This article was first published on Medium on the 15th of June 2018.
I think The Bitcoin Standard by Saifedean Ammous will be a milestone in the slow realization of what Bitcoin is, digital sound money, and why it is at least a subversion of the current monetary system, or more likely a revolution in the monetary realm.
In this book, Saifedean mentions the historical study of hyperinflation episodes by Hanke and Bushnell, and make his point that every one of them occurred during the era of government paper-money, with one exception being “the inflation in France in 1795, in the wake of the Mississippi Bubble, which was also produced through government money and engineered by the honorary father of modern government money, John Law.”
In fact, this sentence conflates two distinct experiences of paper money in France, the first being the “Mississippi Bubble” that was part of John Law’s System that went bankrupt in 1720, the second being the dramatic fall of the Assignats, a note created by the French Revolutionary Government in the wake of the 1789 uprising, badly inflated and then demonetized in 1795.
Whether the mistake is on Hanke and Bushnell or Saifedean doesn’t matter, what matters is that the two events are indeed connected, and both illustrates Saifedean’s point that hyperinflation is the disease of government paper money.
I wanted to know more about these two very important events in french history, and started reading about it. In two articles by the very much forgotten now Alphonse Vuitry, a french historian of the late XIXth century, I found a gold mine of information not only about John Law and his system, but also on the chain of events that made it possible in the first place. It was indeed Louis XIV, the Sun King, that paved the way to John Law’s then innovative fiat money by crushing France under a never seen before heap of debt.
It is frequently argued that paper money inflation is a better way to finance government expenditures and deficit because it is hardly noticeable by the public. I thought that this small piece of history made a good argument to prove this point, but also that precisely because of that it is vital that free men never ever let this convenient tool in the hands of any government, be it our modern and apparently good-meaning democracy, because it makes a lot of abuse possible and still keep the ruler from being held accountable for it.