In 1717, John Law, a financial titan of his generation, founded the Mississippi Company to resolve France's massive debts. He obtained from the French Government a monopoly on operating the Louisiana Colony, and the company subsequently began issuing shares.
Because there were rumors of vast Gold Mines in the Mississippi River basin, coupled with the company's successive acquisition of operating rights for more of France's overseas colonies, its share price soared steadily.
From 500 Livre per share at issuance, it rose all the way to nearly 20,000 Livre at its peak. Yes, do not miss a zero—the share price had increased fortyfold!
John Law believed the opportunity to wipe out France's 1.5 billion Livre in Government Bonds had arrived. Beginning in 1719, he issued additional shares five times in succession. Exploiting the frantically soaring share price and coordinating with the Royal Bank's issuance of Paper Money, he truly erased the French Government's debts in one stroke!
Of course, there was no way he could have earned 1.5 billion Livre in three years. All that money had been piled up from a stock market bubble.
In 1720, as large numbers of prospectors came back empty-handed, the legend of the Mississippi gold mine began to crumble. The result was a collapse in Mississippi Company share prices. People panic-sold their shares, and the price plunged all the way below 200 Livre.
The man in power in France at the time, the Regent, Old Duke of Orléans, hurriedly revoked every privilege of the Mississippi Company. The company went bankrupt, and a bubble worth several billion Livre vanished into smoke overnight—an amount equivalent to the combined fiscal revenues of France for more than thirty years!
Countless people who had bought Mississippi Company shares went bankrupt as a result. France as a whole sank into a