''Money and Trade Considered: With a Proposal for Supplying the Nation with Money'' is an early economics text written by John Law of Lauriston, published in 1705. In it, he attempts to compare the prosperity of other countries with that of

Scotland Scotland is a Countries of the United Kingdom, country that is part of the United Kingdom. It contains nearly one-third of the United Kingdom's land area, consisting of the northern part of the island of Great Britain and more than 790 adjac ...

, and advocates a "land bank" system of

paper money Paper money, often referred to as a note or a bill (North American English), is a type of negotiable promissory note that is payable to the bearer on demand, making it a form of currency. The main types of paper money are government notes, which ...

backed by real estate as a commodity, instead of

gold Gold is a chemical element; it has chemical symbol Au (from Latin ) and atomic number 79. In its pure form, it is a brightness, bright, slightly orange-yellow, dense, soft, malleable, and ductile metal. Chemically, gold is a transition metal ...

silver Silver is a chemical element; it has Symbol (chemistry), symbol Ag () and atomic number 47. A soft, whitish-gray, lustrous transition metal, it exhibits the highest electrical conductivity, thermal conductivity, and reflectivity of any metal. ...

The Book

In this book, which was published in 1705, Law proposes the creation of a new paper currency in Scotland based on land values as an alternative to the prevailing use of silver coinage at the time. He did so in the context of an acute shortage of such silver currency in Scotland in the aftermath of the 1690s

famine A famine is a widespread scarcity of food caused by several possible factors, including, but not limited to war, natural disasters, crop failure, widespread poverty, an Financial crisis, economic catastrophe or government policies. This phenom ...

followed by the distastrous Darian scheme which reached its nadir in about 1699 and in which the Scottish nation is estimated to have lost in the range of 15-40% of its capital. Having failed to convince his compatriots, Law travelled to France where he had a much more favourable reception, setting up the Banque Royale, promoting the

Mississippi Company John Law's Company, founded in 1717 by Scottish economist and financier John Law (economist), John Law, was a joint-stock company that occupies a unique place in French and European monetary history, as it was for a brief moment granted the enti ...

and inflating a massive monetary bubble which in due course popped. In 1707 the Scottish nation solved its capital deficit when as one of the conditions of its union with England it received the sum of £398,085 which was equivalent to the amount lost in the Darian scheme. John Law examines what he finds to be problems with monetary theory in Scotland. This topic had been growing in attractiveness for the previous 150 years, as Europe had suffered an increasing crisis known as the price revolution, where the value of gold had been fluctuating wildly, and falling overall, in large part because of the influx of additional silver plundered from the

New World The term "New World" is used to describe the majority of lands of Earth's Western Hemisphere, particularly the Americas, and sometimes Oceania."America." ''The Oxford Companion to the English Language'' (). McArthur, Tom, ed., 1992. New York: ...

. Law describes the scarcity of money as being essential for its value, a lesson learned by that crisis of the previous two centuries. He describes the evolution of money this way: Because silver, the common money in Scotland at the time, is falling in value, he proposes land, whose value is more stable, as a replacement backing for currency. Regarding the Price Revolution, Law says:

The Spainiards bring as great Quantities into Europe as they can get wrought out of the Mines

Thus, he says, the value of metal currency has been diluted. Remarkable in his work is the assertion that money is not something invented by government authority, which was the popular view of government authorities at the time. But he cedes, as was probably legally required of him, that government (the King) ''owns'' all money, as he owns all roads and land. He also points out that money is not actually traded for its own value, but as a tool for obtaining goods themselves.

Impact

Gavin John Adams described the impact and legacy of ''Money and Trade Considered'' as follows:

''Money and Trade Considered, With a Proposal for Supplying the Nation with Money'' was so much more than a mere proposal for a note-issuing bank. It was a staggeringly original work of genius which not only included proposals for new systems of banking, and the issuing of paper money as a means to stimulate the economy, but also revealed, for the first time, several of the most significant economic concepts ever devised; concepts which would later be espoused by economists such as
Adam Smith Adam Smith (baptised 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the field of political economy and key figure during the Scottish Enlightenment. Seen by some as the "father of economics"——— or ...
and
John Maynard Keynes John Maynard Keynes, 1st Baron Keynes ( ; 5 June 1883 – 21 April 1946), was an English economist and philosopher whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originall ...
without acknowledgement. It was meant for the consideration of the Scottish Parliament, but the ideas it contained fundamentally altered economics, politics, finance, and, consequently, the modern world. John Law’s ''Money and Trade Considered'' is the most influential but least acknowledged work in the history of economics.

The book failed to convince the Scottish government to implement a paper money system, but "contained the germ ... of the System" which Law subsequent progressed in

France France, officially the French Republic, is a country located primarily in Western Europe. Overseas France, Its overseas regions and territories include French Guiana in South America, Saint Pierre and Miquelon in the Atlantic Ocean#North Atlan ...

. Unfortunately, this system was flawed, suffering first extreme speculation and then rampant inflation, until failing some years later. Thornton explained why Law's scheme failed: "He forgot that there might be no bounds to the demand for paper; that the increasing quantity would contribute to the rise of commodities: and the price of commodities require, and seem to justify, a still further increase." Henry Thornton (1802): An enquiry into the nature and effects of the paper credit of Great Britain ('Paper credit')

Friedrich Hayek Friedrich August von Hayek (8 May 1899 – 23 March 1992) was an Austrian-born British academic and philosopher. He is known for his contributions to political economy, political philosophy and intellectual history. Hayek shared the 1974 Nobe ...

saw "great perspicacity" in three aspects of Law's work: (1) the substantial qualities of a money, (2) commodity value, "anticipating many elements of the modern theory of subjective value", and (3) a historical account of money and its supply. In summary, Hayek suggested that "The individual components of Law's proposal were nothing new... But these ideas had never been presented with equal brilliance and persuasiveness."

References

External links

* {{librivox book , title=Money and Trade Considered, author=John Law 1705 non-fiction books 1705 in economic history 1705 in Scotland Books about monetary policy Monetary economics Banknotes Books about Scotland Works by John Law (economist)