Wednesday, April 17, 2013

John Law's Financial System... It sounds oddly familiar

From Famous First Bubbles (PDF, 1990, 20 pages) by Peter M. Garber:

John Law's Financial System

Both the Mississippi and South Sea Bubbles can be best understood in the context of the monetary theory and system created by John Law. Law is not well-known today, but Schumpeter (1954, p.295), for example, is unreserved in praising him: "He worked out the economics of his projects with a brilliance and, yes, profundity which places him in the front ranks of monetary theorists of all times."

Law (1705) sketched a monetary theory in an environment of unemployed resources. In such an environment, he argued (1760, pp. 190-91), an emission of paper currency would expand real commerce permanently, thereby increasing the demand for the new currency sufficiently to preclude pressure on prices.

From the Journal of Economic Perspectives -- Volume 4, Number 2 -- Spring 1990. Via Reddit, submitted by timhuge. (Highlighting mine.)

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