John Stepic (2:28)

Are you ready for part two of the John Law Story?

Merrin Somerset Webb (2:31)

I'm ready Because I've listened to all of part one, or rather recorded it with you, John. But anyone who hasn't done that needs to go back and listen to part one before they move on to part two.

John Stepic (2:41)

Okay, so let's assume you've done that and let's begin. Chapter four, A battered superpower. So, in 1714, John Law arrives in France with his long term girlfriend Catherine and their son William and their daughter Mary Catherine. And so at this point, the War of the Spanish Succession has just ended. And while France didn't exactly lose, it didn't win either. So as a result of this, it's still one of the most powerful countries in Europe at this point, but it's economically exhausted and it's very heavily indebted. So debt to GDP is actually sitting at about 100%.

Merrin Somerset Webb (3:31)

Familiar?

John Stepic (3:32)

Yes, yes, a bit too familiar. So I mean, fixing this is not easy at all, obviously, as we know from our own experience. But compared with England in particular, France has got a much more regressive, inefficient fiscal system. So in the tax side of things, most of the direct tax burden falls on peasants and commoners, and the nobility and the upper classes are largely exempt from that. And the King also sells the right to collect taxes, so effectively privatizes it.

Merrin Somerset Webb (4:00)

He gets the money up front?

John Stepic (4:01)

Yeah, he gets the money up front effectively, and then they get to keep whatever they can rake off on top.

Merrin Somerset Webb (4:07)

So there's bidding wars for these rights. Right. You can make a stab at how much money you'll be able to get out of the peasants and bid for.

John Stepic (4:14)

Absolutely. But also the other problem is it means that the King is selling the right to collect taxes too cheaply. Usually he's desperate for money because he needs it to pay soldiers. And as for the kind of state borrowing side of things, the King relies heavily on selling annuities whose income stream is secured against future tax revenues. So he's kind of mortgaging the tax base into the future. Basically, they sell civil service jobs, so you know, things like judges or various other kind of posts and office holdings, and those are hereditary and they come with various privileges.

Merrin Somerset Webb (4:49)

And again, it has the same effect. You pay up front for the job, but then you collect the salary indefinitely.

John Stepic (4:54)

Yeah, exactly. It's all somewhat desperate ways actually to raise money. And the other thing is that it also depends on short term loans from the tax farmers secured against the tax revenues that they are going out to get. So it is very hand to mouth. And of course the other issue is obviously France is an absolute Monarchy still. So to a great extent, the King can technically default or restructure parts of this debt if it gets too much, and occasionally will do that, but the underlying system remains intact because basically too many people benefit from the status quo and they don't really want it to change. Long story short, France has got a narrow tax base and a very haphazard system of sovereign borrowing. And that also means that funding the war effort has left it really short real money. And so it's ended up issuing a lot of paper IOUs, which are called BA data in French, and it's been using them to pay off its military suppliers, to pay the tax farmers some of the money it owes them and pay the wages of the office holders. And so it means that by the time Law arrives in France, the place is awash in some. It's not paper money, but it is basically IOUs that kind of are traded and are sometimes used as a form of money between people, but they trade at massive discounts to their face value. I mean, we're talking about around 70%. And that's because no one expects to actually get paid in full, because they don't trust the King to actually kind of give them the money. And so this is what Law is kind of like walking into when he lands in Paris and he rents a big house near the Louvre. Now, Law has been in Paris before. He'd pitched his land bank idea to King Louis XIV in 1707, and he'd been rejected, just as he was in Scotland and England. But by now, Louis is very elderly, and in 1715, he dies. Now, the good news for John Law is that Louis XV, who's Louis XIV's grandson and heir, is only five years old. So they need someone to act as regent until he reaches his maturity. And that person turns out to be Philippe ii, who's the Duke of Orleans. And this is a guy that Law had befriended at the gaming tables on his previous trip to Paris. And Philippe is already quite receptive to Law's ideas. They're kind of kindred spirits in many ways. They both enjoy gambling and they're both interested in new ideas. But in the immediate term, the Duke has got two problems, and one is that the French finances are in such a state that something just needs to be done about it immediately. The other problem he's got is that the vested interests who can benefit from the status quo are not that keen on the idea of an outsider like Law coming in to shake things up. In early 1716, while law is still discussing establishing this bank, the Duke, issues a massive crackdown on the richest people in France at that time.

Merrin Somerset Webb (7:44)

What do you mean by crackdown?

John Stepic (7:45)

It's almost as if HMRC just calls them all in to do a massive tax audit and then if it looks as if you haven't major money in exactly the way the King approves of, then you'll either take a haircut, some of them even go to jail. There's a few death sentences passed, although none of those actually get carried out. Because the thing is, they also realize that actually we rely on these guys, so we need to put the frighteners on them, but we can't.

