305 years ago today, May 1, 1720 (March 24, 1720, the lunar calendar), the beginning and end of the Mississippi Bubble in France. French Mississippi Scam What is the Mississippi Bubble? The Mississippi Bubble is the financial event in which France's Mississippi corporate stock market bubble burst in 1719 - 1720. France's Mississippi bubble, the Netherlands's tulip mania and the UK's South Sea bubble are called the three major economic bubbles in Europe in the early years. The beginning and end of the Mississippi Bubble 80 years after the Dutch Tulip Bubble burst, the famous French Mississippi stock market bubble appeared in 1719. What the two bubbles have in common is that the price of the French stock market rose and fell sharply in a short period of time, just like the price of tulips at that time. Starting from May 1719, French stock prices have risen for 13 consecutive months. The stock price has risen from 500 livres to more than 10,000 livres, an increase of more than 20 times. The French stock market began to collapse in May 1720 and fell for 13 consecutive months, with a drop of 95%. The difference between the Mississippi stock market bubble and the tulip bubble is that the Dutch tulip bubble is basically a private speculation, but the French Mississippi stock market bubble has an obvious official background. The Tulip Bubble is just a commodity and involves a limited number of people. However, the Mississippi stock market bubble in France occurred in the stock and bond markets, involving all the middle and lower classes of French people. From this point of view, the French Mississippi stock market bubble is more modern. France, which was in a financial crisis, chose John Law. In the early 18th century, due to the successive wars launched by King Louis XIV of France, the French national economy fell into extreme difficulties, with economic depression and deflation. At that time, France's tax system was extremely imperfect. Not only was it exempt the French royal family and aristocrats from taxes, but there were also many loopholes in other places. Although the French government continued to raise tax rates and collect excessive taxes, income was still unable to make ends meet. The national treasury was empty and debts were high. The people complained and the country was in crisis. It was at this juncture that John Law, a generation of geek in monetary theory, came into being. John Law was born in Edinburgh, England, and received a good education in political economy in his youth. When he was young, John Law was full of blood. In 1694, he killed a man in a duel and had to flee. John Law carefully observed the banking, finance and insurance industries of various countries during his wandering period in Europe, thus proposing his unique theory of finance. Like many 18th-century economists, he believed that in the face of underemployment, increasing the money supply could increase jobs and increase national output without raising price levels. Once output increases, the demand for money will keep up accordingly. After achieving full employment, monetary expansion can attract external resources and further increase output. He believed that the paper currency standard was better than the precious metals standard, which provided greater flexibility and gave banks issuing money more room to operate and the ability to control the macro economy (see Law, 1760). To put it bluntly, with the precious metal standard system, the issuance of currency depends on how much gold and silver you have in hand. The reason why it is called precious metals is because the reserves of gold and silver in the world are limited, and it is almost impossible to increase the supply of gold and silver in a short period of time. The paper currency standard has no such restriction. If the financial authorities want to, start the bank's printing machine and print as much as they want. This feature of the paper currency standard makes it like a double-edged sword. While enhancing the influence of financial and monetary policies, it also brings the risk of causing inflation. John Law believed that banks with the right to issue money should provide producer credit and enough currency to ensure economic prosperity. The money supply he refers to includes government legal tender, bank-issued paper notes, stocks and various securities (see Michael Bordo, 1994). It is not difficult to see that John Law's theory already contains some basic views of contemporary supply-side schools and monetary schools. The famous economist Schumpeter once spoke highly of John Law's financial theory allowing him to be among the top monetary theorists at any time. In 1715, the French Regent, Duke of Auleon, was worried about France's financial embarrassment. John Law's theory seems to have thrown a lifeline at him. It seems that France can get out of its predicament and solve the financing problem of national debt by establishing a bank that can adequately supply money. For the powerful Duke of Oleon, as long as he could get money, it would not be a problem to establish 10 banks. So, with the charter of the French government, John Law established a private bank in Paris in 1716, BangueGenarale. John Law's national monopoly, BangueGenarale, has the privilege of issuing currency, which can be exchanged for coins and paying taxes. After its establishment, General Bank operated very successfully and its total assets increased rapidly. John Law obtained a