Our story continues from the Banque Generale, which John Law
established in May 1716. As already explained this bank took deposits of gold
and silver and issued paper money in return. These banknotes were then
redeemable in the metallic currency. The Banque Generale was able to build
equity through the selling of shares as well as through managing the finances
of the French government. To give John Law some credit, the French economy
actually started to stabilize. This in turn helped to increase Law’s influence
within the French government.
In the year 1717, John Law used his growing connections to
acquire a struggling trading company, the Mississippi Company, which he then
renamed “the Compagnie d’Occident” (the Company of the West). Law was granted a
trading monopoly for the trade between France and its Louisiana and Canadian
colonies. This colony stretched for almost 3,000 miles from the mouth of the
Mississippi River reaching parts of Canada. It included the present-day states
that hug the river: Louisiana, Mississippi, Arkansas, Missouri, Illinois, Iowa,
Wisconsin, and Minnesota. These colonies were considered to be valuable for
their abundance of resources such as beaver skins in Canada and precious metals
in Louisiana.
Source:Wikipedia:New France
The scheme to finance the initial operations of the
Compagnie d’Occident’s was simple. Law would raise the money by selling shares
in the company for cash and, more importantly, for state bonds. Law accepted a
low interest rate on the bonds which helped French finances while promising the
company a more secure cash flow. In September 1718 the company acquired the
monopoly in tobacco trading with Africa. In May 1719 Law obtained control of
the companies trading with China and the East Indies. He then renamed the
entire business interest the “Compagnie des Indes (“Company of the Indies”).
This meant that Law now controlled all of the trade with France and the rest of
the world outside of Europe.
The next step was to purchase the right to mint new coinage,
in July 1719. Law then turned his attention to taxes and by August 1719 the
Compagnie had the right to collect all French indirect taxes and by October
1719 the Compagnie took over the collection of direct taxes. Law’s last move
was to restructure most of the national debt. He developed a master plan
whereby the remainder of existing government debt would be exchanged for shares
in Compagnie.
In January 1720, Law became the Controller General and
Superintendent General of Finance. His empire
was taking shape as he now controlled all of France's finance and the creation of
money as well as the company that handled all of France's foreign trade and
colonial development. He was able to create a stable source of income for future
business ventures by holding much of the government's debt. It can certainly be
said that he had developed a huge amount of power.
By this stage everything was going so well for John Law. so much so he wrote a book entitled 'A full and impartial account of the company of Mississipi, otherwise call'd the french East-India company, projected and settled by Mr. Law'. You can read it here, and don't worry, it's in French and English!
By this stage everything was going so well for John Law. so much so he wrote a book entitled 'A full and impartial account of the company of Mississipi, otherwise call'd the french East-India company, projected and settled by Mr. Law'. You can read it here, and don't worry, it's in French and English!
Law paid for his ‘empire’ by issuing additional shares in
the company. These shares could be paid for with bank notes (from his own bank)
or with government debt. It is these
shares that will be significant factor in the fall of John Law and it is from
this point that I will continue from in my next post.
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