{"id":29244,"date":"2014-02-06T04:31:53","date_gmt":"2014-02-06T04:31:53","guid":{"rendered":"http:\/\/ci027cfe70f0202697"},"modified":"2025-01-28T20:58:10","modified_gmt":"2025-01-28T20:58:10","slug":"bitcoin-need-john-law-1391639513","status":"publish","type":"post","link":"https:\/\/bitcoinmagazine.com\/culture\/bitcoin-need-john-law-1391639513","title":{"rendered":"Does Bitcoin Need a John Law?"},"content":{"rendered":"
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Jamie Dimon opened his mouth in Davos about bitcoin and nonsense came out. \u201cIt\u2019s a terrible store of value,\u201d Dimon told CNBC\u2019s Andrew Ross Sorkin. \u201cIt could be replicated over and over.\u201d<\/p>\n

\u201cIt doesn\u2019t have the standing of a government,\u201d added Dimon. \u201cAnd honestly, a lot of it \u2014 what I\u2019ve read from you guys \u2014 a lot of it is being used for illicit purposes.\u201d<\/p>\n

Evidently Dimon hasn\u2019t heard only 21 million bitcoin can be produced and it gets harder and harder to create new bitcoin, with only a few produced each hour. We can\u2019t say the same for the Federal Reserve and its partners in money creation, the commercial banks.<\/p>\n

The lack of government standing means there would be no bitcoin bailout for JP Morgan should the need arise. No wonder Dimon hates it. As far as being used for illicit purposes, that\u2019s rich coming from a guy whose bank was just fined two billion dollars for not alerting the authorities to the activities of one of their customers, Bernie Madoff.<\/p>\n

These days, Dimon is viewed as the smartest banker in any room he enters. In 1716 France John Law was that guy. Way more interesting than Dimon, Law was James Bond-like \u2014 a suave, debonair, womanizing gambler who (like Dimon) always seemed to come out on top. Law had plenty of friends in high places and worked the party circuit throughout Europe, as Dimon works Davos today.<\/p>\n

However, Law had a skeleton in his closet in the form of Edward Wilson, whom he killed in a duel for which details remain sketchy. (Did the two men duel over Elizabeth Villiers, \u201cthe king\u2019s boss-eyed, unattractive mistress,\u201d or a certain Mrs. Lawrence, or money Wilson had received from a homosexual lover?) Dimon\u2019s skeletons are all in the open as JPMorgan pays various fines for the bank\u2019s running afoul of the regulators.<\/p>\n

This collision of Dimon, Law, and bitcoin was created by Joel Dietz with his piece in the November Bitcoin magazine entitled, \u201cWhy John Law Gambles with Bitcoins.\u201d Dietz, 300 years after the fact, presents a thought experiment with the question, \u201cWhat would [Law] say about Bitcoin and other digital currencies.\u201d<\/p>\n

While Dietz gets many of the juicy anecdotes about the Scotsman correct, he starts spinning the Law legacy from his opening sentence, \u201cToday, John Law is often hailed as one of the greatest financial innovators of all time.\u201d<\/p>\n

I\u2019m not sure who Dietz thinks has been hailing Law for greatness. Charles Rist, in his book History of Money and Credit: From John Law to the Present Day<\/em>, wrote of Law\u2019s theories,<\/p>\n

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Law\u2019s writings . . . already contain all the ideas which constitute the equipment of currency cranks\u2014fluctuations in the value of the precious metals as an obstacle to their use as a standard . . . the ease with which they can be replaced by paper money, money defined simply as an instrument of circulation (its function of serving as a store of value being ignored), and the conclusion drawn from this definition that any object can be used for such an instrument, the hoarding of money as an offence on the part of the citizens, the right of the government to take legal action against such an offence, and to take charge of the money reserves of individuals as they do of the main roads, the costliness of the precious metals compared with the cheapness of paper money.<\/p>\n<\/blockquote>\n

Only Keynesians have a soft spot in their hearts for Law. Law biographer and Mississippi Bubble expert Antoin Murphy said it best. \u201cKeynes can be termed as post-Lawian!\u201d<\/p>\n

Followers of the Fed and Keynesian policies will find this John Law quote familiar.<\/p>\n

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An abundance of money which would lower the interest rate to 2% would, in reducing the financing costs of the debts and public offices etc. relieve the King. It would lighten the burden of the indebted noble landowners. This latter group would be enriched because agricultural goods would be sold at higher prices. It would enrich traders who would then be able to borrow at a lower interest rate and give employment to the people.<\/p>\n<\/blockquote>\n

