Sans-Culottes by Michael Sonenscher

Author:Michael Sonenscher
Language: eng
Format: epub
Publisher: Princeton University Press
Published: 2018-07-14T16:00:00+00:00

JOHN LAW’S LEGACY AND THE AFTERMATH OF PHYSIOCRACY

The new implementation strategy was based on a number of claims about the reforming power of public credit (unlike Physiocracy, this type of reform programme was not given a name until the nineteenth century, when it came to be called “socialism” in its new, modern guise). The largely indirect mechanisms involved in relying on a public debt to promote reform were, at least in this respect, similar to those advocated by the French economists. In an immediate sense, this type of claim was a product of the widespread sense of Physiocracy’s practical failure after the short ministerial career of Louis XVI’s best-known controller general of finance, Anne-Robert-Jacques Turgot, and the intense political difficulties involved in the idea of imposing a single tax on the owners of landed property, not only because of their status and power, but also because of the highly volatile character of cereal prices themselves and their propensity to respond suddenly and violently to rumour and panic as much as to real changes in supply. In a less immediate sense, however, this type of claim was also a reversion to some of the arguments about the properties of public credit that had been made much earlier in the eighteenth century by the Scottish financier John Law.155 Law’s system, put simply, amounted to inflating the value of a state-owned asset to eliminate a state-owned liability. If the value of the asset could be made to grow, it could be used to eliminate the liability and still leave the original value of the asset in place. The asset that Law used was foreign trade (henceforth incorporated into a trading company). The liability was the backlog of debt left over from Louis XIV’s wars (henceforth consolidated into a public debt). The ingenious part of Law’s system was the way that it was designed to use the liability to inflate the asset, so that, over time, the one would eliminate the other. The causal mechanism built into the system was based on two giant institutions, the trading company, which would own the asset, and the public bank, which would own the liability. The trading company would issue shares, and would have a monopoly of the most lucrative branches of foreign trade, while the bank would buy all the outstanding debt and, to do so, would issue banknotes to an equivalent amount. Shares in the trading company would be purchasable only with banknotes, but taxes would still have to be paid in gold and silver coin. The former debt holders would, therefore, be forced to use banknotes to buy shares in order to get hold of the cash needed to pay taxes. The initial boost to share prices produced by this surge in demand would set up a virtuous circle, in which the rising price of shares would bring more and more cash into circulation (both to buy banknotes and to use speculative returns from investments in the trading company to go back into cash to pay taxes more easily).

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.