trade concession in Louisiana and a monopoly on the leather trade in Canada in August 1717. At that time, Louisiana in North America was a French territory. Because Louisiana is located in the Mississippi River Basin, people call the bubble economy directed by John Law the Mississippi Bubble. Later, John Law founded Companied Eccident. The company obtained a tobacco monopoly in 1718. In November 1718, the Senegal Company was established to take charge of trade with Africa. In 1719, John Law merged with the East India Company and the China Company, renamed it Compagnieds Indes, monopolizing all French trade outside Europe. The monopolistic overseas trade presided over by John Law has continuously brought excess profits to his company. On December 4, 1718, General Bank was nationalized and changed its name to Banque Royale, and John Law still served as director of the bank. Royal Bank began issuing Rivre banknotes in 1719. John Law attacked at the same time on both trade and finance fronts, winning one after another, and gaining popularity. John Law hopes to stimulate the economy through currency issuance and relieve France's heavy national debt burden. The time has finally arrived to practice his financial theory. On July 25, 1719, John Law paid 50 million rivres to the French government and obtained the contract right to the Royal Mint. In order to gain the right to minte new coins, the Indian company issued 50,000 shares of stock with a par value of 1000 rivres each. John Law's stock was so popular in the market that the stock price quickly rose to 1800 livres. In August 1719, John Law obtained the right to collect indirect taxes on farmland. John Law believes that France's tax system is seriously flawed. The tax cost is too high and there are too many loopholes, which directly affects the French government's fiscal revenue. John Law suggested to the government that he should contract France's indirect farmland tax, implement a lump sum, and pay the government 53 million livres a year. If the tax revenue collected exceeds this amount, it belongs to the Indian company. Since this figure is much higher than the French government's total tax revenue, why not the Duke of Oleon? Under the chairmanship of John Law, Indian companies simplified the tax agency, reduced tax costs, tried their best to expand the tax base, and eliminated tax exemptions for royal aristocrats. Of course, for this reason, John Law offended many aristocrats. Indian companies have become famous in France, driving their share prices to rise. In October 1719, John Law's Indian company took over direct tax collection in France, and its stock price exceeded 3000 livres. In 1719, John Law decided to repay the 1.5 billion rivres of national debt through the issuance of shares by Indian companies. To this end, Indian companies issued three large-scale additional shares in a row: on September 12, 1719, they issued an additional 100,000 shares with a par value of 5000 rivres per share. Shares were snapped up as soon as they went public. Stock prices soared. On September 28, 1719, the Indian company issued another 100,000 shares, with a par value of 5000 livres each. On October 2, 1719, another 100,000 shares were issued. Stock prices rose and continued to rise. The par value of Indian company shares was only 500 livres in April 1719, but within half a year it was hyped up to 18000 livres. In early 1720, John Law reached the peak of his life. In January 1720, John Law was appointed Comptroller and Superintendent of France. He was in charge of government finances and Royal Bank's currency issuance on one hand, and controlled France's overseas trade and colonial development on the other. He and his Indian company collect taxes for France and hold large amounts of national debt. Subsequently, the Indian company simply took over the operating rights of Royal Bank. Never before in human history has an economist had such a good opportunity to practice his theory. Stock prices of Indian companies have soared, attracting a large amount of capital from European countries to France. In an attempt to boost the stock market of Indian companies, John Law announced that dividends on his shares had nothing to do with the company's true prospects. His unpredictable statement further encouraged private speculation. The unprecedented prevalence of speculation must greatly boost the demand for money. So, whenever an Indian company issued shares, Royal Bank followed suit with currency. Each additional issue of shares is accompanied by additional money. Law believed that it was possible to issue more bank notes, convert them into shares, and eventually offset the national debt. On July 25, 1719, the Royal Bank issued 240 million livres in currency to pay for 159 million livres of shares previously issued by the Indian Company. In September and October 1719, the Royal Bank issued another 240 million livres. Financial bubbles are short-lived. As Friedman pointed out, inflation is ultimately a monetary phenomenon. After a large number of additional currency issues, inflation finally arrived in France after a short lag period. In 1719, inflation in France was 4% and rose to 23% in January 1720. If before 1720, only some economists expressed doubts about John Law's policies, inflation directly sounded the alarm for the general public. As public confidence wavered, stock prices of Indian companies began to plummet in January 1720. In order to maintain the stock price