In May 1716, the Banque Générale Privée ("General Private Bank"), which developed the use of paper money, was set up by John Law.[2] It was a private bank, but three quarters of the capital consisted of government bills and government accepted notes. In August 1717, he bought the Mississippi Company to help the French colony in Louisiana. In the same year Law conceived a joint stock trading company called the Compagnie d'Occident (or, The Mississippi Company). Law was named the Chief Director of this new company, which was granted a trade monopoly of the West Indies and North America by the French government.[3]
The bank became the Banque Royale (Royal Bank) in 1718, meaning the notes were guaranteed by the king. The Company absorbed the Compagnie des Indes Orientales, Compagnie de Chine, and other rival trading companies and became the Compagnie Perpetuelle des Indes on 23 May 1719 with a monopoly of commerce on all the seas. Simultaneously, the bank began issuing more notes than it could represent in coinage; leading to an economic inflation, which was eventually followed by a bank run when the value of the new paper currency was halved.[3]
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