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The Mississippi Company Scheme

Autor: Langloo
Poziom: Zaawansowany

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Making money has always been something that drives people. Money has become a necessity in life, taking the place of what was once a simple trade system. Though the trading is still the same, now you are not exchanging an item of what is deemed equal value for another. Instead a predetermined amount of money is exchanged for the item or service that you want. This perhaps has simplified things a bit more, seeing how there is no need to determine how much a cow or horse may be worth to someone else. Who wants to try and figure out if a bushel of corn is worth a bag of wheat? What if the corn is better than the wheat in question? With money that wheat's price boils down to a few dollars and you get to keep your corn as well. So money has its place in the world just like anything else, and like most man-made ideas there is the chance for it to get you into trouble.

France was under hard times in the eighteenth century, thanks to the careless spending of its recently dead King, leaving the regent, the Duke of Orleans, to scramble and try to pick up the pieces. It was at this time that John Law came into the picture; smooth talking with a head for finances, he found himself a good little niche with which he became rather indispensable to the royal family. So it came to be that the French would begin to deal in paper money that would be issued from the bank that Law opened. Like most paper money it would be backed by the gold and silver reserves that France currently owned.

It then began that Law and his ideas would help the near bankrupt country of France. The Mississippi Company would focus on the trades with all of France’s colonies. They used the promise of gold and silver from the colonies held in the Americas to get investors to buy shares in the company. Shares could be purchased in exchange for money or state bonds. The shares had an interest rate on them so that over time, as the company grew, so did the value of the shares that were purchased. Investors came from across the land to buy shares in this new upcoming business, with their shares' worth steadily increasing daily. Even the poor and the less wealthy of the country took the advantage of this time when in a matter of moments you could possibly become a millionaire. Law continued to expand his power, soon having complete and total control of all the trading that went on with France. Business could not have been better for France as its economy soared and everyone was prospering.

So here is a company that is booming in the literal sense and there are people buying up stock left and right. Now you have all these shares and you would like to sell these shares for the value that they are worth. In 1720, these shares were worth ten thousand livres a piece and the bank promised to give you notes equal to the value of the shares that you held. As people did this, the amount of money in the system nearly doubled, causing inflation to rise, which in turn lowered the value of the shares.

The only downside to his plan was the fact that he continued to make bank notes and sell shares even when it was not even possible for the French government to back them. There were more bank notes floating about than there was gold and silver to cover them. Had the investors holding the shares in the bank continued to hold their shares, this would not have been a problem. It was when people decided to cash in their shares for their gold equivalent that the problem came about. He tried to control this by limiting how much of a payment in gold could be made so that people were not selling their shares by the boat loads. This worked for a time, but the inflation is still what ended up bringing John Law and Europe’s most successful conglomerate to its knees.

With the stock at rock bottom prices, Law’s enemies made their move, buying up and strong arming shareholders out of their shares until they owned the majority of them. With a large chunk of stock at their disposal they tried to cash in their shares at once for the capital they were supposed to be worth. Of course there was not enough gold or silver in the bank to cover this and France was forced to admit this fact, losing face and basically crumbling everything that John Law had built.

This was not so much a scheme as a man trying to do what he felt was best to help his home country. Did he end up losing it all in the end? Having to flee to Belgium would answer that as a yes, but it was not really a scheme. It was a plan that not only advanced the use of paper money, but also nearly saved France. Had a couple of jerks not decided to get back at him for whatever their reasons were, he probably would have succeeded.

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