International Center for Finance · Financial History

The First Financial Bubble

London, Paris and the Netherlands, 1720 — the world’s first international stock-market bubble, when the shares of the South Sea Company, John Law’s Mississippi Company, and a swarm of new Dutch insurance ventures rose and collapsed together within a single year.

In 1720 three financial manias unfolded almost simultaneously. In Paris, John Law’s Mississippi Company (the Compagnie des Indes) drove a speculative frenzy in the rue Quincampoix. In London, the South Sea Company’s scheme to convert the national debt sent its shares — and those of a crowd of imitators — soaring and then crashing, prompting the Bubble Act. In the Dutch Republic, dozens of new windhandel ("wind trade") insurance and shipping companies were floated in a matter of weeks.

With Rik Frehen and Geert Rouwenhorst, I assembled a new database of share prices from all three markets, day by day, through the boom and bust. It lets us watch the bubbles rise and fall in step — evidence that the events of 1720 were a single, connected episode, driven as much by new business fundamentals (Atlantic trade and insurance) as by folly.

The chart below plots the three markets together; the satirical prints and the Groote Tafereel der Dwaasheid record how contemporaries made sense of it; and the price data are free to download.

Pellegrini, sketch for the Banque Royale ceiling — Giovanni Antonio Pellegrini’s sketch for the ceiling of John Law’s *Banque Royale*, Paris, 1720 — commerce arriving from Louisiana. See Goetzmann & Spieth, “The Banque Royale Ceiling and the Imagery of Finance” (*Journal18*).

Share Prices Across Three Markets, 1719–1720

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The Great Mirror of Folly

Each of the three markets left its own satirical record of 1720.

**England**William Hogarth, *The South Sea Scheme* (1721) — a crowded allegory of greed and ruin around the South Sea Company.

**The Netherlands***De Windverkopers of Windvangers* (Muller 5), from Het Groote Tafereel der Dwaasheid — despairing traders in the Amsterdam exchange.

**France***The Rue Quincampoix in 1720* (Muller 16), a hand-colored engraving of the frenzy in the Paris street where Mississippi shares changed hands.

Yale’s Beinecke Rare Book & Manuscript Library holds a remarkable proto-Tafereel — a contemporary collection of the actual pamphlets, prospectuses, and satires as they were issued in 1720, bound together before the famous printed Groote Tafereel was compiled. It is a key source for our work: view it in the Beinecke digital collections →.

The culmination of this project — the edited volume The Great Mirror of Folly: Finance, Culture, and the Crash of 1720 (Yale University Press, 2013), with Catherine Labio, K. Geert Rouwenhorst and Timothy Young, and a foreword by Robert Shiller. A book about the book: an interdisciplinary study of the Groote Tafereel der Dwaasheid and the meaning of 1720.

Yale University Press →

Download the data & read the paper

Full 1720 price database (Excel) ↓ Prices (CSV) Series (JSON) Paper on SSRN →

Rik G. P. Frehen, William N. Goetzmann & K. Geert Rouwenhorst, “New Evidence on the First Financial Bubble,” Review of Financial Studies / Journal of Financial Economics 108 (2013).