"John Law: A Scottish Adventurer of the Eighteenth Century," James Buchan, MacLehose Press, 528 pages, $39.
Forget share prices, interest rates and GDP. A better measure of the severity of a financial crisis is who is paying attention. When politicians start to notice, it is time to be concerned.
As the 18th century dawned, the attention of one of France’s greatest writers was held fast by the finances of its capital. The mania was over the work of John Law, a Scottish economist who, after taking charge of France’s finances, promptly promoted paper money and a financial bubble that inevitably burst.
Law, as James Buchan explains in “John Law: A Scottish Adventurer of the Eighteenth Century,” an exceptionally thorough biography, was a gambler in life as much as in finance. The son of an Edinburgh goldsmith, he was an outlaw after killing a man in a duel at 23, escaped from prison and fled to Holland.
It was an exciting time to be an economist abroad. In the financial markets of Holland and Italy, money was evolving with astonishing speed. Law caught the eye of the French regent, the duc d’Orléans. In 1720, Law became controller general of the king’s finances. France watched in awe as paper money was printed and shares in its new joint-stock company, which administered the Louisiana colony, rocketed.
Then the bubble burst. There was a run on the bank. The Louisiana company’s shares tanked. Law’s system had failed. The “richest citizen there has ever been” was ruined. But he may have gotten his revolution. Some historians said they think the French Revolution itself was the indirect consequence of the state in which he left the country’s finances.