Planet Money - The Murderer, The Boy King, And The Invention Of Modern Finance

John Law killed a man in a duel, brought the first paper money to France, and became one of the richest people in the world. Then it all collapsed.

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Content Keywords: John laws Bank to Duke Law house economist
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For the last few years. I've been working on a book. It's about the history of money. It's called money the true story of a made-up thing. Just coming out now and one of the things I found a really striking as I was working on it doing the research was when you look back at like the long Arc of the history of money. You see these long periods of time when everything is just stable things are changing much and then there are these moments when everything just goes like bananas and you see these massive dramatic changes in a really short. Of time and one of my favorite Parts in the book was one of these moments. It happened a few hundred years ago in Western Europe when the modern economy and modern Finance were just beginning to emerge there's this one person who comes along at this moment. His name is John Law and he picks up all these little pieces all these Innovations and put them together almost single-handedly and kind of out of nowhere John Locke creates this entire economy that looks a lot like the world. We live in today. You got to start work.

Everybody starts. This is Steve Quinn. He's an economic historian who I talk to you when I was working on the book. You got to start where everybody starts which is government that I made for me if there's a duel of the capital. No, no, no. No, I'm an economist. I'm in end in don't get me wrong. I know stores Abdul cell Kathy, but you know, I'm hopelessly focused on okay. Okay, what's driving the thing it's government that absolutely he grew up in Edinborough but has moved to London. He is like medium rich but he is living the high-life in London has a bow which is like a 16 90s version of a bro, you know, he drinks a lot lose a lot of money gambling as all these romances and then on April 9th to 1694 John why is standing in Bloomsbury Square in London middle of the day a carriage rolls up and a young man named Edward Wilson gets

Walks up to law and draws his sword. So this is a planned thing Abdul law draws his own sword. They fight loss drinks Wilson Wilson falls down and dies. Nobody knows exactly what this was about their den some drama Laden living with the women who was married to another man and Wilson sister was living in the same building maybe that had something to do with it. We don't know but we know what happens next laws arrested for killing Wilson. He's convicted of murder sentenced to death and then he escapes from prison escape from prison. How did he get out? It's not entirely clear blue Sunny the face likely that he had some you no help from outside and somebody maybe even drugged a guard and let him out of his cell but we don't know what we do know is what happens next he gets on a boat and goes on the lamp to Europe.

Hello and welcome to Planet Money. I'm taking for the same and I'm a child. John Loftus murderer convict does not lie low in Europe Hideout change his name and devote himself to gardening know what he does. Is he transforms an entire nation people together Banks and paper money at 3 to the Giants Tock. Boom essentially invents a whole modern economy show. The story of John Law tells us a lot about how Finance works and also how it can blow up the world.

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So John Law is on the lam. He's popping up in one city after another across Europe Amsterdam venise Paris. He's always at the gambling tables playing cards and he's always winning lucky. He's not cheating. He's getting rich because he understands this intellectual disability understands really this new way of looking at the world that Europeans are just figuring out during his lifetime probability Theory card game called pharaoh and law knew that if you were the banker the house you had a slight statistical Advantage. It's just like how Blackjack Works in casinos now so law with roll into town set himself up as the banker at a high-stakes card game and the odds meant that overtime. He won more than a lost people are starting to notice when he arrives in Paris the chief of police sent this warning letter to the foreign minister. He writes quote Ascot names law Gambler by profession and suspected of evil intentions toward the king appears at Paris in high style. And does he even bought

Unimpressive home, although no one knows of any resource except fortune and gambling which is his whole profession the minister wrote in the margin of that letter. He is not suspect. He may remain in feet pajamas living in Paris gambling making money, but he's also got this I don't know hobby little side hustle. He's been trying to get going trying to convince France the whole country of France to completely change the way it is running its economy has been fighting war after War spending all this money. And now the country is basically broke Farmers can't borrow money to plant seeds at one point the king had to melt down his silver and gold plates to pay his soldiers which was kind of emblematic of the hole bigger problem the whole time you ran on gold and silver and there was enough gold and silver to go around do something about this problem in particular. His father was a Goldsmith end during John laws lifetime Goldsmith and Britain were kind of becoming Banks.

