The Mississippi Scheme was formulated by John Law for the colonization and commercial exploitation of the Mississippi Valley and other French colonial areas. The main reason for its financial collapse in October 1720 was
Explanation
The main reason for the Mississippi Scheme to collapse is the speculation about the richness of the area, plus the overexpansion of John Law’s activities, and the haste with which he proceeded with the plan.
Key Takeaway: The Mississippi Scheme is a case of a speculative bubble, which happens when there is frenzied maniac optimism about the value of an asset. The price of the asset then increases rapidly, resulting in more buyers than sellers. However, if there is no one who wants to buy the asset, its value gradually decreases. This in turn causes collapse in asset prices, intense pessimism, and financial distress.
