The John Law Economic System
The financial system in use today is a version of John Law’s system:
Each country in the developed world has a central bank that issues paper money, manages the supply of credit in the interest of commerce, uses fractional-reserve banking, and has joint-stock companies that pay dividends.
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The instruments of trade and finance, like paper money, are groundbreaking inventions, put to use by collective acceptance using authority and seals of trust.
The King Williams Administration used to borrow large sums of money used for wars and then levied taxes on ship cargo and spirits to pay back the interest. This gave rise to Banks like the Bank of England, and finally Bank Notes, the currency still used today.
The financial crisis of 2008 showed that the system can buckle anytime and money may not always be worth the same.
As we get hyper-connected, the state-backed authority of currency, and what Money is really worth, is being rethought. Society has historically tried to invent new forms of currency, most recent being Bitcoin, a cryptocurrency.
“Money is not the value for which goods are exchanged, but the value by which they are exchanged.”
The idea of Facebook's Libra, an attempt to create a new currency made from the architecture that powers Bitcoin, is that the value of new money is not derived from state authority, but a combination of mathematics, global connectivity, and trust that resides in people using Facebook.
Paper Money was pushed as a 'fiat' currency due to an attractive quality: it was guaranteed to trade by the state authority for a specific weight of gold or silver, and couldn't be melted down or devalued.
- Real money is only gold, and all the other forms of currency in the system are merely different kinds of credit.
- Credit is an indispensable part of a functioning economy, so it continues to thrive even with historical setbacks.
- Gold is the only real 'legal tender'.
RELATED IDEAS
Fiat money is a government-issued currency that is not backed by a commodity such as gold. Most paper notes started as being backed by a reserve of valuable commodities, usually gold (the "Gold Standard"). Tying a currency to gold limits inflation and money supply.
But politicians hate the gold standard, so since Nixon's presidency, the US dollar was no longer tied to gold and money had value just because the government says so.
Money is a WIDELY ACCEPTED medium of EXCHANGE. Lets analyse each word, they really have a huge importance:
- Widely: it has to be accepted by many people, otherwise it can’t work.
- Accepted: It has to be accepted by all these people, which means we need to have some sort of agreement that we will all accept it.
- Exchange: Now that everyone accepts it, we also agree that it has some sort of value and we can exchange it for certain things.
In the middle of the 2008 banking crisis, a group of anarchists, libertarians, and other tech-savvy true believers created digital cash.
In August 2008, bitcoin dot org was registered as a domain. On Halloween the same year, Satoshi Nakamoto put up a whitepaper describing a decentralised system of electronic transactions that did not involve a financial institution.
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