In Choice in Currency<\/em> F.A. Hayek linked Law and Keynes.<\/p>\n

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LORD KEYNES has always appeared to me as a new John Law. Like Law, Keynes was a financial genius who made some real contributions to the theory of money\u2026But Keynes could never free himself from the popular false belief that, as Law expressed it, \u201cas the additional money will give work to the people who were idled and enabled those already working to earn more, the output will increase and industry will proper.\u201d<\/p>\n<\/blockquote>\n

Joe Salerno weighs in on Law\u2019s legacy in his book Money: Sound and Unsound<\/em>.<\/p>\n

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as the founder and head of what, in effect, was one of the first national central banks in history, the Banque Generale (later, the Banque Royale) of France, Law almost singlehandedly destroyed the French monetary system in the course of four short years (1716-1720). As a monetary theorist, Law has been called the \u201cancestor of the idea of a managed currency\u201d by no less an authority on economic doctrine than Joseph Schumpeter.<\/p>\n<\/blockquote>\n

Diest gives the impression that Law started what would become the Mississippi Company to raise money to settle the Louisiana Purchase and bring \u201cback the great riches of the new world.<\/p>\n

While the company\u2019s sole asset was government-granted trading rights with this new territory, the use of funds raised through stock sales was to refinance France\u2019s burdensome debt.<\/p>\n

While Law\u2019s system relieved the government\u2019s debt service, the resulting inflation, in the words of economic historian Earl Hamilton, \u201cwas a catastrophe to the labouring class.\u201d Overall, prices more than doubled for the working class and the prices of some food items (like bread) soared 300 to 400 percent.<\/p>\n

These facts fly in the face of Dietz\u2019s comment, \u201cLaw\u2019s primary flaw was that he was too successful.\u201d<\/p>\n

Dietz takes a big leap when he writes, \u201cIt should be clear that Law would see digital money as the future.\u201d The value of bitcoin and successful cryptocurrencies is in their limited number. Dimon may think bitcoin can be reproduced ad infinitum but Satoshi put a lid on bitcoin issuance for a reason. His creation of the best known cybercurrency was a direct response to the mismanagement of money by central banks that endlessly create money. The result being distractive booms, busts and inflation.<\/p>\n

Law was the sole person who decided how much money Banque Generale would create. He did not want to be hemmed in by limits to his money issuance. He believed his system was saving France, its government, and creating prosperity. While its possible Law learned something from the debacle he created, assuming he\u2019d embrace the strictures of Satoshi’s structure is far-fetched.<\/p>\n

Dietz is more likely to be right that Law \u201cwould almost certainly be running the circuit talking to central bankers.\u201d Law believed as central bankers believe today, that economies can be managed if the right smart people are in charge, what Jim Grant calls the PHD standard. But competing crypto-currencies are the antithesis of central planning in money.<\/p>\n

\u201cCryptocurrency is the future,\u201d Dietz concludes. \u201cIt just calls for a bit of vision and boldness to pull it off on the scale needed. It needs another John Law.\u201d What Dietz dreams of is Law sliding into the shoes of Janet Yellen or Mario Draghi and turning all government paper and coin into government digits.<\/p>\n

However, cryptocurrency is the future for the exact opposite reason. The vision needed is not Law\u2019s but Hayek\u2019s, who wrote, \u201cIt seems to me that if we could prevent governments from meddling with money, we would do more good than any government has done in this regard. And private enterprise would probably have done better than the best they have ever done.\u201d<\/p>\n

Technology and private enterprise have arrived just in time to compete with government in the monetary arena. The last thing needed is a currency crank with friends in government to derail the prosperity private money can bring.<\/p>\n","protected":false},"excerpt":{"rendered":"

Jamie Dimon opened his mouth in Davos about bitcoin and nonsense came out. \u201cIt\u2019s a terrible store of value,\u201d Dimon told CNBC\u2019s Andrew Ross Sorkin. \u201cIt could be replicated over and over.\u201d \u201cIt doesn\u2019t have the standing of a government,\u201d added Dimon. \u201cAnd honestly, a lot of it \u2014 what I\u2019ve read from you guys […]<\/p>\n","protected":false},"author":3699,"featured_media":29243,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[33],"tags":[587,1319,2587,2362,3523],"class_list":{"0":"post-29244","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-culture","8":"tag-banking","9":"tag-france","10":"tag-keynes","11":"tag-people","12":"tag-prices"},"author_data":{"id":3699,"name":"Douglas French","nicename":"douglas-french","avatar_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/12\/bitcoin-schmitcoin-promo-image-1-5-96x96.png"},"featured_image_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/11\/does-bitcoin-need-a-john-law.png","_links":{"self":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/29244","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/users\/3699"}],"replies":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/comments?post=29244"}],"version-history":[{"count":0,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/29244\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media\/29243"}],"wp:attachment":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media?parent=29244"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/categories?post=29244"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/tags?post=29244"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}