“In 1717 the Mississippi Company, chartered in France, set out to colonize the lower Mississippi Valley, establishing the city of New Orleans in the process. To finance its ambitious plans, the company which had good connections at the court of King Louis XV, sold shares on the Paris stock exchange. John Law, the company's director, was also the governor of the central bank of France. Furthermore, the king had appointed him controller-general of finances, an office roughly equivalent to that of a modern finance minister. In 1717 the lower Mississippi valley offered few attractions besides swamps and alligators, yet the Mississippi Company spread tales of fabulous riches and boundless opportunities. French aristocrats, businessmen and the stolid members of urban bourgeoisie fell for these fantasies, and Mississippi share prices skyrockets. Initially, shares were offered at 500 livres apiece. On 1 August 1719, shares traded at 2,750 livres. By 30 August, they were worth 4,100 livres, and on 4 September, they reached 5,000 livres. On 2 December the price of a Mississippi share crossed the threshold of 10,000 livres. Euphoria swept the streets of Paris. People sold all their possessions and took huge loans in order to buy Mississippi shares. Everybody believed they'd discovered the easy way to riches.”
From Yuval Noah Harari's SAPIENS
“A few days later, the panic began. Some speculators realized that share prices were totally unrealistic and unsustainable. They figured that they had better sell while stock prices were at their peak. As the supply of shares available rose, their price declined. When other investors saw the price going down, they also wanted to get out quick. The stock price plummeted further, setting off an avalanche. In order to stabilize prices, the central bank of France — at the direction of its governor, John Law (also the Mississippi Company's director) — bought up Mississippi shares, but it could not do so forever. Eventually, it ran out of money. When this happened, the controller-general of finances, the same John Law, authorized the printing of more money in order to buy additional shares. This placed the entire French financial system inside the bubble. And not even this financial wizardry could save the day. The price of Mississippi shares dropped from 10,000 livres back to 1,000 livres, and then collapsed completely. By now, the central bank and the royal treasury owned a huge amount of worthless stock and had no money. The big speculators emerged largely unscathed — they had sold in time. Small investors lost everything, and many committed suicide.”
Parallels can certainly be drawn in the appointment of Goldman Sachs CEO Henry Paulson as head of U.S. Treasury in 2006, barely a couple years before the crash of 2008-09, or even now appointing the “former” CEO/CIO of a major hedge fund as secretary of U.S. Treasury.
“The Mississippi Bubble was one of history's most spectacular financial crashes. The royal French financial system never recuperated fully from the blow. The way in which the Mississippi Company used its political clout to manipulate share prices and fuel the buying frenzy caused the public to lose faith in the French banking system and in the financial wisdom of the French king. Louis XV found it more and more difficult to raise credit. This became one of the chief reasons that the overseas French Empire fell into British hands. While the British could borrow money easily and at low interest rates, France had difficulties securing loans, and had to pay high interest on them. In order to finance his growing debts, the king of France borrowed more and more money at higher and higher interest rates. Eventually, in 1780, Louise XVI, who had ascended to the thrown on his grandfather's death, realised that half his annual budget was tied to servicing the interest on his loans and that he was heading towards bankruptcy. Reluctantly, in 1789, Louise XVI convened the Estates General, the French parliament that had not met for a century and a half, in order to find a solution to the crisis. Thus began the French Revolution.”
They don't mention that backstory when teaching the French Revolution, now do they?
Harari is kind of a contrarian, because he uses the example of the Mississippi Bubble to illuminate why autocracy-based Capitalism doesn't quite work compared to the kind of Capitalism that is bound to fair laws and regulations, the kind of Capitalism that allowed the Dutch to prosper, at least around the time their joint-stock companies established New Amsterdam in what is now lower Manhattan. Yet he will also make a statement like this:
“When kings fail to do their jobs and regulate the markets properly, it leads to loss of trust, dwindling credit and economic depression. That was the lesson taught by the Mississippi Bubble of 1719, and anyone who forgot it was reminded by the US housing bubble of 2007, and the ensuing credit crunch and recession.”
Unless he means to say the facets of US capitalism are de facto autocratic without wanting to say it out loud.
#reads
1. The Dreamers — Bernardo Bertolucci
2. La Belle Noiseuse — Jacques Rivette
3. The Pillow Book — Peter Greenaway
4. Camille Claudel — Bruno Nuytten
5. Henry & June —Philip Kaufman
6. Portrait of a Lady on Fire — Celine Sciamma
7. Caravaggio — Derek Jarman
8. Fur: An Imaginary Portrait of Diane Arbus — Steven Shainberg
9. A Bigger Splash — Luca Guadagnino
10. Artemisia — Agnes Merlet
11. The Artist and the Model — Fernando Trueba
12. Anatomy of Hell — Catherine Breillat
13. Lust for Life — Vincente Minelli
14. Surviving Picasso — James Ivory
15. The Libertine — Laurence Dunmore
16. Goya's Ghosts — Milos Forman
17. The Dying Gaul — Craig Lucas
18. Factory Girl — George Hickenlooper
19. Claire's Camera — Hong Sang-soo
