Product Overview

John Law had fled to safety in Brussels, Belgium, in December 1720. His furtive exit from France confirmed for many people that he was a criminal. Yet only months before, he had been hailed as a financial genius and the second-most powerful person in France. In four years, he had managed to refinance the nearly bankrupt government of France, in the process creating new markets, institutions, and securities. Then a bubble and crash in France’s markets turned public opinion against him. In advance of petitioning for a return to Paris, Law needed to prepare a defense. To sustain a return, he would need to assert that the collapse of the Mississippi Company bubble was a matter of external circumstances and bad luck rather than mismanagement or fraud. On what circumstances could he pin the rehabilitation of his reputation?

Learning Objectives

Review the causes and consequences of the Mississippi Bubble and its crash. Illustrate an early example of a financial innovator and policy entrepreneur who seeks to carry into practice concepts for innovations in markets, institutions, and instruments. Survey the economic ideas of John Law, understand why they were revolutionary in 1720, and interpret their relevance today. Explore the political and economic challenges related to the modernization of a national financial system, and the relationship between the development of the financial system and overall economic development of a country, giving particular attention to the influence of mercantilism on strategies of national finance. Consider the general importance of institutions (i.e., norms, laws, and regulations) in the economic and financial development of a nation.