An 18th-century gambler crashed France's economy. His story tells us something about money today, says author
Jacob Goldstein's new book charts the fascinating history of money
Originally published on Oct. 7, 2020.
Before he started to cover cash and economics for NPR's Planet Money, Jacob Goldstein said he thought about money as just a fact of life.
"I think like most people, I thought of money as this thing that sort of just exists in the world, like a part of nature, subject to the laws of physics," said Jacob Goldstein, author of Money: The True Story of a Made-Up Thing.
He told The Current's Matt Galloway that changed when he started to study money and cover it for his role as co-host of Planet Money.
"It is a thing that people collectively invented, made up and have continued to reinvent, to make up in different ways to suit sort of changing needs over time," he said.
Goldstein's new book explores the history of money, from coins that were valued by the amount of metal they were made of — making them so big in Sweden they had to be strapped to your back — to the rise of paper money, and virtual currencies.
He spoke to Matt Galloway about some of the people who helped to shape money's value and function in our society today, here is part of their conversation.
Who is John Law?
John Law is an amazing figure … born in Scotland in the 1600s. His dad's a goldsmith, and goldsmiths are kind of becoming bankers at this time. So his dad is doing pretty well.
John Law goes off to London as a young man and becomes what they called at the time, a "beau", which I think of as like a bro, kind of guy about town, has lots of romances and gambles. And he winds up having a duel, killing the other guy in the duel, getting sentenced to death, escaping from prison, fleeing to Europe. And then in Europe, first he gets rich as a gambler, then he gets interested in economics
This is now around the year 1700, the turn of that century. This is a moment when sort of capitalism, as we know it, is kind of just getting going in Europe. Paper money is a new thing.
John Law sees all of these economic ideas swirling, and he's like, "You know what? I'm going to create a modern economy in some country." He goes around pitching his idea to different countries, and he finds a taker in France. In France, the king is a little boy at this point; France is being run by a Regent who, like John Law, is an intellectual who loves to party, basically. So they're like a perfect fit. And the Regent gives John Law this power. John Law creates the first paper money in France, the first modern bank in France, this big trading company that controls half of North America, like French North America. And there is this great stock boom, economic boom really, and stock boom in France. This is like 1719 or so now. And the word millionaire is coined, people are getting rich, they're flooding into Paris to trade stocks.
And then of course — you can see it coming — it all collapses. John Law is chased out of France by a mob. France abandons paper money. John Law flees and lives the rest of his life in Venice as a gambler.
What does [his story] tell you about the way that the world looked at money and how that changed?
You can look at what France was doing, which is that story, and then you can look at England, which was kind of on a parallel track. England had created the Bank of England in the 1690s, which was like an early central bank. They had started printing paper money. England had its own stock bubble, the south sea bubble at the same time. But England didn't have the total collapse that France had. And one of the differences that I think is really important … is that [in] England, parliament had more power.
Parliament had become more of a check on the king, whereas in France it was still basically an absolute monarchy. So the Regent could give John Law all of the power to run the economy, and do anything he wanted. And I feel like that difference is really important, that balance in England where you had the interests of the bank and the interests of parliament and the interest of the king, and they were all kind of fighting with each other. I like that fighting.
I think that fighting, which we have echoes of now in any open society, basically, right? Where you have different interests who are allowed to fight it out in public. That I think is good. I think that gives you a shot at monetary and economic stability, at least relatively speaking. Whereas in France, John Law basically had too much power, so he did too much, too fast and screwed himself and France.
Money is just what we all collectively decided it's going to be.- Jacob Goldstein
What do you love about stories like this? What do you love about the stories that are at the heart of this?
Oh. I mean what's not to love right? You've got a guy who kills somebody in a duel and escapes from prison and then becomes a monetary genius!
One, the stories are just delightful. Two, I find the ideas are interesting, but a book that was just a series of ideas would be very dull for me to write, much less read. Three, I think it is useful specifically in the context of money to remember … money is just what we all collectively decided it's going to be.
And there are these times, these moments in history … when that can change really quickly. And I think it's really important to remember that.
I mean, the stories are delightful and fun and interesting, but they're useful on a kind of meta-level because we think whatever we're doing for money now is just: "Oh, that's the way money is. That's the way it works in nature." That is not true. And what happens every once in a while, every hundred years, a few hundred years, whatever, is somebody comes along, there's some crisis … and there is a big change or some set of big changes in the way money works. And it's really important to remember that, so we don't get confused and think money just is always going to be the way it is now.
Written by Padraig Moran. Produced by Howard Goldenthal. Q&A edited for length and clarity.