- The art of the Con
A Brief History of Fraud
The Mississippi Bubble
John was precocious as a youngster who grew up in
the early 17th century. He immediately showed early signs of being
a mathematical genius by solving exceedingly complicated analytical problems
that had been enigmas to even the cleverest people of his day. He also possessed
two other distinct advantages, he was extremely handsome and an inveterate gambler.
As his successes exceeded his failures in all of his many pursuits, his fame
spread far and wide, and eventually he caught the eye of Louis XIV of France.
Louis, as opposed to Law, was having a bad time of it. He wanted all the better
things in life, but not having enough money in his own treasury, thought to
take from his neighborâ€™s kingdom. Alas, he did not choose his adversaries well
and although he escaped with his life, and he went much further into debt and
his problems had multiplied.
Law, always on top of his game, came up with a pronouncement,
“Weâ€™ll start a Royal Bank and Iâ€™ll run it”, he told Louis. Louis retorted,
“What good will that do? Nobody in the kingdom has a franc. I have glommed on
to everything that the people did not tack down. How can they possibly have
anything left to deposit in your silly bank?” Law was prepared, “Lou, you know
all those stories about the New World, all that gold and stuff like that?” Louis
indicated he was indeed familiar with those stories.
Law continued, “We start a company and sell stock in it
to the peasants. They still have some money left in their mattresses. You know
yourself, that if we hire a top-notch public relations firm and give the deal
the right twist, we can make the commoners believe anything. We tell them that
the streets are made of gold in the New World and those chumps will fall for
it. We take all of the money that comes in from them, put it in the treasury
and pay off all of your debt, and Louis, when we are finished, there may be
even a little left for some of those funny little trinkets you really like.”
Louis though for a moment and concluded, “John, I think that is a capital idea:
we have nothing to lose and if it works, I will owe you really big time.”
Well, the idea worked. The money came in by the
gobs and the governmentâ€™s debts were paid, and there was even enough left for
Louis buy his funny little trinkets and to throw a party or two for his friends
in the court. But wait! Soon the people discovered that there were savages
in the New World and that the property that they had acquired was not “ocean
front” as they had been promised. The Bubble burst and the money of the peasants
went down the proverbial drain.
However, the peasants, having lost all of their
money now were no longer in a position to pay taxes. They were thrown out of
work, and the country went into a depression far worse than when John Law had
originally been given his assignment. Louis became disenchanted with his erstwhile
friend, while the people harbored grave ill feelings. John Law, a brilliant
man who just hadnâ€™t thought his plan through to its inevitable conclusion, was
run out of town and died a pauper. The plan he devised became know as the “Mississippi
Scheme”, which along with Englandâ€™s “South Sea Bubble”, almost drove Europe
back into the dark ages.
John Lawâ€™s exploits in France were soon noted by the English
who were well aware of his early success. An entity was created to deal in New
World real estate called the South Sea Company. Just as in France, the Government
was foursquare behind the scam. England was wallowing in war debt because of
a number of military actions that they had entered into without receiving any
economic benefit. The South Sea Company was given a charter covering both North
and South American real estate and along with substantial trade rights. The
fact that England had only conquered a miniscule part of the New World at this
point did not dampen anyoneâ€™s enthusiasm for speculating on this glorious and
unique opportunity. In other words, for the most part, the English Government
was selling its people land that it didnâ€™t even own. Between Spain and France,
the New World had already been pretty well carved up. However, in spite of this,
a vast majority of the Crownâ€™s advisors had indicated that the people would
never read the private placement memorandum that the Government was issuing
and even if they did, there were no maps available yet showing who owned what
in this new region and so no matter what occurred, no one would ever be the
On the other hand, many other none-governmental
scams were cropping up all over and various private companies vied mightily
with the government in an effort to prune money from the English investors.
Great concepts, like the company that was charted to “carry on an undertaking
of great advantage, but nobody is to know what it is,” another project which
absolutely guaranteed that it could turn mercury into precious metals and the
most brilliant concept of them all, a company that was going to coin money by
manufacturing square bullets, all competed for investorsâ€™ money. The English
Government saw that its plans to pay off its war-debt were evaporating as the
competing schemes multiplied, did what any other sensible government would do.
It banned all of the other deals with the hopes that its own would prosper.
The people, however, had had enough of promoters slinking off into the night
after stealing their hard-earned money. The bubbles all burst and logic returned
to a poorer, but wiser English countryside. Believe it or not, the bubble,
when it ended, had only lasted for a year.