It is a pity we hardly teach history anymore. Or economics. Let alone economic history. Because if we knew a bit about the past, we might have a better idea of our future. Especially as we are grappling with inflation.
Apart from that, economic history can be stranger than fiction – and just as gripping.
If you don't believe it, read up the story of John Law, the crook who invented the modern world.
Actually, to call Law a crook is putting it mildly. As economist Alfred Marshall described him, Law was a "reckless, and unbalanced, but most fascinating genius". Likewise, Karl Marx saw in Law "the pleasant character mixture of swindler and prophet".
So, who was John Law? And why have you most likely never heard of him?
The son of a goldsmith and banker, Law is born in Scotland in 1671. For killing another man in a duel, he is sentenced to death by hanging when he is 23 years old.
Only with the help of influential wealthy friends is he able to escape prison and make it to the European continent. In the following years, he moves from country to country and city to city. His gambling and his womanising are the only constants in his life.
Being the colourful character he is, Law eventually becomes an economist. He moves back to Scotland, where the English arrest warrant cannot be enforced. He writes his first treatise, Money and Trade Considered: With a Proposal for Supplying the Nation with Money, and presents it to the Scottish parliament.
The ideas in Law's treatise are revolutionary. Some of its economic concepts, like supply and demand, will only resurface decades later. It also contains a bold prescription: to print money to stimulate the economy. Until then, money could not just be created out of thin air. Since money was made of precious metals, it had to be earned (or mined).
The Scots, however, have other plans. They not only discard Law's proposal but enter a political union with England, once again forcing Law to flee to the continent. After all, he is still wanted for murder.
Law's turbulent life continues. If you want to read the entire story, check out Janet Gleeson's biography Millionaire: The Philanderer, Gambler, and Duelist Who Invented Modern Finance, published in 2000.
If not for a fluke of history, Law, like many other economists whose radical ideas were never implemented, would have been forgotten. And, probably, it would have been better that way.
Instead, he becomes the most influential man in France aside from the King.
In 1715, when the Sun King Louis XIV dies, France is the most important country in Europe, politically and culturally. But there is a small problem: France is bankrupt, because King Louis liked to splash out on his life of luxury. See for yourself by visiting the Palace of Versailles.
And there is another problem: the new King, King Louis XV, is only seven years old. So, Duke Philippe I of Orléans is tasked with running the country. Philippe knows Law from their shared gambling past, et voilà, suddenly Law is France's chief economic advisor.
In his new role, Law does what he had wanted to do for years: he changes the monetary system.
It is true that other countries had experimented with paper currency before Law. There was, however, always some kind of gold or silver backing for such paper money.
Law does away with that petty limitation. He issues self-printed banknotes through his Banque Générale, which he establishes by Royal decree in 1716. The main reason why anyone would want these paper notes is that the French state will accept them in payment of taxes. Oh, and Law also promises to exchange them for precious metals at a fixed rate. People even believe him.
There is only a slight issue, which is that Law does not actually have much gold. So, to get it, he gives people shares in his bank in exchange. Genius.
In his next step, Law gambles that not all people will want to swap their banknotes for gold at the same time. And that means he can now issue even more of that funny paper stuff.
Law's money printing invention triggers an economic boom. Suddenly, there is no shortage of credit and money. People feel rich and they spend and invest like crazy. Law's Banque Générale becomes the Banque Royale, which makes it France's official bank. It was the best of times.
But Law would not be Law if he were to stop there. No, his next big thing is even more ambitious. He promises new riches through exploiting the natural resources of French-ruled Louisiana. And so he starts the Mississippi Company, and this new venture is financed like his old bank – based on grandiose but empty promises.
Law is so successful and powerful now, he becomes Controller General of France's finances; effectively the Minister of Finance. But then, the unthinkable happens. Not only does Louisiana turn out to be a swamp with no gold - people also realise that there is not enough gold in Law's bank. Quelle surprise.
The rest of the story is quickly told. In 1720, France's paper money experiment collapses. The Mississippi Company collapses, too. The French economy is ruined. The French government as well. Inflation ruins the French people. The party is over. The hangover will last for decades.
And Law, disgraced and fired from all his positions, flees France, where he must fear being killed, sooner or later, by someone whose life he has destroyed. There are millions of such people who once thought they were millionaires. That term, 'millionaire', is an invention from Law's time, by the way.
Law spends the final years of his life impoverished and sick, gambling across Europe (what else?).
What happened in France just over three centuries ago should have been a dire warning to the world. Instead, it became a role model.
As bizarre as it sounds, the world's monetary system today functions precisely as designed by John Law.
Our Banque Royales trade by the names of Bank of England, Reserve Bank of New Zealand, or the Federal Reserve. Today's Mississippi Companies are the various fads that become booms from time to time. Governments like freshly-printed money because it solves all sorts of problems, at least in the short-run. And the intrinsic value of unbacked paper money is the same as it was in Law's time: nil.
There is one major difference, though. Law's scheme lasted a mere four years and was limited to one country. Our world's monetary scheme, however, has been going on for decades in countries around the world. The amounts of paper promises created are vastly more numerous than Law's comparatively modest scheme.
The collapse of John Law's system was brutal. What a collapse of our world of finance would look like, history cannot tell us. But as Ludwig von Mises, the Austrian economist, once put it, "there is no means of avoiding the final collapse of a boom brought about by credit expansion."
He would have had historic episodes like John Law's experiment in mind.
Future historians will also have much to analyse when looking at what happened to our monetary system.
And future generations will still run their own money-creation systems because, as history teaches us, we never learn from history.
- Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative (www.nzinitiative.org.nz).