Mount Cambitas

The Story of Real Money (Entry 193)

John Law understood the notion of a money premium over and above the market value of traded goods used as money. In his 1705 treatise entitled Money and Trade Considered John Law wrote:

“It is reasonable to think silver was bartered as it was valued for its uses as a metal, and was given as money according to its value in barter. The additional use of money [that] silver was applied to would add to its value, because as money it remedied the disadvantages and inconveniencies of barter, and consequently the demand for silver increasing, it received an additional value equal to the greater demand [that] its use as money occasioned.” (Pages 15 and 16)

In addition to his profound understanding of the Laws of Supply and Demand and the nature of real money, John Law understood the material advantages of a market economy over agricultural production administered by local landlords (or their modern equivalents — factory apparatchiki of the dominant political party) and the Catholic Church.

As an aside based on direct experience, the close cooperation between the contemporary Catholic Church and the state suggests that the Catholic Church has — politically speaking — changed very little over the centuries. In effect, the voluntary donations that the church receives from its donors are complemented by the involuntarily given “donations” of the taxpayer.

Charity works best when all that is given and received is voluntary.

Under the American system of government the purpose of the state is to defend the property and person of its citizens. We allow the state to take from us in order to finance its ability to defend us — not steal more from us than what is allotted for the purpose of our protection!

All Americans — including those of Latin origin — should be wary of the sudden influx of illegal Catholic immigrants crossing into the United States along our nation’s southern most border. For, they represent a mentality toward the church and state that is antithetical to our own!

But, let us not veer off course.

John Law wrote:

“Before the use of money was known, goods were exchanged by barter, or contract; and contracts were made payable in goods.” (Page 6)

“In this state of barter there was little trade, and few arts-men [craftsmen]. The people depended on the landed-men. The landed-men laboured only so much of the land as served the occasions …” (Page 7)

“As money increased, the disadvantages and inconveniences of barter were removed. The poor and idle were employed, more of the land was labored, the product increased, manufactures and trade improved, the landed-men lived better, and the people with less dependence on them.” (Pages 18 and 19)

The basic problem with which all warring nations of 16th, 17th, and 18th century Europe were confronted was the chronic shortage of real money to fight their wars. For money that was funneled to their wealth-destructive war efforts was money that could not be traded in wealth-generating economic activity.

As war was a way of life for the ruling class, European royalty was under constant pressure to find a way to satisfy both its appetite for war and the means to fund it without destroying the local economy. In the absence of civil war that was usually resolved by one local political faction finally gaining control over all of the other local factions, most of the warring took place on foreign soil or at sea. This resulted in a second important drain on the local, real money supply that went hand-in-hand with currency debasement.

In summary, the free market cannot work its magic when the life-blood of market transaction — namely, a sufficient money supply — is missing. At the time of John Law the money supply of the English economy was being diverted away from wealth-generating to wealth-destructive economic activity, and much of this latter was taking place on foreign soil.

It was this constant drain on the local money supply that led to the notion of domestic and foreign trade, and an entire body of worthless economic literature devoted to the balance of these two forms of commerce. John Law was one of the first contributors to this literature.

In liberty, or not at all,
Roddy A. Stegemann