A forgotten 300-year-old-solution to Alex Salmond's money problems

Adam Smith or David Hume were no slouches when it came to economics but on the subject of monetary policy, the palm goes not to those superstars of the Scottish Enlightenment but to a man born a generation before them and much less well known.

One of the centrepieces of the SNP’s manifesto for Scottish independence is a pledge to keep the British pound. As far as Alex Salmond is concerned, the future of money is the status quo. Meanwhile, on 18 November, Ben Bernanke, the chairman of the US Federal Reserve, endorsed the viability of digital money in a letter to the US Congress. Within a week, the price of a single Bitcoin – the best-known web-based currency – had passed $1,200 (11 months ago, it was worth just $13.50). For the technocracy of Silicon Valley, the future of money is in the cloud.

These two seemingly unrelated developments are linked. They represent alternative answers to the questions at the centre of all monetary history: who should govern our money and how? The remarkable thing is that both answers were exposed as dangerous errors centuries ago. While the geeks behind Bitcoin can be excused their ignorance of this, the history-loving Scottish First Minister most definitely cannot – because the man who first explained these answers’ failings was none other than the greatest monetary thinker that Scotland has ever produced.

I don’t mean Adam Smith or David Hume. They were no slouches when it came to economics but on the subject of monetary policy, the palm goes not to those superstars of the Scottish Enlightenment but to a man born a generation before them and much less well known: John Law of Lauriston.

While Smith and Hume spent their formative years swotting in the libraries of Oxford and Edinburgh, respectively, Law – the mathematically gifted son of a prosperous Edinburgh goldsmith – hightailed it down to London to learn the practical business of modern banking from the entrepreneurs, inventors, gamblers and quacks who were busy fomenting the financial revolution that was sweeping London in the 1690s.

When he returned to Edinburgh, all the talk was of a possible union with England. The key economic question, then as now, was what to do about the currency. The conventional answer was the one that Alex Salmond echoes today: to adopt the pound sterling, under the control of the then newly founded Bank of England.

John Law was having none of it. He had discovered an economic truth that we know only too well today – that monetary policy has profound effects on employment, output and the distribution of wealth. As a result, he concluded, it would be “contrair to reason to limit the industry of the people” by acquiescing in the use of a currency “not in our power, but in the power of our enemies”.

How many citizens of Spain, where unemployment is at 27 per cent, or of Italy, where GDP today has fallen to the level of 13 years ago, wish their leaders had listened to the laird of Lauriston’s 300-year-old advice that letting other people manage your money is sheer madness? Yet the SNP’s plan, bizarrely, is to re-create the eurozone within the British Isles.

If letting other people decide the value of your currency is daft, what is the alternative? Law first toyed with the idea of creating a national currency with a value that would be linked to Scotland’s stock of land. That was a similar idea to the solution the English were to settle on in time – a gold standard that fixed the value of the pound to that of precious metal.

The principle behind such commodity-based systems is that the simplest way of avoiding a monetary standard controlled by one’s enemies is to plump for one controlled by nobody at all. No one, after all, can conjure up gold, or land, out of nothing.

That is also the logic of Bitcoin. A physical commodity in fixed supply is replaced by a virtual one subject to a preprogrammed ceiling – but the principle is the same. Don’t let someone else manipulate the supply of the money you use; better that it should be free from manipulation by anyone at all.

This second answer to the perennial question of monetary governance is also flawed. The problem – learned the hard way over the course of two centuries under the operation of the gold standard – is that an arbitrary monetary standard is just that: arbitrary.

There is no reason whatsoever to expect gold discoveries to keep pace with economic growth. The supply of land – let alone of Bitcoins – is even less flexible. The result is a ruinous tendency to deflation. The flip side of the relentless rise in price of a single Bitcoin is the relentless fall in the price of everything else, as measured in Bitcoins.

So John Law jettisoned this second answer, too. Having failed to convince his fellow Scots to reject the Acts of Union, he went to France. There, his avant-garde ideas found a readier audience and he engineered an unlikely ascent that culminated in his appointment as the country’s minister of finance.

In 1719, he took France off its gold standard and introduced paper money, issued at the discretion of the national government. It was the first European fiat currency regime, regulated by the world’s first deliberate monetary policy.

Thus Law furnished a third answer to the central question of monetary history – and it is one for the ages. Rather than ceding the control of one’s money to someone else – the Alex Salmond solution – or abandoning it to the vagaries of blind chance – the Bitcoin solution – the ideal way is to manage one’s money oneself and in one’s own national interest.

Such enlightenment, it seems, can be fleeting. David Hume has his statue on Edinbugh’s Royal Mile and there is one of Adam Smith on the High Street. John Law, on the other hand, hasn’t even made it into the Scottish National Portrait Gallery. Much worse than this is that his teachings, too, have been utterly forgotten by those who claim to be the staunchest defenders of his beloved homeland.