of Indian companies, John Labor used his financial power. He forcibly fixed the stock price at 9000 livres and maintained it at this price for more than two months. John Law's policies monetized stocks, which in turn quickly boosted inflation. On March 25, 1720, the currency issuance expanded by 300 million livres, on April 5, 1720, it expanded by 390 million livres, and on May 1, 1720, it expanded by 438 million livres. This was the last expansion, reaching its peak. In more than a month, the volume of money in circulation doubled. By May 1720, John Law could no longer support it. He issued a stock devaluation order, planning to reduce the price of stocks from 9000 livres to 5000 livres in seven stages, and also reduce the face value of banknotes. The myth of John Law and his Indian company creating economic miracles was suddenly shattered. John Law's order immediately caused panic among the people, who rushed to sell stocks to save their assets. The stock price fell to 2000 livres in September 1720, to 1000 livres on December 2, and to 500 livres in September 1721, returning to the level of May 1719. John Law tried his best to restore people's confidence, but his voice was quickly drowned out in the roar of the people. The French, who lost everything in the stock crash, decided that John Law was the number one liar. In 1720, John Law was like a mouse crossing the street, and everyone shouted at him. Under siege, he repeated his old escape tactics and fled to Belgium overnight. French payment methods have reverted to the old coin-based system. The collapse of the Mississippi bubble implicates the term "bank" which has been cursed in France for a century. Nine years later, John Law died in a state of endless regret. Though Law's bold attempt failed utterly, one cannot judge a man's words by his own. John Law's economic theory contains many reasonable factors, and his contribution to financial theory is indelible. In John Law's day, it was impossible for him to understand anything about the bubble economy and the related theory of rational expectations. When he expanded the money supply, he did not expect it to lead to a wave of financial speculation. Not only did he fail to stop this kind of financial speculation in time, but he added fuel to the flames to a considerable extent, finally causing the overall situation to be ruined and beyond control. In the next century, in France, when talking about banks, people couldn't help but look suspicious." The bankruptcy of the Mississippi bubble caused banks to lose credit among the people. This result led to a slowdown in the development of the French banking industry, slowed down industrial expansion, and slowed down the pace of economic recovery and growth.305 years ago today, May 1, 1720 (March 24, 1720, the lunar calendar), the beginning and end of the Mississippi Bubble in France. French Mississippi Scam What is the Mississippi Bubble? The Mississippi Bubble is the financial event in which France's Mississippi corporate stock market bubble burst in 1719 - 1720. France's Mississippi bubble, the Netherlands's tulip mania and the UK's South Sea bubble are called the three major economic bubbles in Europe in the early years. The beginning and end of the Mississippi Bubble 80 years after the Dutch Tulip Bubble burst, the famous French Mississippi stock market bubble appeared in 1719. What the two bubbles have in common is that the price of the French stock market rose and fell sharply in a short period of time, just like the price of tulips at that time. Starting from May 1719, French stock prices have risen for 13 consecutive months. The stock price has risen from 500 livres to more than 10,000 livres, an increase of more than 20 times. The French stock market began to collapse in May 1720 and fell for 13 consecutive months, with a drop of 95%. The difference between the Mississippi stock market bubble and the tulip bubble is that the Dutch tulip bubble is basically a private speculation, but the French Mississippi stock market bubble has an obvious official background. The Tulip Bubble is just a commodity and involves a limited number of people. However, the Mississippi stock market bubble in France occurred in the stock and bond markets, involving all the middle and lower classes of French people. From this point of view, the French Mississippi stock market bubble is more modern. France, which was in a financial crisis, chose John Law. In the early 18th century, due to the successive wars launched by King Louis XIV of France, the French national economy fell into extreme difficulties, with economic depression and deflation. At that time, France's tax system was extremely imperfect. Not only was it exempt the French royal family and aristocrats from taxes, but there were also many loopholes in other places. Although the French government continued to raise tax rates and collect excessive taxes, income was still unable to make ends meet. The national treasury was empty and debts were high. The people complained and the country was in crisis. It was at this juncture that John Law, a generation of geek in monetary theory, came into being. John Law was born in Edinburgh, England, and received a good education in political economy in his youth. When he was young, John Law was full of blood. In 1694, he killed a man in a duel and had to flee. John Law carefully observed the banking, finance and insurance industries of various countries during his wandering