Speculative economic bubbles are a common phenomenon but are not wholly understood. Bubbles progress through a series of nine stages. A shock triggers a profitable redistribution of assets, credit creation and new investments; speculation fuels the economy; doubts burst the bubble. The Mississippi Bubble, in early 18th century France, presents an example to which this model may be applied. The history of the Mississippi Bubble, and a brief IS-LM analysis, show that speculative bubbles can be like a lively party: loud and boisterous, but with a mess to clean up afterwards. The French economy was left with a national hangover which stunted business activity and scarred the communal psyche. The model of speculative bubbles applies well to the Mississippi Bubble.
Major Themes in Economics
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"A Bubble on the Mighty Mississippi: An Application of a General Model of Speculative Bubbles to the Mississippi Bubble of 1716-1720,"
Major Themes in Economics: Vol. 4
, Article 6.
Available at: https://scholarworks.uni.edu/mtie/vol4/iss1/6