Chapter 13: Mr. Law's Scheme

The last bad effect of the idea that public opulence consists in money is the notion of Mr. Law, a Scotch merchant.

He proposed his scheme to the Scotch parliament in 1701.

In this book, he agrees with the fore-mentioned writers that when the balance of trade is against a nation, it must soon be drained of its money.

There was little gold or silver in this country.

  • For two acres of arable land, they were to issue out a note of equal value.
  • This project was never executed.

  • It is hard to say what the consequence might have been.
  • It is obviously liable to the following inconveniences:
  • Mr. Law went over to France in 1714.

    He got liberty to create a bank there.

    Mr. Law’s notes were received in payment of the government revenue.

  • By this and other circumstances, his notes were always at par with gold and silver, especially as they were making continual changes in their coin.
  • Instead of promising to pay his notes, in pounds sterling, as we would say, he did it in crowns and half-crowns.
  • Suppose that our coin were raised to double.
  • Mr. Law wanted to make his notes above par.

  • The coin was not received in the market or elsewhere since the diminution was still expected and did not come for some time.
  • His next step was to relieve the public debts of 200[0] million.

  • He got a grant of the exclusive privilege of trading to Canada and established the Mississippi Company.
  • He also taxed the tobacco and all the public revenues of France at 52 million.
  • Mr. Law undertook this.
  • To prevent this, his invention was set on work.
  • He opened a subscription to it at 500 livres.
  • The government of France was in its most miserable condition.
  • Never was monarch more degraded than Lewis XIV.
  • After the treaty of Utrecht he had occasion to borrow 8 million livres from Holland.
  • not only to give them his bond for 32 millions, but to get some merchants to be security for him.
  • We should not be surprised that the billets d’état sold at great discount as:
  • Law published a declaration that one of these, which was granted for 500 livres, should purchase a share in the company.
  • The people still continued to have great expectations of profit.
  • In a few days, he opened a new subscription at 5000 livres [216].
  • At this time, he was enabled to lend the government 1,600 million livres at 3%.
  • Had he stopped here, he would have answered all engagements.

  • It was impossible that the value of shares could long continue at such a high rate.
  • This was principally caused by his opening an office to purchase 500 livres shares at 9,000 livres.
  • Prudent people opposed this scheme.
  • He was not obliged to pay the capital sums, only the annual dividend of 200 livres arising from the profits.
  • When in this manner oppressed, he was making continual changes on the coin to dissuade people from returning on the bank, and disgust them at gold and silver.
  • Through this, he prevented his notes from returning to him.
  • To accomplish this part of his scheme more perfectly, he most arbitrarily published an edict banning anyone from keeping gold or silver beyond a certain sum.
  • He reasoned with himself that some instrument of change is necessary, paper, gold, and silver, at present are the medium.
  • He thought this was done effectually when he had swept a part into his coffers and cleared France of the remainder, by an edict.
  • However, after many expedients, he found this was impracticable.
  • But finally, he published an edict that all bank notes were to be paid only in half.
  • This ruined many people.
  • Britain can never be much hurt by the breaking of a bank, because few people keep notes by them to any value.
  • Most of the people had their whole fortunes in notes.
  • They were reduced to a state of beggary.
  • The only people who were safe were the stock-jobbers who had sold out in time.
  • With their bank notes, they had bought all the valuable goods and a lot of land, though at the highest prices.
  • They made immense fortunes by it.
  • The South Sea scheme in our own country was nothing to this.

  • The clamour from Law’s last edict made it rescinded.
  • However, by raising the coin and other expedients, he kept it from May to October.
  • He was then obliged to leave France which he accomplished with difficulty.
  • This amazing scheme was founded on these two principles:
    1. That public opulence consists in money
    2. That the value of money is arbitrary, founded on the common consent of mankind.
  • Consistent with these principles, he thought he might easily increase the public opulence:
  • This scheme of Mr. Law’s was not contemptible.
  • If the Duke of Orleans had lived only a few days longer, it was agreed upon that he was to have been re-established.
  • Mr. Law’s scheme was imitated all over Europe.

  • It created the South Sea Company in England.
  • In the end, it turned out to be a mere fraud.
  • If it had been carried to as great an extent as Law’s, it would have had the same consequences.
  • It was built in the latter end of Queen Anne’s reign.
  • Its intention was to carry on a trade to the South Seas.
  • For this purpose, they bought up the greater part of the debts of the nation.
  • However, their stock was not great.
  • The profits expected from it were very inconsiderable.
  • The people's expectations were never greatly raised.
  • Its fall was not very prejudicial to the nation.