John Law’s Proposal for a Land Bank

John Law was born into a family of goldsmiths and financiers. He was a man of exceptional ability as a monetary theorist and financier. He provided an account of the emergence of silver as money from barter, but condemned silver as volatile in its value. The concept of money as a bargaining counter provides the basis for a critique of Law’s proposal for the issue of banknotes backed by land to the Scottish Parliament. Law argues that land will provide a more stable backing for the issue, expand money supply and stimulate the depressed Scottish economy, without creating inflation. Law underestimates the difficulties of achieving economic stimulus without generating excessive inflation. His misjudgement on the matter gave rise to the crisis of the Mississippi System in France in 1720. Law extols the virtues of land as the backing for a note issue but neglects the disadvantages. Land is more associated with a ‘way of life’ than with monetary exchange. It lacks the characteristics required of a bargaining counter. All land is unique, so that it lacks the homogeneity required of a bargaining counter. Law’s proposal for a standard land unit tends to confirm the unsuitability of land rather than resolve the problem.