Chapter 13 of Part 2 Section 2 of The Lectures of Jurisprudence Simplified

The Mississippi Scheme Icon

August 1, 2021

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

He thought that:

  • the value of gold and silver is arbitrary and depends on constitution and agreement.
  • the idea of value can be brought to paper and preferred to money.

If this could be done, he thought it would be a great convenience. The government could then do what it pleased:

  • raise armies,
  • pay soldiers, and
  • be at any expense.

He proposed his scheme to the Scotch parliament in 1701 but was rejected. He went to France, where his project was relished by the Duke of Orleans.

In his book, he agrees with Mun and Gee that when the balance of trade is against a nation, it must soon be drained of its money.

  • To turn the balance of trade in our favour, he proposed a land bank in Edinburgh to the Scotch Parliament.
  • The bank would create money by paper, independent of gold and silver, since there was little gold or silver in Scotland.

He falls into many blunders on tenures and the nature of property.

This bank would keep only 20,000 or 30,000 pounds to answer small demands and give out notes for land.

  • For 2 acres of arable land, they were to issue out a note of equal value.

If any extraordinary demand was made on them, they would pay some of it in money and some of it in land.

Through this, the whole land of Scotland would go from hand to hand in a very short time, as a 20 shilling note does*.

*Superphysics Note: Nowadays this is done through cryptocurrency which are scams

This project was never executed. It is hard to say what the consequence might have been. It has the following inconveniences:

  • The land rent of Scotland at 5 million per annum. After 20 years’ purchase it becomes 100 million
  • There would then be so much currency in Scotland
  • If 1 million were necessary for circulation, there would just be 99 million for no purpose, as none of it could go abroad.
    • They would not have been able to maintain one man more than before.
    • Their food, clothes, and lodging would not have been increased.
    • Every commodity would have risen to 99 times its present value.

Mr. Law moved to France in 1714 and found favour with the Duke of Orleans, then Regent who let him create a bank there in the following steps.

At first, it only had 6 million livres or £320,000 sterling. He used it to issue many notes which engrossed France’s whole circulation in a short time.

His notes were always at par with gold and silver because:

  1. They were accepted for tax payments.

This contributed to the success of the scheme. This also had a bigger effect in France than in Scotland because of the many French taxes.

  1. France was continually devaluing their coin.

Back then, 8 ounces of pure silver was equal to 28 livres. It was devalued to 60 livres.

Thus, a devaluation was expected daily. Mr. Law made his notes payable in the devalued money as ’the money of the day’. Instead of promising to pay for his notes in pounds sterling, he paid in crowns and half-crowns. This was a very proper method to make them par with gold and silver.

The bank notes and coined money would rise and fall together if the coin were devalued just as the notes were. <!– to half its value – a half-crown became a crown. –>

  1. Other circumstances

Mr. Law wanted to make his notes above par, so he issued more bank notes payable in livres tournois.

When the coin was devalued, he would not be obliged to pay more than half. The coin was not accepted in the market or elsewhere since the devaluation was still expected and did not come for some time. This favoured his design and let him keep the notes above par.

This established the bank’s credit.

His next step was to relieve the public debts of 200[0] million.

In France, the whole tax is collected by one man, without excisemen. The French tax collectors are the richest in France and must be skilled in finances and public revenues.

So Mr. Law taxed the tobacco and all the public revenues of France at 52 million.

He had monopolized the whole trade of France. It was difficult to say what profits he would make. He wanted to lend the government 80 or 90 million [sterling].

He could easily do this by issuing notes to that value. But then he saw that they would soon return on him.

Step 3: Issue shares

He foresaw the devaluation, so he took another method to keep up his notes.


  • got the exclusive privilege of trading to Canada and
  • established the Mississippi Company.

He joined the African, Turkey, and East India companies to this.

The Mississippi Company seemed to start in a very flourishing condition. Shares were bought at a very considerable rate, so he opened a subscription to it at 500 livres through a navy ticket or billet d’état.

This raised them to a par, just as they had been far below it for a long time.

The French government was then in its most miserable condition. The interest of the money which should have paid the billets d’état was used for other purposes.

The monarch was degraded more than Lewis 14th.

