This chapter further analyzes the workings of the receipt system, using data from the Bank’s cash books, which survive from 1711. These data show that heavy usage of the receipt system began from about 1714, following the end of the War of Spanish Succession. From about 1720, most coins entering the Bank under receipt were foreign coins. Inflows of coins into the Bank’s receipt facility are shown to be appreciable percentages of New World gold and silver production. Coins under receipt were usually withdrawn from the Bank less than a year after they were deposited, with the exception of gold coins, which were sometimes surrendered to the Bank upon expiration of their receipts (such coins were said to be “fallen to the Bank”). Waves of fallen gold coins sometimes coincided with surges of gold into Amsterdam, as occurred after the 1720 collapse of John Law’s system in France. Because the receipt system functioned much as a repo facility, the chapter concludes with a derivation of implicit discounts (“haircuts”) on coins under receipt. Haircuts on silver coins are shown to be consistently positive, while haircuts on gold coins are variable and sometimes negative. These haircuts, combined with higher redemption fees for gold, created incentives for more consistent use of the receipt facility for silver coins, while usage of the receipt facility for gold was intermittent.

This chapter demonstrates that, in addition to his well-known experiments with paper money, John Law’s System was a project for creating a politically independent central bank. His arguments, and those of his defender Nicolas Dutot, tried to establish a legitimate role for autonomous monetary policy, while his detractors in the 1730s and 1740s like Richard Cantillon and Joseph Pâris-Duverney argued that central banks constituted conspiracies among cosmopolitan elites, not virtuous governance. This neglected episode in the history of economic thought established the data, rhetorical practices, and concepts for later theories over whether the monetary system can or should be within the scope of human agency. Participants in the debate developed the conceptual foundations of self-ordering economic systems, pioneered the use of calculative reasoning in public debate, and tried to theorize the constitutional relationship between government, money, and commerce. These authors were trying to use an emergent episode in their understanding of economic history to uncover the principles of justice, legitimacy, and agency in the newly formed cosmopolitan dominium of commerce and finance.

The year 1720 witnessed the world’s first international financial crisis. Instead of retelling the standard narrative that focuses on John Law and his System, this chapter uses the records of the stock speculator James Brydges during the Mississippi and South Sea Bubbles to illustrate the different capacity for impunity in the 1720 crisis. Changes in impunity were due to the expansion in the complexity of finance, and the fraught process of trying to establish central banks as the main institutional form of immune actors in that new complex financial world. The financial bubbles of 1720 were connected by flows of capital, information, and personnel, which were beyond the capacity of either the French or the British government to regulate. For the first time, financial instruments and techniques existed, which were beyond the understanding of the educated amateur and were powerful enough to provoke wide-ranging economic disorder.

Chapter 2 examines the first financial bubble, which occurred in 1720. Following the War of the Spanish Succession, the countries of Europe, particularly France and Britain, were heavily indebted. John Law invented the bubble in order to help the French government reduce their debt burden. He did so by creating a scheme whereby the Mississippi Company would refinance the government debt. Following Law’s lead, the directors of the South Sea Company proposed a similar scheme to refinance Britain’s public debt. Subsequently, the shares prices of the both the Mississippi Company and South Sea Company exploded and then dramatically collapsed. In addition, in Britain there were nearly 200 bubble companies floated on the stock market and the shares of existing companies also experienced a bubble. The chapter briefly discusses similar episodes elsewhere, especially in the Netherlands, but none of these were on the same scale as in Britain or France. The chapter then moves on to discuss the causes of the bubble. The debt conversion schemes turned unmarketable government debt into very marketable company shares. Part-paid shares leveraged the buying of shares in both countries and John Law’s bank meant that France’s entire monetary policy was directed towards creating the bubble. The bubble’s creators were also adept at stimulating speculative investment. The chapter concludes by examining the consequences of the bubble, which were severe and long-lasting in the case of France and minor in the case of Britain.