The Cause And Effects Of The Mississippi Bubble

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The Mississippi bubble has been one of two historical bubbles that took place in the 18th century. It has been a remarkable incident in the history and has many empirical evidences showing the cause and effects in the stock market of France. In 1917, John law endorsed his company named as the Mississippi Company and started a monopoly trade. Law by merging his bank and the Mississippi Company sold the shares in venture. This was thought so that Law could be richer and promote his thought of the transaction of paper money inspite of gold that was used primarily. A Ducal French Regent for Louis XV supported Law and with his support he established a bank and a new paper currency which was strictly backed by coin. The Regent supported Law in insisting that taxes have to be paid in the new currency and in other ways, and the new currency gained acceptance in the public. Source: mississippibubble.blogspot.com The above flow diagram shows the whole procedure showing John Law’s thought for issuing shares in exchange of money which lead to the increase of demand of notes. The issuance of shares of the Mississippi Company faced many fluctuations due to the fluctuations of the demand among the people. At first, share prices fall (to about half the issue price) until Law provided a guarantee to buy them back at their par value or face value. More and more shares were issued and the rate increased with the pace of time. This caused the share prices to boom. Shares in the Mississippi

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