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Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- List of contributors
- Preface and acknowledgments
- 1 Financial innovations and crises: The view backwards from Northern Rock
- 2 An economic explanation of the early Bank of Amsterdam, debasement, bills of exchange and the emergence of the first central bank
- 3 With a view to hold: The emergence of institutional investors on the Amsterdam securities market during the seventeenth and eighteenth centuries
- 4 Was John Law's System a bubble? The Mississippi Bubble revisited
- 5 Sir George Caswall vs. the Duke of Portland: Financial contracts and litigation in the wake of the South Sea Bubble
- 6 The bell jar: Commercial interest rates between two revolutions, 1688–1789
- 7 Comparing the UK and US financial systems, 1790–1830
- 8 Natural experiments in financial reform in the nineteenth century: The Davis and Gallman analysis
- 9 Regulatory changes and the development of the US banking market, 1870–1914: A study of profit rates and risk in national banks
- 10 Anticipating the stock market crash of 1929: The view from the floor of the stock exchange
- 11 The development of “non-traditional” open market operations: Lessons from FDR's silver purchase program
- 12 The interwar shocks to US–Cuban trade relations: A view through sugar company stock price data
- 13 Central bank reaction functions during the inter-war gold standard: A view from the periphery
- 14 When do stock market booms occur? The macroeconomic and policy environments of twentieth century booms
- 15 Lessons from history for the twenty-first century
- Index
- References
4 - Was John Law's System a bubble? The Mississippi Bubble revisited
Published online by Cambridge University Press: 04 August 2010
- Frontmatter
- Contents
- List of figures
- List of tables
- List of contributors
- Preface and acknowledgments
- 1 Financial innovations and crises: The view backwards from Northern Rock
- 2 An economic explanation of the early Bank of Amsterdam, debasement, bills of exchange and the emergence of the first central bank
- 3 With a view to hold: The emergence of institutional investors on the Amsterdam securities market during the seventeenth and eighteenth centuries
- 4 Was John Law's System a bubble? The Mississippi Bubble revisited
- 5 Sir George Caswall vs. the Duke of Portland: Financial contracts and litigation in the wake of the South Sea Bubble
- 6 The bell jar: Commercial interest rates between two revolutions, 1688–1789
- 7 Comparing the UK and US financial systems, 1790–1830
- 8 Natural experiments in financial reform in the nineteenth century: The Davis and Gallman analysis
- 9 Regulatory changes and the development of the US banking market, 1870–1914: A study of profit rates and risk in national banks
- 10 Anticipating the stock market crash of 1929: The view from the floor of the stock exchange
- 11 The development of “non-traditional” open market operations: Lessons from FDR's silver purchase program
- 12 The interwar shocks to US–Cuban trade relations: A view through sugar company stock price data
- 13 Central bank reaction functions during the inter-war gold standard: A view from the periphery
- 14 When do stock market booms occur? The macroeconomic and policy environments of twentieth century booms
- 15 Lessons from history for the twenty-first century
- Index
- References
Summary
From 1715 to 1720, a Scotsman named John Law undertook a radical restructuring of French public finances. Because the entire operation appeared to be based on rational principles, it has been called in the French historiography Law's Système. In the English-language historiography, it is perhaps better known as the Mississippi Bubble, because an essential element of the scheme was the issue of shares in a trading company, whose prices rose prodigiously in a short period of time and then collapsed.
It is one of Larry Neal's achievements to have placed this bubble in the European context of 1720, tracing the links it had with near-simultaneous bubbles in London and Amsterdam. I wish to revisit the question posed by the title, in the light of more recent work on John Law and my ongoing research. In doing so, I will adopt a narrower approach, focusing essentially on the purely French aspect of the question.
The bubble, or more precisely the rise in the price of the shares of Law's company, were but a cog in the vast operation that Law planned, or at any rate carried out (how much it was planned remains debatable), radically to transform French public finances. I will argue that the market whose prices we observe was managed, if not manipulated. Law ultimately had a target for his share price, partly motivated by misconceptions on the effect of monetary expansion on the interest rate, and therefore on the discount rate; partly motivated by the need to maintain the forward momentum of his operation.
- Type
- Chapter
- Information
- The Origins and Development of Financial Markets and InstitutionsFrom the Seventeenth Century to the Present, pp. 99 - 120Publisher: Cambridge University PressPrint publication year: 2009
References
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