Mississippi Bubble: France's Gold Rush Deception

The Mississippi Bubble: A Country Deceived by Gold On August 6, 1717, John Law, a Scottish economist, arrived in Paris, France, with a plan to stimulate the French economy. He met with Duke Philippe II of Orléans, who would later become the Regent of France, and presented his idea to create a bank that would issue paper money. By 1719, Law had convinced the French government to grant him a monopoly on the trade in Louisiana, a vast territory in North America that France had claimed as its own. The French people were about to be sold a dream that would ultimately lead to financial disaster.

What Everyone Knows

Most people think that the Mississippi Bubble was just a get-rich-quick scheme that backfired, but the standard story goes that John Law was a brilliant economist who simply got carried away with his own ideas. The common understanding is that Law's plan was to use the wealth of Louisiana to back the issuance of paper money, which would then be used to stimulate the French economy. However, this oversimplifies the complexity of the situation and the events that unfolded.

What History Actually Shows

Historian Charles Mackay, in his book "Extraordinary Popular Delusions and the Madness of Crowds," published in 1841, describes how John Law actively promoted the idea that Louisiana was rich in gold and other precious resources. Law himself wrote in his book "Money and Trade Considered," published in 1705, that he believed the key to economic growth was to increase the money supply, and he saw the Louisiana territory as a way to do just that. By 1718, Law had convinced the French government to grant him control of the French East India Company, which gave him a monopoly on trade in Louisiana. The French government actually guaranteed the value of Law's paper money with the promise of future profits from the Louisiana territory, which was still largely unexplored. Historian Niall Ferguson, in his book "The Ascent of Money," published in 2008, notes that Law's plan was not just a simple scam, but a complex financial system that involved the creation of a central bank and the issuance of paper money. On May 25, 1718, the Banque Générale was established, and by 1719, the bank was issuing paper money that was supposed to be backed by the wealth of Louisiana. As the value of the paper money rose, more and more people invested in the company, hoping to make a fortune from the supposed riches of Louisiana. However, by 1720, the bubble had burst, and the French economy was in shambles. Historian Janet Gleeson, in her book "The Moneymaker," published in 1999, describes how Law's system ultimately collapsed under its own weight, leaving thousands of investors financially ruined.

The Part That Got Buried

Historians like Fernand Braudel deliberately left out the details of the Mississippi Bubble in their accounts of 18th-century France, focusing instead on the country's more traditional industries. The French government also played a role in suppressing the story, as they sought to distance themselves from the financial disaster that had occurred under their watch. John Law, the economist responsible for the bubble, was largely ignored by scholars until recent years, and his papers were scattered and difficult to access. The fact that many of the key documents related to the bubble were written in French and not translated into other languages also contributed to the story's relative obscurity. As a result, the story of the Mississippi Bubble was not widely told, and many people today are still unaware of this fascinating and cautionary tale.

The Ripple Effect

The Mississippi Bubble had a direct impact on the development of modern finance, as it led to the establishment of stricter regulations on banking and investment. The bubble also affected the French economy, causing a significant decline in the value of the livre and a rise in unemployment. Many ordinary citizens who had invested in the scheme lost their life savings, and some were even forced to flee the country to avoid their creditors. One specific modern thing that traces directly back to this event is the concept of central banking, which was developed in part as a response to the failures of the Banque Générale, the bank that Law had founded to manage the French economy.

The Line That Says It All

The French government ultimately paid off the debts incurred during the Mississippi Bubble at a cost of over 1.5 billion livres, a staggering sum that would be equivalent to tens of billions of dollars today.

A Note on Sources

This article draws on historical records, documented accounts, and academic research related to the Mississippi Bubble and 18th-century French economic history.