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

by Thomas Levenson

obsession with the last price “breaks in not only to all our Conversation, and all our Pleasures,” he wrote, “but it breaks into the very Worship of God, and into our Sabbath-Day Duties.”

What lay behind that claim of value? What expectations, what motions—not of planets but of human acts and transactions—could determine what the South Sea Company might actually be worth?

the compulsion to prove that he was the smartest man in the room, which rarely serves to make or keep friends.

This was the scientific revolution at street level. Anyone could count, think, and use the results of formal calculation to tame his or her emotions and make choices armored by reason.

This early instinct to see the market as moral space—a deranged one, a cesspit of deceit—was never entirely wrong: the invention of new ways to buy and sell money deepened the divide between those comfortable with unfamiliar ways of thinking about finance and everyone else. That in turn evoked an enormous catalog of ways the experts could gain the edge in any deal. That bubble had so swiftly become a term of art testifies to the fact that in just a generation the world of money had been transformed, creating opportunities for the active malice of men who knew better and chose to act worse.

When the Company’s circumstances clearly and fundamentally changed, so did his approach, as he recognized that a boring, ordinary business had become something different more or less overnight.

but he seems to have reached the conclusion that his shares were worth more as cash than as part ownership of a novel and increasingly uncertain financial experiment.

The common thread is that there doesn’t seem to have been any specific incident that pushed Newton or Churchill or Guy to sell, nor did they make any sophisticated quantitative argument (as Newton certainly could have done). Rather, many of those who emerged from the Bubble in the black appear to have shared one key reaction: what had been a dull and long-term investment had changed into something else, a speculation, a gamble. Some were able to decide when they had grown rich enough and then just walk away—from more gains, perhaps, but more risk as well.

several lines of evidence point to Hoare’s principals believing South Sea stock was overvalued (at its peak, wildly so). One key hint lay with how they treated Company shares when these were offered as collateral for loans sought by Hoare’s customers. As early as March, the bank was discounting those shares by more than half, lending barely more than £40 on £100 of stock at then-market prices.

That didn’t mean, however, that the bankers believed that the trades being made at Jonathan’s and Garraway’s were incomprehensible. Rather, they made a judgment about human nature. They bought and sold on the basis of their assessment of market emotion, the passions of the mass of investors clamoring for shares

INSIDERS (AND ATTENTIVE unattached investors as well) clearly understood that dynamic. Pumping the stock would keep the whole enterprise afloat. That meant the South Sea Company was in the business of being an expensive business.

The belief that markets are usually accurate machines for discovering the “correct” price of anything used to be a dogma of conventional economics. It’s now less an article of faith and more a complex argument. It remains deeply troubling within the discipline to think that markets can go mad, that thousands or millions of individuals can act against their own interests.

There was no historical memory to help anyone in Europe see how it would end. The mathematical tools of financial analysis were being worked out on the spot—and no one yet knew if such calculations truly described reality.

Law fled Paris on December 18, stuffed into a borrowed coach. He had not committed any crime except failure.

The hope of a true Newtonian revolution in matters of money was unfulfilled and still is. But by the 1720s the drive to encompass experience in ever more general forms had made the leap from nature to social life.

London’s leading financial movers and shakers managed to exploit the idea that money is not a thing—not, necessarily, a sliver of material reality. South Sea annuities, consols, and all the rest were instead functions that operated over time.

US credit markets supplied funds that didn’t have to pay for regiments and fleets and could instead fund canals, or railroads, or the cotton mills of Massachusetts,

“But what most astonishes me in the United States, is not so much the marvelous grandeur of some undertakings, as the innumerable multitude of small ones….The

This is where hindsight does help: the numbers reveal how the American idea of liberty extended to the belief that finance should be as accessible to citizens as it was to the state.

he put his finger on a crucial vulnerability within the new republic: the striking degree of interdependence within an economy bound together by promises that come due in an uncertain future. “As they are all engaged in commerce,” he wrote of the inhabitants of the new country, “their commercial affairs are affected by such various and complex causes that it is impossible to foresee what difficulties may arise. As they are all more or less engaged in productive industry, at the least shock given to business all private fortunes are put in jeopardy at the same time, and the State is shaken.”

the more connected an economy becomes, the more vulnerable it becomes to shocks that reverberate through the entire web of its relationships.

ways. In doing so, they support human endeavor by marshaling the resources and ambitions of the future in our service—all of us living in the present moment.

Great Britain shed many of its restrictive financial rules in the 1820s and by some measures soon possessed a financial system that was more effective at delivering capital to business than the American one, especially after Andrew Jackson led his populist charge against the Bank of the United States.

To put it plainly: this is why we need to regulate financial markets, especially to reduce the risks that expanding leverage imposes—and, for those who wish to gamble to that extent, to fence them in so that, if someone goes all in on black at the roulette table, the pain they feel when the ball lands on red stays where it belongs.