period in Europe, thus proposing his unique theory of finance. Like many 18th-century economists, he believed that in the face of underemployment, increasing the money supply could increase jobs and increase national output without raising price levels. Once output increases, the demand for money will keep up accordingly. After achieving full employment, monetary expansion can attract external resources and further increase output. He believed that the paper currency standard was better than the precious metals standard, which provided greater flexibility and gave banks issuing money more room to operate and the ability to control the macro economy (see Law, 1760). To put it bluntly, with the precious metal standard system, the issuance of currency depends on how much gold and silver you have in hand. The reason why it is called precious metals is because the reserves of gold and silver in the world are limited, and it is almost impossible to increase the supply of gold and silver in a short period of time. The paper currency standard has no such restriction. If the financial authorities want to, start the bank's printing machine and print as much as they want. This feature of the paper currency standard makes it like a double-edged sword. While enhancing the influence of financial and monetary policies, it also brings the risk of causing inflation. John Law believed that banks with the right to issue money should provide producer credit and enough currency to ensure economic prosperity. The money supply he refers to includes government legal tender, bank-issued paper notes, stocks and various securities (see Michael Bordo, 1994). It is not difficult to see that John Law's theory already contains some basic views of contemporary supply-side schools and monetary schools. The famous economist Schumpeter once spoke highly of John Law's financial theory allowing him to be among the top monetary theorists at any time. In 1715, the French Regent, Duke of Auleon, was worried about France's financial embarrassment. John Law's theory seems to have thrown a lifeline at him. It seems that France can get out of its predicament and solve the financing problem of national debt by establishing a bank that can adequately supply money. For the powerful Duke of Oleon, as long as he could get money, it would not be a problem to establish 10 banks. So, with the charter of the French government, John Law established a private bank in Paris in 1716, BangueGenarale. John Law's national monopoly, BangueGenarale, has the privilege of issuing currency, which can be exchanged for coins and paying taxes. After its establishment, General Bank operated very successfully and its total assets increased rapidly. John Law obtained a trade concession in Louisiana and a monopoly on the leather trade in Canada in August 1717. At that time, Louisiana in North America was a French territory. Because Louisiana is located in the Mississippi River Basin, people call the bubble economy directed by John Law the Mississippi Bubble. Later, John Law founded Companied Eccident. The company obtained a tobacco monopoly in 1718. In November 1718, the Senegal Company was established to take charge of trade with Africa. In 1719, John Law merged with the East India Company and the China Company, renamed it Compagnieds Indes, monopolizing all French trade outside Europe. The monopolistic overseas trade presided over by John Law has continuously brought excess profits to his company. On December 4, 1718, General Bank was nationalized and changed its name to Banque Royale, and John Law still served as director of the bank. Royal Bank began issuing Rivre banknotes in 1719. John Law attacked at the same time on both trade and finance fronts, winning one after another, and gaining popularity. John Law hopes to stimulate the economy through currency issuance and relieve France's heavy national debt burden. The time has finally arrived to practice his financial theory. On July 25, 1719, John Law paid 50 million rivres to the French government and obtained the contract right to the Royal Mint. In order to gain the right to minte new coins, the Indian company issued 50,000 shares of stock with a par value of 1000 rivres each. John Law's stock was so popular in the market that the stock price quickly rose to 1800 livres. In August 1719, John Law obtained the right to collect indirect taxes on farmland. John Law believes that France's tax system is seriously flawed. The tax cost is too high and there are too many loopholes, which directly affects the French government's fiscal revenue. John Law suggested to the government that he should contract France's indirect farmland tax, implement a lump sum, and pay the government 53 million livres a year. If the tax revenue collected exceeds this amount, it belongs to the Indian company. Since this figure is much higher than the French government's total tax revenue, why not the Duke of Oleon? Under the chairmanship of John Law, Indian companies simplified the tax agency, reduced tax costs, tried their best to expand the tax base, and eliminated tax exemptions for royal aristocrats. Of course, for this reason, John Law offended many aristocrats. Indian companies have become famous in France, driving their share prices to rise. In October 1719, John Law's Indian company took over direct tax collection in France, and its stock price exceeded 3000 livres. In 1719, John Law decided to repay the 1.5 billion rivres of national