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. Bank Run

    A situation that occurs when a large number of bank or other ...
  4. Speculative Bubble

    A spike in asset values within a particular industry, commodity, ...
  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. No results found.
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. Investing

    3 Major Risks For Annaly’s Investors

    Thanks to its double-digit dividend yield, Annaly Capital Management has long been a favorite among income-seeking investors.
  5. Investing

    Looking To Invest In the Third-Largest Pharmacy?

    Rite Aid Corporation's $4 billion purchase of the Eckerd retail pharmacy chain during the Great Recession might not have been its savviest decision.
  6. Credit & Loans

    Which Is One Of The Nation’s Safest Banks?

    While there's no such thing as a completely safe bank stock, it's hard to find one that comes closer to the mark than New York Community Bancorp .
  7. Economics

    Afraid Of A New Financial Crisis?

    It may be time for the U.S. to adopt a model for financial companies that better deters risky financial behavior.
  8. Technical Indicators

    This Indicator Should Always Be Part Of Your Strategy

    The relationship between price, 200-day EMA and its slope of generate useful patterns that assist in price prediction and trade management.
  9. Personal Finance

    Will Your Net Worth Be Affected By A Recession?

    Here's a look at how a potential recession could impact your net worth in a negative way.
  10. Charts & Patterns

    Trading Against the Grid and Away from the Herd

    The best trade could be in the opposite direction when a classic price pattern doesn’t behave according to perfect rules.

You May Also Like

Hot Definitions
  1. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  2. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  3. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  4. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  5. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  6. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
Trading Center