305 years ago today, May 1, 1720 (March 24, 1720, the 1720 lunar calendar), the Mississippi Bubble incident was a painful lesson from France's "national bull market". The Mississippi Bubble Incident in France hopes that the "Mississippi Bubble Incident" that occurred in France 300 years ago can arouse our rational thinking. The plot described in the article took place in France 300 years ago, but similar scenes can still be found in today's China stock market. The general principle of the stock market is that risks and returns are symmetrical, and high risks correspond to high returns. If the government endorses the stock market, it will have a great impact on the market, which means that risks and returns are no longer symmetrical, and investors can enjoy high returns without need to take on high risks. As a result, funds from the whole society will surely enter the stock market crazily. This is the tragedy that occurred in France 300 years ago, and it seems that what is happening in China now. This article has certain reference significance. 300 years ago (around 1715), France faced a financial crisis. In order to solve the financial crisis, the government accepted the advice of scholar John Law. First, it carried out currency reform, and secondly, it established companies, issued stocks, and stimulated the stock market to raise funds to repay government debts. This is the famous "Mississippi Bubble Incident." This is the first bull market in global history organized and launched by a government. In today's terms, it is a "national bull market." The result caused crazy speculation in the market. When the madness began to end, the whole of France fell into chaos. Since the fourth quarter of 2014, my country has once again seen a stock trading boom. Many investors borrow money to stock stocks, and some even sell their houses to stock stocks. Some scholars believe that letting the stock market rise can not only solve the problem of high debt ratios of enterprises, but also use the wealth effect of rising stock prices. It can stimulate consumption, and it can also increase the market value of state-controlled listed companies to supplement social security funds. These arguments are somewhat familiar. Some market participants even wrote directly about "national bull market", and mainstream media also continued to cheer up the market, as if the bull market reflected the will of the country. I hope that the "Mississippi Bubble" that occurred in France 300 years ago can arouse our rational thinking. The plot described in the article took place in France 300 years ago, but similar scenes can still be found in today's China stock market. 1. Introduction to the background of the "Mississippi Bubble Incident" in the late 17th and early 18th centuries AD, Louis XIV of France (1630-1715), known in history as Louis the Great, was very belligerent during his administration and established the most powerful standing army in Europe at that time, promoted aggressive policies to the outside world, and launched and participated in a series of wars. For example, in 1667-1668, there was a war with Spain over inheritance issues; in 1672-1678, the war against the Netherlands was launched; in 1701-1703, it participated in the War of the Spanish Succession, which resulted in an empty French treasury, high government debt, and national finances on the verge of collapse. France's external debt at that time reached 3 billion livés, while its annual tax revenue was only 145 million livés. Debt is more than 20 times fiscal revenue. Louis XIV died in 1715. His successor was only 7 years old. The Duke of Orleans served as regent and presided over the new emperor when he was young. In order to save the financial crisis, the Regent took many measures. First, he recasted the currency, lowered the metal content of the currency, and increased fiscal revenue through currency devaluation; second, he cracked down on various corrupt behaviors in the tax collection and management process. These measures have increased fiscal revenue by more than 200 million livés, which cannot fundamentally resolve France's fiscal crisis. 2. John Law's main idea The whole incident took place in France, but the protagonist was a Scotsman named John Law. John Law had a special life experience. He 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 days in Europe and came up with his own financial theory. He believes that in the case of underemployment, increasing the money supply can increase employment opportunities and increase national output without raising the price level. 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. This is very similar to the view of modern Western economics. He believed that the paper currency standard was better than the precious metals standard, and the paper currency standard had greater flexibility. 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. However, the reserves of precious metals such as 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. Therefore, it is difficult to increase the money supply under the metal standard, which does not have this restriction on the paper currency standard. As long as the government is willing, it can start the bank's money printing machine and print as much as it wants. In order to prevent the government from issuing paper money arbitrarily, John Law believed that issuing paper money must have sufficient hard currency reserves, otherwise the idea would be the same. The initiator of the Mississippi bubble, John Law, 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. During his travels in Europe, John Law met the Duke of Orleans in France and became good friends. In 1715, after the death of King Louis XIV of France, the Duke of Orléans became the Regent, assisting the young new king. While he was worrying about France's fiscal woes, John Law's theory seemed to have thrown a life saver at him. Thus, a bold experiment was officially staged. 