John Law was a Scot. He was a brilliant economist and monetary theorist. But he was a Scot. Which, by definition, meant that he had a propensity for trouble-making. By the time he croaked, he was persona non grata in several European nations. He wound up in charge of the French money supply after Louis XIV croaked and France was deeply, almost hopelessly, in debt. There had been wars to finance, don't you see?
So, Law withdrew all coinage from circulation, and outlawed the export of gold and silver. In substitution, paper currency was issued which was backed by the coinage that contained precious metals and had actual value. Law thought that the French citizens would accept the new paper money, and for a while, they did. And Louis XV loved the stuff. It allowed him to retain all the gold and silver.
To keep the French economy humming right along, the king kept the printing presses running to ensure that everyone had enough cash in their pockets. Pretty soon, people noticed that it took a whole lot of the paper money to buy stuff, and they wanted their coins back. When the government declined these requests, the currency collapsed and John Law went to live in Italy.
Note to Obama, Geithner, and Bernanke: This is Peoria, not Paris.
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