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A boatload of women & other early stimulus packages | WE THE CURIOUS vol.2 no.8

A boatload of women & other early stimulus packages | WE THE CURIOUS vol.2 no.8

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Published by Mackenzie Hawkins
Back in Law's time, the subject of economics was still wide open, still untamed by academia. To the flamboyant Law, economics and business, trade and marketing, finance and gambling -- they were all one subject.
Back in Law's time, the subject of economics was still wide open, still untamed by academia. To the flamboyant Law, economics and business, trade and marketing, finance and gambling -- they were all one subject.

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Published by: Mackenzie Hawkins on Dec 19, 2010
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05/12/2014

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 A boatload of women
& other early stimulus packages
 
 
A boatload of women & other early stimulus packagesWE THE CURIOUS vol.2 no.8
At the turn of the 18th century, Scotland's economy was in the doldrums when aprofessional gambler and convicted felon named John Law published a pamphlet,Money and Trade Considered with a Proposal for Supplying the Nation withMoney. Surprisingly, given his lack of respectable credentials, Law's proposals forreviving the economy would seem eminently sensible to economists today. In fact,Law's pamphlet reads like a condensed (and jargon-free) introductorymacroeconomic textbook. He wanted to replace the silver coins that the Scotsthought of as "real money" with paper money; and he wanted to create a bank of Scotland that -- and this was quite shocking in 1705 -- openly lent out more thanthe amount deposited in its vaults.Law had the insight to see clearly, and articulate clearly, the inefficiencies of thebarter system that prevailed in Scotland at that time due to an inadequate moneysupply. "The Losses and Difficulties that attended Barter," Law explained in his120-page pamphlet, "would force the Landed-men to a greater Consumption of theGoods of their own Product, and a lesser Consumption of other Goods." This typeof thinking -- identifying inefficiencies and figuring out how to overcome them --is the classic "economic" way of thinking. But Law also saw something deeper atwork.Back in Law's time, the subject of economics was still wide open, still untamed byacademia. To the flamboyant Law, economics and business, trade and marketing,finance and gambling -- they were all one subject: that subject was human nature.When acting as a faro card dealer, Law would always carry large bags of goldaround with him. He knew that just the presence of wealth in a form that canchange hands quickly -- that is, wealth in the form of money -- catches the
 
imagination of men. The root of the problem in Scotland, as Law saw it, was themake-it-use-it mindset of the country. There was too much "Consumption of theGoods of their own Product" and too little imagination. On a large scale, then, Lawwanted to infuse Scotland with the psychological sizzle of ready cash because the"Landed-men" were failing to imagine -- and so to demand -- the fun, variety, andchallenge of participating in true market economies.Although Law's policy recommendations for Scotland were dismissed as "toochimerical to be put into practice," he would get his chance when, as an exile inParis, he convinced the bankrupt court of Louis XV to make him the ControllerGeneral of Finances. Law became one of the most powerful men in Europe -- andthen one of the most reviled men in all of Europe -- for the spectacular boom heengineered, which later became a spectacular bust. For three centuries, hiscontributions as an early economic thinker were forgotten, as biographers andhistorians focused on the sensational story-line of his rise and fall and ignored hisinsights into man and money. "Twenty years ago he was thought of more as a conman than an economic genius but his reputation has improved remarkably," writesAaron Brown, an executive director at Morgan Stanley and author of The PokerFace of Wall Street. "He is now considered an important early influence oneconomic thought, with ideas that might have worked except for the corruption anddespotism in France at the time.""But paper money," Brown argues, "was not Law's one-size-fits-all answer tostimulating economies. His unique genius is demonstrated by a less well knownidea...." As Law himself boasted to the regent of France, "But the bank is not theonly nor the greatest of my ideas." France at the time had claim to the Mississippiterritory in America, so Law's great idea was to shore up France's flagging financesby infusing the mother country with all the wealth that trade with such a vast,

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