1964 marked the election of Labour. It also marked the beginning of a long currency crisis that would culminate in the 1967 devaluation. The crisis was progressive. It showed American policymakers that a sterling crisis could very well lead to a gold crisis. This would threaten the international monetary system. The United States started to take the fate of sterling seriously.

This chapter sets the scene after the war. Sterling was under heavy capital controls. The currency was still the second most important currency. But it was barely an international currency, burdened by many regulations.

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.

In 1709, Samuel Bernard, the richest man in Europe, failed to pay his debts. His insolvency precipitated a small financial crisis at the Lyon faire, which was the main payments settlement mechanism that connected credit networks in northern Italy, Switzerland, eastern France, and the Netherlands. Bernard’s creditors were ruined, but he received immunity from prosecution and soon recovered his credit. This failure was a particularly dramatic instance of impunity in financial capitalism before the Financial Revolution created corporate forms, liquid capital markets, and constraints on sovereign violations of property rights. Bernard’s failure, and the many other crises of the same time, shows the parameters of impunity as a function of sovereign power. In 1709, as before, impunity was personalized: the prerogative of sovereign authority, granted individually on an ad hoc or arbitrary basis. Sovereigns governed finance through institutions like the chambre de justice of 1716, which was a special court for prosecuting all of the Crown’s creditors. The institutional changes of the Financial Revolution meant that by the time of the 1720 crisis, impunity was instead a characteristic of systemically important managers of capital operating in international markets with limited regulation, oversight, and enforcement.

There was an international financial crisis in 1825, centered on the London money market. Nine sovereign governments defaulted on their debts, more than 100 banks failed in England and Wales, and the British economy was thrown into recession. That crisis also featured speculation, new financial innovations, and large-scale mismanagement. Nobody was prosecuted for anything, nor was there any indication or suggestion that anybody should have been. The idea of prosecuting the entire financial community would have been unintelligible and unthinkable. But that was new. Throughout the long eighteenth century, crisis after crisis had been followed by efforts at public accountability, taking various forms from forensic accounting to prosecution before public tribunals. Demands for accountability never quite went away, but the 1825 crisis marked a shift. It was the first financial crisis that was not the fault of anybody in particular. How did certain forms of economic endeavor come to be understood as realms of impunity, where private actions might have disastrous public consequences and yet be exempted from public accountability? This book shows how the legal, cultural, and political order of financial capitalism moved from the world of the chambre de justice to the world of the nineteenth century and after, where financial crises and economic disasters were understood as inevitable outbursts of irrationality or as unpredictable accidents. Somehow, between about 1690 and about 1830, financial crises stopped being crimes and became natural disasters.

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.

This chapter uses the financial records of the speculator Étienne Clavière to illustrate the normal workings of the eighteenth-century financial system and how that system came apart during the French Revolution, turning impunity into a political category. The 1780s witnessed a series of financial scandals and speculative bubbles, many of them organized by Clavière. These scandals delegitimized the last attempts to reform the old financial system, precipitating the outbreak of the French Revolution. Ensuing changes to the legal category of property rights, the issuing of the assignats in 1791, and the sequester of foreigners and foreign property under the Terror of 1793 broke the mechanisms of financial capitalism. The Terror, and especially the suspension of the Constitution of 1793 in favor of rule by penal code, marked the emergence of a new kind of purely political groups who existed outside the law, including various forms of financial criminals. The existence of a central bank in England meant that economic impunity became subordinated as a tool of political necessity; in France, economic impunity was coded as an enemy of political virtue. The Revolution was precipitated by financial scandals, tried to eliminate them, and ended up producing new ones.

In his 1873 treatise Lombard Street, Walter Bagehot sought to explain, among other things, “Why Lombard Street is Often Very Dull, and Sometimes Extremely Excited.” He ascribed panics to the money market’s reaction to accidents. “Such accidental events are of the most various nature,” he wrote. “[A] bad harvest, an apprehension of foreign invasion, the sudden failure of a great firm which everybody trusted, and many other similar events, have all caused a sudden demand for cash … [t]here is little difference in the effect of one accident and another upon our credit system. We must be prepared for all of them, and we must prepare for all of them in the same way – by keeping a large cash reserve.” He went on to outline the principles for legitimate central bank action in a crisis: to lend freely, but only to solvent firms with good collateral, and at high rates of interest. He was clear to his readers that he would have preferred a world of free banking, but he thought it politically impossible to abolish the Bank of England and to let crises play out unchecked, so he advocated for rules that would constrain the Bank’s discretion.

Unlike 1720 or 1793–97, the bubble of the 1820s was generated by the financial system itself: The new expansion of the banking system both domestically and internationally, the Bank of England’s monetary policies, the structure of corporate finance, and sovereign lending practices produced the bubble without any need for malfeasance or exogenous shocks. The bubble burst in late 1825, leading to the failure of more than 100 British banks and more than 1.000 businesses. At the height of the Panic of 1825, the decision about priorities and interests was taken not by a political sovereign or a regulatory legal institution, but by a private bank: Rothschilds bailed out the Bank of England, showing the power of financial markets over governance. For the first time, it was clear that financial markets could both cause and end financial crises regardless of political institutions. After 1825, financial crises became a predictable and intelligible part of life, caused by impersonal and abstract international markets, managed by central banks independent of political accountability, explained and analyzed by a self-authorized body of economic thought, with the costs borne by domestic populations and nobody in particular at fault.