Merrin Somerset Webb (8:11)

I was going to say, surely if doing stuff like this cuts off the supply of new money, you go chuck people in jail, et cetera, et cetera. Maybe they go lend their money to the UK or Spain instead of.

John Stepic (8:20)

Exactly. And so actually, I mean, this is interesting because John Law actually, he says to the Duke, look, this is a bad idea because he knows it will result in a credit crunch. But the good thing from Law's point of view is that this basically puts a lot of people out of the picture who have been objecting to the idea setting up this kind of alternative way of financing the state, or what they see as a threat. Because in the end, the Duke does give him the go ahead. It's a much less ambitious version of the project that he eventually wants to get into. But in May 1716, that's when he sets up the General bank, or the Banque General as the French call it. And this basically a small private bank in Paris. For context, you've got the kind of French economy, the Parisian economy is experiencing fiscal crisis and you've got a credit.

Merrin Somerset Webb (9:07)

Crunch because nobody trusts anybody anymore. They don't want to lend money anymore, some of them are in jail, they've had to take haircuts on their debt, they're all fed up to the back teeth with the whole thing. So everyone's just sitting on their cash.

John Stepic (9:18)

Exactly. Also, the other thing is they keep on pushing through currency devaluations. This is important to what happens next, the time. Metal is money, you get bits of paper flying about, but at the end of the day, the reason the bits of paper have any value at all is because their promises backed by gold or silver. So you get gold, silver and copper for lower value coins, but the coins themselves, they're actually denominated in a unit of account. So like in Britain, we've got the pound sterling, there isn't actually a gold coin called the Pound sterling, but that's what the coins are denominated in. So in France, it's the livre. So this is what contracts and wages and debts are denominated in. So if you are working for someone or you owe someone money, then that will be described in a certain amount of livre. But that's how they debase the currency. Take an example from Antoine Murphy's book on John Law. So let's say you get 10 gold coins in 1715, that's 10 Louis D'. Or. They are worth 140 livres in total, so 14 livres each. So you now take them in the nearest mint and this is how the revaluation happens. The mint stamps them. So each of these coins is now a Louis d' or reforme, but they're now technically worth 20 livre each. So you came in with 140 livre and you go out again with 160 livre, because they give you a bit extra to make it worth your while changing them. But the thing is, you came in with 10 gold coins and you're actually only going out with eight. So it looks as if you're getting more money than you came in with. But in fact, the gold itself has been devalued in livre terms.

Merrin Somerset Webb (11:05)

So why would you take your money in?

John Stepic (11:06)

Well, this is.

Merrin Somerset Webb (11:07)

Why would you take your money in? You take your money in, you give it to them, they give you back less. It's like being. It's like being P A Y E in the UK these days.

John Stepic (11:14)

Exactly, exactly. I mean, it's partly because you have to, kind of legally. But of course, you're right, you kind.

Merrin Somerset Webb (11:20)

Of know what money you have under your bed in your safe.

John Stepic (11:23)

Well, there's an awful lot of informers. I mean, this is the other thing. It's the kind of different, kind of, and quite nasty world. But the thing is. But you're right, the more aggressive the kind of coinage is, the more people avoid it. So people do things like they smuggle their money out to be stamped in private workshops in Holland. Some of them even just send it out the country to get melted down and get the money from that. So basically that means that money's kind of flooding out the country or being hidden in people's basements. So again, that contributes to this credit crunch as well. But it is part of the reason that the General bank actually ends up being quite successful. It's not a listed company, but it does issue shares and they form the bank's capital. And John Law himself has about A quarter of that. So he stakes a lot of money on the line. In total, it's 6 million livres is the capital of the bank and he subscribed for a quarter of that. The Regent gives it his backing as well. It's not clear how much he personally subscribed for, but it was probably a fair chunk. And to keep the Regent happy, a lot of the financiers who he's been cracking down on also chip in money. The other reason people are happy to subscribe for the shares, of course, is that they can swap their heavily discounted state IOUs, the BA D TA for shares in the bank at full face value. The initial capital base of the bank is relatively small, but despite that, once it takes off, it's pretty successful at reinvigorating trade in a credit crunch stricken Paris. For a start, he's offering banking services and making loans at much cheaper rates than anyone else. But fundamentally, what people really like is Law's banknotes. You go in, you put your money in and you get a banknote back. But the banknotes are written for basically the amount of silver that you put in rather than the livre value of the silver. So basically, if you put 10 silver coins in and get a banknote back from Law's bank, you can go in a year later, six months later, and even if the coinage has been devalued, you will still get 10 silver coins back.

Merrin Somerset Webb (13:28)

Okay, so it's better than the other money. Way better. Yeah.

