John Law's Real Bills Doctrine says that banks can create fiat money backed by his assets

Originally, if a bank have one ounce of gold, then they are able to issue fiat money of corresponding value. The fiat money have the same purchase power as one ounce of gold, since they can redeem the gold at bank anytime

However, John Law went one step further, saying that if the bank have one acre of land, then they can issue fiat money of corresponding value, since they are backed by the value of that land

Adam Smith pointed out, this increased money supply will cause large inflation and will not help economy. However, his view is too academical, since the money creator will not be so foolish to use their new money to buy goods for daily consumption to trigger inflation, they will use those money to buy assets


Consider such a scenario:

The bank would start with a small amount of asset, say one acre land. They issue the money worth of one acre land, then bank can use those money to buy one more acre land. After they get the new land, they could issue money worth one acre land again, and use those money to buy another acre land...

After a while they have bought so much land and now the price of the land has increased, they can issue more money based on higher worth of their lands. They could keep doing this until they bought up most of the land in the country

And since the land price is not showing up in inflation statistics, they can keep buying like this for many years

To make it more aggressive, now they purchase not only land, but also debt, which is in fact future products and services. And purchasing debt is even better than purchasing land, since a high level of debt will put a downward pressure on consumption, so inflation will not be a problem no matter how much land they purchase


What does this mean?

If the money creation is based on the backing of assets, then money creator can acquire almost all assets if he just scale up his operation, without doing any meaningful work or giving anything valuable in return



On the contrary, gold or bitcoin is totally different, you can not issue money based on backing of anything, you must put real valuable resource to get it, this created an equal ground for value creation