Money for Nothing:

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

Random House (US); Head of Zeus (UK) June, 2020

Money for Nothing dives into the most famous financial scandal in the history of modern capitalism, the South Sea Bubble. The South Sea Company had been formed formed to trade with Spanish America. But it had almost no ships and did precious little trade. Instead it got into financial gambles on a massive scale, taking over the government’s debt and promising to pay the state out of the money received from the shares it sold. And how they sold. In the summer of 1720 the share price rocketed and everyone was making money. Until the carousel stopped, and thousands lost their shirts. This account of the South Sea Bubble is not just the story of a huge scam, but is also the story of the birth of modern financial capitalism. These dreamers and fraudsters may have bankrupted Britain, but they made the world rich.

The book is thus a work of history that holds up a mirror to our own time (as all good historical tales should). It tells a grand story, peopled by striking characters. There’s Daniel Defoe, for one, who rose from debtor’s prison to the center of polemical politics, in time to first encourage the South Sea Company and then condemn its overreach. Isaac Newton, for another: as Master of the Mint, he was a significant voice in national financial affairs and a wealthy, usually prudent stock market player who first profited on the Bubble, and then lost his head (and a fortune, almost two million pounds in 21st century money). There’s John Blunt, the grasping shoemaker’s son who was a chief designer of the Bubble, and his nemesis, Robert Walpole, who rode the disaster to become Britain’s first Prime Minister, and the architect of a national fiscal state that could fund its rise to global empire — and many more besides, men and women making vast paper fortunes, losing them, and wondering what the hell just happened.

Alongside the tale told by such folk, the book’s larger themes emerge: how modern ideas about money and credit came to be – and how we are still vulnerable to exactly the same risks that brought down Britain’s first experiments with financial invention. The book develops two themes: first, that the advances of the scientific revolution as applied to getting and spending created newly abstract ideas about money, transforming it from something wholly material — discs of precious metal jangling in your pocket — to a much more mathematical notion of money, shares or bonds or insurance that could evolve over time.

Such ideas led both to the deal that went very, very badly in the South Sea affair, and then to pretty much all of modern financial capitalism, which at first helped power Britain to empire, and then spread around the world. But as the 1720 Bubble Year itself demonstrated, the power of modern finance carries with it great risk…which over the centuries has produced the same types of failures over and over again, up to and including disasters like the Great Recession that started in 2008. There are ways to mitigate such risk, and after each panic we do a little better, for a time. The moves to protect ourselves after the 2008 crash are already being undercut, however, and this is where the book comes to rest: Isaac Newton, the smartest man of his time, still managed to lose a fortune in the South Sea Bubble. But he can be forgiven for failing to understand what was happening, because that was the first time such a disaster struck. Even now its impossible to say when the next financial crisis will strike. But unlike Newton, we have three hundred years of experience that tells us its coming…and when it hits, we won’t have his excuse for the ruin it will bring its train.