What happened was Goldsmith head safes in their shots? So people started storing the gold with the Goldsmith Goldsmith started giving people receipts for the gold and after a while people started to use the receipts themselves to buy stop order to settle debts. The receipts were like Frodo paper money. They were money at Jason. This wasn't the first time people in the world had used paper money. China had actually used it hundreds of years earlier, but it's a new thing in Western Europe. Then the coldness went further. They started making loans Goldsmith's would give you a claim check for gold that you could go out and use this money, but you didn't have to deposit any gold. Your claim check is for gold that kind of doesn't exist. The Goldsmith is creating money out of thin air. So is everybody with the claim check came back to the Goldsmith and ask for their gold back the Goldsmith would not have enough to be clear. This is basically how Banks work today. We called fractional Reserve Banking and similarly today. If everybody with a bank deposit came and asked for their money at the same time, we call that a bank run the bank doesn't

That is just how Banks work. But on the flip side if your economy say runs on silver and gold and you are so low on silver and gold that you just melted down. Your very favorite chalice fractional Reserve banking is exactly what you need, is ready to pitch this idea in France normally kind of guy is he would just go straight to the top picture to the king but the king of France at this moment Louis the fifteenth five years old not to bring to finance or Banking and France at this time is being run by a regent a Duke the Duke of Orleans or the author include working in his home chemistry lab composing operas and staying up all night with Nobles and opera singers and actresses who would all get drunk sleep with each other and Seiko gold vial things at the tops of their voices. So I bet you know, who the Duke is going to love, we talked about this with an Murphy. She is a historian, but

I also used to work as a derivatives Trader so she knows a few things about Finance Bros like he's out there and getting to know the right people and he manages to convince them to allow him to set up a private bank a bank owned and run by John Law. We have no not really know. There's the result is a bit of a suspicion about what banks are and what they can get. Yes send an every country I think has to you has to figure out how to make his peace with what banks are and what they do. So this is step one of John laws in 1716. He sets up the first real Bank in France. He's jumped from card game Banker to actual real Banker. It's called the function f l which is a fancy name.

But it's run out of his house. He Prince paper money backed by gold and silver but everybody thinks his bank is kind of a joke is drinking buddies a new rule that said everybody in Paris has to use the banks paper banknotes to pay their taxes and a reasonable definition of money is it's the thing you pay your taxes with cuz once the government says you have to use this thing to pay your taxes whether that thing is silver coins or cloth or dollars or paper money from the bunk General then everybody knows that at some point they're going to need to have that thing to pay their taxes when the Duke force people to use John laws paper money to pay their taxes. His paper bills became real money. So France's economy is now running on the full faith and credit of John Law. So let's pause here for just a moment and go to laws biographer Antoine Murphy for the recap.

He was sentenced to death and then he escaped from prison. So you wouldn't expect us Grace monetary Economist to develop from such a figure heads on your views of monetary Economist believe that if you build an economy, right everybody can get richer including but not limited to John Law. Okay. Now that I have the bank I'm going to go even bigger. I'm going to go International. When was gambling in Amsterdam years earlier. He would have seen what was really the first wildly successful multinational corporation was called The Dutch East India Company. There were other companies like this. They were trading companies acting profits through violence and oppression and slavery, but John lobb did not seem to trouble by that nor did the French in general. They had had trading companies like this before.

No, not really taking off the way they had another country's Sola says I'm going to create a company that will be bigger and better than any that has ever existed will come to be called the Mississippi company and log as the Duke to Grant the company a monopoly on trade with all of France's territory in North America of the landmass of the current United States not counting Alaska. I want to eat once he gets the Mississippi company moving you sending ships over to North America and the coming into a small little port in the Gulf of Mexico, which he says to the Regents we named after you recall Us New Orleans New Orleans named after the Regent now there is an important Quest hear a Twist and the twist finally brings us to the point where Steve Quinn that historian we heard from Zach at the beginning of the show.

Said we should start but you know, I'm hopelessly focused on okay. Okay. Yeah, I was driving the thing. It's government that finance and of the economy as a whole England Frances rival has started this new kind of Bank the bank of England that was helping it deal with government debt that from fighting all these words against England Frances borrowed all this money sold all these government bonds and it's having a hard time making the interest payments on the bus. The national debt is just killing the French economy Sola comes up with a plan to help the Duke help France really solve its national debt problem. When he first sell stock in the Mississippi company law says to the public. Okay instead of paying for the stock with money pay for it with government bonds. You give me some of those bonds at the government isn't going to be able to pay back and I'll give you a share of my company a share of all the riches in the new world. It is amazing how fast this is happening.

