The Mississippi Bubble was the 1720 French financial bubble that collapsed after John Law’s Mississippi Company became linked to paper money.
Scottish financier John Law controlled the Mississippi Company, which held a monopoly over French trade claims in the Mississippi region. Law also directed the Banque Générale, later the Banque Royale, and expanded the use of banknotes. Investors were encouraged to exchange government debt and other assets for company shares.
Speculation pushed the shares to extraordinary heights in 1719 and 1720. As doubts grew about the company’s profits and the value of the notes, holders rushed to convert paper and shares into hard money. The system broke down, causing a sharp fall in prices and a loss of confidence in Law’s reforms.
The Mississippi Bubble and the South Sea Bubble occurred at roughly the same time, but they were separate French and British episodes. The French crisis also left a long-lived suspicion of paper currency and state-backed financial schemes.