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'A Time of Unexampled Prosperity': the Great Mississippi Bubble

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'A Time of Unexampled Prosperity': the Great Mississippi Bubble Click here for Full Issue of EIR Volume 35, Number 5, February 1, 2008 EIR Economic History ‘A TIME OF UNEXAMPLED PROSPERITY’ The Great Mississippi Bubble by Washington Irving Introduction: Rampant speculation, between John Law and Alan Greens- bank blowouts, and panic on the pan or Ben Bernanke—or even to- stock exchange are not unavoidable day’s stock market gambler—is pure- “cyclical phenomena,” as some ly coincidental; or whether the would have us believe. Rather, they situation in France in 1719 in any are the product of a looting policy way resembles that of the United conducted by financial powers deter- States in recent several years. mined to maintain their own power, We publish substantial excerpts and bankrupt their rivals. Famous of Irving’s story below. examples include the Dutch Tulip Craze of the early 17th Century, and * * * * * the Mississippi and South Sea bub- In the course of a voyage from Eng- bles of the early 18th Century. land, I once fell in with a convoy of In 1819-20 the American writer, merchant ships, bound for the West historian, and patriot, Washington Indies. The weather was uncommon- Irving (1783-1859), set out to edu- ly bland; and the ships vied with each cate his fellow-citizens about the fol- other in spreading sail to catch a ly of succumbing to these bubbles. In light, favoring breeze, until their a short story entitled, “The Great hulls were almost hidden beneath a Mississippi Bubble,” published in a cloud of canvas. The breeze went collection of essays and stories enti- Library of Congress down with the sun, and his last yel- tled “The Sketch Book of Geoffrey The American writer Washington Irving was an low rays shone upon a thousand sails, Crayon,” Irving described the 1719 active member of the patriotic U.S. intelligence idly flapping against the masts. bubble created by English speculator networks that included James Fenimore Cooper and I exulted in the beauty of the Samuel Morse, among others. John Law in France, whereby Law— scene, and augured a prosperous having enlisted the like-minded Re- voyage; but the veteran master of the gent of France, the treacherous Duke of Orleans—sent the ship shook his head, and pronounced this halcyon calm a French economy into a speculative mania of soaring interest “weather-breeder.” And so it proved. A storm burst forth in the rates and hyperinflation, based only on thep romise of future night; the sea roared and raged; and when the day broke I be- land values in France’s Louisiana Territory around America’s held the late gallant convoy scattered in every direction; some Mississippi River. When the bubble finally burst, the “Big- dismasted, others scudding under bare poles, and many firing Money Boys” got their inflated profits and pulled out, leaving signals of distress. the smaller speculators holding the bag, and the nation in ru- I have since been occasionally reminded of this scene, by ins. those calm sunny seasons in the commercial world, which are It is up to the reader to decide whether any resemblance known by the name of “times of unexampled prosperity.” 38 Economic History EIR February 1, 2008 © 2008 EIR News Service Inc. All Rights Reserved. Reproduction in whole or in part without permission strictly prohibited. The South Sea Bubble was based on John Law’s Mississippi Bubble: “The English had brought the vast imaginary commerce of the South Seas in aid of their banking operations. Law sought to bring, as an immense auxiliary of his bank, the whole trade of the Mississippi.” Shown, an engraving of the South Sea Bubble, by E.M. Ward. They are the sure weather-breeders of traffic. Every now and the merchant into a kind of knight-errant, or rather a commer- then the world is visited by one of these delusive seasons, cial Quixote. The slow but sure gains of snug percentage be- when “the credit system” as it is called, expands to full luxuri- come despicable in his eyes: no “operation” is thought wor- ance; everybody trusts everybody; a bad debt is a thing un- thy of attention that does not double or treble the investment. heard of; the broad way to certain and sudden wealth lies plain As he sits musing over his ledger, with pen behind his ear, he and open; and men are tempted to dash forward boldly, from is like La Mancha’s hero in his study, dreaming over his the facility of borrowing. books of chivalry. His dusty counting house fades before his Promissory notes interchanged between scheming indi- eyes, or changes into a Spanish mine; he gropes after dia- viduals, are liberally discounted at the banks, which become monds, or dives after pearls. The subterranean garden of