“If you want to know what God
thinks of money, just look at the people he gave it to” said American writer Dorothy Parker. But if you
really want to know what God thinks of money, then study how it got created and you
will know that God hates it. The origin of money, paper money to be specific,
has caused manmade disasters far greater than natural ones. Vivek Kaul in his
new book “Easy Money: Evolution of Money from Robinson Crusoe to the First
World War” explains how easy money changed the course of human evolution. I
just completed reading the book and it has left me startled about currency
economics. I am writing to share my thoughts on the book and money
economics in general.
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| Courtesy: Amazon.com |
Human beings are social animals. After food, clothing and shelter comes
the need to trade because man is an interdependent creature. It is not the case with other animals. A cow can fulfil all its needs by
itself and doesn’t have to depend on another cow for something it needs or it
might need in the future. Humans initially traded goods with goods (barter
system). The system had sound economics to back it up, but it was not efficient
for complex transactions. This led to the invention of paper money. In the book
Vivek Kaul explains how Marco Polo took the idea of paper money from his
voyages in Mongolia and China to Italy his homeland. The Chinese invented
paper, ink and also the art of printing. Naturally paper money was first
developed there. The thought that paper can be used as money must have occurred first to a very intelligent man, but it is not known who that genius was. Imagine I
and you are trading with curriencies like rice and maize. I sell 3 goats for a
bag of rice, 10 eggs for ½ a bag of maize. The whole society around me is
built on that and suddenly 1 day I wake up to find that you give a piece of paper to
buy 10 eggs from me. It must have been revolutionary idea at that point in
time.
After the Chinese invented paper money, the idea has travelled far and
wide and has now engulfed every aspect of human existence. It isn't wise to study human history without studying the history of money, for everything that
history stands testimony to, money is the reason for it. The story of Jack Law,
narrated by Kaul catches my imagination the most- how one man’s fantasy
destroyed France the most powerful nation on earth, in early 18th
century. Jack Law was jailed for murdering
a man 'for the affections of a certain Elizabeth Villiers'. (Imagine Shahrukh
Khan of Darr in the early 1690s) Law
escapes prison and publishes a text titled “Money
and trade considered, with a proposal of supplying the nation with money”
in the year 1705. He was of the opinion that more money means more progress and
more prosperity. That might be true, but what he did not think about is the
source of such money. Printing money on paper had caught everybody’s fancy in
Europe in those days. France had lagged behind in that endeavour. Jack Law
wanted to test his hypothesis that more printed money means more prosperity. Sadly, an economic theory cannot be tested in
a laboratory, which is why most economists end up committing their mistakes on
humanity.
The King of France during early 18th century was Charles
V, who was a minor. So France was ruled by a regent. Law managed to convince
the regent that he would be able to clear all the debts of France, which was a
whooping 300 million Livres by setting up a bank and printing paper money. The
regent gave him the land of Mississippi , now in USA to start his operations.
Law set up Banque de Royal and issued shares of his bank in 1719. The genius
also told the public that he would give loans to buy shares of his own bank.
Foolishness has been contagious for humankind at all times. The public went
hysteric and soon the shares of Banque de Royal jumped up from 500 Livres to
20,000 Livres per share. Among the people who made a lot of money were chimney
cleaners, waiters and a variety of other lucky people. John Law’s coachman also made a lot of money
in the process. The term 'millionaire' first came to be used then. One morning, the coachman showed up and resigned from work. He told Law that there were 2 replacements for
him.
Law replied- “But I only need 1 of them”
The coachman said- “The other I shall engage myself.”
Such was the frenzy that the uncontrolled printing of money created. Law
became a national hero in France and the royalty gave him special status. As
long as the money is coming, it doesn’t matter where it is coming from, thought
the regent.
Money printed should be backed by something worthwhile. The best form to
back it up with is Gold, Silver or any other precious metal. Banque de Royale’s
intention was to print more money without any credible backing. When Prince de
Conti, grandson of the regent of France was disappointed for not getting enough
shares of Banque de Royal, he sent 3 wagons full of Banque de Royal’s notes asking
Law to return the equivalent in coins. Sensing something fishy, there was a mad
rush of people to withdraw their paper money’s equivalent in coins. There were
several measures, foolish or otherwise which were put to stop this mad rush. But none of
them could stop Banque de Royal from becoming the forefather of Lehmann Brothers.
It went bankrupt in 1720. John Law became the most hated man in France from being the most respected in a year's time and died a poor
man of pneumonia in Vienna 7 years later. The French press wrote a brilliant obituary.
[Producing it verbatim from the book]
My shares which on Monday I bought
Were worth millions on Tuesday,
I thought.
So on Wednesday I chose my
abode;
In my carriage on Thursday I
rode;
To the ball-room on Friday I
went;
To the workhouse next day I
was sent
Perhaps, it is wisely said- “You
can fool all the people some of the time, and some of the people all the time,
but you cannot fool all the people all the time”. The life of Jack Law carries a lesson for present day economists and financiers but they aren't willing to learn it. In the book, Kaul explains in detail how United States of America went into economic crisis roughly every 3o years in the latter half
of 19th century and early 20th century. Crisis due to
excessive money printing was handled by even more excessive money printing. How
mistakes with money ruined the Roman empire, destroyed the British Pound as the major currency with which the world traded, making way for the hegemony of US Dollar are all explained brilliantly by
Kaul. Bigger the size, mightier the fall!
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| Courtesy: Google Images |
In the world of today, economic
power is vested with a handful of people who sit in ivory towers and think they
are supreme beings. In a way, they are. They decide which way the world moves
when it wakes up tomorrow morning. But are they sane and capable enough to
decide the right direction is the question? After all, we now know the story of Jack Law.
Easy
Money is an essential read; if you are intrigued with these questions.
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