What would be the object of borrowers in getting Law's land notes? Not land, for they could get that by direct purchase. Their object would be to obtain coin, or merchandise, the equivalent of coin,-capital that could be used in their industries. Unless they could obtain one or the other of these, they would not receive the notes, giving their own obligations therefor. They could not come into the possession of the lands by which the notes were secured, as these would be held by the Commission issuing the notes. The latter, consequently, would be simply forms of debt, and to be realized upon would have to be sold in open market, and, certainly, at a very great discount. As the borrower would have to give his own bills equal in amount to the notes received, he might be giving that which might be valuable for that which might be almost wholly worthless. Whether, therefore, the notes were well secured or not, they could never get into circulation. To get out of this dilemma, Law was obliged to assume, to use his own words, that, "Money is not the value for which goods are exchanged, but the value by which they are exchanged. The use of money is to buy goods; and silver, while money, is of no other use.” 1 In developing his scheme, Law had, undoubtedly, all the time, a sort of consciousness that his land money would not be received in exchange for other articles. As he could not give up his scheme, his principles had to give way to his necessities, and he was forced to assert the exact opposite to that which he had affirmed, and the truth of which he had conclusively demonstrated. Money, consequently, "was not the value for which goods were exchanged, but the value by which they were exchanged." It was the yardstick by which goods were measured off, a contrivance to assist in numeration, a tally or counter to register the delivery of certain quantities or values of merchandise; in other words, value was not a necessary attribute of money. "Though silver were our product," says Law, "yet it is not so proper to be made money as land. Land is what produces every 1 Money and Trade Considered, Chap. VII. thing; silver is only the product. Land does not increase or decrease in quantity; silver or any other product may: so land is more certain in its value than silver or any other goods. "Land is capable of improvement, and the demand for it may be greater; so it may be more valuable. Silver cannot be supposed to be applied to any other uses than it is now applied to, or that the demand will increase more than the quantity. "Land cannot lose any of its uses, so will not be less valuable. Silver may lose the uses of money it is now applied to, and so be reduced to its value as a metal. "It may likewise lose a part of its uses as a metal, these uses being supplied by other goods; so loses a part of its value as a metal; but nothing can supply the uses of land. "Land may be conveyed by paper, and thereby has the other qualities necessary in money, in a greater degree than silver. "Land has other qualities fitting it for the use of money that silver has not. "Land applied to the use of money does not lose any other uses it is applied to; silver cannot serve the use of money and any of its other uses as a metal. . . . "When a nation establishes a money, if the money they set up have a value equal to what it is made money for, and all the other qualities necessary in money, they ought to have no regard what value it will have in other countries. On the contrary, as every country endeavors by laws to preserve their money, if that people can contrive a money that will not be valued abroad, they will do what other countries have by laws endeavored in vain. "No nation keeps to silver because it is used in other countries: it is because they can find nothing so safe and convenient. Trade betwixt nations is carried on by exchange of goods, and if one merchant sends out goods of a less value than he brings home, he has money furnished him abroad by another who brings home for a less value than he sent out. If there is no money due abroad, then the merchant who designed to import for a greater value than he exported is restricted, and can only import equal to his export; which is all the many laws to regulate trade have been endeavoring." 1 From what has been shown in that part of this work which treats of the Laws of Money, it would be superfluous here to controvert Law's assumption that whatever possesses value can be made into money; or that real property is the best basis of money because the least liable to fluctuate in value. A mortgage on real property may possess a high value, and yet have no other attributes fitting it to serve as money. The assertion that a nation should have no regard, in its money, to its trade with others, was undoubtedly wholly false to Law 1 Money and Trade Considered, Chap. VII. in his sober moments. He saw that his paper money would never pass abroad. He was driven consequently to assert that it was not necessary that it ever should pass abroad; that the domestic trade of a nation was alone to be considered. He took the short cut of throwing his principles overboard without the least compunction, whenever they came into conflict with his purposes. He was a man of action, who never stopped to explain, but pushed right forward to the object he had in view. For him to doubt and inquire would be to give up the contest altogether. His life was a mission to promote, in the first place, the welfare of his own country, by supplying it with money-capital; and every consideration was subordinate to this grand idea. Law found no one who would entertain his schemes for a Land Bank. He succeeded, however, in 1716, in establishing, in France, a Bank with a cash capital of 6,000,000 francs, which he appears to have conducted, so long as he was able to keep clear of government, in a safe and legitimate manner. The great want of France at the time was precisely the institution which Law succeeded in establishing. Her finances were in a most disorganized condition. The securities of government were hardly worth one-third their nominal value. Her metallic currency had been constantly tampered with, by reducing its value, in order to enable the government to pay its debts at one-half or one-third the value at which they were contracted. From the social disorder which prevailed, it was in