We have seen today’s economics in action before. Not in the 1720 South Sea Bubble – that was a simple stock market frenzy, similar to that of 1999, with a debt conversion scheme buried in it, but no excessive leverage. However, the almost exactly contemporary Mississippi Company/ Banque Royale scheme, devised in Paris by the Scots financier John Law – that, truly, bears a hideous resemblance to today’s markets, sparked off by a very similar monetary policy. Its collapse and the denouement thereof is also instructive.

In an era of Keynesian economic manipulation, John Law (1671-1729) has been rehabilitated as an “economist,” the father of several of the unpleasant economic nostrums we use today. His contemporaries, and Charles Mackay’s 1841 “Extraordinary popular delusions and the Madness of Crowds” saw him as a con-man and swindler on a gigantic scale, and this is surely far more accurate in terms of his motivations and methodology. Law himself would be astonished to see the reverence with which modern economic historians treat him.

Law was the son of a Scottish banker who began his career by losing large sums of money gambling and then killed a love rival in a duel. He escaped to Amsterdam, then moved back to Scotland, where he proposed to establish a national bank, publishing a pamphlet in 1705: “Money and Trade Considered: with a Proposal for Supplying the Nation with Money.” The 1707 Act of Union killed that scheme (England already had the Bank of England) so for the next eight years he moved between France and the Netherlands, making a living as a speculator.

Then in 1715, he found an opportunity. The death of Louis XIV in that year, together with the near-bankruptcy of the French state from his incessant wars had left the Regent Philippe d’Orleans (acting for the infant Louis XV) desperate for good ideas. Law’s idea of a monopoly bank, taking in taxes and financing the government through issuing bank notes (which were effectively interest-free debt), seemed a good wheeze and after suitable douceurs to the Regent and other politicians, it was approved. On May 1, 1716, Law’s Banque Générale Privée opened its doors.