John Law & His Inflatable Currency



Aug 2, 2020
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After you read this story, you'll be scratching your head in wonder of how people get away with what they get away with. Here's the truth about currency: if you have something of value and someone else has something of value, then the two of you can trade those two things of value with each other. If there are three or more people with things of value, trading becomes complicated. In cases like these, a trading apparatus such as a currency can be developed to ease the complication. But remember, the currency that's introduced must hold an illusionary value only of the assets it represents. Additional currency can't be introduced without producing negative consequences. Those negative consequences usually take the form of lessening the value of each piece of currency. If too much currency is introduced, those who use the currency for trade lose faith it in and seek out another trading apparatus they have faith in. And that's the story. That's it. Everything else just muddies the water.

Let's talk about John Law for a moment. Apparently, this guy was the savior France was looking for for a good long while. It wasn't until his ideas began to fail that he ran for his life and hid from those he was once a savior to. What a shocking and tragic story. How one of the most wealthy men in the world died penniless and alone is beyond me. There seems to be some sort of mental illness at play here. You be the judge.

John Law was born in Scotland and was quite intelligent. He was a whiz at mathematics. He was raised by a wealthy banking family, but due to his weakness for gambling, he managed to lose all his father worked so hard for. In England, he was tried and convicted of murder, yet escaped captivity and ran to Paris. While in France, John became friendly with Duke d'Orleans who eventually became king. France was huge in debt and when John Law introduced the idea of paper currency to the regent king, the king snatched the idea up and made it so. After the introduction of paper currency, France paid off all its debts and began spending like it was going out of style. John Law created a company and made it to the helm of France's central bank. As time went on, the central bank printed more and more money and John Law issued more and more stock for his company. Eventually, a bubble formed for both the currency and the company. Everyone wanted a piece of both, which caused inflation. As soon as the more astute investors became aware of what was about to happen, they spent all their currency on hard assets, such as gems, gold, and real estate. Eventually, owning gold was outlawed and Law was fired from the central bank. He hightailed to Venice where he died a poor man.

To summarize the story (which I just did to the best of my ability), paper money was introduced into France's economy. It wasn't backed by any type of asset, giving the central bank free reign to print as much of it as they wanted. You see, when a currency isn't backed by anything, there are no limits to how much of it can be printed. This is exactly where banks and governments get themselves into trouble. Think of the 2008 financial crisis. Banks loaned money to anyone and everyone, creating a huge credit bubble. Like all bubbles, it burst, leaving despair in its wake. In France's case, the bank continued printing all the way to a place where the investor class realized that it wasn't actually worth anything. They traded theirs for assets with actual value and left the rest of the country to deal with the fallout. This seems to occur quite a bit around the world. We've seen it time and time again. Apparently, it's a joyride until you're the one stuck holding the bag.

The primary difference between the credit bubble of 2008 and what happened in France was faith in the currency and military might. The U.S. dollar is backed by more than nothing. It's actually backed by the fact that there's nothing to take its place as well as its military. Wars are fought over currency. If the U.S. dollar ever inflated into oblivion, there would need to be a replacement, which as of this moment, there isn't. Actually, I'm sure there is, but it just hasn't been rolled out yet. Once it's ready, you'll see the U.S. dollar fall. And I'm sure it'll happen on purpose. It'll be sold as some sort of crisis, but like so many other crises, it'll be manufactured. That's the most effective method for getting things like this done around the globe.

Have you heard of John Law? What's your take on him. For a few years there, people were living very well in France and it was his doing. I'm sure there are those who feel he was a great man. I'm also sure that you've read or heard a lot more about him than I have, so if you'd like to discuss it, please do down below.

This post is part of a series: Guide to Investing in Gold & Silver by Michael Maloney
John Law & His Inflatable Currency was posted on 06-03-2021 by CaptainDan in the Economics Forum forum.

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