the highest degree hazardous to forward coin from one province to another. Law undertook to make the notes he issued payable in coin at its value at the time they were issued, and as he promptly paid them on presentation, they soon began to be preferred to coin, which was liable at any moment to be debased in value by a royal edict. His notes soon attained circulation in the provinces, as they were received with coin in the payment of the revenues of government. His Bank had hardly been in operation a year before the most striking and beneficial consequences were everywhere apparent. Trade was greatly improved, the revenues of the government were increased, and were more promptly paid, and Law was hailed as the benefactor, if not the saviour, of the nation. Having found, at last, an adequate theatre for the exercise of the great abilities which he undoubtedly possessed, Law seems to have forgotten his Land Bank schemes altogether. He was accustomed to affirm that every banker who issued notes without proper provision for their conversion into coin was deserving of death. He held, however, that his notes could be made the basis of industrial enterprises, in addition to being the instruments for the distribution of that which enterprise and industry had already produced. His Bank, therefore, became the guarantor for the success of all such undertakings. If these failed, its capital became responsible for the loss sustained. Acting upon this principle, he held that Banks should engage in all kinds of commercial and industrial pursuits; that they should, in fact, in imitation of the great monopolies which governments at the time were accustomed to grant, merge in themselves the whole commerce and industry of the nation. Here was his fundamental error, and here the rock on which he made final shipwreck. One of his great projects was the Mississippi scheme, the greatest "Bubble " the world ever saw, which at last involved Law, his Bank, and France herself, in a common ruin. An account of this, as well as of Law's operations, does not come within the object of this work. From the publication of Law's “ Money and Trade Considered," the subject of money attracted little attention till 1752, when Mr. Hume published his "Essays on Civil and Political Economy." The Bank of England went on its even way, discounting business paper at the rate of five per cent, a rate that was hardly changed for a generation. In Hume, Aristotle found a pupil worthy the master, with this difference: Aristotle was one of the most truthful of men, while with Hume truth was a matter of secondary importance. There is an earnestness in Aristotle which attracts our sympathy, if it does not command our assent. There is a want of earnestness in Hume that repels our sympathy, even if we cannot controvert his conclusions. Hume, like Aristotle, assumed all his premises without consideration or reflection, and disposed, by a single stroke of his pen, of questions, to solve which by any proper method a lifetime might hardly suffice. "Money," says Hume (by which he means gold and silver), "having chiefly a fictitious value, the greater or less plenty of it is of no consequence.1 . . . It is not, properly speaking, one of the subjects 1 Hume's Works, Essay on Interest (Am. ed.), vol. iii. D. 325. of commerce, but only the instrument which men have agreed upon to facilitate the exchange of one commodity for another. It is none of the wheels of trade: it is the oil which renders the motion of the wheels more smooth and easy. If we consider any one kingdom by itself, it is evident that the greater or less plenty of money is of no consequence. . . . It is only the public (government) which draws any advantage from the greater plenty of money, and that only in its wars and negotiations with foreign States. . . . The greater the number of people, and their greater industry are serviceable in all cases at home and abroad, in private and in public. But the greater plenty of money is very limited in its use, and may even sometimes be a loss to the nation in its commerce with foreigners. . . . And, in general, we may observe that the dearness of every thing, from plenty of money, is a disadvantage which attends an established commerce, and sets bounds to it in every country by enabling the poorer States to undersell the richer in all foreign markets. This has made me to entertain a doubt concerning the benefit of Banks and paper credits. . . . That provisions and labor should become dear by an increase of trade and money, is in many respects an inconvenience, but an inconvenience that is unavoidable, and the effect of that public wealth and prosperity which are the end of all our wishes. It is compensated by the advantages which we reap from the possession of these precious metals, and the weight which they give the nation in all foreign wars and negotiations. But there appears to be no reason for increasing that inconvenience by a counterfeit money which foreigners will not accept of in any payment, and which any great disorder in the State will reduce to nothing." And in this view it must be allowed that no Bank could be more advantageous than such a one as locked up all the money it received (as was the case with the Bank of Amsterdam), and never augmented the circulating coin, as is usual, by returning a part of its treasure into commerce. A public Bank by this expedient might cut off much of the dealings of private bankers and money-jobbers; and though the State bore the charge of their salaries to directors and tellers of this Bank (for according to the preceding supposition it would have no profit from its dealings), the national advantage resulting from the lower price of labor and the destruction of paper credit would be a sufficient compensation. . . . ... "It was a shrewd observation of Anacharsis, the Scythian, who had never seen money in his own country, that gold and silver seemed to him of no use to the Greeks but to assist them in numeration and arithmetic. It is, indeed, evident that money is nothing but the representation of labor and commodities, and serves only as a method of rating or estimating them. . . . It can have no effect, either good or bad, taking the nation within itself; any more than it would make an alteration upon the merchant's books 1 Essay on Money, vol. iii, p. 309. 2 Ibid. Ibid. 6 Ibid. p. 312. |