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The man behind an 18th century financial bubble

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John Law was a Scottish financier credited with introducing paper money to the masses in the 1700s. But he’s also known for blowing up a big financial bubble in France. 

After apparently fleeing London to escape a death sentence for murder, Law made his way in the early 1700s  to France, where things went better.

“He was just a very popular person,” says Jon Moen, chair of the University of Mississippi’s department of economics. 

Law charmed the French government into letting him open a bank in 1716, Moen says. He issued paper money to the public at a time when most people made purchases with gold. Law then started a trading company to extract resources from France’s colony in Louisiana – and sold shares in the new company.

“So he was kind of able to finance his trading companies around the world under the assumption that, eventually, my trading companies are going to really pay off,” Moen says.

Only they didn’t, and investors panicked.  Law’s critics say he built up a bubble, and it burst. 

“The more the stock price went up, the more people wanted to buy more shares,” says Doug Noland, senior portfolio manager of the Prudent Bear Fund at Federated Investors. “So it was an experiment in paper money, but it was also a classic example of a mania.”

Law’s so-called bubble is often trotted out as a cautionary tale. Critics of the Federal Reserve say the money it has pumped into the economy is creating a bubble that will burst as wide open as Law’s trading company did. 

“It looks a lot more like John Law’s bank pumping out notes where John Law is really a name for Ben Bernanke or Janet Yellen,” says George Selgin, director of the Center for Monetary and Financial Alternatives at the Libertarian Cato Institute.


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