Season's Savings | ₹5/mo for 3 months

₹199/month after first 3 months. Renews automatically. Terms apply.
The Story of Money: The Madness of the Mississippi Bubble cover art

The Story of Money: The Madness of the Mississippi Bubble

The Story of Money: The Madness of the Mississippi Bubble

Listen for free

View show details
About this listen
 This is the story of one of the earliest and most spectacular bubbles and bursts in modern financial history, and how an outlaw made law and order and disorder, how a convicted murderer and fugitive and foreigner rose to amass the greatest financial clout and power in France, and fell and fled in disgrace.Let’s head to France in the year 1715. King Louis XIV is dead, the Spanish War of Succession -- a war with great consequences for Western Europe, which raged from 1701, is over, leaving France massively in debt. As an absolutist regime, the French monarch had used every means at his disposal to fund the war, such as massive coin debasement Episode 034, predatory and extractive taxation, to the effect that the impoverished French population had lost trust in French money and the State’s ability to honor the national debt - a huge portion of which was held by the citizenry. Things were desperate for the king, things were dire for the peasant.Enter a Scotsman.Paper PowerJohn Law, an Edinburgh-born gambler and adventurer, who had developed his own theories, convicted for murdering a man in a duel over a woman, had just fled Britain and ended up in this milieu in France. The new king, Louis XV was only V, I mean 5, and his regent the Duke of Orleans was ready to try anything, anything at all. It was thus that Law managed to convince the regent about his new-fangled theories and gained his confidence.The key element was this: using gold and silver was not efficient - let’s print paper banknotes in the name of gold/silver and issue them out as backed by said gold/silver. Law thus sets up the Banque Générale in 1716 with full state authority to print and issue paper money. The new money gets a fillip when the state agrees to accept taxes paid with the paper currency. Law becomes Controller-General, ie, the finance-king of France.Who Wants to be a MillionaireBut he doesn’t stop there, he buys up some of France’s colonial enterprises, in particular the Mississippi Company and thus the monopoly on trade with French Louisiana. (We must remember that Louisiana at its height was much larger, encompassing much of the Mississippi river basin and stretching right into Canada - much of what we now call the Mid West. However, this region had sparse European settlement and development at this point.)Law starts hyping up Louisiana as a magical El Dorado -- full of gold, although it was just swamp, mosquitos and crocodiles. But the French public buy into the hype, buying up shares in Law’s company -- the speculative frenzy gets so crazy, the share price jumps from 500 livres to over 10,000 livres in about a year.Given there were no stock exchange buildings in such a time, Rue Quincampoix, a street in Paris becomes the trading floor - people from all walks of life from a widowed cook to a noblemen all jostle and scramble to buy up the shares. There is a story that a hunchback (and no, he was not from Notre Dame!) rented out his back as a writing desk for the traders to record their transactions! There are stories of, for example, chimney sweeps becoming filthy rich overnight and purchasing villas.Perhaps the juiciest detail is that it was here in this frenzy that the word ‘millionnaire’ was coined!But... what goes up comes down, every bubble has a burst. By 1720, the better informed folk started to realize that the Mississippi dream was a mirage, there was no gold in Louisiana, it was just a dump. They start cashing out shares, and as we have seen in Episode 036 the institution cannot honor the shares for gold/silver - because the shares and the paper money were in the backed by nothing of corresponding value. They were in effect worthless.So yes, climax - bank runs, riots, currency collapses, and France’s financial savior, John Law, flees France and dies in penury in Venice.Lost LessonsSo the questions we raised in Episode 028 are all of relevance here, and one can see the parallels with the events described in Episode 029. Let’s see what we can salvage from this, or if we can learn anything in particular.Despite everything, there were a few things John Law did get right, and despite such a rocky start, time, much later on, has proved him right. He was one of the first to point out that money, specifically gold/silver, in itself is of no value, and value comes from labor and production -- something I’ve repeated pointed out in this series. He thus debunked the older mercantilist futility of hoarding gold and silver - something fellow-Scotsman Adam Smith would make the decisive case for 60 years later - see Episode 020. Law can be said to have invented paper currency as we know it in the modern form.However, having gone through the trauma of the whole episode, the French developed a very different view of it all: there developed a deep mistrust of such currency and any monetary innovation - to the extent that France’s financial affairs stagnated or deteriorated. This episode thus one can say was ...
adbl_web_anon_alc_button_suppression_t1
No reviews yet