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Source link: http://archive.mises.org/21392/laws-millionaires-bernankes-billionaires/

Law’s Millionaires, Bernanke’s Billionaires

March 8, 2012 by

Being a billionaire isn’t such an exclusive group anymore. Back in 1998, there were reportedly 230 billionaires worldwide. Now, according to Forbes magazine, the number has grown to 1,226. The United States still has the most with 425, but now 58 countries have billionaires. Russia and China have nearly 100 each.

Nobody seems too excited about billionaires, likely because a billion is an unimaginable number—a thousand million. There was once a time when being a millionaire meant real wealth, but no more. Most financial planners will say that the average person needs to retire with more than a million dollars socked away to live comfortably in retirement.

The word millionaire was coined in 1720 during John Law’s ‘Mississippi Bubble” to describe those making vast fortunes in Law’s Mississippi Company stock that rose from 150 livres to 10,000 in the matter of months. But just as quickly, the stock and the currency wildly inflated by Law’s Banque Royale, crashed and Law was forced into exile.

Like Ben Bernanke, Law believed France’s economic problems as being one of not enough money. He started small with his privately owned Banque Générale, within a year all royal revenues were to be paid in the Banque’s notes and these notes were to be cashed on sight at government offices, making these offices essentially branches of Law’s bank.

Two years into Law’s system, the livre was devalued again, by 40 percent. Despite the devaluations, Law’s reputation continued to rise and by the end of 1718, the state took over Law’s bank, which became the Banque Royale. A nomadic gambler just three years before, Law suddenly had immense power, controlling the monopoly on coining money, the collection of tax revenues, as well as tobacco and salt revenues. His Mississippi Company (Compagnie du Mississippi) would buy up the debt of the French government, a proposal John T. Flynn compares to Roosevelt’s plan to extinguish America’s debt by having the Social Security Board purchase it.

Law inflated the money supply through the Banque Royale, he created jobs through public-works projects; he attempted to release the hoarded savings back into business with the promotion of Mississippi Company shares; he exploited France’s colonial empire, relieved the debt-ridden government of its debts, and was making money for himself and his patrons.

Law’s system unraveled a mere four years after it began. People fled Law’s paper for the safety of gold and silver, despite Law’s attempts to demonetize and confiscate specie. Ultimately, Law’s system would only serve to forestall France’s bankruptcy, not solve it. Law himself would die near poverty a decade later.

What were once Law’s millionaires are now Bernanke’s billionaires. “Law is the precursor of the inflationist redeemers,” Flynn explained. “Like all the inflationist salvations, his career was short.”

Bernanke has been on the job for six years, and the Gates, Buffetts, and Slims of the world are reaping the benefit. But for how long?

{ 7 comments }

victor March 9, 2012 at 7:48 am

In Rhodesia, I barely had a hundred dollars to my name. In Zimbabwe, I became a trillionaire!

HL March 10, 2012 at 11:15 pm

Hooray! Will I be a trillionair one day? Not sure, but I will keep stocking tuna and water while I wait to find out….

Mike Sproul March 9, 2012 at 10:27 am

When paper money is introduced into a cash-starved economy like France in the early 1700′s, business will be stimulated simply because the money frees people from the inconvenience of barter. As long as that money is adequately backed by the issuer’s assets, it will hold its value even as the money supply rises. But Law’s failure to develop the land in Mississippi led to a loss of backing for his money, at the same time that he was recklessly issuing more money than he could have backed even if his assets had held their value.

Daniel March 10, 2012 at 9:09 am

Mike, let me get this clear; your monetary theory is that as long as there’s “backing” by something, including the things that are the productive results of investment, an issued money will be adequately backed, yes?

Wouldn’t this still suffer from the fact that government-backed fiat money will cause inter-temporal dis-coordination of the structure of production, thus resulting in products which nobody wants (at the price they were expected to be valued at)?

Mike Sproul March 10, 2012 at 4:23 pm

Daniel:

By ‘backing’ I mean the assets of the money issuer, which could include things produced by the money-issuer.

“Backed fiat money” is a contradiction in terms, since fiat money is money without backing. I contend that all so-called fiat money is actually backed by the assets of its issuer. There is no reason why the government’s issuance of new money would cause dis-coordination. An easy way to see this is to recognize that the law of reflux dictates that any money that is not needed in the circulation will reflux to its issuer, and thus not be used for purchases.

El Tonno March 11, 2012 at 4:58 pm

http://blogs.independent.co.uk/2012/03/09/trident-is-a-colossal-waste-of-money-that-will-encourage-further-nuclear-proliferation/

I have several problems with the popular notion that there’s no money left. I think the first time the absurdity of it struck me was when I heard the incredibly wealthy entrepreneur Deborah Meaden saying it on Question Time during a debate about striking teachers and dinner ladies. I recall looking round a room of friends, wondering who would be the first to guffaw at the gargantuan level of irony in the statement. No money left? Well, she certainly seemed to be doing ok.

I facepalmed hard.

fashion jewelry wholesale March 15, 2012 at 6:24 am

People can’t against the wind, we all need to abide by the rules, unless you start rules, so that we can guarantee all equal

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