3. The first step in the trilogy of events: In May 1716, John Law was chartered by the French government to establish a private bank that could issue currency, and the banknotes it issued could be used to pay taxes. (In today's market language, by issuing paper money, the government can do QE whatever it wants.) John Law's banking affairs were successful and the currency was stable. However, gold and silver are often devalued due to unwise interference by the government. As a result, Lloyd's Bank's reputation flourished, monopolizing tobacco sales and monopolizing the power to coin gold and silver coins. It was eventually nationalized as Royal Bank in December 1718, but it remained in charge. Step 2: Establish a joint-stock company with monopoly rights and issue shares. John Law has been increasingly receiving various trade concessions since 1717. The Mississippi Company established has unique rights to trade with the vast basin of the Mississippi River and the western bank of the River in Louisiana (because it was said at the time that gold and silver could be seen everywhere in these two places. According to the language of the current stock market, the Mississippi Company is the "One Road, One Belt" concept stock), and the company's shares can be purchased with treasury bonds at face value. Because the market value of national bonds continued to depreciate at that time, treasury bonds with a face value of 500 livres could only be exchanged for 160 livres in the market, while stock prices continued to rise. Buying stocks with national bonds could make huge profits, triggering a speculative frenzy and quickly sweeping France. 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 large package of taxes, and pay the government 53 million millive-vochs a year. If 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 Orleans? Under the chairmanship of John Law, Indian companies simplified the tax agency, reduced tax costs, broadened the tax base, and eliminated tax exemptions for royal aristocrats. Tax revenue has increased significantly, bringing a lot of excess profits to the joint-stock company. 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. Step 3: Taking advantage of the general enthusiasm of the French public at this time, John Law decided to use Royal Bank's banknote issuance capabilities and issue stocks to raise funds for the government, in an attempt to ultimately resolve France's fiscal crisis. In 1719, John Law decided to repay the 1.5 billion livhs of national debt through the issuance of shares by Indian companies. To this end, Indian companies issued three large-scale shares in a row: on September 12, 1719, they issued an additional 100,000 shares with a par value of 5000 Rivh each. Shares were snapped up as soon as they went public. Stock prices soared. Whether they are wealthy and dignitaries or villagers, men, women and children, all dream of obtaining endless wealth from Lloyd's stocks. Stock prices rose and rose, soaring. Sometimes it can increase by 10 to 20 percentage points in a few hours, and people who go out in the morning as poor as a bird can return home rich at night. The most fanatical record is that the stock price can be sold from 500 livres to 18000 livres within six months. People from all over the country flocked to stock exchanges, bustling from morning to night, and even had to replace larger squares many times. Not only did the paper money used to repay national debt flow back to the stock market, but Royal Bank issued another 240 million livh notes to meet the demand for money from stock speculation (to pay for the 1.59 livh shares previously issued by the Indian Company, Royal Bank had issued 240 million livh notes on July 25, 1719). In short, the higher the price of Mississippi stock, the more banknotes Royal Bank issued simultaneously. 4. The trigger for the outbreak of the crisis was ignited in early 1720. Prince Conte, who was rejected by John Law when he asked to purchase newly listed Mississippi stocks at a relatively low price, used three carriages to pull his banknotes to Lloyd's Bank to ask for coins. John Law began to feel uneasy and used the Prince Regent to stop Prince Conte's actions, but the confidence of the market began to crack since then. Savvy stock speculators also correctly realized that stock prices could not rise forever, and they exchanged coins and shipped them abroad. (The author lamented: It can be seen that bubbles are always accidentally burst. Games that seem perfect always come to an end. In the current China stock market, the impulse to make money quickly stimulates investors 'nerves. The "national bull market" portrayed by mainstream media makes investors turn back. However, a few experienced investors even feel that the market is a typical bubble, but seeing the large number of new entrants every day, they firmly believe that the bubble will continue.) Faced with the approaching crisis, the French government began to intervene in the market