Public Credit and Liquidity in James Steuart’s Principles, in European Journal of the History of Economic Thought

• Published in: The European journal of the history of economic thought 2012, Vol.19 (4), p.501-528
• Main Author: Bentemessek Kahia, Nesrine
• Format: Article
• Language: English
• Subjects: Quantitative Finance
• ISSN: 0967-2567; 1469-5936
• DOI: 10.1080/09672567.2010.540337

The aim of this article is to shed new light on the monetary and financial theory of James Steuart (1767) through his examination of the speculative bubbles of 1720: that is, the John Law System in France and the South Sea Bubble in England. In contrast to most contemporary writers – particularly David Hume and Adam Smith – Steuart had a balanced opinion about these two financial experiments. On the one hand, Steuart considered them worthwhile, since they were attempts at public debt restructuring by reducing its expense and increasing its liquidity. Moreover, according to Steuart, a well-managed public debt favours the liquidity of both banks and the financial market. These worked together for the growth of wealth. However, on the other hand, Steuart claimed that the failure of these experiments was due to: (i) a poor management of money; (ii) a violation of credit rules and its corollary, the weakness of banks; (iii) the adoption of contestable dividend and financial information policy. This article presents Steuart's proposals for creating the liquidity of both banks and the financial market via a well-managed public debt.