The Great Mississippi Bubble - Part 4

  • December 28, 2016
  • By Shantanu Paranjape

From Part 3


        In 1715, France had already become richest and wealthy country in the Europe. But the fiscal system of the France was not that sound as compared to other countries from Europe. John Law decided to take the advantage of this system.  He proposed to the government that now it’s a good time to issue paper notes as a legal tender. During that time, due to increase in number of wars, France government was already in trouble as debts had increased by multiple times. Almost Three billion Livres! (French currency at that time!). The value of one Livre at that time was one pound of silver which was worth $236 approx. on 19th September, 2014 as per records available. 

        John Law was successful in convincing Phillips who was a Duke at that time. He was interested in reducing in Public debt. Law’s proposal promised to fulfill this objective hence finally regent from France granted permission for establishment of private bank and granted a license to John law to start a bank, ‘Banque General’ which was named later as ‘Banque Royal’. A perfect start to John’s plan. Later they authorized Banque General to issue paper currency against redemption of Gold and Silver coins. Start of removal of gold & silver coins.

        In this process of issuing paper currency, the government and ‘Banque General’ became more close as the ruler or regent ordered the public that they should deposit their entire money into the bank. The decision was made to replace the coins into paper currency. Regent allowed that people can make payment of taxes from issued paper notes. Within a short period ‘Banque General’ was very much successful in circulating paper currency in France.

         The main idea of the Law was to create a bank for nation and a state finance company. He was expecting a monopoly in the field of finance and trade. He thought that increasing the quantum of paper money in the country, the GNP (Gross national product) of the country will go up and in turn it would increase the power of the nation. Regent of France took his idea seriously and granted him a charter to create a company which was named as ‘The Compagnie de la Louisiane ou d'Occident’ (Company of Louisiana and the West). 

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