II

JOHN LAW

1671-1729

"MONEY and Trade Considered: with a

Proposal for supplying the Nation

with Money; first published at Edinburgh MDCCV, by the celebrated John Law, Esq., afterwards Comptroller-General of the finances of France," is a neatly printed little book from the celebrated Foulis press of Glasgow, bearing date 1760. John Law's clear and vigorous style as a writer on financial subjects partially accounts for the man's remarkable success as a pioneer in so-called high finance. Turning to page sixty-four, we find this clear exposition of the evolution of banking from the necessities of trade and commerce (copied verbatim):

"The use of banks has been the best method yet practised for the increase of money. banks have been long used in Italy, but, as I am informed, the invention of them was owing to Sweedland. their money was copper, which was inconvenient, by reason of its weight and bulk; to remedy this inconveniency, a bank was set up where the money might be pledged, and credit given to the value, which past in payments, and facilitate trade.

Then follows an historical sketch of the Bank of Amsterdam and the Bank of Scotland. Law now proceeds to meet the objections then prevalent against banks, as follows:

"Some are against all banks where the money does not lie pledged equal to the credit. I. they say the demand may be greater than the money in bank. secondly, if we are declining in our trade, or money, we are not at all, or are less sensible of it: and if the bank fail, we are in a worse condition than before.

"To the first 'tis answered, Tho' the nation had no benefit by the addition the bank makes to the money; nor the people by being supply'd with money when otherwise they could not, and at less interest; and tho' the proprietors had no gain by it: the other conveniences, as quicker and easier payments, &c. are more than equal to that hazard; or bank notes, gold-smiths and bankers notes, would not be preferred to money, every body knowing such a stop may happen to the bank, and that gold-smiths and bankers may fail.

"The other objection is the same as to say, a merchant who had a small stock, and was capable of imploying a greater; if a sum were offered him without interest, equal to what he had, and more as his own increased, should refuse it, because he might fancy himself richer than he

was, and if his own stock decreased, that sum lent would be taken from him.

"If 15000 is supposed the money in bank, and 75000 lib. of notes out; 60000 lib. is added to the money of the nation, without interest; for what is payed by the borrowers, is got by the proprietors. as the money of the nation increases, the credit of the bank increases, and the sum of notes out is greater; and so far from making the people less sensible of the condition of the country, a surer judgment of the state of trade and money may be made from the books of the bank, than any other way.

"If trade can be carried on with a 100000 lib. and a ballance then due by foreigners; the same measures, and a greater quantity of money, would make the ballance greater. nor is that additional money the bank furnishes, to be supposed will be lost, if by a ballance due from trade the silver money increases: that credit may fail from an accident when money is plentiful, and would soon be recover'd; 'tis only lost by a scarcity of money. such a credit may support trade, in cases where without it trade would sink, but cannot do prejudice.

"Another objection is made against the bank. that it encouraged the exportation of money, by furnishing sums in such species as were of most

value abroad. to answer this objection, I shall make a supposition. A. B. merchant has occasion for a 1000 lib. in Holland, and desires C. D. banker to give him a bill for that value; there is no money due in Holland to Scots merchants, so C. D. must export the money to pay the bill he draws: but, there being no bank, nor any possibility of getting a 1000 lib. in 40 pence pieces, he sends out money of different species. this does not hinder the money to go out, but makes the exchange dearer by 2 or 3 per cent., than it would have been if 40 pence pieces could have been got. and tho' no other money were left, but old marks, if a ballance is due, these will go out, tho' not worth 10 pence: the exchange will be so much higher, the profit of exporting is the same; and so far from doing hurt to the country, the bank by furnishing such pieces as could be exported to least loss, kept the exchange 2 or 3 per cent. lower than otherwise it would have been, and saved yearly the sending out a considerable sum to pay a greater ballance, the higher exchange would have occasioned."*

*Charles Reade, in "Love Me Little, Love Me Long," makes John Law the subject of an interesting story of adventure in finance, from which quotation has later been made. Emerson Hough's comparatively recent novel, "The Mississippi Bubble," makes Law the hero of the story vividly picturing the financier's skyrockety career in Paris. Quotations from these novels are made in Part III. of this book.