and prohibited anyone from owning coins exceeding 500 livres. Violators would be fined a large fine in addition to confiscating all coins. At the same time, it is also strictly prohibited for anyone to purchase gold and silver jewelry, utensils and precious gems. However, the government's intervention did not save the confidence of the market. As investors 'confidence fell, Mississippi's stock price plummeted, and no one still believed the myth that the region contained huge wealth. However, the government is doing everything it can to restore public confidence in the Mississippi Company. The government even announced a compulsory conscription plan, gathering all the poor vagrants in Paris, providing clothes and tools, and arranging them to line up, carrying pickaxes and spades on their shoulders, passing through the streets of Paris day after day and then coming to the port to wait to be shipped to America, pretending to work on the gold mines there. Two-thirds of them did not get on board but were scattered across France, and within three weeks half of them reappeared in Paris. In order to maintain the stock price of 9000 livhis, John Law also issued 300 million, 390 million and 438 million livhis notes on March 25, April 5, and May 1, 1720, respectively, which more than doubled the amount of money in circulation in more than a month. It is estimated that there were 2.6 billion livres in paper currency at that time, and the country's metal currency combined was less than half of this amount. (Author's Narrator: At present, all investors believe that the China government needs a stock market bubble and will not let the stock market bubble burst. If the stock market falls, the government will find a way to prevent the stock price from falling.) 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 paper currency. 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. John Law's epitaph Nine years after he fled from France, John Law died in a foreign country in endless regret. Someone wrote the following words on his tombstone: "Here lies the famous Scot, whose computational skills are unmatched, who used simple algebraic rules to make France impoverished." Postscript: The general principle of the stock market is that risks and returns are symmetrical, and high risks correspond to high returns. If the government endorses the stock market, it will have a great impact on the market, which means that risks and returns are no longer symmetrical, and investors can enjoy High returns without taking on high risks. As a result, funds from the whole society will surely enter the stock market crazily. This is the tragedy that occurred in France 300 years ago, and it seems that what is happening in China now.305 years ago today, May 1, 1720 (March 24, 1720, the 1720 lunar calendar), the Mississippi Bubble incident was a painful lesson from France's "national bull market". The Mississippi Bubble Incident in France hopes that the "Mississippi Bubble Incident" that occurred in France 300 years ago can arouse our rational thinking. The plot described in the article took place in France 300 years ago, but similar scenes can still be found in today's China stock market. The general principle of the stock market is that risks and returns are symmetrical, and high risks correspond to high returns. If the government endorses the stock market, it will have a great impact on the market, which means that risks and returns are no longer symmetrical, and investors can enjoy high returns without need to take on high risks. As a result, funds from the whole society will surely enter the stock market crazily. This is the tragedy that occurred in France 300 years ago, and it seems that what is happening in China now. This article has certain reference significance. 300 years ago (around 1715), France faced a financial crisis. In order to solve the financial crisis, the government accepted the advice of scholar John Law. First, it carried out currency reform, and secondly, it established companies, issued stocks, and stimulated the stock market to raise funds to repay government debts. This is the famous "Mississippi Bubble Incident." This is the first bull market in global history organized and launched by a government. In today's terms, it is a "national bull market." The result caused crazy speculation in the market. When the madness began to end, the whole of France fell into chaos. Since the fourth quarter of 2014, my country has once again seen a stock trading boom. Many investors borrow money to stock stocks, and some even sell their houses to stock stocks. Some scholars believe that letting the stock market rise can not only solve the problem of high debt ratios of enterprises, but also use the wealth effect of rising stock prices. It can stimulate consumption, and it can also increase the market value of state-controlled listed companies to supplement social security funds. These arguments are somewhat familiar. Some market participants even wrote directly about "national bull market", and mainstream media also continued to cheer up the market, as if the bull market reflected the will of the country. I hope that the "Mississippi Bubble" that occurred in France 300 years ago can arouse our rational thinking. The plot described in the article took place in France 300 years ago, but similar scenes can still be found in today's China stock market. 