THE MISSISSIPPI SCHEME 1716-1721

John Law embarked on an economic experiment to save a failing French economy by introducing paper currency.  His bank and his Mississippi Co. became wildly successful.  The demand for his new stock issue soon reached maniac levels. Law was hailed as a genius and the country’s economic savior. [LINK Chapter 1]

CHAPTER TWO – THE BUBBLE

The “Madness” Gets Out of Hand

Law had become the most important person in France. Peers, judges, and bishops thronged to his Hotel; military officers, ladies of title and fashion, and everyone with social or government rank waited to beg for shares. Law could not meet with a tenth of them.

Noblemen, who would have been outraged if the Duke of Orange had made them wait half an hour, were happy to wait six hours for the chance to see Monsieur Law, using every trick to reach him. His servants got huge fees for just announcing callers’ names. Ladies used their smiles; many came every day for two weeks before getting an audience. Whenever Law accepted an invitation, he was surrounded by ladies wanting to be on the shareholder list.

One lady gave up trying to see him at his Hotel. She ordered her coachman to watch when she was in her carriage, and if he saw Mr. Law coming, to drive against a post and upset the carriage. For three days the lady rode through town, praying to be overturned. At last, she saw Law, and called to the coachman, “Upset us now! for God’s sake, upset us now!” The coachman drove against a post and the coach overturned. Law hastened to the accident and led the cunning dame into the Hôtel de Soissons. She soon recovered from her fright, apologized to Law, and confessed her deception. Law smiled and entered her name on the stock issue list. 

A Madame, knowing that Law was at a dinner party, went there in her carriage and sounded a fire alarm. The diners exited the house.  The lady ran toward Law, but suspecting a trick, he ran off in another direction.

The volatile share price could move 20% in an hour, and many who woke poor in the morning went to bed rich. When one large shareholder was taken ill, he sent his servant to sell 250 shares, at 8,000 livres, the quoted price. When the servant arrived in the Jardin de Soissons, the price had risen to 10,000 livres.  He sold the shares, kept the extra 500,000 livres for himself, and left that evening for another country. (No surprise! He had shortchanged his boss $6 million - 2023.)

People walked about with huge sums of cash, and robberies occurred every day. Murders were frequent. In a high-profile case, a young nobleman stabbed to death a broker. Despite his position, he was found guilty and sentenced to death. The public approved of the verdict. But robberies and murders did not diminish, and rich stockbrokers got no sympathy when they were victimized. Public morals in Paris had been lax before, but the middle class had been comparatively pure, little involved in the open vices of the upper class and the hidden crimes of the lower class. Now, gambling and speculating seized all society.

Investing “Geniuses” are Everywhere

Law’s coachman soon made enough money to get his own carriage and requested to resign. Law begged him to find a replacement as good as himself. The coachman agreed, and brought two of his former comrades, telling Law to choose one, and he would take the other.

Cooks and footmen were sometimes as lucky. And with their new-found wealth, they made ridiculous decisions. They still had the talk and manners of the working class, but they now dressed in upper class finery. So, they were the continual objects of pity from the sensible, contempt from the sober, and laughter from everybody.

But the higher ranks of society were more disgusting. One uneducated man had speculated and become enormously wealthy in an incredibly short time. He grew ashamed of his low birth, and much wanted to be allied to nobility. He negotiated with an aristocratic, but needy, family that his three-year-old daughter should, with certain conditions, marry a member of that house. The Marquis agreed, and scandalously promised to marry her himself when she became twelve, if the father would make a down payment of 100,000 crowns, and 20,000 livres every year until the wedding. The Marquis was 33 years old. The father also agreed to give his daughter, on the wedding day, a fortune of several millions. A Duke, head of the family, guided the negotiations and shared in all the profits. The deal fell through a few months later when the stock became worthless. However, the noble family never returned the 100,000 crowns.

The entire French economy was buoyed by the rising stock, especially in Paris. Strangers flocked there, not just to make money, but to spend it. The Duchess of Orleans, mother of the regent, estimated the great influx of people at 300,000.

Law shared in the prosperity. The highest nobility entertained his wife and daughter and heirs of dukes and princes sought to ally with his daughter. Law bought two splendid estates in different parts of France. His Protestant religion was a political handicap, and the regent promised to make Law comptroller-general of finance if he would publicly become a Catholic. Law had no more real religion than any other gambler, and readily agreed. He was confirmed in the Melun Cathedral before a great crowd.

When such fortunes were gained, it is no wonder that Law was almost worshipped. No king was ever more flattered. A crowd followed his carriage everywhere, and the regent sent a horse troop as his permanent escort to clear the streets for him.

The Bubble Begins to Deflate

The system flourished til early 1720. The regent believed that it could never be carried to excess. If 500 million in paper had been good, 500 million more would be twice as good. The scheme was like a glittering ice palace. But a warm breeze began to blow, and the palace started to melt.

One stockholder, the Prince de Conti, raised the first alarm. Offended that Law denied him more shares, the Prince sent three wagon loads of stock certificates to be sold. Law complained to the regent, about how much “mischief” this would cause if it prompted others to sell. The regent ordered the Prince, under severe penalty, to refund two-thirds of the sale proceeds. The prince was forced to obey this despotic demand. Luckily for Law, Prince de Conti was unpopular: everybody condemned his meanness and agreed that Law had been badly treated. So narrow an escape should have made both Law and the regent more cautious. It did not.