I'm Bryan, this is Money's the Matter. C'est Paris, 1720, la rue Quincampoix. It's Paris, 1720. The rue Quincampoix is already awake. In the narrow street, voices spill from windows and doorways. Merchants, aristocrats, servants, and spectators press shoulder to shoulder, waving papers in the air and shouting prices, one over the other. in the air and shouting prices, one over the other. Somewhere in the crowd, a man has rented out his back as a writing desk so two strangers can sign their next trade. Everyone seems to know someone who became rich yesterday. Everyone seems to know someone who became rich yesterday. Everyone seems to know someone who became rich yesterday. France, a country that only a few years earlier was drowning in debt, became suspiciously wealthy, almost overnight it seemed. wealthy almost overnight it seemed, and behind the wealth, a And behind the wealth, a Scotsman named John Law, a gambler, mathematician, and a convicted murderer. mathematician, and a convicted murderer, a man who believed he A man who believed he discovered something groundbreaking about money. about money. But to understand how a Scottish gambler But to understand how a Scottish gambler came to control the money of France, we have to go back a few years to a country that was anything but rich. Louis XIV, the Sun King, had spent decades building palaces and fighting wars while projecting French power across Europe. Sound familiar? Sound familiar? Versailles glittered in the sun. The treasury, however, did not. When Louis died in 1715, he left behind a government buried beneath a mountain of debt. Taxes were already crushing ordinary people. Gold and silver coins were scarce. Credit was broken. France had all the appearance of the great and wealthy kingdom, but underneath the silk, the chandeliers, and the gold leaf, there was a rather serious problem. there was a rather serious problem. France was broke. La France était ruinée. Into this mess walked John Law. He was tall, charming, Scottish, the Sean Connery of his time. He was also great with numbers. He was a professional gambler who had once killed a man in a duel in London, been sentenced to death, escaped from prison, and spent years wandering around Europe studying the strange machinery of money. Law had watched coins disappear during financial panics. He had watched government struggle because there wasn't enough gold or silver moving through the economy Not unlike a modern day liquidity trap. through the economy, not unlike a modern-day liquidity trap. And somewhere between the casinos of Amsterdam, the bank houses of Italy, and the gambling tables of Europe, he became convinced that everyone else was thinking about money the wrong way. A country didn't just become wealthy because it had money. It needed money because it was wealthy. Land, trade, labor, commerce. Those were the real wealths of the nation. Money just allowed it all to move around. And that distinction led Law to a monetary vision. What if money didn't have to be limited by the amount of gold or silver sitting in the vaults? What if a bank could issue paper notes instead? Notes people trusted. Notes that they could carry easily. Notes that could circulate through markets and shops and workshops far faster than heavy coins ever could. IOUs, if you will. More money in circulation, Law believed, meant more trade. More trade meant more employment. More trade meant more employment, more production, and More production. More trade meant more employment, more production, and And ultimately, a more prosperous France. In the early 18th century, asking people to exchange their gold for a piece of paper required something more valuable than ink or mathematics. It required trust. Le confiance. And John was just about to discover how powerful trust could be. In 1716, Law was finally given his chance with the approval of Philippe de Orléans Philippe of Orleans. (pardon my French) he established the Banque Générale de Paris. You could bring the bank your gold, silver You could bring the bank your gold, silver coins, and receive paper notes in return. coins, and receive paper notes in return. Notes promising that bank would Notes promising that bank would redeem them for coin when you asked. The paper was easier to carry. And importantly, more predictable than French coins whose metallic value and official value could be changed by the crown. Slowly, people began using Law's notes. Merchants accepted them. Taxes could be paid with them. Business became easier. The experiment appeared to be working, and that success gave John Law something dangerous. Credibility. The following year, he turned his attention across the Atlantic to an enormous stretch of French territory called Louisiana. Now this wasn't the modern state of Louisiana. This wasn't the modern state of Louisiana. If you've heard of the Louisiana Purchase, you know that's significantly more land. French Louisiana sprawled across much of the Mississippi River basin, a vast interior that the Europeans still understood poorly and imagined freely. Law took control of struggling trading enterprise, renamed