The Mississippi Bubble and Financial Innovation

The Regency's most dramatic episode—John Law's System—demonstrated both the monarchy's desperate financial situation and the dangers of radical solutions. Law, a Scottish financier and gambler, convinced the Regent that paper money and credit expansion could solve the crown's fiscal crisis while stimulating economic development. His system, brilliantly conceived but disastrously executed, created Europe's first modern financial bubble with lasting consequences for French monarchy.

Law's innovations began soundly enough. The Banque Générale (1716), later the Banque Royale, issued notes backed by coin that facilitated commerce and government payments. The Mississippi Company, granted monopolies on colonial trade and tax collection, promised enormous profits from Louisiana development. The consolidation of government debt into company shares offered to transform crushing obligations into manageable equity. For a brief moment in 1719-1720, the system seemed brilliantly successful, with share prices soaring and economic activity booming.

The bubble's collapse proved catastrophic. Speculation drove share prices to unsustainable levels—the famous rue Quincampoix became a frenzied trading floor where fortunes were made and lost hourly. When confidence collapsed, panic selling destroyed paper wealth overnight. The bank's note issue, expanded far beyond metallic backing to support share prices, became worthless. Thousands of investors, from great nobles to modest bourgeois, faced ruin. The psychological impact proved even greater than financial losses, creating lasting suspicion of financial innovation and paper money.

The System's failure had profound political consequences. The monarchy's association with financial manipulation undermined its credibility. The spectacle of aristocrats speculating alongside commoners in the rue Quincampoix eroded social hierarchies. The Visa, a special court established to investigate speculative profits, became a tool for arbitrary persecution that recalled Louis XIV's worst excesses. Most importantly, the crown's bankruptcy—for that is what the System's collapse amounted to—demonstrated that absolute monarchy could not guarantee financial stability.