bank-backers—rich nobles and merchants—who
typically underwrote loans
to nation-states. He became immersed in
the methodology of these banks and in the
strategies of their financier class.
Law began to formulate his own bank
proposals; he read some of his “competitors”
but mostly disparaged them, claiming
he could do better. Law’s first published
treatise, Money and Trade Considered with
a Proposal for Supplying the Nation with
Money (1705) proposed a land bank to
address Scotland’s chronic shortage of silver
specie. Proposals for banks based on
land value were not new, but Law’s introduced
concepts far ahead of their time. He
was first to clearly define the law of supply
and demand for goods in its modern sense;
more impressive, he posited that money
itself was subject to this law, insisting that
the best way to ensure its stability would
be to replace all silver coinage with paper
notes, and concluding that an increased
money supply would increase employment,
production and trade surpluses. His
plan rejected, Law continued to develop
his ideas; his modified land-bank proposal
for France in 1706–07, although rejected,
was at least taken seriously.
When Law made this proposal to
France, the largest country in Europe was
in dire financial straits: paying for Louis
XIV’s lifestyle and endless wars had put
the state deep in debt. The main source
of revenue, a tax-and-fee-farming system
inherited from medieval times, was utterly
inefficient and corrupt. Yet during this
period of national penury the Ministers
of the Navy, Louis Phélypeaux, comte de
Pontchartrain and his son Jérôme, decided
France could wait no longer to establish
a colony in the Lower Mississippi Valley,
“Louisiana,” which René-Robert Cavelier
de La Salle had claimed for the king in
1682.
Expeditions began in 1698, and by 1702
there was a primary settlement at Mobile.
But over the next decade, colonists—never
more than a couple of hundred, spread
thin along the Gulf Coast—had to compete
with the War of the Spanish Succession
for funding. French naval officers
were so underpaid that some looted their
supply ships bound for Mobile. Poverty
there was endemic and desertions were
common, soldiers routinely being embedded
with local tribes to avoid starvation.
Yet, though barely able to provide subsistence
for the miniscule colony, France still
Manuscript letters patent in favor of Mr. Law and his Company, establishing a general bank, May 2, 1716.
expected prodigious results: controlling
the Mississippi River and its trade, halting
British colonial expansion into the Illinois
Country.
In 1712 the government, still at war with
England and deeming even its shoestring
budget for the colony too great a burden,
granted a trade monopoly for a “Company
of Louisiana” to the king’s financial councilor,
Antoine Crozat. This wealthy financier
of overseas trade seemed the perfect
fit to energize the colony. But the crown,
typically, reneged on funding military
resources, and Crozat got stuck with the
bills. To offset this, Crozat raised the prices
soldiers and colonists paid for their meager
supplies, and was reviled by them for it.
When in 1712 Law made his next proposal,
for Turin, his theories had evolved:
it was not for a land bank, but for one
modeled on the Bank of England, which,
with assistance from the East India and
South Seas companies, had successfully
managed that country’s war-induced
debt. Although rejected, it prefigured his
second proposal for France, a national
bank which would a) increase the money
supply with paper currency, b) convert
The Historic New Orleans Collection, acquisition made possible in part by the Clarisse Claiborne Grima Fund and the Boyd Cruise Fund, 2010.0158.1
32 FINANCIAL HISTORY | Summer 2020 | www.MoAF.org