Annual EBHS Conference, 39th Annual Economic and Business History Society Conference

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The Mississippi and South Sea Bubbles in a European perspective (1719-1720)
Stefano Condorelli

Last modified: 2014-03-10

Abstract


Contrary to what is usually believed, France, Great Britain and the Dutch Republic were not the only countries that experienced a financial bubble in 1719-1720. Lorraine, Hamburg, Hannover, Brunswick, Ireland, Austria, the Austrian Netherlands, Denmark, Switzerland, Geneva, Portugal, Spain, Venice, Milan and even Russia were also affected by the contagion of speculation and schemes. Some of these schemes have been studied (essentially the Hamburger and Irish ones), whereas the others have not yet caught historiography’s attention.

The paper will start with an overview of all the known economic and financial projects that were promoted that year in Europe outside France, Britain and the Dutch Republic. To identify them I have used many different sources, including gazettes, pamphlets, business letters, diplomatic correspondence and other official documents.

Only a few of those schemes gave rise to a stock market boom. In Lorraine, for instance, in November 1720, the shares of a new trading company (supported by the state) were oversubscribed, and their price rose more than 20% in a few days thanks to inflows of foreign capital. Other ventures did not manage to take off. In mid-September 1720, subscriptions in a new Venetian trading company had already started and the first shares had been bought, when the scheme suddenly aborted. Presumably, the stream of increasingly bad news from the London stock market had, in those same days, triggered a shift in Venetian investors’ confidence.

The paper will then address two questions: Did the various bubbles have any common features? Why did they start happening around the same time?

Each national bubble was clearly related to a specific economic and political environment. However, in each country (including Britain, France and the Dutch Republic, but with the exception of Geneva and Switzerland) some if not all the new stock issues were geared, in a way or another, to the government’s efforts to increase its income and reduce its debts. There were other common features, but this one was probably the most significant. To understand why the bubbles took place around the same time, we should look, on the one hand, at the mechanisms of financial contagion, and on the other at the international context. It was probably no coincidence if the bubbles occurred during the War of the Quadruple Alliance (1718-20). Practically all European powers were then struggling with unprecedented debt loads (mostly accumulated during the previous wars) and simultaneously needed fresh resources for the new conflict (or for old ones still going on). In France, for example, the crown took one of the most decisive steps in the process that led to the Mississippi Bubble (i.e. transforming John Law’s private bank into a royal bank) on the eve of invading Spain, in December 1718.

In summary, the paper main findings are: a) that the number of bubbles in 1719-20 was greater than what is usually believed; b) that almost all of them were at least partially geared to some form of public debt management; and c) that their onset was connected to the outbreak of a new European war in 1718-19.