Mississippi Scheme

The Mississippi Company (of 1684) became the Company of the West (1717) and expanded as the Company of the Indies (1719).^[1] The French names for the company were: in 1684, Compagnie du Mississippi; in 1717 Compagnie d'Occident; and in 1719, Compagnie des Indes (or Compagnie Perpétuelle des Indes).

History

A factor in the history of French trade, the Mississippi Company was a chartered company first established in 1684. It was founded at the request of René-Robert Cavelier, Sieur de La Salle. He had projected it in 1660, and being appointed Governor of Fort Frontenac, at the mouth of the Mississippi River, travelled over the country in 1683, and returned to France to solicit its establishment.

This obtained, La Salle set sail for his new colony, with four vessels loaded with inhabitants, etc; but upon entering the Gulf of Mexico, it seems he did not know the river that had cost him so much fatigue, for he settled on Matagorda Bay in what is now Texas, where his colony perished by degrees. By 1685, there were fewer than 100 people left in the colony. Making several expeditions to find the Mississippi River, he was killed in one of them by a party who mutinied against him, upon which the colony was dispersed and lost.

Pierre Le Moyne d'Iberville afterwards succeeded better.^[1] Iberville had found the mouth of the Mississippi River, built Fort Maurepas (Old Biloxi) in April 1699, and expanded the settlement as Mobile in 1702, with his brother, Governor Bienville. Those forts protected the southern region in the territory of Louisiana.

Renamed as Company of the West

View of the camp of John Law at Biloxi, December 1720

In August 1717, Scottish businessman John Law acquired a controlling interest in the then-derelict Mississippi Company and renamed it the Compagnie d'Occident (Company of the West)^[1] (or Compagnie du Mississippi). Its initial goal was to trade and do business with the French colonies in North America, which included much of the Mississippi River drainage basin, and the French colony of Louisiana. With control of the company, Law was granted a 25-year monopoly by the French government on trade with the West Indies and North America.

In 1718, against the advice of everyone else involved, including the Royal Engineers and John Law, the company directed Governor Bienville to found the village of New Orleans on the Lower Mississippi.^[1]

Renamed as Company of the Indies

In 1719, the company acquired the Compagnie des Indes Orientales, the Compagnie de Chine, and other French trading companies and became the Compagnie des Indes (or Compagnie Perpétuelle des Indes). In 1720, it acquired the Banque Royale, which had been founded by John Law as Banque Générale in 1716.

Law exaggerated the wealth of Louisiana with an effective marketing scheme, which led to wild speculation on the shares of the company in 1719. Shares rose from 500 to 15,000 livres, but by summer of 1720, there was a sudden decline in confidence, and the price was back to 500 livres in 1721. By the end of 1720, the Regent Philippe II of Orléans dismissed Law, who then fled from France.

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1719 debt conversion

The number of outstanding shares of the company was probably around 500,000 in 1720. A stock price of 15,000 livres would have given the company a market capitalization of 7.5 billion livres. After the share price collapsed to 500 livres in September 1721, the company was valued at only 250 million livres. As a comparison, the French government expenses was 150 million livres in 1700, while their debt in 1719 was 1.6 billion livres.

With the demand for company shares being high, the government and John Law set out to buy back the whole 1.6 billion livres government debt for shares in the company. The plan was successful and in 1720 the whole government debt was acquired by the company, before the company's market capitalization began to collapse during 1720 and 1721. Compare this with the debt acquisition by The South Sea Company of England that acquired 80% of the 50 million pound government debt during 1720. The South Sea Company reached a highest share price of 1,000 pounds in August 1720, a few months later than the Compagnie des Indes.

As the creditors bought shares in the company with their bonds and debt papers (debt-for-equity transaction), the whole government debt became property of the company, the company became property of the former creditors, now the shareholders, and the effective control fell into the hands of the government that paid an annual 3% interest to the company, which amounted to 48 million livres. Through these transactions the French government had successfully unloaded their whole gigantic debt of 1,000% the annual budget (perhaps 200% - 400% of GDP) and was basically debt free.

1722 reopening

The company sought bankruptcy protection in 1721. It was reorganized and open for business in 1722. In 1723 it was granted fresh privileges by Louis XV. Among these were the monopoly of sale of tobacco and coffee, and the right to organise national lotteries. It could again tap the capital markets and raise capital by issue of shares and bonds.

From 1726 to 1746 the company flourished from its overseas trade and domestic business. It brought wealth to the port cities it was operating from: in Bordeaux, Nantes, Marseille, and, in particular, its home port of Lorient (initially called L'Orient). During this period it lost its trading rights for the western hemisphere but it kept trading with the east and could prosper from that business. Its main goods of trade during the period were porcelain, wallpapers, lacquer and tea from China, cotton and silk cloth from China and India, coffee from Mocha (Yemen), pepper from Mahé (South India), gold, ivory and slaves from West Africa.

After 1746 the spendthrift policies of the French Government began to hurt the Company, and the Seven Years' War (1756–1763) brought severe losses. In February 1770 an edict required the Company to transfer to the state all its properties, assets and rights, then valued to just 30 million livres, while the King accepted to pay all the Company's debts and annuity (rente) obligations. The company was officially dissolved in 1770, although its liquidation dragged on into the 1790s.

1719-21 share price

• 1719 May: 500 livres
• 1720 February: 10,000 livres
• 1721 September: 500 livres

1720 financial statements

When the whole debt was converted at the end of 1719, the Compagnie des Indes 1720 financial statements may have looked like this: ([1])

1763

After 1763, among the investors were George Washington at a time the company was heldin 2,5 millions acres on the east bank of the river^[2].

Media

Richard Condie's 1978 National Film Board of Canada animated short John Law and the Mississippi Bubble is a humorous interpretation.^[3]

See also

• John Law
• The South Sea Company
• Economic bubble
• Extraordinary Popular Delusions and the Madness of Crowds

Notes

References

• This article incorporates content from the 1728 Cyclopaedia, a publication in the public domain.
• Johnston, Alexander. The United States, Its History and Constitution. C. Scribner's sons. 1889. p 23.
• Irving, Washington. The Crayon Papers, "The Great Mississippi Bubble: A Time of Unexampled Prosperity"

External links

• "The Compagnie des Indes" (by Howard Shakespeare).
• "Famous First Bubbles - Mississippi Bubble".
• "Learning from past investment manias" (AME Info FN).

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