Buying was fueled by growing confidence
in Law’s abilities; by the Regent’s
and Law’s substantial purchases; by allowing
purchase on credit; and above all, by
the desire of those who held billets d’état
to unload them. Billets were discounted
60 to 70% on the market—investors could
buy a 500 mère for a third of that value
in billets, and if Law ran the Company
as well as his bank, dividends on shares
would far outweigh interest on billets.
Treasury delays in issuing billets d’état
hindered purchases, and not until December
1718 was full capitalization achieved.
In spite of this, the Company forged ahead
with its plans for Louisiana, possibly using
Law’s personal funds. Already in September
1717 it had sold land concessions, some
near a place it dubbed “New Orleans.”
Mobile and Biloxi had been stop-gaps for
guarding the Mississippi, but exploiting
the river’s trade required a port on the
river. During the lean years, only commandant
(later governor) Jean-Baptiste Le
Moyne de Bienville’s genius at Indian relations
had kept the colony alive. Now he
chose an ancient Native trading site near
the Gulf, easy to defend and a short portage
to the lake (Pontchartrain). By May
1718, Bienville’s men were clearing land
and building huts on what would become
the French Quarter. A simple beginning,
but one 20 years in the making, and only
happening at all thanks to the existence
of Law’s Company—which in its first 16
months alone brought more ships to Louisiana
than Crozat’s had in nearly six years.
January 1719 saw the next step in Law’s
System: the Banque Générale became the
Banque Royale, answerable only to the
Regent. In June, with Company share
prices lagging, Law engineered a merger
with the companies of the Indies, of China
and of Africa. However, as these were all
in debt, Law raised 75 million by issuing
a second and third round of shares
in June and July for his consolidated
Compagnie des Indes: the filles (daughters)
and petites-filles (granddaughters) were
payable in currency (not billets) and could
only be bought (or re-sold) by holders of
mères. Over the next six months, as the
price of mères rose to over 50 times their
original cost, those most heavily invested
in them—including Law, the Regent and
their backers at court—saw their wealth
increase spectacularly, and the term “millionaire”
was coined to describe these
Mississippians.
When the Company issued further
rounds of shares in the fall, buying grew to
a frenzy. Law, to ensure adequate liquidity,
had since January let the Banque
Royale issue several billion livres in new
bank notes. Some of this issuance was
hidden from Parlement by the Regent,
and some from the Regent by Law, whose
self-confident gambler’s nature was showing.
Literally wagering on his System,
he made “side-bets” worth millions of
livres with British counterparts—which he
would lose—that his “Mississippi Company”
would outperform the East India
Company—which it did not.
To prop up the System, Law had flooded
France with far more paper currency than
the real economy could handle, and inflation
was becoming rampant. But for the
moment, seeing only bulls in the market,
Law offered in August 1719 to take over
the entire national debt in return for
control of the tax-farms—depriving the
tax-farming nobility of their income, as
they had feared.
A decree on December 1, 1719 replaced
most specie with bank notes; the next day
Company shares peaked at 10,025 , but
then began a slow decline—some big investors
had begun cashing out. On December
30, a Company office was opened in
Paris to trade shares at prices fixed by the
Banque Royale, steadying the market. On
Banque Royale de France, 100-livre note, August 1719.
January 5, 1720, Law was named Controller-General
of Finances, in effect prime
minister of France; three days later shares
peaked again, at 10,100 . But rumors of
disease, famine and failed concessions in
Louisiana were reaching Paris; when the
Company trading-office closed in February
share prices fell again, losing almost 20% in
one week.
With investors fuming, Law again tried
to put on the brakes: a decree of March 5
re-opened the share-trading office, guaranteeing
to buy at 9,000 . But over the
previous months the public had seen,
in an attempt to bolster the System, so
many decrees and counter-decrees micromanaging
monetary policy—gold and silver
were in, gold and silver were out—it
seemed a return to Louis XIV’s feckless
economy, and Law’s guarantee was not
trusted. Investors had lost confidence,
and the frantic share sell-offs and bank
note cashing that ensued led to panic
and violence in the streets of Paris, which
had a deep psychological impact on the
Regency. Law’s many enemies at court—
the tax-farmers, financiers and others—
used the emerging cracks in his System
(which they themselves intentionally
exacerbated) to convince the Regent it
could not be sustained.
The remainder of 1720 saw a steady
decline in Company share prices and in
The Historic New Orleans Collection, 2001-47-L
34 FINANCIAL HISTORY | Summer 2020 | www.MoAF.org