John Stepic (13:31)

I find this really fascinating and quite ironic. He starts off by creating paper money that is harder than the metal money that is in circulation.

Merrin Somerset Webb (13:41)

Amazing.

John Stepic (13:42)

So people start to feel confidence because basically he restores sound money in Paris. By doing this, it also makes its initial shareholders very wealthy. The bank ends up running a reserve ratio of about 25%. And the writer James Buchan estimates it could have been making about a million livres a year writing loans at 4% interest. So as a result, when the shareholders are later bought out by the region, which we'll get to in a minute, they've made six times their money.

Merrin Somerset Webb (14:11)

Nice. Okay, so worth doing. That's an easier way to make money than setting up a pile of gaming tables.

John Stepic (14:24)

Chapter five, the Birth of the Mississippi Company. Okay, so by early 1717, the General bank has helped alleviate the immediate credit crunch in France. But it's just the beginning of Law's plans. Now he's keen to tackle the national debt and all those dodgy IOUs, the BA data that are still flying around, and that's where the next part of the scheme comes in.

Merrin Somerset Webb (14:49)

All right. Okay, John, this is the bit I always find incredibly confusing. If I'm really honest. It's tough for me to see how we get from this relatively small bank suddenly taking on the national debt and being this huge company.

John Stepic (15:02)

Yes, I'm not surprised that is quite confusing. But we'll do our best to talk you through how it does that over the course of roughly 18 months to 2. So we start in Louisiana. I mean, this is not Louisiana as we know it today. Instead, it's an area that encompasses basically like half the land mass of the present day United States. And what had happened is French fur traders from Canadian colonies had claimed it for King Louis in the late 1600s, and they'd established a small outpost there. It's about 1717 this year that we're talking about the right to develop. The colony is owned by one of the big French financiers, one of the tax farmers, basically. But when he's caught up in the tax crackdown that we mentioned earlier, he gives back the concession as part payment for his overdue taxes, basically. And it's at that point the law says, well, look, I'll take over this concession, and then what we'll do is we'll set up a company, we'll issue shares, will allow people to buy the shares with the BA data, and that will help us to get rid of that and consolidate that debt. So basically, law wants to clean up the public finances.

Merrin Somerset Webb (16:15)

Okay, so he wants to get rid of all the outstanding bills. So he buys this trade monopoly and says you can have shares in exchange for the bills. Yes, but then he has all the bills and everybody else has the shares. The bills are off the market, but they still exist.

John Stepic (16:36)

I know. This is the clever bit. The deal is that when the bills are swapped for the shares, the bills get destroyed. But in return, the king will pay the company a perpetual annuity which is backed by specific tax revenues. It's actually a new stamp. It's a new stamp duty that they introduced, believe it or not, which will be used to fund a dividend payment of 4% a year. So what's happening is the shareholder is getting to swap a rubbish bit of paper IOU from the king that they don't have. A great deal of confidence will get repaid, and they're getting instead face value swapped rather than heavily discounted. They're getting a stake in a company that's promising to pay them 4% a year anyway, plus the added potential for, you know, what Happens with trading, what happens with the colony in the future. So they're getting the equity stake, you.

Merrin Somerset Webb (17:29)

Get a stream of the income and you get the potential for future upside.

John Stepic (17:33)

Exactly. And all you're giving up is an IOU that you probably didn't expect to get paid anyway. And the king? Well, as far as the king goes, he's getting to retire loads of independent kind of short term IOUs that are owed to thousands of individuals for one long term debt that is owed to just one company. Does that kind of make some sense?

Merrin Somerset Webb (17:55)

Yes, that helps a lot. Thank you.

John Stepic (18:00)

So he's wanting to swap the French national debt for equity in a colonial exploration company. He's not just making this up. The company does exist and over the next couple of years they invest in ships, they send colonists off to Louisiana. Gradually he also takes over more parts of the state. So he gets the monopoly on the tobacco trade, for example. Basically, the Mississippi company does manage to wash its face over this time. It makes enough money to pay dividends out to its shareholders. So it's keeping people happy. And the money is coming in from the tobacco trade and from kind of various other bits of business that it does. But setting up a colony is very difficult and time consuming and capital intensive. And the truth is there's lots of fairly grim stories that come out. The initial settlers are largely poor and desperate people hoping for a better life. But in the longer run, as it drags on and it's not obviously turning into a massively prosperous area, you get more and more people being just sent out there. So prisoners being sent out there, stories of convicts and prostitutes kind of getting married on the dock and then sent out. Overall, there is no point at which Louisiana is economically significant to France even many years into the future. So while it's definitely a real project, I think it is also fair to say that it mostly plays a role as a carrot to attract people to swap their government debt for equity and a kind of stake in a Blue Skies company. So it's not successful immediately. And then by December 1718, what happens is that France ends up going back to war with Spain again. This is when Law's got his opportunity to change the General bank to the Royal Bank. So basically it becomes the French central bank. Effectively the other shareholders are bought out. So this is the point at which they make six times the money. The King now owns the bank and the important thing is that the Royal bank can issue shareholders.

