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Source link: http://archive.mises.org/14677/john-law-proto-keynesian/

John Law: Proto-Keynesian

November 18, 2010 by

Like today’s central bankers, John Law proposed to “supply the nation” with a sufficiency of money. The increased money was supposed to vivify trade and increase employment and production — the “employment” motif providing a nice proto-Keynesian touch. FULL ARTICLE by Murray Rothbard

{ 6 comments }

Mike Sproul November 18, 2010 at 1:38 pm

“Law was the theorist, arguing for a central land bank to issue inconvertible paper money, or rather, paper money “backed” mystically by the land of the nation.”

If the central bank owns land worth 1000 oz. of silver, and it issues 1000 paper currency units, each redeemable for 1 oz. of land, then there is nothing mystical about the fact that each currency unit will be worth 1 ounce.

If that central bank then proceeds to throw away its land and print new money to spend on fast living, as Law did, then there is also nothing mystical about the resulting inflation.

Chris Cook November 18, 2010 at 8:40 pm

As Law said money is not the value you exchange goods FOR but the value you exchange goods BY.

The value of land, whether expressed in £, $ ounces of silver or whatever, is based upon the discounted net present value of its rental value, which is certainly not mystical, but very real, and consists of the use value of the location, and the capital invested in it.

in fact, maybe two thirds of money in existence was created as interest-bearing loans secured by mortgages, and is therefore deficit-based but land-backed.

Where Law went wrong was that the use value of the Mississippi Company land against which his Banque Royale lent money to speculators to buy the shares, thereby creating the Mississippi Bubble – turned out to be pretty much worthless, at least at the time.

It’s ironic to think that had he not done that, around one third of the US (the territory went clear to the Canadian border) might still be French.

P.M.Lawrence November 18, 2010 at 11:15 pm

And another third might still have been Mexican or even Spanish (and British, in the former Oregon territory), as the USA wouldn’t have been able to infiltrate that with French territory in the way.

Maggie Gilmore November 18, 2010 at 9:46 pm

This is total self-pimping but I made a humorous video for a Mises Academy class about John Law and the Mississippi Bubble, I think it’s a fairly fun primer on the topic: http://www.youtube.com/watch?v=08Gy4c60mEQ

John Voigt November 19, 2010 at 4:20 am

The fact that loans are backed by mortgages, or that money is backed by gold, silver, or whatever, is entirely immaterial. The backing of money has absolutely no influence on its value, which is solely determined by the demand for money and the supply of money. Law went wrong because he simply did not understand this.

Mike Sproul November 19, 2010 at 10:43 am

John:

So if some bank takes in 100 oz of silver and issues 100 IOU’s, each redeemable at all times for 1 oz. of silver, then that silver backing has no influence on the IOU’s value? I suppose you’d say backing is even less relevant if the bank swapped some of its silver for land or mortgages, or if the bank suspended convertibility into silver, while still redeeming each IOU for 1 oz. worth of land.

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