cavalry to clear the street at night. Gamblers posted themselves with their implements among the speculators, who gambled harder than the gamblers, and took an occasional turn at roulette by way of slackening the excitement; as people go to sleep, or go into the country. A hunchback fellow made a good deal of money by letting people write on his back. When Law had moved into the Hotel de Soissons, the former owner, the Prince de Carignan, reserved the gardens, procured an edict confining all stock-dealings to that place; put up five hundred tents there, leased them at five hundred livres a month each, and thus made money at the rate of $50,000 a month. There were just two of the aristocracy who were sensible and resolute enough not to speculate in the stock⁠—the Duke de St. Simon and the old Marshal Villars.

Law became infinitely the most important person in the kingdom. Great and small, male and female, high and low, haunted his offices and antechambers, hunted him down, plagued his very life out, to get a moment’s speech with him, and get him to enter their names as buyers of stock. The highest nobles would wait half a day for the chance. His servants received great sums to announce some visitor’s name. Ladies of the highest rank gave him anything he would ask of them for leave to buy stock. One of them made her coachmen upset her out of her carriage as Law came by, to get a word with him. He helped her up; she got the word, and bought some stock. Another lady ran into the house where he was at dinner, and raised a cry of fire. The rest ran out, but she ran further in to reach Law, who saw what she was at, and like a pecuniary Joseph, ran away as fast as he could.

As the frenzy rose toward its height, and the Regent took advantage of it to issue stock enough to pay the whole national debt, namely, three hundred thousand new shares, at $1,000 each, or a thousand percent in the par value. They were instantly taken. Three times as many would have been instantly taken. So violent were the changes of the market, that shares rose or fell twenty percent within a few hours. A servant was sent to sell two hundred and fifty shares of stock; found on reaching the gardens of the Hotel de Soissons, that since he left his master’s house the price had risen from $1,600 (par value $100 remember) to $2,000. The servant sold, gave his master the proceeds at $1,600 a share, put the remaining $100,000 in his own pocket, and left France that evening. Law’s coachman became so rich that he left service, and set up his own coach; and when his master asked him to find a successor, he brought two candidates, and told Law to choose, and he would take the other himself. There were many absurd cases of vulgarians made rich. There were also many robberies and murders. That committed by the Count de Horn, one of the higher nobility and two accomplices, is a famous case. The Count, a dissipated rascal, poniarded a broker in a tavern for the money the broker carried with him. But he was taken, and, in spite of the utmost and most determined exertions of the nobility, the Regent had him broken on the wheel in public, like any other murderer.

The stock of the Company of the Indies, though it dashed up and down ten and twenty percent from day to day, was from the first immensely inflated. In August 1719, it sold at 610 percent; in a few weeks more it arose to 1,200 percent. All winter it still went up until, in April 1720, it stood at 2,050 percent. That is, one one-hundred dollar share would sell for two thousand and fifty dollars.

At this extreme point of inflation, the bubble stood a little, shining splendidly as bubbles do when they are nearest bursting, and then it received two or three quiet pricks. The Prince de Conti, enraged because Law would not send him some shares on his own terms, sent three wagon-loads of bills to Law’s bank, demanding specie. Law paid it, and complained to the Regent, who made him put two-thirds of it back again. A shrewd stock-gambler drew specie by small sums until he had about $200,000 in coin, and lest he should be forced to return it, he packed it in a cart, covered it with manure, put on a peasant’s disguise, and carted his fortune over the frontiers into Belgium. Some others quietly realized their means in like manner by driblets and funded them abroad.

By such means coin gradually grew very scarce, and signs of a panic appeared. The Regent tried to adjust matters by a decree that coin should be five percent less than paper; as much as to say, It is hereby enacted that there is a great deal more coin than there is! This did not serve, and the Regent decreed again, that coin should be worth ten percent less than paper. Then he decreed that the bank must not pay more than $22 at once in specie; and, finally, by a bold stretch of his authority, he issued an edict that no person should have over $100 in coin, on pain of fine and confiscation. These odious laws made a great deal of trouble, spying, and distress, and rapidly aggravated the difficulty they were meant to cure. The price of shares in the great company began to fall steadily and rapidly. Law and the Regent began to be universally hated, cursed, and threatened. Various foolish and vain attempts were made to stay the coming ruin, by renewing the stories about Louisiana sending out a lot of conscripted laborers, ordering that all payments must be made in paper, and printing a new batch of notes, to the amount of another $300,000,000. Law’s two corporations were also doctored in several ways. The distress and fright grew worse. An edict was issued that Law’s notes and shares should depreciate gradually by law for a year, and then be worth but half their face. This made such a tumult and outcry that the Regent had to retract it in seven days. On this seventh day, Law’s bank stopped paying specie. Law was turned out of his public employments, but still well treated by the Regent in private. He was, however, mobbed and stoned in his coach in the street, had to have a company of Swiss Guards in his house, and at last had to flee to the Regent’s own palace.

I have not space to describe in detail the ruin, misery, tumults, loss and confusion which attended the speedy descent of Law’s paper and shares to entire worthlessness. Thousands of families were made paupers, and trade and commerce destroyed by the painful process. Law himself escaped out of France poor; and, after another obscure and disreputable career of gambling, died in poverty at Venice, in 1729.

Thus this enormous business-humbug first raised a whole nation into a fool’s paradise of imaginary wealth, and then exploded, leaving its projector and many thousands of victims ruined, the country disturbed and distressed, long-enduring consequences, in vicious and lawless and unsteady habits, contracted while the delusion lasted, and no single benefit except one more most dearly-bought lesson of the wicked folly of mere speculation without a real business basis and a real business method. Let not this lesson be lost on the rampant and half-crazed speculators of the present day. Those who buy gold or flour, leather, butter, dry goods, groceries, hardware, or anything else on speculation, when prices are inflated far beyond the ordinary standard, are taking upon themselves great risks, for the bubble must eventually be pricked; and whoever is the “holder” when that time comes, must necessarily be the loser.