Law’s macroeconomics and monetary economics
The core of Law’s theoretical economics is to be found in John Law’s Essay on a Land Bank (1994) and Money and Trade (1705). His theories may be further supplemented by consulting the many memoirs that he wrote to the French authorities outlining his policy proposals and which are to be found in Paul Harsin’s edited research (Murphy 1997) leads me to believe that Law did not write a second long memoir, the “Histoire des Finances”, which occupies a substantial part (pp.
282-430) of volume III of the to the landlord/proprietor that money be introduced on the island so as to encourage the employment of the unemployed and the more intensive use of the underemployed. The catalyst for the increasing employment is the creation of money. The circular process is initiated by the landlord/proprietor paying the labourers in the newly created manufacturing sector with paper money for their goods and services. The labourers use the paper money to purchase corn and other agricultural goods from the tenant farmers who, in turn, use the paper money to pay the landlord/proprietor his rent. Thus, the money flows between the three groups financing the payment of goods and services as well as the payment of the rent, with the money returning to the landlord at the end of this process, thereby enabling him to start a further round of economic activity. For Law, the introduction of money into the economy facilitates the establishment and development of a manufacturing sector which may be grafted on to the economy enabling activity and employment to be greatly increased. It is important to stress this development for in its initial barter state the island economy is deemed to be incapable of producing a manufacturing sector. It is the introduction of money to the island economy which permits the creation of the manufacturing sector. The shift to a monetary economy permitted the transformation of the island economy from a primitive agricultural barter system to a more progressive manufacturing-cum-agricultural sector.In a strong pre-Keynesian approach in Money and Trade, Law urged the authorities to expand the money supply and to reduce the rate of interest. For him, the way to increase the money supply was to replace the gold and silver metallic system with a new paper credit system. Unlike most monetary theorists, Law’s recommendations were soon to be implemented as monetary policy.
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More on the topic Law’s macroeconomics and monetary economics:
- John Law (1671-1729) is rare among economists in that he not only attempted to produce a templatefor addressing monetary and financial crises,
- Postlude
- Three hundred years after the rise and collapse of the world’s first financial market bubble, that of the Mississippi System in France, it may be appropriate to characterise John Law (1671-1729) not only as the first great macroeconomic choreographer but also as the spiritual father of the modern policy of quantitative easing.
- Challenges
- Notes on Contributors
- Contributors to the two volumes
- The interwar period
- Arthur Cecil Pigou, Marshall’s successor in the chair of Political Economy and the executor of the Marshallian heritage, may with good reason be regarded as the paradigm of an “old”, pre-Keynesian Cambridge economist.
- Marschak was born in Kiev, Russia on 23 July 1898 and died in Los Angeles on 27 July 1977.
- Postscript to Keynesian Economics