John Law's Mississippi Bubble
Scottish financier John Law, operating with the full backing of Regent Philippe d'Orléans, constructed an audacious experiment in modern finance: a state bank (the Banque Générale, 1716) empowered to issue paper banknotes, linked to the Compagnie des Indes (the Mississippi Company), which held a monopoly on French trade with Louisiana and the broader colonial empire. Between 1719 and January 1720, share prices in the Mississippi Company rose approximately tenfold as Law's scheme appeared to offer a mechanism for converting the state's crushing debt into company equity, but the absence of any colonial returns to justify the valuations produced a speculative frenzy and then a collapse: by December 1720 shares were essentially worthless, paper money was repudiated, and thousands of investors — including many of the bourgeoisie who had briefly become paper millionaires — were ruined. The crash had lasting consequences far beyond the immediate financial losses: it destroyed French confidence in paper money and public credit instruments for the remainder of the Ancien Régime, leaving the state without the debt-management tools that Britain's Bank of England and consol system were simultaneously perfecting, and perpetuating the fiscal fragility that Law had been hired to cure.
- Year: 1719 CE
- Category: Economic
