1720 Mississippi Bubble
John Law founded Banque Générale Privée, which issued paper notes that customers could redeem for gold with fractional reserves. Law’s paper notes and bank were so successful that the crown gave him a charter for the Banque Royale and custody of all French national debt. The Mississippi Company was chartered by Law. Law and the captured aristocracy led the populace into a speculative frenzy to buy Mississippi Company shares. Their share price quickly reached 15,000 livres. All classes of French society were attracted by the Mississippi Bubble’s easy money promises. Law, who oversaw money printing at Banque Royale, could simply expand credit by printing money and utilize it to pay out profits in the Mississippi Company, providing the illusion of growth. After substantial withdrawals of Mississippi shares into gold, the bank encountered gold reserve shortages and the public lost faith in the shares. Speculative mania ended quickly as the bank encountered many crises and devalued the notes below face value. Both organizations dissolved, and Law fled France.