After the treaty of Utrecht, he borrowed 8 million livres from Holland through his bond for 32 million. To get some merchants to be security for him, the billets d’état were sold at great discount. This was because:

  • they bore no interest, and
  • it was uncertain when they would be paid.

Had he stopped here, he would have answered all engagements. But his future proceedings ruined all.*

*Superphysics Note: In effect, this would’ve used the Mississippi Scheme to pay for the debt of the government

Step 4: Issue more notes from the shares to pay the debt

Law published a declaration that each bank note would represent a share in the company. And so his bank notes came again to par [gained value] as the people still had great expectations of profit.

In a few days, he opened a new subscription at 5,000 livres, and then another at 10,000. This let him lend the government 1,600 million livres at 3%.

It was impossible for the value of shares to continue at such a high rate for so long. He had issued notes to double the country’s circulation. This raised the prices of everything. This made foreign exchange against France in all foreign trade.

However, he thought that it was necessary to do everything to keep the value of the shares up, as the whole fortunes of many people were in the bank.

This was principally caused by his opening an office to purchase 500-livres shares at 9,000-livres which obliged him to issue many notes.

Prudent people opposed this scheme. This was the first thing that made his bank lose credit and cause its dissolution.

He was obliged to pay only the annual dividend of 200 livres arising from the profits, and not the investment amount*.

*Superphysics Note: This is the same as modern governments paying only the interest of public debt

He might have let them fall to their original 500-lives with just a reputational loss*. But he issued so many notes from the shares that they must return on him. He was obliged to open offices in different parts of Paris to pay them.

*Superphysics Note: People know that public debt will never be repaid

Step 5: Devalue and Banish coin

He kept on devaluing coin, relative to gold, to dissuade people from withdrawing coin from the bank.

If a person had 20,000 gold guineas, he would exchange them for notes instead of coins as he was afraid that the coin would not keep that value. The same coin devaluation prevented those notes from returning on the bank, as they would there be paid in coin.

He filled his coffers with almost all the gold in France and prevented his notes from returning to him.

To accomplish this part of his scheme more perfectly, he arbitrarily:

  • banned anyone from keeping gold or silver beyond a certain sum and
  • removed the severe penalties against coin exportation.

Everyone was allowed to export gold and silver duty-free. Much of it went to Holland.

He reasoned that if all the gold and silver were exported, then only paper would remain as the sole instrument of commerce.

He thought, through an edict, to:

  • sweep some metals into his coffers
  • clear France of the rest so that everyone would take paper.

However, after many expedients, he found this as impracticable. But it kept off ruin for some months by paying out great sums.

But finally, he published an edict that all bank notes were to be paid only in half. This entirely broke the bank’s credit. The bank notes suddenly sunk to nothing and many people were ruined.

It would have been far better to suffer the consequences gradually than to suffer immediately as what had happened.

Britain can never be much hurt by the breaking of a bank, because few people keep notes by them to any value. A man worth £40,000 will scarce ever have £500 of notes by him.

But the breaking of this bank in France created the most dreadful confusion.

Most of the people had their whole fortunes in notes and were reduced to beggary. The only people who were safe were the stock-jobbers who had sold out in time.

  • With their bank notes, they bought all the valuable goods and a lot of land, though at the highest prices and made immense fortunes by it*.

*Superphysics Note: A modern example is George Soros who bets against failing currencies

The clamour from Law’s last edict rescinded it. The notes were again declared to be paid at value. But the bank never recovered its credit and this had no effect.

However, by raising the coin and other expedients, he kept the value of his notes from May to October. He was then obliged to leave France which he accomplished with difficulty. His goods were confiscated and he died soon after.

This amazing scheme was founded on 2 principles:

  1. Public opulence consists in money
  2. The value of money is arbitrary, founded on the common consent of mankind.

Because of these principles, he thought that he could easily increase the public opulence:

  • if he could annex the idea of money to paper, and
  • if the government could control the effects of that money

This scheme of Mr. Law’s was not contemptible. He really believed in it and duped himself. It was thought he had provided well for himself, but it was found to be otherwise.

The French government agreed that the Duke of Orleans would re-establish Law’s scheme. But the plan was scrapped after he died a few days afterwards.

Mr. Law’s scheme was imitated all over Europe. The South Sea scheme in Britain was not as severe as this since:

  • nobody was forced to go into it
  • the government had no share in it.