Merrin Somerset Webb (20:10)

Hang on, hold on, wait, wait, wait, wait. How does the King own the bank?

John Stepic (20:14)

Basically the other Shareholders are bought out by law and the law then sells the bank to the region.

Merrin Somerset Webb (20:20)

Does he do that because he's got something greater in mind?

John Stepic (20:23)

It's useful to understand that he really does want to see his system take off. He has minted himself. So at this point he owns a lot of estates in France, he has plenty of money and he's thoroughly embedded with the monarch. Basically the whole driving force throughout his intellectual career is to sever money and credit from gold, because he doesn't see why a country's entire economy and money supply should be subject to what he sees as the vagaries of precious metal supply. And that's one reason why in his early proposals, he wants to back money with land, because A, land can't leave your country and B, he kind of sees it as the source of all the productive work in an economy. But by this point he's gone beyond that and he's saying, well, actually there's a lot of impracticalities to the land, but why do we need anything back in money at all? We can run an economy basically just on credit and on paper. As long as there's not too much paper and too little stuff, then the credit and the paper will stimulate activity.

Merrin Somerset Webb (21:43)

So the king owns the bank. John Law basically controls money supply and we're off on, as you put it, the road to a fully fiat currency. Bye bye gold.

John Stepic (21:54)

And this is what's so revolutionary about law's thinking. Paper money itself isn't new, but the idea that it's the state that should control and manage the money supply, rather than being beholden to the underlying availability of gold and precious metals and species is much more radical. In a way, he's kind of anticipating like 200 years ahead of time. John Maynard Keynes view that the gold standard is a barbarous relic that just gets in the way of efficient economic management. Foreign.

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John Stepic (24:43)

Chapter 6 Inflating the bubble. So the Mississippi Company has been gradually expanding, but May 1719 is when things really start getting going. So Law decides to buy out the other trading companies in France, and his end goal is to have the Mississippi Company own everything. Every monopoly, every trading privilege, control of the money supply, and essentially, basically most other state functions all under one roof. So the first batch of Mississippi shares is issued at 500 livres each, and the price hasn't changed much since then. These are known as Les Mer, or the Mothers. So Law announces a new issue known as Les Feuille, or the Daughters. And this is to raise funds to buy the trading companies and pay for some more ships. But what he does is he allows people to buy these in installments so you only have to put 10% down. In other words, you can leverage up your bets. He also underwrites the share issue himself to boost confidence in it. As a result, it actually ends up being oversubscribed. What they then do is they Actually restrict the initial offering to the people who already own shares. In other words, people who already own the mothers, they are the ones that can get in on the ground. And people start to get a bit more excited about all this, partly because there's a wider bubble going on. People are getting excited about stocks in general, but also because Law has been printing lots of banknotes and people need somewhere to put that money. And so the share price starts to go up. So it goes up from about 500 to 600 and then in June, so a month later they've gone up further and by mid July they're up to 1,000. And all this time he's issuing kind of extra notes and this actually continues throughout that year and that you've got the mayors, then you've got Lafayette, then you end up getting an issuance called the Les Grand Fear. And it's all very profitable because people can also sell the rights to these.

Merrin Somerset Webb (26:42)

They can sell the right to buy.

John Stepic (26:44)

Them, they can sell the right to buy them as well.

Merrin Somerset Webb (26:46)

So they're effectively selling options.

John Stepic (26:47)

Exactly. So you're selling options as well. And so people are getting more and more excited about getting in on the ground with this because the people who owned the maers have now seen the value of those shares kind of maybe double or more in the space of about three months. The big turning point is when in August he says, right, we're going to raise 1.2 billion livres and we're going to buy the whole national debt. We're going to buy the outstanding BA d Ta we're going to get rid of the annuities ideally, we're going to get rid of the jobs for the boys, basically the kind of hangers on roles that are in the Royal Court and also take over tax collection. So he's going to buy the right, which is currently private with someone else, he's going to buy that right off the king, the right to collect tax. So basically putting everything under the Mississippi company, from the money supply to tax collection to managing the national debt.

Merrin Somerset Webb (27:57)

Okay, so we got the beginning of a bubble going here. Yeah, shares going up a lot. Everyone's beginning to get excited. Yeah, shares are going up in other countries too, all over the place.