debt through the issuance of shares by Indian companies. To this end, Indian companies issued three large-scale additional shares in a row: on September 12, 1719, they issued an additional 100,000 shares with a par value of 5000 rivres per share. Shares were snapped up as soon as they went public. Stock prices soared. On September 28, 1719, the Indian company issued another 100,000 shares, with a par value of 5000 livres each. On October 2, 1719, another 100,000 shares were issued. Stock prices rose and continued to rise. The par value of Indian company shares was only 500 livres in April 1719, but within half a year it was hyped up to 18000 livres. In early 1720, John Law reached the peak of his life. In January 1720, John Law was appointed Comptroller and Superintendent of France. He was in charge of government finances and Royal Bank's currency issuance on one hand, and controlled France's overseas trade and colonial development on the other. He and his Indian company collect taxes for France and hold large amounts of national debt. Subsequently, the Indian company simply took over the operating rights of Royal Bank. Never before in human history has an economist had such a good opportunity to practice his theory. Stock prices of Indian companies have soared, attracting a large amount of capital from European countries to France. In an attempt to boost the stock market of Indian companies, John Law announced that dividends on his shares had nothing to do with the company's true prospects. His unpredictable statement further encouraged private speculation. The unprecedented prevalence of speculation must greatly boost the demand for money. So, whenever an Indian company issued shares, Royal Bank followed suit with currency. Each additional issue of shares is accompanied by additional money. Law believed that it was possible to issue more bank notes, convert them into shares, and eventually offset the national debt. On July 25, 1719, the Royal Bank issued 240 million livres in currency to pay for 159 million livres of shares previously issued by the Indian Company. In September and October 1719, the Royal Bank issued another 240 million livres. Financial bubbles are short-lived. As Friedman pointed out, inflation is ultimately a monetary phenomenon. After a large number of additional currency issues, inflation finally arrived in France after a short lag period. In 1719, inflation in France was 4% and rose to 23% in January 1720. If before 1720, only some economists expressed doubts about John Law's policies, inflation directly sounded the alarm for the general public. As public confidence wavered, stock prices of Indian companies began to plummet in January 1720. In order to maintain the stock price of Indian companies, John Labor used his financial power. He forcibly fixed the stock price at 9000 livres and maintained it at this price for more than two months. John Law's policies monetized stocks, which in turn quickly boosted inflation. On March 25, 1720, the currency issuance expanded by 300 million livres, on April 5, 1720, it expanded by 390 million livres, and on May 1, 1720, it expanded by 438 million livres. This was the last expansion, reaching its peak. In more than a month, the volume of money in circulation doubled. By May 1720, John Law could no longer support it. He issued a stock devaluation order, planning to reduce the price of stocks from 9000 livres to 5000 livres in seven stages, and also reduce the face value of banknotes. The myth of John Law and his Indian company creating economic miracles was suddenly shattered. John Law's order immediately caused panic among the people, who rushed to sell stocks to save their assets. The stock price fell to 2000 livres in September 1720, to 1000 livres on December 2, and to 500 livres in September 1721, returning to the level of May 1719. John Law tried his best to restore people's confidence, but his voice was quickly drowned out in the roar of the people. The French, who lost everything in the stock crash, decided that John Law was the number one liar. In 1720, John Law was like a mouse crossing the street, and everyone shouted at him. Under siege, he repeated his old escape tactics and fled to Belgium overnight. French payment methods have reverted to the old coin-based system. The collapse of the Mississippi bubble implicates the term "bank" which has been cursed in France for a century. Nine years later, John Law died in a state of endless regret. Though Law's bold attempt failed utterly, one cannot judge a man's words by his own. John Law's economic theory contains many reasonable factors, and his contribution to financial theory is indelible. In John Law's day, it was impossible for him to understand anything about the bubble economy and the related theory of rational expectations. When he expanded the money supply, he did not expect it to lead to a wave of financial speculation. Not only did he fail to stop this kind of financial speculation in time, but he added fuel to the flames to a considerable extent, finally causing the overall situation to be ruined and beyond control. In the next century, in France, when talking about banks, people couldn't help but look suspicious." The bankruptcy of the Mississippi bubble caused banks to lose credit among the people. This result led to a slowdown in the development of the French banking industry, slowed down industrial expansion, and slowed down the pace of economic recovery and growth.