Mississippi Company
The Mississippi Company (French: Compagnie du Mississippi; founded 1684, named the Company of the West from 1717, and the Company of the Indies from 1719[1]) was a corporation holding a business monopoly in French colonies in North America and the West Indies. In 1717, the Mississippi Company received a royal grant with exclusive trading rights for 25 years.[2] The rise and fall of the company is connected with the activities of the Scottish financier and economist John Law who was then the Controller General of Finances of France. Though the company itself started to become profitable and remained solvent until the collapse of the bubble,[3] when speculation in French financial circles and land development in the region became frenzied and detached from economic reality, the Mississippi bubble became one of the earliest examples of an economic bubble.
Not to be confused with Compagnie de l'Occident.Company type
In France, the wealth of Louisiana was exaggerated in a marketing scheme for the newly formed Mississippi Company, and its value temporarily soared to the equivalent of $6.5 trillion today, which would make it the second most valuable company in history behind the Dutch East India Company.[4][5]
Downfall[edit]
Law's pioneering note-issuing bank thrived until the French government was forced to admit that the number of paper notes being issued by the Banque Royale exceeded the value of the amount of metal coinage it held.[19]
The market price of company shares eventually reached the peak of 10,000 livres. As the shareholders were selling their shares, the money supply in France suddenly doubled, and inflation burgeoned. Inflation reached a monthly rate of 23% in January 1720.[20]
Opponents of the financier attempted to convert their notes into specie (gold and silver) en masse, forcing the bank to stop payment on its paper notes.[21]
The "bubble" burst at the end of 1720.[20] By September 1720 the price of shares in the company had fallen to 2,000 livres and to 1,000 by December. By September 1721 share prices had dropped to 500 livres, where they had been at the beginning.
Thornton explained why Law's scheme failed: "He forgot that there might be no bounds to the demand for paper; that the increasing quantity would contribute to the rise of commodities: and the price of commodities require, and seem to justify, a still further increase."[22]
By the end of 1720 Philippe d'Orléans had dismissed Law from his positions. Law then fled France for Brussels, eventually moving on to Venice, where his livelihood was gambling. He was buried in the church San Moisè in Venice.[13]