John Stepic (28:08)

Yes. And so this is probably when the kind of real kind of excitement takes off. Chapter 7 fun in the Rue Canpoix. This is where it all starts to go a bit nuts. And most of the kind of stories from around this time are focused around the Rue Canpo, which is a bit like Exchange Alley in London, it's where everyone goes to trade shares. It's kind of rowdy, it's kind of messy. It's very much all the talk of the town. I guess it's like crypto boys, maybe. There's one clerk at the British Embassy who says that the streets just crowded from early morning to late at night with princes and princesses and dukes and peers and duchesses. In a world all that is great. In France, they sell estates and they pawn jewels to purchase Mississippi. All the news of this town is stock jobbing. The French heads seem turned to nothing else at present. But the other thing that people are noticing is that prices are going up. So rising land prices, and this is because obviously the money supply is exploding as well. There's a local duke who notes that rising prices are encouraging agricultural workers to cultivate land that hasn't previously been farmed. So it's becoming worth people's while to go and work on the harder land because the price of it is going up. And meanwhile, the share price keeps going up and up and up. Like, for example, in October, the high is 6500 and the low is 4600. It's quite volatile. In November, there's a high of 9800 and the low is 6700.

Merrin Somerset Webb (30:00)

But it's really moving.

John Stepic (30:01)

Yeah. And also people are coming in as well. So between November 18th and the 22nd, the share price surges from 7,250 to 9,000, because one British envoy says a great number of people came from the provinces and they all arrived at once in the street on Saturday last. So basically there's a mania. People are coming from far and wide, buying the shares. They're able to do it in leverage and you're also able to do it via futures. So a type of futures market has been set up where traders are basically saying, we'll take Mississippi stock off your hands in March next year. So March 1720, for 12,500 livres. These traders are betting that in March the share price will have risen from 9,000 to obviously more than 12,500, because otherwise they wouldn't be offering 12,500 for it. You're seeing actually a lot of this financial innovation alongside.

Merrin Somerset Webb (31:03)

Yeah, I'm always nervous of the phrase financial innovation, John, as you know. And here it comes. Right. And one of the things you say this is when we first get the.

John Stepic (31:12)

Word millionaires, it's used, or appears to have been used first in the same local newspaper. And Voltaire uses the word as well, basically says, have you all lost your minds? A company, Paris. And the talk is of nothing but millions.

Merrin Somerset Webb (31:27)

Okay, so we've got our millionaires. They're all over the place. This is temporarily good.

John Stepic (31:32)

Temporarily good. But obviously it's driving up prices as well. Retail prices are going up, and that's not ideal for people who haven't been speculating in the shells. But I mean, obviously Lloyd's kind of enjoying himself. He's popular. He's kind of widely liked. And this was actually. This story jumped out at me if you heard the term bougie. Do your kids use the term bougie?

Merrin Somerset Webb (31:52)

Yeah, they do.

John Stepic (31:53)

So basically, they've got a theater in the Royal palace, and it's lit by candles. And the ones that they have in the theater are made from tallow, so from animal fat. And they're called shondell. And they're kind of smelly, and they're very smoky because they're made from tallow. So what he does is he has them all replaced with candles made from North African wax. So they aren't half as smoky. They sort of, like, don't stink in animal fat. And those candles are called bougies. And that's where the word bourgeoisie comes from. And by extension, all the way going back, bougie that our kids use, they describe.

Merrin Somerset Webb (32:31)

What does bougie mean when the kids say it these days?

John Stepic (32:34)

It basically means fancy.

Merrin Somerset Webb (32:35)

It means fancy bourgeois.

John Stepic (32:39)

So there we go. John Lord not only invented the word millionaire, he invented the word bougie.

Merrin Somerset Webb (32:44)

Still giving kids words today. Very cool.

John Stepic (32:46)

Exactly.

Merrin Somerset Webb (32:47)

All right, so here's top dog. Here's top dog. He's flying high.

John Stepic (32:52)

