From Winton's Longer View:
The Mississippi Bubble
When the Scottish
financier John Law claimed to be able to transmute paper into money,
France’s Regent allowed him to conduct an experiment on the French
economy. Law ’s unalloyed successes quickly enlivened the mercurial
temperaments of Parisian speculators, but when the bubbling stock
overflowed in January 1720, liquidations rapidly occurred and the
economy sank into inertia.
There can be no doubt of John Law ’s catholicity since he has proved transubstantiation by changing paper into money.
The Philosopher’s Stone
John Law, a financial theorist, gambler and convicted murderer,
originally from Edinburgh, presented the new regent in 1716 with a
system which, he claimed, would restore France’s prosperity and
revolutionise her monetary and fiscal systems.
Given that France had been left virtually bankrupt by the prodigality
of its last king (Louis XIV), the regent was open to any suggestions
for getting the economy back on track and bade Law proceed.
Law’s ultimate ambition was to replace the metallic currency with a
paper currency based on government debt that had been converted into
company shares. This circulating debt would provide companies with a
‘fund of credit’ which could be used as equity against commercial
ventures.
He also considered paper a better medium of exchange than metal,
being easier to handle and quick to print. This monetary system would
take time to realise, so in the interim, he established the Banque
Générale in May 1716, whose more limited remit was to issue paper notes
which would be redeemable in gold or silver.
The notes gained immediate popularity and stimulated commerce
throughout France, convincing the regent of the genius of Law and the
soundness of his scheme. Law sought also to restore France’s commercial
vigour by developing trading links with her colonies and overhauling her
fiscal system.
In August 1717, having secured a trading monopoly over Louisiana and French Canada, Law founded the Mississippi Company.
Rumours of precious metals in Louisiana, generous dividends and Law’s
personal celebrity guaranteed the company investor interest from the
outset and when the regent granted Law further monopolies in the East
Indies, China and the South Seas in early 1719 and Law issued 50,000 new
shares, his hand was almost bitten off.
Stirring the Cauldron
Such was the enthusiasm for the first issue that the regent
authorised a much larger issue of 300,000 shares, whose proceeds could
be used to pay off the whole of the national debt.
Taking advantage of the Banque Royale’s stock loans, investors
descended upon Law’s residence in Rue de Quincampoix and started a
piranha-like feeding frenzy upon the Mississippi shares, where commoners
jostled with the nobility for a scrap of succulent stock.
Aristocrats who would not have waited half an hour for the Regent waited six hours for a moment’s word with Law.
Those who could afford it took apartments in the neighbourhood, where
rents increased sixteen-fold: indeed, space was at such a premium that
an elderly hunch-backed man was able to make substantial sums by lending
his hump as a writing-desk to speculators.
Soon the crowds became so riotous and the
congestion so intolerable – soldiers were needed to clear the street
each night – that Law was compelled to move to the more palatial
environs of the Hôtel de Soissons.
Even there, the seething multitudes of investors stuck to him and
encamped in its gardens, erecting hundreds of tents along with
refreshment stalls and such varied amusements as roulette wheels....MORE