it the Compagnie d'Occident, which stood for the Company of the West, and received for the Company of the West and received a a monopoly over French trade in the territory. Louisiana had land, timber, tobacco, furs, and probably, most importantly, access to the Mississippi. And if you believe the story circulating through Paris, it might contain quantities of gold and silver. a gold rush. Suddenly, John Law wasn't merely offering France a new kind of money. He was offering something much older. Wealth and prosperity. The stories grew with every telling. The stories grew with every telling. Louisiana became less a place than idea. Distant land of fertile soil, overflowing trade, fortunes waiting along the Mississippi for someone clever enough to claim them. Pamphlets and rumors helped feed the excitement, while Law's company absorbed other trading companies and accumulated increasingly companies and accumulated increasingly valuable privileges from the French government. Eventually it controlled enormous portions of France commerce. And ordinary people could participate in the future by doing something really simple. Buying shares. At first, the shares were an investment in a trading company. But as the price began to rise, people stopped asking what the company might earn from Louisiana. They started asking how much higher the shares might go and higher they went. Shares that had been issued for around five, levers began climbing into the thousands. 500 leavers began climbing into the thousands. The higher they rose, the more people wanted them. And the more people wanted them, the easier it became to believe they would keep rising. But there was another piece to Law's machine. His bank was issuing more paper money, putting more leavers into circulation at precisely the moment France became obsessed with buying shares in his company. Paper notes could buy shares. Rising shares created fortunes. Those fortunes encouraged more buying, and more money flowed back into the same system. For a while, it almost seemed self-sustaining. Usually, bubbles do. Usually, bubbles do. France wasn't simply watching a company become valuable. France wasn't simply watching a company become valuable. It was watching money create wealth, It was watching money create wealth. Wealth create demand for more money. wealth create demand for more money. Wealth create demand for more money. La Rue-Concampois became the center of it all. La Roque en Campoix became the center of it all. La Rue-Concampois became the center of it all. A narrow, crooked street transformed A narrow, crooked street transformed into something resembling a stock exchange. Maybe a casino or a carnival. Maybe all three of those at once. Carriages clogged the surrounding roads. Fortunes were made between conversations. People who had never thought themselves of investors suddenly watched their wealth multiply on paper. If you've ever stopped to look at the word millionaire, it might seem fairly obvious to you now that that's a French word, millionaire. And John Law saw the center of the stage in the new world. His company was swallowing France's trading monopolies. His bank had become the bank royale, its notes now guaranteed by the king. Before long, law would become France's controller general of finances. The foreign gambler who had once escaped an English prison was now helping control the finances of the most powerful kingdom in Europe. And for anyone standing on the Roque en Campoix watching shared prices climb, Rue-Concampois watching shared prices climb, there was an there was an irresistible conclusion. John Law had been right all along. And perhaps that was the most dangerous moment of all. Because when something works long enough, Because when something works long enough, skepticism begins to look like stupidity. People sold land, jewelry, possessions to buy shares. People sold land, jewelry, possessions to buy shares. Nobles mixed with merchants and servants in the same crowded street, all chasing the same rising number. Stories of sudden wealth traveled faster than any warning that could follow. A man who had hesitated at 500 levers watching the price pass 1,000, then 5,000, then approached 10,000. And every increase seemed to prove that waiting had been the mistake. This is how bubbles begin. This is how bubbles begin. The fear of missing out sets in. The fear of missing out sets in, and somewhere beneath the And somewhere beneath the noise of the noise of the Rue Quincampoix, beneath Rue Quincampoix, beneath the paper, fortunes, and the cries of "Achetez, Achetez!" Another question was looming. What would happen if everyone What would happen if everyone decided they wanted their money back? At first, only a few people tried. After all, when your shares seemed to grow richer by the week, there's little reason to trade them in for something as dull as a pile of coins. But some of the earliest investors had accumulated fortunes. And eventually, they began doing what successful investors have always done. But also, successful gamblers have always done. done, taking some of the chips off the