Bougie, bougie, bougie, bougie, bougie, bougie. Exciting. In January 1720, he's made controleur general de finance. So basically, he's made the equivalent of the Prime Minister, Chancellor, Exchequer, kind of rolled into one. So I think. So this is kind of the magazine cover moment. He's basically the most powerful man in France. He's certainly one of the richest private citizens in Europe and therefore the world. And so the only way is down. Chapter eight, Laws fall from grace. For the first quarter of 1720, it seems as if it's still rumbling along. This is the point at which he starts to demonetize gold and silver. So if you're spending over a certain amount of money, it has to be in banknotes, not in gold or silver. He wants to stop gold and silver being the kind of basis of the money system, people are okay with trading in their Gold and silver at first much for the same reason that they were whenever he originally set up the General bank, because there's confidence in paper money and there's also a sense that it's more immune to devaluation than coinage. But equally, a lot of people have now made quite a bit of profit. People are noticing prices generally going up. And Law himself, I think, is keenly aware that he's printed too much money. I think the first point at which he starts to panic is a bit later in January. And one thing that he's doing, he's watching the futures market and at this point the share price shares peaks at 10,100 livres. So law is, because he is worried about a, the extent of the speculation, which is quite disruptive and rowdy, but also about the money supply, wants to flood the futures market with a different kind of contract called a prime. And this is basically a futures contract that says in March you'll be able to buy Mississippi shares for 10,000 rather than 13,000. So the idea here is he's basically trying to encourage people to realize that the shares aren't going to go any higher and they should stop bidding them up. But what happens instead is that people actually buy the primes and then start to pay a premium for the primes because they're like, oh, wait a minute, this gives me an option. You buy the shares for much cheaper than they're definitely going to be in three months time. They start to do that and not only that, they actually start to sell their underlying shares to buy the derivatives. That actually puts pressure on the share price of the Mississippi company and pushes it down, which is while at the same time people are paying well over the odds like 2 and 300% of the price at the primes to kind of get the option to buy in these shares in the future. So that's one thing that kind of starts to, I guess, show that a, he's rattled and start to actually rattle the wider market. And then the next month options trading is banned. Law has always been, during his rise, quite pro the free market. So he's objected to various coercive measures in the past, but now that he is realizing that his system might get any trouble, he's not remotely above using coercion or attempting to use coercion to get people to do what he wants and get it to work, we don't like him anymore.

Merrin Somerset Webb (36:32)

Although to be honest, he was always a murderer.

John Stepic (36:34)

Yeah, he's always a murderer. Although I mean, to be fair, that probably was self Defense standing up for my man here. And then so in February again, the attempts to suppress specie get much more aggressive. And so the metal coin is just devalued again. And to order to encourage people to swap their species, their gold and silver for paper notes. And then he bans diamonds and jewelry to stop people from turning their gains into metal. But the great thing is there's a loophole for church ornaments. So suddenly gold and silver crucifixes just become really popular. They start paying people big rewards to inform on their neighbors and their friends. But obviously this all makes people a bit more paranoid about what's going on. And so they kind of like they want to convert their shares into gold. They want to basically get their paper money turned into something else.

Merrin Somerset Webb (37:25)

Feel like that, John, we all feel like that.

John Stepic (37:27)

We certainly feel like that now. But really the big clanger, and this is where he really does seem to have either not thought it through or just not really realized what was going to happen. In May, he issues an order. The Mississippi shares are trading at about 9,000 livres. And he says, right, there's too much money floating about France, we need to rein in the money supply. What we're going to do is we're going to have to value the shares. The shares are going to be fixed. The share price is going to be fixed at 5000 livres. So half of what it is just now I said, but it's okay because the banknotes are going to be reduced in value by the same amount. So you still get the same relative amount. So this is really just an adjustment. And of course everybody goes ballistic because there's people that have done things like sold their houses to buy the Mississippi shares. So he's basically announced a massively deflationary measure that sends everyone into a panic, which is kind of understandable because he's sort of single handedly ruining them. And so this is the point where he really gets into serious trouble with the Regent. Because the other issue is that the people who don't like what he's doing, you know, the people who kind of live on annuities and on jobs for the boys, are starting to get the Regent's ear again.

Merrin Somerset Webb (38:55)

How?

John Stepic (38:56)

Partly because the Regent is kind of getting a little bit nervous about what's going on and feeling.

Merrin Somerset Webb (39:01)

And presumably John Lord is pretty busy and doesn't have the suck up time he had previously.

John Stepic (39:06)

Yeah, aye, there's that too. He's forced to reverse it and then he's actually put under house arrest for a short period. Of time. And it looks as if he may end up in the Bastille. But what basically happens is that because no one else knows how the system works, the Regent decides to get him back in. But at this point, it's very much a case of he's no longer in charge. It's about how do we unwind this in the best way without kind of destroying the entire economy? This is when things actually start to go from quite bad to worse. Plague breaks out in Marseille, which is one of France's most important port cities. It's absolutely devastating. Tens of thousands of people die. It was extremely bad for the French economy. And it also adds to law's unpopularity, because the problem is that in that circumstance where you get a quarantined plague city, although he sends something like 100,000 paper livres to help, nobody wants to pay for money. They all want specie. They want gold and silver, because in extremists, that's the only way that you can pay for supplies or the kind of necessities of life. So he kind of ends up almost getting the blame, not so much for the plague, but for one of the reasons of why it ends up being just as bad as it is. And then really, over the next six months, he's kind of fighting a rear guard action. The share price keeps falling. His kind of rivals in the court demand the return of annuities. So the King starts to raise money by giving out annuities again. The banknotes are gradually demonetized. Gold and silver make a comeback. And basically by December, most of his system has been unwound, despite his best efforts to try and slow the process or think of different ways to kind of reintroduce it. And he has only become more and more unpopular. His carriage is attacked in the street more than once.

