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. How does the risk of investing in the industrial sector compare to the broader market?

    There is increased risk when investing in the industrial sector compared to the broader market due to high debt loads and ... Read Full Answer >>
  2. How can I hedge my portfolio to protect from a decline in the food and beverage sector?

    The food and beverage sector exhibits greater volatility than the broader market and tends to suffer larger-than-average ... Read Full Answer >>
  3. How attractive is the food and beverage sector for a growth investor?

    The food and beverage sector is attractive for a growth investor. The sector's high degree of volatility means it tends to ... Read Full Answer >>
  4. What techniques are most useful for hedging exposure to the insurance sector?

    Investing style determines the best hedging techniques for the insurance sector. This sector comprises three segments, two ... Read Full Answer >>
  5. How can I hedge my portfolio to protect from a decline in the retail sector?

    The retail sector provides growth investors with a great opportunity for better-than-average gains during periods of market ... Read Full Answer >>
  6. What is the correlation between term structure of interest rates and recessions?

    There is no question that interest rates have enormous macroeconomic importance. Many economists and analysts believe the ... 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. Mutual Funds & ETFs

    ETF Analysis: Direxion Daily Energy Bull 3X

    Learn more about one of Direxion Fund's high-risk, high-reward energy plays: the Direxion Shares Funds Trust 3X exchange-traded fund.
  5. Personal Finance

    10 Jobs to Avoid Right Now

    These jobs may never recover to pre-recession highs, can easily be outsourced overseas or may disappear altogether as technology intervenes.
  6. Economics

    Will the Selloff in China Hurt the Global Economy?

    Though China is the world’s second largest economy, its volatility in the stock market is unlikely to have an impact on the global or Chinese economy.
  7. Economics

    6 Factors That Point to Global Recession in 2016

    We may be on the verge of another global recession.
  8. Economics

    Game Theory And The Greece Bank Crisis

    How can game theory help us understand how the Greece bank crisis will play out? As things come to a head, Greece and the Europeans are trying to hold out.
  9. Stock Analysis

    The 3 Best Buy-and-Hold Stocks For the Next 10 Years

    Find out what makes electric cars, burritos and muscle shirts great buy-and-hold additions to your long-term portfolio.
  10. Markets

    Will Spain Exit the Euro?

    With a "no" vote in last Sunday’s referendum on whether the Greek people would accept imposed austerity measures, chances of a Greek exit from the euro have substantially increased. Will Spain ...

You May Also Like

Hot Definitions
  1. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  2. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  3. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  4. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  5. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  6. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
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!