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A Preliminary View: The Mississippi and South Sea Bubbles
The financial dynamics of these speculations assumed remarkably similar forms. Government connivance was at the heart of these schemes. Each involved a company that sought a rapid expansion of its balance sheet through corporate takeovers or acquisition of government debt, financed by successive issues of shares, and with spectacular payoffs to governments. The new waves of shares marketed were offered at successively higher prices. The purchasers of the last wave of shares took the greatest losses when stock prices fell, while the initial buyers generally gained. Adam Anderson (1787, 123–124) presents a remarkably lucid description of such speculative dynamics in which a sequence of investors buy equal shares in a venture: A, having one hundred pounds stock in trade, though pretty much in debt, gives it out to be worth three hundred pounds, on account of many privileges and advantages to which he is entitled. B, relying on A’s great wisdom and integrity, sues to be admitted partner on those terms, and accordingly buys three
