john law – Olduvai.ca

Last week in my Goldmoney Insight, I analysed the rationale for a new gold backed trade settlement currency on the agenda of the BRICS summit in Johannesburg on 22—24 August. This article is about the consequences for the dollar-based fiat currency regime.

There is strong evidence that planning for this new trade settlement currency has been in the works for some time and has been properly considered. That being so, we are witnessing the initial step away from fiat to gold backed currencies. Without the burden of expensive welfare commitments, all the attendees in Johannesburg can back or tie their currency values to gold with less difficulty than our welfare-dependent nations. And it is now in their commercial interests to do so.

We have been brainwashed with Keynesian misconceptions and the state theory of money for so long that our statist establishments and market participants fail to see the logic of sound money, and the threat it presents to our own currencies and economies. But there is a precedent for this foolishness from John Law, the proto-Keynesian who bankrupted France in 1720. I explain the similarities. That experience, and why it led to the destruction of Law’s livre currency illustrates our own dilemma and its likely outcome.

It’s not just a comparison between fiat currency and gold. America’s financial position is dire, more so than is generally realised. The euro is additionally threatened with extinction because of flaws in the euro system, and the UK is already in a deeper credit crisis than most commentators understand.

Introduction

On 7 July, news leaked out and was then confirmed by Russian state media that the BRICS meeting in Johannesburg would have a proposal on the agenda for a new gold-backed currency to be used exclusively for trade settlement and commodity pricing…

…click on the above link to read the rest…

Understanding the Persecution of John Law

April 7, 2021

Understanding the Persecution of John Law

COMMENT: Hi Mr. Armstrong…..this is a surprising (to me) summary, on John Law. Every piece I ever read about him, cast him as a complete scoundrel, yet you obviously write with admiration. Just another example of history depending on someone’s perspective. You never cease to surprise. And that’s good.

HS

REPLY: John Law was actually a brilliant man. His legacy is not so different from John Maynard Keynes. He advocated deficit spending ONLY in times of recession, but governments have spent relentlessly with deficits that never end. We call this “Keynesian economics” when in fact he never advocated such a system. Likewise, John Law never advocated what the French government did in creating the Mississippi Bubble.

It is true that John Law fled to Amsterdam, but this is when he studied real banking operations and saw that money was actually virtual. Because coins were counterfeited or their edges shaved, bank money was more valuable than coins. Once the coins were deposited, each had to be inspected. So the bank became a sort of guarantor of the validity of the coins. Here is an ancient coin from Lydia with numerous banking marks applied, verifying that the coin had been inspected by them before for the same reasons.

It was this first-hand observation that led John Law to see that money was actually virtual, whereby people preferred bank money to actual coins. John then returned to Scotland, where he published in 1705 his Money and Trade Considered, with a Proposal for Supplying the Nation with Money. Law would later publish a second edition in 1720. He attempted to use his writing to convince the Scottish Parliament to adopt his ideas about money, but they declined, giving rise to the adage that a genius is never acknowledged in his native land (i.e. Columbus, Einstein to just mention two)…

…click on the above link to read the rest of the article…

john law, currency, money, martin armstrong, armstrong economics, banking, banks,

Crazy days for money

February 13, 2021

Crazy days for money

This article anticipates the end of the fiat currency regime and argues why its replacement can only be gold and silver, most likely in the form of fiat money turned into gold substitutes.

It explains why the current fashion for cryptocurrencies, led by bitcoin, are unsuited as future mediums of exchange, and why unsuppressed bitcoin has responded more immediately to the current situation than gold. Furthermore, the US authorities are likely to suppress the bitcoin movement because it is a threat to the dollar and monetary policy.

This article explains why growth in GDP represents growth in the quantity of money and is not representative of activity in the underlying economy. The authorities’ monetary response to the current economic situation is ill-informed, based on a misunderstanding of what GDP represents.

The common belief in the fund management community that rising interest rates are bad for gold exposes a lack of understanding about the consequences of monetary inflation on relative time preferences. Rising interest rates will be with us shortly, and they will burst the bond bubble with negative consequences for all financial assets and the currencies that have inflated them.

In short, we are sitting on a monetary powder-keg, the danger of which is barely understood by policy makers and which could explode at any time.

Introduction

We have entered a period the likes of which we have never seen before. The collapse of the dollar and dollar assets is growing increasingly certain by the day. The money-printing of the dollar designed to inflate assets will end up destroying the dollar. We know this thanks to the John Law precedent three hundred years ago. I last wrote about this two weeks ago, here. In 1720, it was just France and Law’s livre…

…click on the above link to read the rest of the article…

The emerging evidence of hyperinflation

October 3, 2020

The emerging evidence of hyperinflation

Note: all references to inflation are of the quantity of money and not to the effect on prices unless otherwise indicated.