table. Taking some of the chips off the table. Shares were sold. Shares were sold, banknotes were carried to Banknotes were carried to the Banque Royale. the Banque Royale, and those notes came with And those notes came with a promise that they represented real value, redeemable in gold and silver. One person asking for coins, no problem. A hundred, sure. Manageable. But Law's system had grown far beyond the metal sitting in France's vaults. There was now vast quantities of paper money circulating through the economy, supporting vast paper fortunes in the Mississippi Company. The system worked beautifully as long as people preferred the promise to the thing it promised. And then, slowly but surely, people began preferring the thing the notes promised. Gold. Silver. Something they could hold onto that did not depend on John Law, depend on John Law, the Mississippi Company, the Mississippi Company, or the or the confidence of the person standing next to them. confidence of the person standing next to them. Law tried to stop the bleeding. Restrictions were placed on payments and precious metal. The value of the coins were changed. The value of shares were changed. New rules followed old rules, each one intending to restore confidence. confidence, and each one quietly And each one quietly revealing just how fragile confidence had become. Because in reality, you can order someone to accept a banknote, to accept a banknote, but you cannot order but you cannot order them to believe it. And once that belief began to disappear, the machine ran even more powerfully in reverse. Shares fell. People rushed to sell. Banknotes were exchanged as quickly as people could get rid of them. The fortunes created on the Rue Quincampoix began evaporating. John Law, once celebrated as the financial genius who had rescued France, became the man blamed for its ruin. By the end of 1720, he fled Paris. He'd spend much of the rest of his life wandering around He'd spend much of the rest of his life wandering around Europe, gambling to support himself. The man who briefly controlled the finances of France died in Venice, less than a decade later. It would be easy to end the story there and say John Law was simply a con man who printed too much money and created a bubble. But that's not really the full story. Some of Law's ideas were really modern. Some of Law's ideas were really modern. In the United States, for the majority of our history, we could exchange U.S. dollars into gold. Until 1971, when Richard Nixon ended international convertibility of U.S. dollars into gold convertibility of US dollars into gold to to stop the run on the U.S. gold reserves, the U.S. was overextended. This was known as the Nixon shock, ending the Bretton Woods system. shock, ending the Bretton Woods system. And it's a significant point in American history. We can look at the charts and see what a fiat currency has actually created, actually created, what the trust what the trust in the U.S. dollar has created, and expose us some of that vulnerability. In fact, much of the financial world we live in today would have been very recognizable to Law, to Law, in principle, if not in scale. in principle, if not in scale. His mistake was discovering something true and then pushing it until it became dangerous. A tale as old as time. Money, banks, markets can run on trust. Much of modern finance works precisely because millions of strangers agree to accept promises from people they'll never meet. But bubbles reveal the other side of trust. When prices rise long enough, the rising price itself begins to feel like evidence. Skepticism looks foolish. Caution feels expensive. And eventually people stop buying something because they believe that it will produce. They start buying it because they believe someone else will pay more for it tomorrow. That's speculation. So return for a moment to La Rue Quincampoix, So return for a moment to La Rue Quincampoix, the same the same narrow streets where servants stood beside aristocrats, beside aristocrats, where strangers signed strangers signed trades on another man's back, where trades on another man's back, where yesterday's yesterday's fortunes were measured in pieces of paper. The shouting's quieter now. The crowds are thinning. The crowds are thinning. Somewhere, someone is holding shares in a satchel that once made him rich, wondering, him rich, wondering what happened "What happened to all that money?" He was literally holding the bag. But this isn't really just a story about money. It's a story of people. It's a story of people. La confiance. Trust. John Law discovered that trust could turn John Law discovered that trust could turn paper into money. paper into money, money into fortunes, an Money into fortunes. paper into money, money into fortunes, an An impoverished kingdom into what appeared, at least for one moment, to be the richest place on earth. He also discovered, in a massive bank run, what happens when what happens when everyone stops believing everyone stops believing at once. Thanks for listening. Thanks for listening. I'm Bryan. This is Money's the Matter.