Truly is one of those moments in the history of money when everything is happening all at once, you know, it's just 17 17 right now. Not long ago. France was a country where the King was melting down his Forks to pay the bills now in France, you can borrow paper money lender that to the government to get government debt and then trade that dead-end to get shares in a multinational corporation that controls half of North America and John Law, by the way, if a cut of all of this John luskey Ms. Working paper money is working. It's easier for people to borrow money in the countryside farmers are growing more food in Paris Artisans are making more dishes than clothes and show him on the Mississippi company or taking over more and more essentially all of France's foreign trade a tobacco sales the entire French national debt all flowing through John Wall on the Mississippi company. So by now John Law basically is the French economy or stock price of the Mississippi company is going up and up and up. There was no stock market.

The time so people would just go into the streets outside the Mississippi company office to trade stock back and forth that officials closed it off. They put iron gates at either end an everyday at 7 a.m. They rang a bell and Bang the Drum and opened up the gates and everyone rushed in to buy and sell stock in the Mississippi company invented the word Millionaire on the French are so amazed by What the Lord Has Done and so thankful. That's what happens in January of 1728 the start of January 17-20 John Law is made the equivalent of prime minister of France is made Controller General to SheKnows extraordinary men you could imagine a media headline convicted Scottish murderer becomes prime minister of France and Kohl's has the words for stop Marcus.

I need it all the stuff. We didn't talk by the way about how rich John Wall got

he became extremely rich. He bought a dozen Country Estates several mansions in Paris a bunch of diamonds a library of 45,000 books the true Mark of wealth Lee wrote to somebody and he said I'm probably the richest man is ever being what could possibly go wrong.

Everything that's after the break.

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If we can say that John law created modern Finance, which sort of did in ways then we can say that he also created the first modern Financial collapse for trouble started in Mississippi where the big plans were really not working out as of 1719 French settlers had built a total of four houses in New Orleans, most of the people moving to the territory died of disease or starvation. The company does have tons of other businesses going by this point, but the price of the company's stock is so high that all of the businesses put together are not enough to justify knows this and he's getting worried. So he makes this really shocking announcement the company itself the Mississippi company will buy or sell unlimited quantities of company stock at a fixed price price just below where it was trading on the Open Market at the time. It's unclear exactly what was going on, but it seems like his hope with

It would stabilize the market what ends up happening is lots of people sell their stock back to the company and laws Bank prints more and more paper money to buy back. The stock has the opposite problem that it had before log out there before he got there. There was not enough paper money. Now, there's too much classic Financial boom more and more money is circulating and prices on basic Staples in a weed milk candles start going up fast. What ends up happening is lots of people sell their stock back to the company, but luckily law doesn't just own the company. He owns a bank that can print paper money. So he takes his bank and he prints more and more paper money to buy back the stock people start getting nervous now about law skin. Suddenly. Everybody wants to go to the bank and turn in their paper money for gold and silver, but once people start trying to convert

After paper money into gold and silver problems arose because it wasn't enough gold and silver tutu to pay them promoting this dream of paper money. And now it was all in wrestling. So he starts kind of flailing around looking for ways to save his system to save paper money and save it makes it illegal in France to possess large amounts of gold or silver coins. So as if by magic all the rich people in Paris suddenly had lots of new gold and silver jewelry wedding bands production of any gold object larger than 100 except for religious purposes. And then all the rich people in Paris suddenly found religion started making these big beautiful gold crosses will no longer be redeemable for gold and silver it will just be paper. Oh and by the way, the value of each paper bill will be half of what it is now.

The people of France they flipped out. They took to the streets. They threw rocks through the windows of John laws Bank to Duke Law of pal fired law placed under house arrest and lost LED France just like you fled England decades earlier the Duke and France gave up on paper money altogether went back to gold and silver coins as a con man modern economy. Don't think of him as one of the great forefathers of their field, but our world today looks a lot like what he envisioned this question. Why did I think you failed at least in part because for modern money to work for this kind of system. He was trying to create to work you need to have a balance of power you need to have thanks and governments in ordinary people all pushing and pulling and arguing over who gets to do what and how much and when and if this arguing just pushing and pulling that at least gives you a shot at keep

Things in check France did not have any of that really it was an absolute monarchy never went back to France the ended up in Venice made his living as a gambler and collected art and in 1729 just before his 50th birthday. He died.

You can email us at Planet Money at NPR. Org. We are on Facebook Twitter Instagram and Tik Tok at at Planet Money Robert Smith edited the show and I wrote the book money the true story of a made-up thing. I'm Jacob Goldstein.

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