In last week’s article I showed why empirical evidence of fiat money collapses are relevant to monetary conditions today. In this article I explain why the purchasing power of the dollar is hostage to foreign sellers, and that if the Fed continues with current monetary policies the dollar will follow the same fate as John Law’s livre in 1720. As always in these situations, there is little public understanding of money and the realisation that monetary policy is designed to tax people for the benefit of their government will come as an unpleasant shock. The speed at which state money then collapses in its utility will be swift. This article concentrates on the US dollar, central to other fiat currencies, and where the monetary and financial imbalances are greatest.

Introduction

In last week’s Goldmoney Insight, Lessons on inflation from the past, I described how there were certain characteristics of Germany’s 1914-23 inflation that collapsed the paper mark which are relevant to our current situation. I drew a parallel between John Law’s inflation and his Mississippi bubble in 1715-20 and the Federal Reserve’s policy of inflating the money supply to sustain a bubble in financial assets today. Law’s bubble popped and resulted in the destruction of his currency and the Fed is pursuing the same policies on the grandest of scales. The contemporary inflations of all the major state-issued currencies will similarly risk a collapse in their purchasing powers, and rapidly at that.

…click on the above link to read the rest of the article…

Blain’s Morning Porridge – 21st August 2020 – John Law’s MMT revisited

August 21, 2020

Blain’s Morning Porridge – 21st August 2020 – John Law’s MMT revisited

“Earlier today apparently a woman rang the BBC and said she had heard that there was a hurricane on the way. Well if you are watching, don’t worry, there isn’t.”

It’s blowing a full hooley out there this morning, which is very bad news for my olive trees as the storm is shaking the ripening fruit off. Shame. It’s the first time our little olive grove has produced what looked likely to become full-sized olives. I was going to add them to Dirty Martinis. Meanwhile, mink farms are being wiped out by coronavirus which is proving 100% fatal to the well-dressed ferrets. Interesting, but what does it mean…?

It’s Friday, which means I am allowed to go off on something of a tangent – so let’s not worry about how long this tech rally continues, the rising tensions in Europe, Apple spending $17bln on stock buybacks, China vs US, or the US election.

What’s got me worried this morning is the headline in the FT: UK Public Debt tops £2 trillion for first time on Covid Spending Boom.

Should we worry or should we not? (Clue: the first one…)

Let me ask the question: how long can governments continue to spend their way out of the Coronavirus crisis? The bills for long-term furlough programmes and sectoral bailouts and support, increased social services as unemployment rises, and the urgent need for health spending are going to come due at some point. Is it going to be a problem, and if yes, how big?

Government debt is rocketing higher – but does it matter? Conventional thinking, based on Reinhart and Rogoff, is when debt/GDP exceeds 77% there will a significant slowdown in growth.

…click on the above link to read the rest of the article…

John Law and the Mississippi Bubble – 300 Years Later

September 9, 2018

John Law and the Mississippi Bubble – 300 Years Later

Most people are aware that historically there have been speculative bubbles. Some of them can even name a few – the South Sea bubble, tulips, and more recently dot-coms. Some historians can go even further, quoting the famous account by Charles Mackay of the South Sea bubble, the tulip mania and the Mississippi bubble, published in the mid-nineteenth century.

The most valuable bubble empirically for the purpose of our elucidation has to be the Mississippi bubble, whose central figure was John Law. Law, a Scotsman whose father’s profession was as a goldsmith and banker in Edinburgh, set up an inflation scheme in 1716 to rescue France’s finances. He proposed to the Regent for the infant Louis XIV a scheme that would be based on a new paper currency.

Law was a somewhat louche character, who in his Continental travels had spent his mornings studying finance and the principles of trade, and the evenings in the gaming-houses of Europe. He was a successful gambler, because of his ability to calculate odds.

Some similarities with the personality of Keynes two hundred years later are striking. Keynes was a mathematician first, and an economist second. Their approach was also similar: see a problem and try to find a solution, instead of seeing a problem and trying to understand why it existed before solving it. Both Law and Keynes felt that sound money was too restrictive for the enhancement of an economy.

Consequently, much of what Law proposed and then enacted in France rhymes with our neo-Keynesian world today. The difference, perhaps, is that when given the opportunity, Law seized it, and had ultimate financial and monetary power. He harnessed the roles of a central bank, monopolist in international trade, stock promoter and finance minister.

