Published anonymously in Edinburgh after Law’s return from exile on the continent (he had been sentenced to death at the Old Bailey in 1694 for killing a man in a duel), Money and Trade’s chief argument is that ‘an expansion in the money supply would produce an expansion in output, which [Law] considered erroneously would lead to an export surplus’ (ODNB).
In the same year as Money and Trade, Law unsuccessfully presented his idea of a land bank to the Scottish parliament; he eventually found approval for the idea in France, where a general bank was established at his prompting in 1716. The following year he oversaw the establishment of the Compagnie d’Occident, known to posterity as the Mississippi Company. The collapse of the resulting bubble in 1720 led to Law’s resignation and disgrace, and he died in poverty in Venice in 1729.
Adam Smith presented the Mississippi Bubble as a lesson in the perils inherent in Law’s advocacy of the unlimited expansion of paper money. Modern authorities from Schumpeter onward have emphasised the originality and importance of Law’s contributions to monetary theory. A major recent study of John Law concluded that:
‘Money and Trade is a majestic work towering over the contemporary writings of the early eighteenth century … Law … produced a highly innovating approach to macroeconomic theorizing embracing such new discoveries as:
1) The money-in-advance requirement.
2) The circular flow of income.
3) The further analysis of international inflation in a money supply and money demand framework.
4) The formulation of the law of one price for a small open economy.
These are all major theoretical contributions which … entitle Law to consideration as an exceptional monetary theorist’ (Murphy, John Law: Economic Theorist and Policy-Maker, 1997, p. 77).
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