Song China invented paper money, more or less as we know it today, complete with a kind of monetary theory. Paper money is a great advantage for any economy, but a great deal of discipline is needed to keep the system working. That discipline was not in conspicuous evidence among the Mongols, who overthrew the Song, or the following Ming Dynasty: all they saw was that they had a machine that printed free money. The paper finance-system evaporated in inflation. The result was that, by the latter Ming period, China was back to using ingots of silver, supplemented by some commercial paper.

I wonder whether we may not be doing the same thing with central banks. They are a wonderful invention, but there is always a political temptation to leave the monetary spigot fully open all the time. The central banks can rescue the system, a few times per decade. When there is a world-record bailout every week, however, these rescues just become part of the background noise. The Japanese central bank discovered in the 1990s that it could push liquidity into the economy almost at gunpoint and still not rise out of recession.