In 1761, the biggest adventure in mercantile finance since the South Sea bubble was underway—in Sweden. Two parties in the Riksdag, the Hats and the Caps, had battled back and forth for twenty years, much of the fifty-year span of Swedish history known as “the age of freedom.” The Hats favored vigorous promotion of a nascent industrial revolution through easy credit—paper-money mercantilism similar to that of John Law’s Banque Royale fifty years before. Domestic prices had risen far above parity with prices in gold. The Hats ascribed high prices to the trade deficit. The Caps attributed inflation and currency depreciation to the reckless issue of paper money. They favored a sharp deflation back to old gold parity.
Enter Pehr Niklas Christiernin, (1725–1799), a contemporary of Adam Smith, professor of law at university of Uppsala, and the author of Lectures on the High Price of Foreign Exchange in Sweden (1761). Though...