John Law

Antoin Murphy, an economist at Trinity College Dublin, wrote this as a rehabilitation of John Law's reputation as a monetary theorist. Law is remembered for the Mississippi Company and the French financial collapse of 1720, and Murphy argues that the theory behind the scheme was serious and in several respects anticipated later monetary economics.

Murphy reconstructs Law's thought from Money and Trade Considered and from his earlier proposals to the Scottish and Savoyard authorities. Law argued that money is a means of exchange rather than a store of value, that the quantity of money determines the level of activity in an economy operating below capacity, and that a paper currency backed by land or by a productive enterprise could expand supply without the constraint that metal imposed. Murphy traces how this became the System in France: the Banque Generale and then Banque Royale issuing notes, the Mississippi Company acquiring the tax farms and the trading monopolies, and the conversion of the French government's short-term debt into company shares.

The analytical point Murphy makes is that Law's scheme was an early debt-for-equity conversion at national scale, and that its failure came from the interaction between the share price and the note issue rather than from the underlying idea. When shareholders sold, Law supported the price with notes, which produced inflation, which produced further selling. The book is scholarly and demands attention to eighteenth-century finance. Murphy is a partisan for his subject, and readers should note that his revaluation is more generous than most economic historians accept.