1. Introduction to the background of the "Mississippi Bubble Incident" in the late 17th and early 18th centuries AD, Louis XIV of France (1630-1715), known in history as Louis the Great, was very belligerent during his administration and established the most powerful standing army in Europe at that time, promoted aggressive policies to the outside world, and launched and participated in a series of wars. For example, in 1667-1668, there was a war with Spain over inheritance issues; in 1672-1678, the war against the Netherlands was launched; in 1701-1703, it participated in the War of the Spanish Succession, which resulted in an empty French treasury, high government debt, and national finances on the verge of collapse. France's external debt at that time reached 3 billion livés, while its annual tax revenue was only 145 million livés. Debt is more than 20 times fiscal revenue. Louis XIV died in 1715. His successor was only 7 years old. The Duke of Orleans served as regent and presided over the new emperor when he was young. In order to save the financial crisis, the Regent took many measures. First, he recasted the currency, lowered the metal content of the currency, and increased fiscal revenue through currency devaluation; second, he cracked down on various corrupt behaviors in the tax collection and management process. These measures have increased fiscal revenue by more than 200 million livés, which cannot fundamentally resolve France's fiscal crisis. 2. John Law's main idea The whole incident took place in France, but the protagonist was a Scotsman named John Law. John Law had a special life experience. He 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 days in Europe and came up with his own financial theory. He believes that in the case of underemployment, increasing the money supply can increase employment opportunities and increase national output without raising the price level. 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. This is very similar to the view of modern Western economics. He believed that the paper currency standard was better than the precious metals standard, and the paper currency standard had greater flexibility. 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. However, the reserves of precious metals such as 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. Therefore, it is difficult to increase the money supply under the metal standard, which does not have this restriction on the paper currency standard. As long as the government is willing, it can start the bank's money printing machine and print as much as it wants. In order to prevent the government from issuing paper money arbitrarily, John Law believed that issuing paper money must have sufficient hard currency reserves, otherwise the idea would be the same. The initiator of the Mississippi bubble, John Law, 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. During his travels in Europe, John Law met the Duke of Orleans in France and became good friends. In 1715, after the death of King Louis XIV of France, the Duke of Orléans became the Regent, assisting the young new king. While he was worrying about France's fiscal woes, John Law's theory seemed to have thrown a life saver at him. Thus, a bold experiment was officially staged. 3. The first step in the trilogy of events: In May 1716, John Law was chartered by the French government to establish a private bank that could issue currency, and the banknotes it issued could be used to pay taxes. (In today's market language, by issuing paper money, the government can do QE whatever it wants.) John Law's banking affairs were successful and the currency was stable. However, gold and silver are often devalued due to unwise interference by the government. As a result, Lloyd's Bank's reputation flourished, monopolizing tobacco sales and monopolizing the power to coin gold and silver coins. It was eventually nationalized as Royal Bank in December 1718, but it remained in charge. Step 2: Establish a joint-stock company with monopoly rights and issue shares. John Law has been increasingly receiving various trade concessions since 1717. The Mississippi Company established has unique rights to trade with the vast basin of the Mississippi River and the western bank of the River in Louisiana (because it was said at the time that gold and silver could be seen everywhere in these two places. According to the language of the current stock market, the Mississippi Company is the "One Road, One Belt" concept stock), and the company's shares can be purchased with treasury bonds at face value. Because the market value of national bonds continued to depreciate at that time, treasury bonds with a face value of 500 livres could only be exchanged for 160 livres in the market, while stock prices continued to rise. Buying stocks with national bonds could make huge profits, triggering a speculative frenzy and quickly sweeping France. 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 large package of taxes, and pay the government 53 million millive-vochs a year. If 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 Orleans? Under the chairmanship of John Law, Indian companies simplified the tax agency, reduced tax costs, broadened the tax base, and eliminated tax exemptions for royal aristocrats. Tax revenue has increased significantly, bringing a lot of excess profits to the joint-stock company. 