Name: Money for Nothing
ISBN: 9780812998467

Thomas Levenson

At the dawn of the eighteenth century, England was running out of money due to a prolonged war with France. They turned to the stock market-- a relatively new invention itself. In the hub of London's stock market-- Exchange Alley-- the South Sea Company hatched a scheme to turn pieces of the national debt into shares of company stock. The financial revolution was subject to trial and error on a grand scale, with dramatic, sometimes devastating consequences for people's lives. Levenson chronicles the moment when the needs of war, discoveries of natural philosophy, and ambitions of investors collided. -- adapted from jacket

The Scientists, Fraudsters, and Corrupt Politicians Who Reinvented Money, Panicked a Nation, and Made the World Rich

Money for Nothing

Amazing to see how child mortality rate was so high less than 400 years ago even in a small European town (Silesian city of Breslau, now Poland's Wroclaw).

Omar

Diving into those summary figures, Halley discovered a slaughter of the innocents: "348 do die yearly in the first Year of their Age," he wrote, "and likewise... 198 do die in the Five Years between 1 and 6 compleat." The arithmetic was implacable: just 692 of the 1,238 children born each year-56 percent survived to celebrate their seventh birthday. After the holocaust of infancy, Breslau's chil- dren could persist in the reasonable hope that they would live to have babies of their own, as the death rate fell to roughly 6 percent through youth and young adulthood. That proportion rose slowly until the citizens of the city reached fifty, after which death would capture higher and higher fractions as each age's residue of survivors continued to age.

How sobering to read about the slave trade in purely economical terms and looking at the history of the South Sea company. People invested first in government debt for England's wars, these were swapped for shares in a new company, which later on went to pursue profits by trading slaves. The Catholic King of Spain signed the treaty that allowed England to trade negro slaves in Spanish colonies. It was all treaties, negotiations, financial discussions for many -- while the profits came from unimaginable suffering to others. 

How much of our economy is still like this today? Some of us simply invest, in oil companies for example or companies with shady business practices, and all we care about is whether we get a profit back?

That left the hard reality: the flow of goods and bodies from English ports to Latin America from 1712 forward through the de- cade never yielded anything approaching wealth for those who'd of- fered their government paper for equity in a private concern. The South Sea Company, it turned out, was not a twin to the East India fortune-making machine. Cynical observers could be forgiven for believing it had never really been meant to become one. It still had work to do but that was dull bookkeeper's fare: just taking in the flow of (reduced) interest payments from the Treasury and then passing payments through to its shareholders.

1720 London example of a financial bubble. Enthusiasm over a company drives prices of the shares higher without any fundamental value increase. 

That seemingly reckless ascent was what led those critics Defoe had mocked to suggest that South Sea shares had become "exorbi- tant." At almost triple the price of three months earlier, Company stock represented an explosion of paper wealth that seemed wholly divorced from material cause in the real world: a successful voy- any age, a new mill, acres to be brought under the plow.

Influencing and controlling the supply of money is important to governments. Limiting the supply of money to only the supply of a metal coin can be very restricting to governments, hence the abandonment of the gold standard by governments. 

...Law moved past his predecessors to come up with at much more modern view of what gives money its value... Law argued that because the supply and demand for money set its value, conscious decisions about the amount of money to be made available within a nation could shape economic outcomes for any government willing to create the institution-his land bank-that could play that role.

Refusing to go back to old ways of borrowing, without a clear plan but a clear direction, was the key difference in how Britain responded to the aftermath of the bubble burst. 

All this meant that as Britain faced the question of how to pay for its national affairs after the debacle of 1720, Walpole and his closest partners could act with unprecedented official authority to settle the matter. As the Paris brothers had demonstrated across the Channel, it was perfectly possible to take advantage of a financial crisis, consolidating the debt by turning the public's losses into the state's gain, but then to go right back to the same kinds of borrowing that had led both nations toward their respective bubbles in the first place.

This Walpole refused to do, in a series of decisions made over his two decades in office. That is: he did not have a fully formed plan ready to go in 1721. But he allowed himself and his ministry to be guided by ideas developed over the preceding half century as it partly created and partly responded to the rise of the first recognizably modern market in money. This process, in turn, underpinned Brit- ain's drive toward global might in ways that none of its competitors, France first among them, would match.

Excellent look into the South Sea Bubble, when many people gambled their money thinking they were making an amazing investment in a new venture and lost it all. The writing, the characters, the details were all fascinating. Amazing to see how even today, 300 years later, we are prone to forget prudent investment and chase a trend for no good reason. Many who have lost a lot of money on Bitcoin in the last few years may have bought it just "because the price is increasing" just to see it stop increasing. 

Money for Nothing The Scientists, Fraudsters, and Corrupt Politicians Who Reinvented Money, Panicked a Nation, and Made the World Rich

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