John Law's Company

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Portrait of John Law by Alexis Simon Belle, ca. 1715 John Law by Alexis Simon Belle.jpg
Portrait of John Law by Alexis Simon Belle, ca. 1715

John Law's Company, founded in 1717 by Scottish economist and financier John Law, was a joint-stock company that occupies a unique place in French and European monetary history, as it was for a brief moment granted the entire revenue-raising capacity of the French state. It also absorbed all previous French chartered colonial companies, even though under Law's leadership its overseas operations remained secondary to its domestic financial activity.

Contents

In February 1720, the company absorbed John Law's Bank, which had been France's first central bank. The experiment was short-lived, and after a stock market collapse of the company's shares in the second half of 1720, the company was placed under government receivership in April 1721. It emerged from that process in 1723 as the French Indies Company, focused on what had been the overseas operations of Law's Company.

Name

View of the camp of John Law at Biloxi, December 1720 JohnLawCamp-Biloxi-1720.jpg
View of the camp of John Law at Biloxi, December 1720

Law's Company was formally known, first, as the Compagnie d'Occident (lit. 'Company of the West') from August 1717 to May 1719, then as the Compagnie des Indes (lit. 'Company of the Indies'). It was also popularly referred to as the Compagnie du Mississippi (lit. 'Mississippi Company'), for which the related stock market boom-and-bust was known as the Mississippi Bubble.

The company was at the center of the broader monetary and fiscal scheme known as Law's System (French : le système de Law). Initially the System's main entity was Law's Bank, but the System and the Company became practically synonymous after the Bank was merged into the Company in February 1720.

Compagnie d'Occident

John Senex's map (1721), with a dedication to William Law, probably a relative of John Law (possibly his brother) Senex A map of Louisiana and of the River Mississipi 1721 UTA.jpg
John Senex's map (1721), with a dedication to William Law, probably a relative of John Law (possibly his brother)

In founding the Compagnie d'Occident in August 1717, Law's stated intent was to develop Louisiana, which by then had been a French possession for over four decades but had remained largely undeveloped, with a total population of French colonists numbering only about 500. The charter granted the Company all of Louisiana as a fief in perpetuity (i.e., the Company was the vassal of the King for Louisiana), and added a 25-year monopoly on trading between Louisiana and the French mainland as well as on the beaver fur trade in Canada. It allowed the Company to have its own military force, to make treaties with native Americans, and to benefit from French military assistance in conflicts with other European powers. At the end of the initial 25-year period, the Company would retain ownership of Louisiana but would sell any military assets to the King, including forts and equipment. [1] : 14  [2]

The public offering of the Company's shares started on 14 September 1717 and extended until the end of 1718, for a total 100 million French livres at face value, of which Law himself subscribed 13.3 million livres and the King subscribed 40 million. [1] : 14 

The Company soon started building up its operations. By December 1718, it owned a dozen ships and had made several voyages to Louisiana. It soon engaged in a series of acquisitions of tax farming rights and other colonial companies. These included the right to run the Ferme du tabac  [ fr ], France's tobacco monopoly, on 1 August 1718, and the Compagnie du Sénégal (est. 1709), on 4 December 1718. [1] : 15 

Compagnie des Indes

Satirical cartoon from 1720, the text in the centre reads: "Representation of the very famous island of Mad-head, lying in the sea of shares, discovered by Mr. Law-rens, and inhabited by a collection of all kinds of people, to whom are given the general name shareholders" The Very Famous Island of Madhead 1720 Cornell CUL PJM 1019 01.jpg
Satirical cartoon from 1720, the text in the centre reads: "Representation of the very famous island of Mad-head, lying in the sea of shares, discovered by Mr. Law-rens, and inhabited by a collection of all kinds of people, to whom are given the general name shareholders"

On 23 May 1719, Law expanded his acquisition spree by purchasing the largely inactive Compagnie des Indes and Compagnie de la Chine, upon which the Compagnie d'Occident took the name Compagnie des Indes. Further acquisitions on an ever larger scale included: [1] : 16-17 

The company remained profitable and solvent until the collapse of the bubble. [3] Its value temporarily soared to the equivalent of $6.5 trillion today, which would make it the second most valuable company in history behind the Dutch East India Company. [4] [5] Law's apparent success was rewarded when he was given the title Duc d'Arkansas. [6] The popularity of company shares was such that they sparked a need for more paper bank notes, and when shares generated profits the investors were paid out in paper bank notes. [7] In 1720, Law was appointed by Philippe II, Duke of Orleans, then Regent for Louis XV, to be Comptroller General of Finances. [8]