so many mints to coin words into cash; and as the supply of Aladdin is nothing to the realms of wealth that break upon his words is inexhaustible, it may readily be supposed what a vast imagination. amount of promissory capital is soon in circulation. Every one Could this delusion always last, the life of a merchant now talks in thousands; nothing is heard but gigantic opera- would indeed be a golden dream; but it is as short as it is bril- tions in trade; great purchases and sales of real property, and liant. Let but a doubt enter, and the “season of unexampled immense sums made at every transfer. All, to be sure, as yet prosperity” is at an end. The coinage of words is suddenly cur- exists in promise; but the believer in promises calculates the tailed; the promissory capital begins to vanish into smoke; a aggregate as solid capital, and falls back in amazement at the panic succeeds, and the whole superstructure, built upon cred- amount of public wealth, the “unexampled state of public it, and reared by speculation, crumbles to the ground, leaving prosperity!” scarce a wreck behind: Now is the time for speculative and dreaming or design- ing men. They relate their dreams and projects to the ignorant “It is such stuff as dreams are made of.” and credulous, dazzle them with golden visions, and set them maddening after shadows. The example of one stimulates an- When a man of business therefore, hears on every side ru- other; speculation rises on speculation; bubble rises on bub- mors of fortunes suddenly acquired; when he finds banks lib- ble; every one helps with his breath to swell the windy super- eral, and brokers busy; when he sees adventurers flush of pa- structure, and admires and wonders at the magnitude of the per capital, and full of scheme and enterprise; when he inflation he has contributed to produce. perceives a greater disposition to buy than to sell; when trade Speculation is the romance of trade, and casts contempt overflows its accustomed channels, and deluges the country; upon all its sober realities. It renders the stock-jobber a magi- when he hears of new regions of commercial adventure; of cian, and the exchange a region of enchantment. It elevates distant marts and distant mines, swallowing merchandise and February 1, 2008 EIR Economic History 39 disgorging gold; when he finds joint stock companies of all wisdom, and the project was rejected. Law met with no better kinds forming; railroads, canals, and locomotive engines, success with the English parliament; and the fatal affair of the springing up on every side; when idlers suddenly become death of Wilson still hanging over him, for which he had nev- men of business, and dash into the game of commerce as they er been able to procure a pardon, he again went to France. would into the hazards of the faro-table; when he beholds the The financial affairs of France were at this time in a de- streets glittering with new equipages, palaces conjured up by plorable condition. The wars, the pomp, and profusion of the magic of speculation, tradesmen flushed with sudden suc- Louis XIV, and his religious persecutions of whole classes of cess, and vying with each other in ostentatious expense; in a the most industrious of his subjects, had exhausted his trea- word, when he hears the whole community joining in the sury, and overwhelmed the nation with debt. theme of “unexampled prosperity,” let him look upon the In this state of things Law ventured to bring forward his whole as a “weather-breeder,” and prepare for the impending financial project. It was founded on the plan of the Bank of storm. England, which had already been in successful operation sev- The foregoing remarks are intended merely as a prelude eral years. He met with immediate patronage and a congenial to a narrative I am about to lay before the public, of one of spirit in the Duke of Orleans, who had married a natural the most memorable instances of the infatuation of gain to daughter of the king. The duke had been astonished at the fa- be found in the whole history of commerce. I allude to the cility with which England had supported the burden of a pub- famous Mississippi bubble. It is a matter that has passed lic debt, created by the wars of Anne and William, and which into a proverb, and become a phrase in every one’s mouth, exceeded in amount that under which France was groaning. yet of which not one merchant in ten has probably a distinct The whole matter was soon explained by Law to his satisfac- idea. I have therefore thought that an authentic account of it tion. The latter maintained that England had stopped at the would be interesting and salutary, at the present moment, mere threshold of an art capable of creating unlimited sources when we are suffering under the effects of a severe access of national wealth.
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