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In the same year that the Bank of England was created – 1694 – John Law became a fugitive. He killed a man in a duel, was thrown in prison awaiting execution, and escaped to Europe. After some years of gambling his way through the European courts and writing surprisingly prescient texts on monetary economics he landed in France. One of history’s first grand experiments with unbacked paper money was about to begin.

Law’s monetary extravagance [1] between 1715 and 1720 was not simply a Ponzi scheme by a monetary quack, but — at least initially — a real value-add. He set up the General Bank (“Banque Générale”) and received a charter in 1716. The bank’s notes were not legal tender, were redeemable on demand in gold, and looked to the world as another private joint-stock company. As the paid-up capital was only partly subscribed and three-quarters of that was paid with billets d’état (government debt that traded at 40% of par value), his effective capital was only around 825,000 livres – a fairly small company. His charter permitted him only to accept deposits and discount creditworthy bills.

Richard Dale[2] explains in his classic account of the South Sea Company (whose conversation strategy was based on Law’s then-seemingly successfully scheme) that “customers [of Law’s bank] would receive back the same amount of coins that they had deposited, regardless of any revaluation/devaluation of the livre that might occur”. In times where kings and queens altered and changed the specie content of the currency almost at a whim, such an insurance service provided by Law’s bank was very useful. Dale continues:

the Bank in effect united the unit of account with the medium of exchange, thereby...

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