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

by Thomas Levenson

It fostered “a compleat System of Knavery…a Trade founded in Fraud.”

They proposed a heroic attempt at what we would now call financial engineering—taking the whole of the national debt, accumulated over a seemingly endless series of wars, and turning it into shares of a private company—theirs—which could be traded back and forth at will in the nascent stock exchange.

the calamities of 1720 can be read as a watershed moment in the long, tangled process of creating the modern concept of money, and especially of money’s most dynamic incarnation, credit—which makes promises expressed in numbers that connect the future to the present.

equations describe the evolution of a system—how its solutions build a picture on a page. That picture is a map of the relationship of variables—things that can change.

Newton’s work now became one of the early examples of what we would call a mathematical model, a representation of some aspect of nature abstracted into a form that could be manipulated, extended, and solved.

Others, though, were beginning to recognize that there might be a connection between quantitative reasoning and wealth.

It would take until 1659 to fill in the last corners in the far west, but the Dublin authorities began handing land to soldiers by the middle of 1655, less than half a year after what came to be called the Down Survey had begun. Its maps do not, of course, measure the human misery that flowed from their information. The Cromwellian settlement enabled by the Down Survey wrecked the social world of Catholic Ireland. In 1641, Catholics had owned 60 percent of Ireland. By the end of the century, Irish Catholic ownership of Irish land had fallen to just over 20 percent, and in another fifty years less than 5 percent remained in Catholic hands. That outcome was, of course, the point of Petty’s masterwork. He delivered what he’d promised: a blueprint for what was in essence a form of ethnic cleansing. It defined who was to be expropriated and who would take their place.

But he accepted no reproach for his part in separating the survivors from their property. He had been asked to solve a technical problem: measure England’s newly reconquered prize. What was to be done with his report was a political decision (albeit one from which Petty himself profited). The lesson Petty drew from his Irish experience was that applying formal rigor to observation and measurement—the same concept his London circle of virtuosos had begun to explore—actually worked in the real world.

in which “the Noblest Speculations, the Divinest Truths, become as Common…as stones.”

Halley can be seen, with only slight exaggeration, as the inventor of the mathematics of what we now call life insurance.

Other schemes followed, but the idea of using math to set a rational price for an insurance policy remained almost exclusively the province of natural philosophers.

just how swiftly the realization that math could make sense of daily life had penetrated even fashionable London.

That attempt to quantify and constrain error was a radical move, a critical step toward the modern scientific method,

Destroying legal currency was a crime, but that didn’t deter those who realized they now possessed the financial equivalent of a perpetual-motion machine, one that could turn English silver into foreign gold that could buy more silver coins that would yield yet more gold, as long as England kept on producing machine-made coins that could be ferried across the narrow sea.

There were twelve pence (pennies) in a shilling, twenty shillings in a pound—and then there were the gold coins, guineas and half guineas, not yet fixed in their value in silver money. A laborer earned about just over a shilling a day, while a skilled worker might command as much as a pound a week.

That was when, in September, the Treasury secretary, William Lowndes, reached out to his handpicked group of wise men—among them, Isaac Newton—for advice. Newton’s response would put him at odds with other, more experienced financial thinkers and, read in hindsight, offers a glimpse of the comprehensive, radical shift in the meaning of money taking place behind the rage of war and the murmur of the market stall.

it was essential “to make Milled money constantly of the same Intrinsick & Extrinsic value, as it ought to be and thereby to prevent the Melting or Exporting it.”

By Newton’s logic, units of currency—shillings, half crowns, guineas—were not immutable statements about how much any given amount of precious metal contained in a coin was worth as a shilling or a pound.

“Tis mere opinion that sets a value upon money,” he would write. “We value it because with it we can purchase all sorts of commodities, and the same opinion sets a like value upon paper security.”

create a kind of loan that people would be able to buy from or sell to others.

The assumption was (and is) that everyone won’t want to pull their money out of the bank at the same time, and it is thus possible to put the same pound or dollar of deposits to more than one use.*

That’s how many Londoners saw those who made their living off moving bits of other people’s money. They were an alien species to their contemporaries, different from and much more suspect than those merchants who handled actual stuff, cloth or coffee and the like.

The dearth lay in information, a clear, simple, and reliable record of the aggregate conclusions of the market at any given moment.