Merrin Somerset Webb (41:16)

Oh, no.

John Stepic (41:17)

So, yeah, so basically, he's extremely unpopular. And it just gets to the point where his presence in France is no longer sustainable. In December, he turns round to the region, offers his resignation, offers to leave the country. And there are a lot of people saying, look, you should arrest this guy. You should bang him up. He's ruined the country, but he's still got close friends in the court. And also, at the end of the day, the Regent is up to his eyeballs in the system as well. The Regent's kind of made money from it. He's the one that's put all this faith in law. So basically, they allow law to leave, along with his son William.

Josh Whalen (42:03)

If you're paying more than $1 a month for any ED or hair medication. Listen up at Joy and Blokes when you start TRT or Enclomiphene, you can add any ED or hair loss prescription for just $1 a month. $1 add ons with your hormone plan and right now all labs are 50% off. I'm Josh Whalen, founder of Joy and Blokes. I built this company because men are tired of paying for fragmented care without results. Every Joy and Blokes lab includes a visit with a licensed clinician who connects your symptoms to your biomarkers. You'll get a real plan that covers hormones, performance and confidence. If you're considering TRT or Enclomiphene, this is the most efficient way to do it. Get started@joyandbloks.com and use a promo code. Podcast new customers get 50% off their labs and for a limited time you can take advantage of our $1 ed or hair loss add ons when you start TRT or Enclomiphene. Not available in all states. Compounded medications are not FDA approved.

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John Stepic (44:33)

Chapter 9 the Aftermath. So that's the story of Law Ignominious leaving in France, but it's not actually the end of his story. He goes to Venice for a little while and then he heads to London. He's got friends there that can support him financially. And by this point, he's also received an official pardon from King George and he's still hoping to get the call to France and reinstated, and also, obviously, to recover at least some of the wealth that he's left there. But meanwhile, back in France, the State is getting to work on unwinding the system. It embarks on something that becomes known as the visa of 1721. Every security issued by Law, from banknotes to shares, has to be submitted to basically an audit. And then it gets stamped or a visa put on it, saying how much you're actually going to get back. You get a haircut, according to, in theory, how honestly your money was earned. It's a form of very lucrative virtue signalling for the state. But really in practice, what it means is that deserving widows and the nobility practically get all the money, whereas kind of like uncouth common speculators get kind of 95% haircuts and are ruined. They end up cutting. I think it's about 2.2 billion livres of outstanding paper down to 1.7 billion. And meanwhile, the Mississippi Company's taking any administration and it's eventually actually found to be a going concern. It's been run acceptably, but it switches focus from the Louisiana colonization to just trading with Asia, which is more profitable.

Merrin Somerset Webb (46:13)

And who owns it now?

John Stepic (46:14)

The original shareholders do get it back, but obviously with a massive haircut taken, I think it takes about three or four years for the administration process to go through. Not sure what his lifespan is, but it does end up being a going concern for a while. But in the immediate aftermath, Law is actually still hoping to return to France. And at one point in kind of like 1720, he does not give up.

Merrin Somerset Webb (46:37)

This man, does he?

John Stepic (46:38)

He doesn't give up. And it looks as if he may actually get back, but then the Duke of Orleans dies in 1723 and that's that, you know, and that's that. The young king is now of age. He takes over and basically there's no more. That's it. Canelo's role as a, I guess a kind of financial whiz is then over. He ends up back in Venice with his son. Still writes to Catherine, they still write to each other. He's still quite a successful gambler, but it really is, you know, it's a.

Merrin Somerset Webb (47:11)

Massive fall at his peak. It was kind of the Elon musk of the 1700s, I think. Insanely intelligent, hugely innovative, massively creative, intense relationship with the leader, all this kind of stuff.

