Political-Financial Support-Bargaining: The Mississippi System

Politics, finance and theory making are closely intertwined; they share the mechanism and bargaining counter of support-bargaining. When the Regent of France commissioned John Law in 1715 to establish a private bank in France, he began a sequence of events that would culminate in the great financial crisis of 1720. The Mississippi System developed as an autocratic organisation for the control of French finance, under the guidance of Law, alongside the autocratic regime of the Regent. The System was assembled in stages: first the private bank, then a state bank, and then the Mississippi Company, the sequence culminating in the takeover of the entire French national debt by the Mississippi Company. Law’s theories changed notably with the opportunities arising through the creation of the Mississippi System. A conservative and conventional approach to money and banking changed into easy credit provision by the Banque Royale to encourage the purchase of shares in the Mississippi Company. Demonetisation of gold and silver was initiated against the wishes of the French people and against Law’s earlier recognition that voluntarism was necessary to an effective money. Designation of shares as money ran contrary to Law’s earlier recognition that money had to have stable value. The Mississippi System disintegrated under unmanageable inflation driven by excessive expansion of the money supply for the purchase of shares and popular opposition to demonetisation of gold and silver.