…click on the above link to read the rest of the article…

John Law–300 Years On

August 30, 2018

JOHN LAW – 300 YEARS ON

Most people are aware that historically there have been speculative bubbles. Some of them can even name a few – the South Sea bubble, tulips, and more recently dot-coms. Some historians can go even further, quoting the famous account by Charles Mackay of the South Sea bubble, the tulip mania and the Mississippi bubble, published in the mid-nineteenth century.

The most valuable bubble empirically for the purpose of our elucidation has to be the Mississippi bubble, whose central figure was John Law. Law, a Scotsman whose father’s profession was as a goldsmith and banker in Edinburgh, set up an inflation scheme in 1716 to rescue France’s finances. He proposed to the Regent for the infant Louis XIV a scheme that would be based on a new paper currency.

Law was a somewhat louche character, who in his Continental travels had spent his mornings studying finance and the principles of trade, and the evenings in the gaming-houses of Europe. He was a successful gambler, because of his ability to calculate odds.

Some similarities with the personality of Keynes two hundred years later are striking. Keynes was a mathematician first, and an economist second. Their approach was also similar: see a problem and try to find a solution, instead of seeing a problem and trying to understand why it existed before solving it. Both Law and Keynes felt that sound money was too restrictive for the enhancement of an economy.

Consequently, much of what Law proposed and then enacted in France rhymes with our neo-Keynesian world today. The difference, perhaps, is that when given the opportunity Law seized it, and had ultimate financial and monetary power. He harnessed the roles of a central bank, monopolist in international trade, stock promoter and finance minister.

…click on the above link to read the rest of the article…

Great Causes, a Sea of Debt and the 2017 Recession

September 23, 2016

Great Causes, a Sea of Debt and the 2017 Recession

Great Cause

NORMANDY, FRANCE – We continue our work with the bomb squad. Myth disposal is dangerous work: People love their myths more than they love life itself. They may kill for money. But they die for their religions, their governments, their clans… and their ideas.

Famous French hippie and author Voltaire. He wears the same sardonic grin in every painting, whether he’s depicted at a young or an old age, doesn’t matter. His real name was François-Marie Arouet; he adopted the pen name Voltaire (one of 178 different ones he used) after spending 11 months incarcerated in a windowless cell in the Bastille, following the publication of a satirical verse in which he insinuated that the French regent practiced incest with his own daughter. Said regent was the infamous Duc d’Orleans, who shortly thereafter conspired with John Law to utterly ruin the country’s currency and economy in an early central banking experiment. Voltaire’s decision to insult him in advance reveals his excellent foresight and character judgment. The aristocracy was never sure whether it should fear Voltaire for his anti-authoritarian streak, or love him for his wit.

Some people think that even an idea as abstract as “freedom of speech” is worth dying for. It was Voltaire who said: “I disapprove of what you say, but I will defend to the death your right to say it.”

Most people jump onboard the train of a Great Cause with enthusiasm and conviction. But many have the good sense to hop off quietly before their lives are in real danger. We suspect that Mr. Voltaire would have done the same.

That’s why the deadliest myths are those that you can ride along with at no personal risk. Foreign wars, for example, are always a favorite.

…click on the above link to read the rest of the article…

Gold: Still Misunderstood

April 10, 2016

Gold: Still Misunderstood

Myths That Just Won’t Die

Gold just had its best quarter in 30 years. Not surprisingly, gold bears are coming out of the woodwork en masse in the mainstream media and the analyst community (see e.g. this recent write-up by Mish on the Goldman Sachs analyst who has been screaming “short gold” since right before it started rocketing higher in early February). Below we will discuss a specific assertion that tends to be repeated over and over again.

Gold had a very strong quarter, but skepticism over the durability of the advance remains quite pronounced – click to enlarge.

If there is anything in this world that definitely has more lives than a cat, it is bad economics. Just think about it: Here we are, nearly 300 years after John Law drove France and most of continental Europe into utter ruin, and our central bankers are still doing the exact same things Law did. The only difference between John Law and the trifecta of Draghi, Kuroda and Yellen is really the modern-day level of obfuscation and the fact that there is far more wealth that can be destroyed, so it is taking a lot longer.

In terms of economic principles and the goals allegedly achievable by their policies, the difference between Law and today’s central bankers is precisely zero. It is astonishing that after 300 years of supposed scientific progress, atrociously bad economics has shown such persistence in surviving. We were reminded of this agan when reading a recent comment on gold in the Wall Street Journal. No matter how often and how convincingly they are refuted, unsound economic ideas keep being resurrected with unwavering regularity, as if they were a horde of zombies.

…click on the above link to read the rest of the article…

The ECB and John Law

March 21, 2016

The ECB and John Law

Last week, the ECB extended its monetary madness, pushing deposit rates further into negative figures.

