15. One of the earliest examples of an economic bubble, the collapse of the Mississippi Company in 1720 crippled the French economy and precluded efforts to afford repayments on its national debt
The Mississippi Company, founded in 1684, operated as a corporate business monopoly over French colonies in North America and the West Indies. In May 1716, the Banque Générale Privée was created by John Law, with three-quarters of its capital contained in government bills and notes. Purchasing the Mississippi Company in 1717, Law reorganized the business into a joint-stock trading company: the Compagnie d’Occident, becoming Chief Director of the reformulated monopoly. With his bank transforming into the Banque Royale in 1718, and with his notes backed by Louis XV of France, his company rapidly expanded, absorbing the “Company of the East Indies” and “Company of China”.
In order to finance these ventures, Law’s bank began printing more notes than it could back with coinage. However, as part of an agreement between Law and Louis XV, the excessive national debt accrued during the reign of Louis XIV would be financed through the revenues of the Mississippi Valley. Despite efforts to encourage migration to Louisiana, including freeing Parisian prisoners from September 1719 on condition they emigrate to the colony, it remained stagnant. Exaggerating the wealth of Louisiana, Law’s misrepresentations resulted in an overvaluation of company shares until, in late-1720, the bubble burst as the truth emerged. Investors sought en masse to cash in their notes, realizing they were increasingly worthless, whilst Law fled into exile in Belgium.