In May 1719 a share in France's Mississippi Company cost about 500 livres. By December it was close to 10,000. By September 1721 it was back at 500 [1] [2]. In between, the company ran the kingdom's bank, its chief executive ran the kingdom's finances, and for months the company bought its own shares at a price it set. It peaked months before the South Sea Bubble in London. Here is how it worked and what was left when it stopped.
One company, most of the state
A Scottish financier opened a bank in Paris in 1716, with the right to issue banknotes. A year later he set up the Company of the West [3], approved in August 1717 with a 25-year monopoly on trade with France's colony of Louisiana [1]. By 1719 it had been renamed the Company of the Indies [3].
On 5 January 1720 its chief executive also became France's minister of finance, and in February the company took over the Royal Bank [1]. One firm now held the colony, the trade, the bank that issued the paper money and the man who ran the budget.
A colony sold as a gold mine
Few buyers in Paris had seen Louisiana, but many had heard it was "rich in silver and gold" [2]. The company agreed to carry 6,000 settlers and 3,000 enslaved people to the colony [2]. Their journeys were real. The shares were priced on the rumour.
To buy the new shares, own the old ones
The first shares, 200,000 of them at 500 livres, were paid for in government bonds at face value [1]. They became known as the "mothers". In June 1719 came 50,000 "daughters" at 550 livres: 50 down and the rest in 20 monthly instalments, and only someone who already owned four mothers could buy one. In July came 50,000 "granddaughters" at 1,000 livres, and to buy one you had to own four mothers and a daughter [1].
In September and October the company sold 300,000 more at 5,000 livres each, paid in ten monthly instalments. Miss one and you lost the share and everything you had paid so far [1]. The only way into each new issue was to have bought the last one, and the only way to keep it was to keep paying.
The climb
A share fetched about 250 livres in May 1718 and 180 in December [1]. In 1719 it reached 500 on 10 May, 1,000 by mid-July, 3,600 on 26 August and 5,350 on 9 September [1]. By December it was close to 10,000, about twenty times its 500-livre issue price [2]. The French word "millionaire" came into use from this episode [2], and Paris's financial district got so crowded that soldiers were sent in at night to keep order [2].
The company bought its own shares
As early as 5 October 1719 the company had ordered its treasurer "to buy any share offered at a price of 5000L". From late December to mid-February it ran an office that bought and sold its own shares at prices it set, and bought about 800 million livres' worth, roughly 16% of the company [1].
On 22 February 1720 that support was officially stopped. From the support price of 9,925 the share fell to 8,500 by 1 March [1]. On 5 March a new office opened to buy and sell at a fixed 9,000, and from March to late May the company bought back 27% of its stock [1].
On 21 May an order cut the share's official value in monthly stages from 9,000 to 5,000, and the banknotes' by about as much. On 27 May it was withdrawn. On 28 May the chief executive was "fired and placed under house arrest", and within days he was back in the cabinet [1]. Six days were enough to show everyone that the price was a decision, not a fact.
Making the alternative illegal
A share held up by the company's own buying is only as good as the money it pays out in, so the money was changed too. From 21 December 1719 no payment over 10 livres could be made in silver, or over 300 in gold. On 28 January 1720 the banknotes became legal tender throughout France. On 27 February it became illegal to own more than 500 livres in gold or silver coin [1]. About 2.8 billion livres of notes were printed [1].
How it ended
The share was down to 2,000 livres by September 1720 and to 1,000 by December [2]. The chief executive left France early that December, and the company was put in receivership in April 1721 [1]. Claims on the state were reviewed and cut by 23.5% on average [1], and shares were confiscated from investors who could not prove they had paid for them [2]. By September 1721 a share was back at 500 livres, where it had started [2].
The economist whose price series this page follows concludes that the shares were "overvalued at their peak by a factor of 2 to 5", mainly because of the company's own price support. For the state, though, it was "far from a default": the public debt it left behind was about the same size as the one it had taken over [1].
The game on top
The Mississippi Company had what every pump wants and none gets to keep: a story nobody could check, new shares only the believers could buy, and a buyer for its own stock at a price it named. Synthetic Demand is a satire of exactly that. You are the CEO of an invented company with one job: make the stock go up before you sell. The markets you can be dealt come from real years of market history; this one isn't among them, since 1720 had no ticker.
Every decision you make is graded A to F. Your company can't buy its own stock at a price it chooses. Theirs could, for months.