International Capital Markets in the Age of Reason”, Cambridge University Press and “I Am Not The Master of Events. The Speculations of John Law and Lord Londonderry in the Mississippi and South Sea Bubbles”, Yale University Press, Charles P. Kindleberger (1984), “A Financial History of Western Europe”, Erik F. Gerding (2006), “The next epidemic: Bubbles and the Growth and Decay of Securities Regulation”, Connecticut Law Review, and John E. Sandrock (2007), “John Law’s Banque Royale and the Mississippi bubble”. For further details regarding South Sea Bubble, see Norges Bank’s website, article by Helen Paul (2011), “Limiting the witch hunt: Recovering from the South Sea Bubble”, http://www.norges-bank.no/Upload/82434/EN/PAUL%20Paper.pdf Many decades were to pass before France reintroduced paper money. This was in connection with the French Revolution, which, paradoxically, also ended in disaster. The Revolution in 1789 led to substantial expenditures that needed to be financed. The Assemblée Nationale had reduced taxes, and instead issued large quantities of banknotes backed by confiscated church lands. These notes were called assignats, since each note was assigned to a specific property holding, which the bearer could subsequently take possession of. John Law originally had the same plan when in 1705 he proposed introducing land-backed paper money, but when Law was given the opportunity in 1715 to introduce paper money in France, the banknotes were collateralised by government debt and stock in the Mississippi Company. Meanwhile, French assignats were issued in such great quantities that the result in a few short years was hyperinflation that culminated in 1795.

The discipline of economics can readily be formulated in the language of mathematics, and economic models are usually tested empirically before gaining acceptance. Conflicts arise when theories that appear to be patently true are unsupported by empirical evidence, or when contradictory theories find support at the same time. In other words, we economists are in a borderland between faith and the strict proofs of mathematics. The notion of learning from history cannot easily be explored without invoking the American physicist Thomas Kuhn. This year is the 50th anniversary of the publication of his groundbreaking work, The Structure of Scientific Revolutions.1 According to Kuhn, disciplines progress within an established set of truths – a paradigm. Observations irreconcilable with the paradigm are tolerated as inexplicable. Eventually, however, the number of inexplicable observations can become so overwhelming that the paradigm breaks down. New truths have to be established – a paradigm shift occurs. Such shifts can be painful. The old paradigm will usually be defended by those whose training lies in a more distant past, often persons in positions of leadership in academia and government bureaucracy. Long before Kuhn, Henrik Ibsen touched upon the same idea in An Enemy of the People. Dr. Stockman talks about the few who attain the new truths, unlike the compact majority that have yet to embrace them. Social scientists, like economists, face some peculiar problems when attempting to learn from history. First, we do not have a laboratory in which we can perform experiments.