Money, Finance and Capitalist Development

Money, Finance and Capitalist Development

Edited by Philip Arestis and Malcolm Sawyer

In the past thirty years the financial sector has seen unparalleled growth and has exerted increased economic and political influence and significance. This growth has come hand-in-hand with several serious economic crises and greater monetary instability. Set against this background, this important book offers a wide ranging, critical analysis of the financial sector.

Chapter 4: Financial derivatives, liquidity preference, competition and financial inflation

Jan Toporowski

Subjects: economics and finance, financial economics and regulation, money and banking


4. Financial derivatives, liquidity preference, competition and financial inflation Jan Toporowski He [John Law] told Pitt that he would bring down our East India stock, and entered into articles with him to sell at 12 months hence, a hundred thousand pounds of stock at eleven per cent under the present current price. (Hardwicke, 1778, vol. ii, p. 589) Towards the end of August 1719 Thomas Pitt, Lord Londonderry, dined in Paris with John Law who was shortly to be appointed Contrôlleur-Général des Finances, effectively Prime Minister, to the French King Louis XV. Law was then in the process of organising the repayment of the French national debt by his Mississippi Company, and was consumed with a sense of his own financial genius. He seems to have believed that France, under his financial direction, was destined to push Britain into the margins of finance and trade, causing investors to abandon British securities for shares in his Mississippi Company, the market for which was being inflated using credit created by Law’s own Banque Royale.1 A contract with Lord Londonderry was drawn up and signed on the 29 September 1719. Under this contract, His Lordship was to pay Law £180 000 in exchange for £100 000 of shares in the East India Company, a year thence. At the end of September 1719, East India shares cost £192 per £100 of shares. By June 1720 their price had risen to £420. Law made various margin payments on the...

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