The Mississippi Bubble · Boom & Bust

The Setup

France came out of Louis XIV’s wars effectively bankrupt, and into that opening walked John Law — Scottish gambler, duelist, and the most original monetary mind of his age. His theory was genuinely ahead of its time: money is a means of exchange, not a store of silver, so a paper currency managed by a bank could revive trade where coin shortage strangled it.

The Regent let him try. Law’s Banque Générale (1716) became the Banque Royale; his Compagnie d’Occident took the Mississippi colonial concession, then swallowed the rival trading companies, the tobacco monopoly, the mint, and the entire national tax farm. By late 1719 one enterprise — bank and conglomerate under one man — issued France’s money and collected France’s taxes.

Bank and company were one machine with one owner. When the share price wobbled, the bank printed livres to support it — converting a stock bubble directly into an inflation.

Shares could be paid for in depreciated government paper, in installments, with each new issue priced above the last. The crowd in the Rue Quincampoix invented a new word for what the shares made them: millionnaire.

Compagnie des Indes share price, livres, 1719–1720 · Reconstruction — Garber (1990)

Displacement, 1716–mid-1719

Paper money works: trade revives, rates fall, and the state’s debts become manageable. The System is, for a moment, exactly the reform France needed — which is what makes what follows so seductive.

Boom, summer–autumn 1719

Each acquisition justifies a new share issue; each issue is payable in installments that let buyers control ten shares with the cash for one. From 500 livres in May, the price passes 6,000 by October.

Euphoria, winter 1719–20

Near 10,000 livres, the company is notionally worth more than all the coin in Europe. Dukes and chambermaids alike are millionnaires; the Rue Quincampoix charges rent by the hour for a table to trade on.

Distress, spring 1720

Winners start converting paper into land, jewels, and foreign coin. Law’s answer is the fatal one: the bank guarantees the share price near 9,000 livres — printing money to buy stock. The bubble stops being in shares and starts being in the currency itself; prices in Paris shops nearly double.

Panic, May–December 1720

The May 21 decree, meant to deflate gently by halving notes and shares in steps, instead announces that the money is elastic — in the wrong direction. Runs on the bank follow, price controls fail, and by December the shares have lost ninety percent. Law leaves France with a coach and his life.

The Reckoning

20× share price rise, May to December 1719

≈2× Paris prices during the peg, 1720

~80 yrs before France trusts a bank again

The System’s collapse discredited banks, paper money, and even the word banque in France for generations — a caution that arguably cost the monarchy the financial flexibility England enjoyed, all the way to 1789. For the book’s purposes, Mississippi is the purest specimen ever recorded: mania, credit expansion, and monetary authority fused in a single pair of hands, so the feedback loop between new money and asset prices ran without any brake at all.

What it cost

The share price is the smallest part of what the System cost. Its collapse reached people who never owned a share: Parisians whose banknotes were halved by decree, households that had to take their paper to a notary and account for where it came from, and the men and women shipped to Louisiana to make the colony behind the shares look real. The heaviest of it was paid there.

~500,000 claims filed in the visa of 1721, the audit of Law’s paper, in a France of about four million households; half were for 500 livres or less, perhaps half a household’s yearly income Velde, What We Learn from a Sovereign Debt Restructuring in France in 1721, Federal Reserve Bank of Chicago, Economic Perspectives 40:5, 2016
5,000 → under 2,000 the European population of Louisiana between 1721 and the end of the decade, from high death rates and from settlers abandoning the colony Pasquier and Greenwald, French Colonial Louisiana, 64 Parishes, Louisiana Endowment for the Humanities
6,700+ Africans the Company of the Indies bought and shipped to Louisiana between 1719 and 1731; more than six thousand survived the crossing to be sold there Greenwald, An Ignominious Anniversary, and Rodrigue, Slavery in French Colonial Louisiana, both 64 Parishes, Louisiana Endowment for the Humanities

In December 1719, with the shares near their peak, La Mutine sailed from Le Havre for Louisiana carrying 132 women taken from the Salpêtrière prison in Paris. Joan DeJean, who traced them through police and prison records, found that most were poor and illiterate and had been labelled prostitutes on no evidence; one, Manon Fontaine, had been held for the better part of two decades on a murder charge resting on dubious witnesses and no credible evidence. They were being sent to settle the colony that gave the shares their story.

DeJean, Mutinous Women: How French Convicts Became Founding Mothers of the Gulf Coast, 2022, with her own account of it in Time, 26 April 2022, and Penn Today

What followed

Law died in Venice in 1729, a poor man. What he left behind was the visa of 1721, a national audit of his paper: holders had to bring their securities to a notary and account for how they had come by them, and anything not brought in was cancelled outright. The write-down across all of it came to 27%.

Velde, What We Learn from a Sovereign Debt Restructuring in France in 1721, Federal Reserve Bank of Chicago, 2016; Britannica on John Law