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. Step 3: Taking advantage of the general enthusiasm of the French public at this time, John Law decided to use Royal Bank's banknote issuance capabilities and issue stocks to raise funds for the government, in an attempt to ultimately resolve France's fiscal crisis. In 1719, John Law decided to repay the 1.5 billion livhs of national debt through the issuance of shares by Indian companies. To this end, Indian companies issued three large-scale shares in a row: on September 12, 1719, they issued an additional 100,000 shares with a par value of 5000 Rivh each. Shares were snapped up as soon as they went public. Stock prices soared. Whether they are wealthy and dignitaries or villagers, men, women and children, all dream of obtaining endless wealth from Lloyd's stocks. Stock prices rose and rose, soaring. Sometimes it can increase by 10 to 20 percentage points in a few hours, and people who go out in the morning as poor as a bird can return home rich at night. The most fanatical record is that the stock price can be sold from 500 livres to 18000 livres within six months. People from all over the country flocked to stock exchanges, bustling from morning to night, and even had to replace larger squares many times. Not only did the paper money used to repay national debt flow back to the stock market, but Royal Bank issued another 240 million livh notes to meet the demand for money from stock speculation (to pay for the 1.59 livh shares previously issued by the Indian Company, Royal Bank had issued 240 million livh notes on July 25, 1719). In short, the higher the price of Mississippi stock, the more banknotes Royal Bank issued simultaneously. 4. The trigger for the outbreak of the crisis was ignited in early 1720. Prince Conte, who was rejected by John Law when he asked to purchase newly listed Mississippi stocks at a relatively low price, used three carriages to pull his banknotes to Lloyd's Bank to ask for coins. John Law began to feel uneasy and used the Prince Regent to stop Prince Conte's actions, but the confidence of the market began to crack since then. Savvy stock speculators also correctly realized that stock prices could not rise forever, and they exchanged coins and shipped them abroad. (The author lamented: It can be seen that bubbles are always accidentally burst. Games that seem perfect always come to an end. In the current China stock market, the impulse to make money quickly stimulates investors 'nerves. The "national bull market" portrayed by mainstream media makes investors turn back. However, a few experienced investors even feel that the market is a typical bubble, but seeing the large number of new entrants every day, they firmly believe that the bubble will continue.) Faced with the approaching crisis, the French government began to intervene in the market and prohibited anyone from owning coins exceeding 500 livres. Violators would be fined a large fine in addition to confiscating all coins. At the same time, it is also strictly prohibited for anyone to purchase gold and silver jewelry, utensils and precious gems. However, the government's intervention did not save the confidence of the market. As investors 'confidence fell, Mississippi's stock price plummeted, and no one still believed the myth that the region contained huge wealth. However, the government is doing everything it can to restore public confidence in the Mississippi Company. The government even announced a compulsory conscription plan, gathering all the poor vagrants in Paris, providing clothes and tools, and arranging them to line up, carrying pickaxes and spades on their shoulders, passing through the streets of Paris day after day and then coming to the port to wait to be shipped to America, pretending to work on the gold mines there. Two-thirds of them did not get on board but were scattered across France, and within three weeks half of them reappeared in Paris. In order to maintain the stock price of 9000 livhis, John Law also issued 300 million, 390 million and 438 million livhis notes on March 25, April 5, and May 1, 1720, respectively, which more than doubled the amount of money in circulation in more than a month. It is estimated that there were 2.6 billion livres in paper currency at that time, and the country's metal currency combined was less than half of this amount. (Author's Narrator: At present, all investors believe that the China government needs a stock market bubble and will not let the stock market bubble burst. If the stock market falls, the government will find a way to prevent the stock price from falling.) 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 paper currency. 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. John Law's epitaph Nine years after he fled from France, John Law died in a foreign country in endless regret. Someone wrote the following words on his tombstone: "Here lies the famous Scot, whose computational skills are unmatched, who used simple algebraic rules to make France impoverished." Postscript: The general principle of the stock market is that risks and returns are symmetrical, and high risks correspond to high returns. If the government endorses the stock market, it will have a great impact on the market, which means that risks and returns are no longer symmetrical, and investors can enjoy High returns without taking on high risks. As a result, funds from the whole society will surely enter the stock market crazily. This is the tragedy that occurred in France 300 years ago, and it seems that what is happening in China now.