CHAPTER 2

The Mississippi Scheme

It seems hard to believe that an obscure Scotsman born over 350 years ago would have profound effects that persist in the financial world to this day, but it is true, and that man's name was John Law. The events surrounding Law’s actions in the eighteenth century are the stuff of legend, and Law is considered by some economists to be the world’s first Keynesian—that is, a person who supports the notion that flooding an economy with government spending is the best way to address a weak economy. Even the everyday English word millionaire was coined during the mania of Law and his so-called Mississippi Scheme. In this chapter, we will explore what led up to the scheme, its construction, and the devastation it wrought.

Law’s Early Life

John Law was born in Edinburg, Scotland, in 1671. He was the oldest son of a banker, and as was the custom at the time, young Law apprenticed in his father’s business beginning at the age of 14. For three years he worked in his father’s counting house, learning the principles of banking.

In spite of being in a family of bankers and goldsmiths, Law did not have a passion for the business, and after his father died in 1688, the young Law took the opportunity to leave the family enterprise for an activity with far greater personal appeal: gambling. He set out for London and tried to apply his knowledge of statistics and probabilities to forge success as a professional gambler.

He did quite well for a while, managing to ...

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