Gold Investment: The Story of John Law

Gold Investment - 5 September 2011

The French Revolution is an interesting period in history. This is when the peasants stormed the palace in Versailles. One can only begin to imagine what went through these people's minds when they saw all that the royalty had access to in the palace. Most of the people were starving and the royalty were living in absolute luxury. It begs the question how one of the most powerful nations in the world at the time was in a situation where they had so many starving people while the royalty lived lavishly.

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John Law was a Scotsman who gambled and was known as a mathematical genius. He was born in 1671 and died in 1729. Law established the first central bank in France in 1716. It is believed that he assured the Duke that France would have tons of paper money (fiat money) and that extra tax would not be necessary. Many of us might have heard this promise ourselves from our politicians. At this point, the Mississippi Company, which was founded in 1684, was encountering financial difficulties. The Bank of France was required to assist the company. By 1717, the company had to change its name to the Company of the West and two short years later it changed names again to the Company of the Indies. By 1718 the bank was names Banque Royale and it was allowed to operate under royal decree.

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Initially, things went great for all parties concerned. The Duke had all the money he needed and the economy was thriving. Eventually inflation set in and John Law was given permission to print more paper money (fiat money). Furthermore, he placed a limit on the amount of silver and gold that people were able to keep in their possession. This amounted to about 78 oz of silver and 5.5 oz of gold. He then insisted that all payments in excess of 100 livres were to be made with his bank notes only. Things got so bad that in an effort to stem the tide of wealth flowing out of the country, he forbade the exporting of silver and gold bullion. Citizens were offered rewards for reporting any people who contravened these rules. Money devalued so much that anyone who wished to trade in silver or gold was executed.

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