It is extending quantitative easing from sovereign debt into non-financial investment grade bonds, while increasing the pace of acquisition to €80bn per month. The ECB also promised to pay the banks to take credit from it in “targeted longer-term refinancing operations”.

Any Frenchman with a knowledge of his country’s history should hear alarm bells ringing. The ECB is running the Eurozone’s money and assets in a similar fashion to that of John Law’s Banque Generale Privée (renamed Banque Royale in 1719), which ran those of France in 1716-20. The scheme at its heart was simple: use the money-issuing monopoly granted to the bank by the state to drive up the value of the Mississippi Company’s shares using paper money created for the purpose. The Duc d’Orleans, regent of France for the young Louis XV, agreed to the scheme because it would provide the Bourbons with much-needed funds.

This is pretty much what the ECB is doing today, except on a far larger Eurozone-wide basis. The need for government funds is of primary importance today, as it was then.

In Law’s day, France did not have a central bank, such as the Bank of England, managing the issue of government debt, let alone a functioning government bond market. The profligate spending of Louis XIV had left the state three billion livres in debt, which was the equivalent of 1,840 tonnes of gold. This was about 85% of the world’s estimated gold stock at that time, at the livre’s conversion rate into Louis d’Or. John Law would almost double that by June 1720, with unbacked livre notes issued by his bank.

…click on the above link to read the rest of the article…

The ECB and John Law

March 18, 2016

THE ECB AND JOHN LAW

Last week, the ECB extended its monetary madness, pushing deposit rates yet more negative. It is extending quantitative easing from sovereign debt into non-financial investment grade bonds, while increasing the pace of acquisition to €80bn per month. The ECB also promised to pay the banks to take credit from it in “targeted longer-term refinancing operations”.

Any Frenchman with a knowledge of his country’s history should hear alarm bells ringing. The ECB is running the Eurozone’s money and assets in a similar fashion to that of John Law’s Banque Generale Privée (renamed Banque Royale in 1719), which ran those of France in 1716-20. The scheme at its heart was simple: use the money-issuing monopoly granted to the bank by the state to drive up the value of the Mississippi Company’s shares using paper money created for the purpose. The Duc d’Orleans, regent of France for the young Louis XV, agreed to the scheme because it would provide the Bourbons with much-needed funds.

This is pretty much what the ECB is doing today, except on a far larger Eurozone-wide basis. The need for government funds is of primary importance today, as it was then.

In Law’s day, France did not have a central bank, such as the Bank of England, managing the issue of government debt, let alone a functioning government bond market. The profligate spending of Louis XIV had left the state three billion livres in debt, which was the equivalent of 1,840 tonnes of gold. This was about 85% of the world’s estimated gold stock at that time, at the livre’s conversion rate into Louis d’Or. John Law would almost double that by June 1720, with unbacked livre notes issued by his bank.

…click on the above link to read the rest of the article…

Why Does Fiat Money Seemingly Work?

February 22, 2015

Why Does Fiat Money Seemingly Work?

Introducing Money

Imagine three men living on a small island. Toni is mining the local salt mine, and apart from him there are Pete the fisherman and Tom the apple grower and their families. They have a barter trading system set up: Toni exchanges his salt for Pete’s fishes and Tom’s apples, who in turn exchange fishes and apples between each other.

One day Pete says: “I have an idea. Instead of fish, I will from now on give you pieces of papyrus with numbers marked on them”. Papyrus grows in great quantities nearby, but has so far not been of practical use to any of the islanders. Pete continues: “One papyrus mark will represent 1 fish or 5 apples or 2 bags of salt (equivalent to current barter exchange rates). This will make it easier for us to trade among ourselves. We won’t have to lug fishes, apples and salt around all the time. Instead, we can simply present the pieces of papyrus to each other for exchange on demand.”

In short, Pete wants to modernize their little island economy by introducing money – and he already has one of those new papyrus notes with him, which he is eager to trade for salt. However, the others would immediately realize that there is a problem: the papyrus per se is not of any value, since none of them have found a use for it as yet. If they were all to agree on using the papyrus as a medium of exchange, its value would rest on a promise alone – Pete’s promise that any papyrus he issues will actually be “backed” by fish, which would make Toni and Tom willing to accept it in exchange for salt and apples.

…click on the above link to read the rest of the article…

Tag Archives: john law

Content

Post categories

Economic Links

Energy/Resource Links

Environmental Links

Geopolitical Links

Liberty Links

News Links

Other Links

Survival Skills

Post Archives by Category

Introducing Money

Latest Posts