1720: John Law and the Mississippi Bubble (a)

John Law had fled to safety in Brussels, Belgium, in December 1720. His furtive exit from France confirmed for many people that he was a criminal. Yet only months before, he had been hailed as a financial genius and the second-most powerful person in France. In four years, he had managed to refinance the nearly bankrupt government of France, in the process creating new markets, institutions, and securities. Then a bubble and crash in France's markets turned public opinion against him. In advance of petitioning for a return to Paris, Law needed to prepare a defense. To sustain a return, he would need to assert that the collapse of the Mississippi Company bubble was a matter of external circumstances and bad luck rather than mismanagement or fraud. On what circumstances could he pin the rehabilitation of his reputation?<br> <br>Excerpt<br><br>UVA-F-1812<br><br>Rev. May 21, 2020<br><br>1720: John Law and the Mississippi Bubble (A)<br> <br>Having narrowly escaped arrest, prison, and possibly hanging, John Law fled to safety in Brussels, Belgium, in December 1720. His furtive exit from France confirmed for many people that he was a criminal. Yet only months before, Law had stood as the second-most powerful person in France. Leaders across Europe had hailed him as a financial genius. In the space of four years, he had managed to refinance the nearly bankrupt French government and in the process had created new markets, institutions, and securities. Then a bubble and crash in France's markets had turned public opinion against him. Where Law had once enjoyed the approbation of the elites and common people, he now faced mobs that threatened physical harm and political opponents who wanted to do worse.<br> <br>From the safety of Brussels, Law pondered the path ahead. He later wrote to his wife, who had been detained in Paris, that he felt much out of humour, when I reflect on the treatment I have received from France. Should he return to Paris, defend the financial program he had advanced, and try to repair his reputation? To do so would require that he explain the causes of the bubble and panic what explanation could he give? He wondered how the financial crisis had altered the political landscape. Who had lost what? Had anyone won? Would the king and Parliament of France continue to sanction the financial reforms that Law advocated? Were his ideas and reforms victims of circumstance or the cause of the troubles? Would France continue with the modernization and growth of its financial system or would it retrench and return to former ways? Ultimately, to defend his ideas, Law would need to convince the king, the regent, his critics, and thousands of angry investors that his theories of modernization of markets and institutions were in the nation's interest. What arguments would be necessary to persuade others? <br><br>John Law: Gambler, Murderer, Expatriate, Economist<br><br><br>. . .