The New International Encyclopædia/Mississippi Scheme

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MISSISSIPPI SCHEME. A gigantic banking and commercial scheme projected in France by the celebrated Scotch financier John Law (q.v.), at the beginning of the reign of Louis XV. The primary object of the scheme was to resuscitate the French finances by removing some of the debt and disorder which had followed on the wars of Louis XIV. Money was to flow into France by developing the resources of the Province of Louisiana and the country bordering on the Mississippi—a tract at that time believed to abound in the precious metals. The company was incorporated in 1717, under the designation of the Compagnie d'Occident, and started with a large capital. Two hundred thousand shares were placed on the market and eagerly bought up. The company obtained exclusive privileges of trading to the Mississippi for twenty-five years, of farming the taxes, and of coining money. In 1719 it obtained a monopoly of trading to the East Indies, China, the South Seas, and all the possessions of the French East India Company, and the brilliant vision opened up to the public gaze was irresistible. The Compagnie des Indes, as it was now called, created fifty thousand additional shares; but there were at least three hundred thousand applicants for these, and consequently shares rose to an enormous premium. The public enthusiasm became absolute frenzy, and while confidence lasted, a fictitious impulse was given to trade in Paris; the value of manufactures was increased fourfold, and the demand far exceeded the supply. The population of Paris is said to have been increased by hundreds of thousands, many of whom were glad to take shelter in garrets, kitchens, and stables. But the Regent Orleans had meanwhile caused the paper circulation of the national bank to be increased as the Mississippi scheme stock rose in value, and paper currency to the face value of 2,700,000,000 livres flooded the country. The result was that many wary speculators, foreseeing a crisis, secretly converted their paper and shares into gold, which they transmitted to England or Belgium for security. The increasing scarcity of gold and silver in France becoming felt, a general run was made on the national bank, which in March, 1720, had been incorporated with the Compagnie des Indes. On May 21st the Government issued an edict which reduced the value of bank notes and of shares in the company by one-half. Law was now controller-general of finances, and he made several unavailing attempts to mend matters. Those suspected of having more than a limited amount (fixed by a law passed at the time) of gold and silver in their possession, or of having removed it from the country, were punished with the utmost vigor. The final crisis came in July, 1720, when the bank stopped payment, and Law was compelled to flee the country. A share in the Mississippi scheme now with difficulty brought 24 livres. An examination into the state of the accounts of the company was ordered by Government; much of the paper in circulation was canceled; and the rest was converted into ‘rentes’ to an enormous amount.