Mississippi Company

AAA

DEFINITION of 'Mississippi Company'

An example of a famous speculative bubble that occurred from 1719-1720. In 1715 the country of France was in a dire economic straits, with an unstable treasury and a wildly fluctuating currency. John Law, a Scotsman and noted gambler living in exile in France, helped the government convert to paper currency (by taking metallic coinage deposits and giving banknotes equal to value of the currency on the day of deposit) and find its economic footing. In 1717 he acquired the Mississippi Company, to which the French government gave a monopoly on trading rights with its colonies in gratitude for his assistance.

INVESTOPEDIA EXPLAINS 'Mississippi Company'

In 1719 Law created a plan to restructure the French national debt under the Mississippi Company's auspices, exchanging company shares for debt and guaranteeing significant profits. Investors flocked, the national bank (now effectively owned by Law) printed money in response and massive inflation ensued. A bank run followed in May 1721 and the French treasury admitted that it did not have enough metallic currency to cover its paper instruments. It attempted to devalue Mississippi Company shares to no avail and finally the bank stopped paying in coinage. Shares in the company quickly plummeted to zero, the company was overtaken and divested of its assets divested and Law went into exile once more.

Other famous speculative bubbles include:

  • The 1630s tulip bubble in the Netherlands
  • The South Sea bubble of 1720
  • The bull market of the roaring 20s from 1924-1929
  • Japan's bubble economy of 1980
RELATED TERMS
  1. Bubble Company

    A company whose valuation greatly exceeds that suggested by its ...
  2. Currency

    A generally accepted form of money, including coins and paper ...
  3. Speculative Bubble

    A spike in asset values within a particular industry, commodity, ...
  4. Bank Run

    A situation that occurs when a large number of bank or other ...
  5. Monopoly

    A situation in which a single company or group owns all or nearly ...
  6. Panic Selling

    Wide-scale selling of an investment, causing a sharp decline ...
RELATED FAQS
  1. What is the difference between disposable and discretionary income?

    According to the Bureau of Economic Analysis, or BEA, disposable income is the amount of money an individual takes home after ... Read Full Answer >>
  2. What are the main risks to the economy of a country that has implemented a policy ...

    The main risk to the economy of a country that has implemented a policy of austerity is the potential for a self-reinforcing, ... Read Full Answer >>
  3. What are the major laws (acts) regulating financial institutions that were created ...

    Presidents George W. Bush and Barack Obama, in conjunction with Congress, signed into law several major legislative responses ... Read Full Answer >>
  4. What are the similarities and differences between the savings and loan (S&L) crisis ...

    The savings and loan crisis and the subprime mortgage crisis both began with banks creating new profit centers following ... Read Full Answer >>
  5. How does wage price spiral impact interest rates?

    A wage-price spiral occurs when wages and prices rise in tandem in a self-perpetuating cycle that exerts inflationary pressure ... Read Full Answer >>
  6. What measures could the U.S. Government take to prevent another crisis similar to ...

    Some of the measures that the U.S. government can take to prevent another crisis similar to the savings and loan (S&L) ... Read Full Answer >>
Related Articles
  1. Home & Auto

    Why Housing Market Bubbles Pop

    Home price appreciation is not assured. Can you withstand the volatility in this market?
  2. Options & Futures

    Silver Thursday: How Two Wealthy Traders Cornered The Market

    Find out how the largest speculative attempt to corner the market went awry.
  3. Economics

    Economic Meltdowns: Let Them Burn Or Stamp Them Out?

    Whether the Fed should intervene in market bubbles is up for debate. Learn about both sides here.
  4. Fundamental Analysis

    Trading With Stage Analysis

    Stage analysis offers market participants a powerful tool to identify current market conditions and make rapid adjustments to strategies.
  5. Personal Finance

    Five Of The Largest Asset Bubbles In History

    The five bubbles discussed here were among the biggest in history; their lessons should be heeded.
  6. Economics

    Explaining Growth Rates

    Growth rate refers to the amount a specific variable or measure has grown over a specified time, whether related to one company or an entire economy.
  7. Investing Basics

    What is Meant by Implied Volatility?

    The estimated volatility of a security's price.
  8. Personal Finance

    Economic Bubble: Toil And Trouble!

    You might like the idea of profiting from a bubble, but you’d probably like to avoid suffering from its aftermath. Here is how an economic bubble works.
  9. Personal Finance

    Will You See Higher Wages In 2015?

    It's been a few years into the economic recovery from the Great Recession, and the employment picture has been rocky.
  10. Savings

    What’s Behind The Sluggish Economic Recovery

    While the economy is improving, the rate of improvement is much lower than economists had expected. Estimates for Q2 GDP have collapsed to 2.5% from 3.2%.

You May Also Like

Hot Definitions
  1. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then ...
  2. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  3. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  4. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  5. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  6. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!