John Stepic (47:28)

I think that's a good analogy. I think Law was probably more relatable to most people than Musk. Like, Musk seems to kind of get on a lot of people's nerves. Whereas I get the feeling that John Law was actually to do what he did without getting assassinated or locked up at some point. He must have been someone that, you know, you get the impression that even his kind of like enemies kind of liked him. I think he was probably quite clubbable, but, yeah, no, I think Musk is probably the closest modern equivalent in terms of proximity to the state and also a real fondness for financial engineering. And then he dies in 1729 of pneumonia. William's there. Later that year, the Law family's reunited in Brussels. Law, before he dies, has made very sure to write a specific type of will that enables you to pass your estate on to someone you weren't married to, is probably the best way to describe it, because he couldn't write a normal will because they weren't married. So basically they're not left destitute. There is some of his own money and he also has a big art collection, which I think they live off for a long period of time. But eventually William unfortunately dies quite young. He dies of smallpox in 1734. He's 28. His mother, Catherine ends up living in her late 70s. So she dies in the late 1740s. And Mary actually marries her cousin in 1734 and moves to Britain. She becomes a Viscountess. She's an accomplished musician, she's popular society lady, but unfortunately her husband dies six years after they get married and they've got no children, but she lives a long life and she dies in London in 1790, in Mayfair, actually, at the age of 80. As for the French state, I mean, the ironic thing is. So when law came in 1716, the French government's debt to GDP ratio was 100%. And by the time the visa at 21 had given everyone massive haircuts, the debt to GDP ratio was down to about 50%.

Merrin Somerset Webb (49:31)

Actually, it was a success.

John Stepic (49:32)

It worked semi solvent again, but only by completely shafting everyone that invested in anything to do with John Law. And obviously over the longer run, that wasn't very helpful for France's kind of perceived credit worthiness. And then as far as Louisiana goes, in 1803, Napoleon sold it to Thomas Jefferson for £2.5 million, so he'd have to pay mansion tax on that today. Quite nice too. The story of John Law draws to.

Merrin Somerset Webb (50:03)

His close, I suppose. John, I should ask you. It was a long and fascinating story with some joy in the middle and significant misery at the end.

John Stepic (50:13)

Yes.

Merrin Somerset Webb (50:14)

What do we learn? That we should hang on to our gold. Ignore everyone who tells us that gold doesn't matter.

John Stepic (50:19)

I think there are two main lessons here. The most obvious one is own gold. It's what everyone turns to when money breaks down. But the other is that if you want to run a fiat currency system, you need strong institutions with checks and balances that people can trust. And even then it's still very fragile, as we've learned in plenty of occasions. The problem is Law was trying to impose something like a modern day monetary system almost overnight onto a country that simply didn't have the political infrastructure to cope with that. So it's not surprising that it blew up as soon as confidence evaporated. And then I think the other question is his longer term impact. I don't think it's fair to trace the French Revolution back to Law because if anything, the revolution results from the same power imbalances that undermine his scheme. But I do think you can view Law as a major factor in France losing ground to Britain over the course of the rest of the 18th century because his system collapsed and basically puts the French off financial innovation for good. So Britain, by contrast, already has the bank of England and it's already got more checks and balances at a political level. So even after the South Sea bubble pops, it's better able to manage its national debt and to raise funds. And that means that overall, Britain's able to spend more on warfare, which means it ends up having a better navy. And ultimately it overtakes France as the European and global superpower at the time. Those are all useful life lessons. Thanks, John.

Merrin Somerset Webb (51:44)

I think so too. Yeah. Oh, there you go. John Lohy wanted a legacy, didn't he? But I suppose he didn't really think about it like this.

John Stepic (51:57)

Probably. It's all right. He goes. I mean, a Scotsman kind of putting the spokes in the French army. I don't know. Interesting.

Merrin Somerset Webb (52:06)

You could imagine he did it on purpose.

John Stepic (52:10)

Surely Too cynical. Thanks for listening to our special two part series on John Law. We'd love to hear your thoughts. So please do send us questions or comments to marinmoneyloombear.net and if you enjoyed these episodes or any of our episodes, don't forget to rate, review and subscribe and share with friends. This episode was hosted by me, John Stepik alongside Merrin Somerset Webb. It was produced by Summer Saddy and Moses Andam with help from Amy Keane. Sound designed by Blake Maples and Robert.

Merrin Somerset Webb (52:43)

Williams Right, can I go walk the dog now?

Josh Whalen (52:48)

If you're paying more than $1 a month for any ED or hair medication, listen up at Joy and Blokes when you start TRT or Enclomiphene, you can add any ED or hair loss prescription for just $1 a month. $1 add ons with your hormone plan and right now all labs are 50% off. I'm Josh Whalen, Founder of Joy and Blokes. I built this company because men are tired of paying for fragmented care without results. Every Joy and Blokes lab includes a visit with a licensed clinician who connects your symptoms to your biomarkers. You'll get a real plan that covers hormones, performance and confidence. If you're considering TRT or Enclomiphene, this is the most efficient way to do it. Get started@joyandbloaks.com and use a promo code. Podcast new customers get 50% off their labs and for a limited time you can take advantage of our $1 ed or hair loss add ons when you start TRT or Enclomiphene. Not available in all states. Compounded medications are not FDA approved. Learn more@joyandblooks.com this is Scarlet Fu and.

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