That is: a market is more than a place; it is information, accessible to those who take part in it. When that information is poorly communicated—or doesn’t exist—bricks and mortar can do little more than keep the rain off a failing bourse.

Of course, such a paper couldn’t solve every problem for a nascent financial market. Insider trading—especially in the smaller joint-stock companies that never made it onto Castaing’s list—remained a constant danger. Rumors could swamp the kind of hard data Castaing tried to gather. Outright frauds certainly occurred.

That could be a problem if someone suddenly needed their stake for some other reason—and that’s where Exchange Alley came in: it was a secondary market for the Treasury’s paper.

it raised the capital needed to prosecute national aims that cost more than the state had at any given moment. But was that a good thing? Once the war was over, clever Englishmen began to ask if the nation should continue to borrow, now that the immediate pressure of war had eased. The answer wasn’t obvious, even to some of the most sophisticated thinkers in London.

“it may occasion that a Nation that relies much on Paper Credit, may be thought Rich one day and be found Poor another.”

Hence Newton’s conclusion: credit was an abstract representation in the present of coming years’ flow of silver and gold, of profits—and it could cure whatever ailed England’s economic life.

a renewed push for financial innovation that would, if its proponents could be believed, both save the nation and make those riding to the rescue very rich indeed.

Slaving was always a grotesque, brutal, murderous business, but the South Sea Company was more inept—and hence even more wasteful of human life—than the long-established Royal African Company. Its ships lost more slaves on their journeys than those of its rival.

The key historical detail is that until 1774 it was perfectly legal to take out insurance on a stranger. That meant that much of the point—the fun—in such insurance was the chance to place a bet on the fate of a stranger. Such wagers could take many forms.

Walpole would go on to become almost certainly the most frequently insured figure in British history.

All of these transactions advanced the broad idea that contingency, risk, and human choices could be measured in money and analyzed in ways that anticipated—laid bets on—the future.

Treasury and its creditors knew they could reason their way to a mutually acceptable price that could turn each high-interest, illiquid, irredeemable loan into a reduced-rate, redeemable, and tradeable one.

money and investments is a set of elaborate rules like playing card games

THE SOUTH SEA Company had never stopped being a company in love with financial tricks.

It’s rarely a good idea for a person or a family to run their finances this way, of course, but—to step ahead of the story for a moment—nations are different, for several reasons.

But it was and remains true that states have ways you and I don’t that allow them to lay their hands on more money.

malt!—or another.* The second advantage that the British government possessed was the inexorable passage of time. The funds it borrowed at any moment became bets on the nation’s economic life year over year. The wager was that the ongoing work of every new enterprise, each voyage, everything that Britons did to get and spend in the future, would create enough wealth to support the debts being incurred.

Whole nations, as London’s monetary thinkers had discovered, need not perform the virtue embodied in the very good advice to pay off a credit card balance in full every month. Rather, the task was to balance the needs of the moment with an analytical picture that could be drawn of Britain as a whole, all its getting and spending and accumulation, integrated over years to come.

what a government does, how much it chooses to spend and on what, can directly affect the way a nation’s economy will perform going forward.

The recognition that debt is not simply an encumbrance on a more or less fixed trove (a way of thinking that resonated with the older notion of the nation’s budget as a royal family’s revenue) was in some sense the central realization of Britain’s financial revolution. It would take decades, at least until the mid-eighteenth century, for this view to be fully internalized.

The risk that clever bad men could turn useful and necessary loans into a commodity they could manipulate scared him.

Then and now, a critical function of secondary markets in securities—stocks and bonds, debt and equity—is to allow investors an easy way in and out of their investments.

It appeared that it was indeed possible to serve Mammon and the public good all at the same time.

There was no mystery as to why the Company and its allies built the deal this way. It rewarded existing shareholders at the expense of those making the swap. These newcomers would, in effect, pay more for their shares than their predecessors had.

The sleaze surrounding the deal is a fact: dozens of powerful men and women were paid to allow the debts of a nation to become shares in a private company.

“A Man that is out of the Stocks,” he wrote on Friday, April 8, “may almost as well be out of the World.”

The directors made it clear that market manipulation was to be the Company’s strategy for the foreseeable future.

“I thought once, that Love and Jealousy were the only Two Things that could make the World mad; but I see now that Avarice and eager Flight of the grasping soul after money is capable of all the Fury and Rage” of any human desire.