Mr. Law, not meeting with the encouragement he expected, went over to France in the year 1714, and, as was before mentioned, found favour with the Duke of Orleans, then Regent, and got liberty to erect a bank there, which at first was only to the extent of six millions of livres or 32o,ooo sterling. From this beginning he carried it on to a very great height, issued out many notes, and in a short time engrossed the whole circulation of France
As Mr. Law s notes were received in payment of the revenue (tax), this contributed to the success of the scheme. This, too, had a greater effect in France than it could have had here, considering the number of taxes, and the manner in which they are levied. By this and other circumstances, his notes were always at par with gold and silver, especially as they were making continual changes in their coin. About that time twenty-eight livres, which were equal to eight ounces of pure silver, were raised to sixty, and as a diminution of coin is always the consequent of a sudden rise , this was daily expected. Mr. Law made his notes payable in what was called the money of the day. Instead of promising to pay his notes, as we would say, in pounds sterling, he did it in crowns and half-crowns (old gold coin), which was a very proper method to make them par with gold and silver. Suppose that our coin were raised to double, a half-crown would become a crown, and so in this manner the bank notes and money would rise and fall together
As Law wanted to make his notes above par, he fell upon the following scheme. He issued out his bank notes payable in livres tournois, by which, when the coin came to be diminished, he would not be obliged to pay above one-half crown worth of coins. This favoured his design, and kept the notes above par, by which the credit of his bank was established.
The next step Mr. Law fell upon was the relieving of the public debts, which amounted to 2oo millions . As he saw the diminution must needs come, he took another method to keep up his notes. He got a grant of the exclusive privilege of trading to Canada, and established the Mississippi Company. To this he joined the African, the Turkey, and the East India companies. He also farmed the tobacco and all the public revenues of France at 52 millions , for in France the whole revenue is farmed by one man, who undertakes it and levies it without excisemen, and the farmers there are the richest in the country, and must be skilled in the finances and public revenues.
Mr. Law undertook this, and, having the whole trade of the country monopolized, it was difficult to say what profits he would make. He wanted to lend the government 80 or 90 millions [sterling], which he could easily do by issuing notes to that value, but then he saw that they would soon return upon him. To prevent this, his invention was set on work, and we shall see how far he succeeded
Topic: Very nice story about John Law - page 5. (Read 10183 times)
So not to think too deeply given the time of day and week.
If the balance of trade being against a nation, and the money being a deed to the land then surely all the citizens of the country will be further impoverished by paying high rent to the foreign land owners.
If the balance of trade being against a nation, and the money being a deed to the land then surely all the citizens of the country will be further impoverished by paying high rent to the foreign land owners.
I was researching for that Mississippi Bubble, but found out the whole thing are much more complicated than we usually heard, it is actually the failure of the central bank. So I read some lengthy story of John Law in Adam Smith's lecture collections, starting from page 212
http://archive.org/details/lecturesonjustic00smituoft
Mr. Law, a Scotch merchant. He thought that national opulence consists in money, and that the value of gold and silver is arbitrary, and depends on constitution and agreement. He imagined that the idea of value might be brought to paper, and it preferred to money. If this could be done, he thought it would be a great convenience, as the government then might do what it pleased, raise armies, pay soldiers, and be at any expense whatever.
Mr. Law proposed his scheme to the Scotch parliament in 1701. It was rejected, and he went over to France, where his project was relished by the Duke of Orleans. In this book he agrees with the fore-mentioned writers that, the balance of trade being against a nation, it must soon be drained of its money. In order to turn the balance of trade in our favours, he proposed to the Scotch Parliament the following scheme :
As there was little gold or silver in this country he thought they might fall upon some other method of creating money, independent of it, to wit, by paper. On this account he proposed the erecting of a land bank at Edinburgh, in which it is to be observed, he falls into many blunders concerning tenures and the nature of property. At this bank they were to keep by them only twenty or thirty thousand pounds to answer small demands, and to give out notes for land. For two acres of arable land they were to issue out a note of equal value, and if any extraordinary demand was made upon them, they would pay so much of it in money, and so much in land. By this means in a very short time the whole land of Scotland would go from hand to hand, as a twenty-shilling note does.
As this project never was executed, it is hard to say what the consequence might have been ; it is, however, obviously liable to the following inconveniences. Taking the land rent of Scotland at five millions per annum, though it be much more, at twenty years purchase it amounts to an hundred millions; there would then be just so much currency in the country, and if one million was then necessary for circulation there would just be ninety-nine millions for no purpose, as none of it could go abroad ; they would not have been able to maintain one man more than formerly, as their food, clothes, and lodging would not have been increased, and every commodity would have risen to ninety-nine times its present value.
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Acutally I disagree with Adam Smith here, John Law's reasoning is: As long as a money is backed by something valueable, it can hold its value. So even the money supply increased by 99 times because of the newly issued money, as long as they can be used to redeem valueable land, they will hold their value, will not cause inflation, because people still have to work to get those money, these money only belongs to previous land owners
It's clear that most of the central banks in the world operated in a very similar way of Law's experiment, but the interesting thing is why Law's plan failed, and how we could use his failure to forecast the future of today's financial situation
http://archive.org/details/lecturesonjustic00smituoft
Mr. Law, a Scotch merchant. He thought that national opulence consists in money, and that the value of gold and silver is arbitrary, and depends on constitution and agreement. He imagined that the idea of value might be brought to paper, and it preferred to money. If this could be done, he thought it would be a great convenience, as the government then might do what it pleased, raise armies, pay soldiers, and be at any expense whatever.
Mr. Law proposed his scheme to the Scotch parliament in 1701. It was rejected, and he went over to France, where his project was relished by the Duke of Orleans. In this book he agrees with the fore-mentioned writers that, the balance of trade being against a nation, it must soon be drained of its money. In order to turn the balance of trade in our favours, he proposed to the Scotch Parliament the following scheme :
As there was little gold or silver in this country he thought they might fall upon some other method of creating money, independent of it, to wit, by paper. On this account he proposed the erecting of a land bank at Edinburgh, in which it is to be observed, he falls into many blunders concerning tenures and the nature of property. At this bank they were to keep by them only twenty or thirty thousand pounds to answer small demands, and to give out notes for land. For two acres of arable land they were to issue out a note of equal value, and if any extraordinary demand was made upon them, they would pay so much of it in money, and so much in land. By this means in a very short time the whole land of Scotland would go from hand to hand, as a twenty-shilling note does.
As this project never was executed, it is hard to say what the consequence might have been ; it is, however, obviously liable to the following inconveniences. Taking the land rent of Scotland at five millions per annum, though it be much more, at twenty years purchase it amounts to an hundred millions; there would then be just so much currency in the country, and if one million was then necessary for circulation there would just be ninety-nine millions for no purpose, as none of it could go abroad ; they would not have been able to maintain one man more than formerly, as their food, clothes, and lodging would not have been increased, and every commodity would have risen to ninety-nine times its present value.
...
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Acutally I disagree with Adam Smith here, John Law's reasoning is: As long as a money is backed by something valueable, it can hold its value. So even the money supply increased by 99 times because of the newly issued money, as long as they can be used to redeem valueable land, they will hold their value, will not cause inflation, because people still have to work to get those money, these money only belongs to previous land owners
It's clear that most of the central banks in the world operated in a very similar way of Law's experiment, but the interesting thing is why Law's plan failed, and how we could use his failure to forecast the future of today's financial situation
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