Operations in America

Bénard de la Harpe and his party left New Orleans in 1719 to explore the Red River. In 1721, he explored the Arkansas River. At the Yazoo settlements in Mississippi he was joined by Jean Benjamin who became the scientist for the expedition.[ citation needed ] The Mississippi Company arranged ships to bring in 800 more settlers, who landed in Louisiana in 1718, doubling the European population. Law encouraged some German-speaking people, including Alsatians and Swiss, to emigrate. They gave their names to the German Coast and the Lac des Allemands in Louisiana.[ citation needed ]

Prisoners were set free in Paris from September 1719 onwards, and encouraged by Law to marry young women recruited in hospitals. [9] In May 1720, after complaints from the Mississippi Company and the concessioners about this class of French immigrants, the French government prohibited such deportations. However, there was a third shipment of prisoners in 1721. [10]

The company was involved in the Atlantic slave trade, importing African slaves to points as far North as modern Illinois along the Mississippi River. [11]

Collapse and aftermath

The market price of company shares eventually reached the peak of 10,000 livres. As the shareholders were selling their shares, the money supply in France suddenly doubled, and inflation burgeoned. Inflation reached a monthly rate of 23% in January 1720. [12]

The "bubble" burst at the end of 1720. [12] By September 1720 the price of shares in the company had fallen to 2,000 livres and to 1,000 by December. By September 1721 share prices had dropped to 500 livres, where they had been at the beginning.

By the end of 1720, Philippe d'Orléans had dismissed Law from his positions. Law then fled France for Brussels, eventually moving on to Venice, where his livelihood was gambling. He was buried in the church San Moisè in Venice. [13]

The Company was placed in receivership in April 1721. [1] : 36  It emerged from that process in March 1723, [1] : 42 , by which time all its operations were in Overseas trading and colonial development. It kept operating as the French Indies Company until eventual liquidation in 1770.

See also

References

  1. 1 2 3 4 5 6 François R. Velde (17 May 2004), Government Equity and Money: John Law’s System in 1720 France
  2. ↑ Bammer, Stuart. Anglo-American Securities Regulation: Cultural and Political Roots, 1690–1860, Cambridge University Press, 2002, ISBN   978-0-521-52113-0, p. 42
  3. ↑ Lanchester, John (29 July 2019). "The Invention of Money". The New Yorker. ISSN   0028-792X . Retrieved 12 June 2023.
  4. ↑ Roos, Dave (23 October 2020). "How the Mississippi Company Became the World's Most Powerful Monopoly". History. Retrieved 29 April 2022.
  5. ↑ "MARKETSThe Most Valuable Companies of All-Time". VisualCapitalist. 26 September 2023.
  6. ↑ Lande, Lawrence; Congdon, Tim (January 1991). "John Law and the invention of paper money". RSA (The Royal Society for Arts, Manufactures and Commerce). 139 (5414): 916–928. From p. 919: "Since he [John Law] controlled the colonial empire of France in the right of his company, he distributed colonial patents of nobility like a monarch, selecting for himself the title of Duke of Arkansas."
  7. ↑ Beattie, Andrew. "What burst the Mississippi Bubble?" on Investopedia.com (17 June 2009)
  8. ↑ Mckay, Charles. Extraordinary Popular Delusions and the Madness of Crowds . New York: Noonday Press, 1932, p. 25. First edition published 1841, second edition 1852
  9. ↑ Hardy, James D. Jr. (1966). "The Transportation of Convicts to Colonial Louisiana". The Journal of the Louisiana Historical Association. 7 (3): 207–220. JSTOR   4230908.
  10. ↑ Cat Island: The History of a Mississippi Gulf Coast Barrier Island, by John Cuevas
  11. ↑ Kleen, Michael (2017). Witchcraft in Illinois: A Cultural History. Arcadia. ISBN   9781625858764.
  12. 1 2 Moen, Jon (October 2001). "John Law and the Mississippi Bubble: 1718–1720". Mississippi History Now. Archived from the original on 1 March 2016. Retrieved 26 April 2021. Law devalued shares in the company in several stages during 1720, and the value of bank notes was reduced to 50 percent of their face value. ... The fall in the price of stock allowed Law's enemies to take control of the company by confiscating the shares of investors who could not prove they had actually paid for their shares with real assets rather than credit. This reduced investor shares, or shares outstanding, by two-thirds.
  13. ↑ Sheeran, Paul and Spain, Amber. The international political economy of investment bubbles, Ashgate Publishing, Ltd., 2004, ISBN   978-0-7546-1997-0, p. 95

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