Scottish First Minister Alex Salmond at the launch of the White Paper for Scottish Independence in November 2013. Photo: Getty.

Felix Martin is a macroeconomist, bond trader and the author of Money: the Unauthorised Biography

This article first appeared in the 04 December 2013 issue of the New Statesman, Burnout Britain

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Meet Anne Marie Waters - the Ukip politician too extreme for Nigel Farage

In January 2016, Waters launched Pegida UK with former EDL frontman Steven Yaxley-Lennon (aka Tommy Robinson). 

There are few people in British political life who can be attacked from the left by Nigel Farage. Yet that is where Anne Marie Waters has found herself. And by the end of September she could well be the new leader of Ukip, a party almost synonymous with its beer-swilling, chain-smoking former leader.

Waters’s political journey is a curious one. She started out on the political left, but like Oswald Mosley before her, has since veered dramatically to the right. That, however, is where the similarities end. Waters is Irish, agnostic, a lesbian and a self-proclaimed feminist.

But it is her politics – rather than who she is – that have caused a stir among Ukip’s old guard. Former leader Paul Nuttall has said that her views make him “uncomfortable” while Farage has claimed Ukip is “finished” if, under her leadership, it becomes an anti-Islam party.

In her rhetoric, Waters echoes groups such as the English Defence League (EDL) and Britain First. She has called Islam “evil” and her leadership manifesto claims that the religion has turned Britain into a “fearful and censorious society”. Waters wants the banning of the burqa, the closure of all sharia councils and a temporary freeze on all immigration.

She started life in Dublin before moving to Germany in her teens to work as an au pair. Waters also lived in the Netherlands before returning to Britain to study journalism at Nottingham Trent University, graduating in 2003. She subsequently gained a second degree in law. It was then, she says, that she first learnt about Islam, which she claims treats women “like absolute dirt”. Now 39, Waters is a full-time campaigner who lives in Essex with her two dogs and her partner who is an accountant.

Waters’s first spell of serious activism was with the campaign group One Law for All, a secularist organisation fronted by the Iranian feminist and human rights activist Maryam Namazie. Waters resigned in November 2013 after four years with the organisation. According to Namazie, Waters left due to political disagreements over whether the group should collaborate with members of far-right groups.

In April 2014, Waters founded Sharia Watch UK and, in January 2016, she launched Pegida UK with former EDL frontman Steven Yaxley-Lennon (aka Tommy Robinson). The group was established as a British chapter of the German-based organisation and was set up to counter what it called the “Islamisation of our countries”. By the summer of 2016, it had petered out.

Waters twice stood unsuccessfully to become a Labour parliamentary candidate. Today, she says she could not back Labour due to its “betrayal of women” and “betrayal of the country” over Islam. After joining Ukip in 2014, she first ran for political office in the Lambeth council election, where she finished in ninth place. At the 2015 general election, Waters stood as the party’s candidate in Lewisham East, finishing third with 9.1 per cent of the vote. She was chosen to stand again in the 2016 London Assembly elections but was deselected after her role in Pegida UK became public. Waters was also prevented from standing in Lewisham East at the 2017 general election after Ukip’s then-leader Nuttall publicly intervened.

The current favourite of the 11 candidates standing to succeed Nuttall is deputy leader Peter Whittle, with Waters in second. Some had hoped the party’s top brass would ban her from standing but last week its national executive approved her campaign.

Due to an expected low turnout, the leadership contest is unpredictable. Last November, Nuttall was elected with just 9,622 votes. More than 1,000 new members reportedly joined Ukip in a two-week period earlier this year, prompting fears of far-right entryism.

Mike Hookem MEP has resigned as Ukip’s deputy whip over Waters’ candidacy, saying he would not “turn a blind eye” to extremism. By contrast, chief whip, MEP Stuart Agnew, is a supporter and has likened her to Joan of Arc. Waters is also working closely on her campaign with Jack Buckby, a former BNP activist and one of the few candidates to run against Labour in the by-election for Jo Cox’s former seat of Batley and Spen. Robinson is another backer.

Peculiarly for someone running to be the leader of a party, Waters does not appear to relish public attention. “I’m not a limelight person,” she recently told the Times. “I don’t like being phoned all the time.”

The journalist Jamie Bartlett, who was invited to the initial launch of Pegida UK in Luton in 2015, said of Waters: “She failed to remember the date of the demo. Her head lolled, her words were slurred, and she appeared to almost fall asleep while Tommy [Robinson] was speaking. After 10 minutes it all ground to an uneasy halt.”

In an age when authenticity is everything, it would be a mistake to underestimate yet another unconventional politician. But perhaps British Muslims shouldn’t panic about Anne Marie Waters just yet.

James Bloodworth is editor of Left Foot Forward

This article first appeared in the 17 August 2017 issue of the New Statesman, Trump goes nuclear