Money for Nothing

Irongate Book Club - a recommendation from James Scott-Hopkins, Managing Director. "I have just finished an excellent book by Thomas Levenson, Money for Nothing – The South Sea Bubble and the Invention of Modern Capitalism. Crises often accelerate change. I heartily recommend it".

The story unfolds with Isaac Newton fleeing Cambridge for Lincolnshire as the residents of Cambridge ran from the impending plague carried out of London. It had started overseas, this time in Amsterdam, as noted by Samuel Pepys, as the prisoners from the Anglo-Dutch war were returned and with them the rats carrying the fleas and the Plague.  At the height of the Pandemic 1,000 Londoners were dying each day and the final tally saw one in eight people dead.  Businesses closed, Lockdown wasn’t successful, but the Pubs remained open!

In the following two years Isaac Newton would solve several problems at the leading edge of contemporary mathematics including laying the foundations for what is known as 'Calculus'. He also laid out a geometrical approach for calculating compound interest, his first foray into the mathematics of money.   In 1666 an apple fell off a tree whilst he sat in contemplative mood. Then came the Great Fire of London that destroyed thirteen thousand homes and 87 of the city’s 109 churches. But a New London began to rise almost immediately, led by Christopher Wren who rebuilt fifty one parish churches and the new St. Paul's Cathedral. Wren had been a founding member of The Royal Society, founded in 1662 to promote the "physico-mathematicall experimentall learning".

In the years that followed, an astonishing number of institutions were created that make up the City as we know it.

1681 The first insurance company was formed to provide home fire insurance.

1686 Edward Lloyd’s Coffee House was established, now Lloyd's of London.

1693 Edmond Halley created actuarial tables making him probably the father of the Life Assurance industry.

1694 The Government of the day created Gilts to help pay for the Ninety Years War.

1694 The first “Million Adventure” peoples’ Lottery was launched, again to help towards funding never ending wars.

1694 The Bank of England was formed to lend money to the State.

The Royal Exchange predates all these events, but it wasn’t until the late seventeenth century that a secondary market in financial paper was established predominantly carried out at Jonathan’s Coffee House.

A little later in 1720 The South Sea Company was formed to trade with Spanish Latin America. But it had almost no ships and did precious little trade. Instead it got into financial trickery on a massive scale, taking over the Government’s ever rising levels of debt, promising to pay the State from the profits it would make from the shares it sold. Madness ensued, the stock soared from £100 to £1,000 within a year. Only a few realised that the future earnings on which the share price was based had no hope of ever delivering.  Sounds a little like the recent IPO's of Deliveroo and Cazoo or the creation of blank cheque Special Purpose Acquisition Companies (SPACs) into which investors plough money before there is any knowledge of what the company will be acquiring.

One man, Thomas Guy did sell at the right time. Guy made £250,000, about £400 million in today’s money and gave most of it to what is now known as Guy’s Hospital.

This time around Technology and Bio-Sciences will lead the way to a new world and far more swiftly than anticipated before COVID-19.

An article by James Scott-Hopkins

Thomas Levenson, Money for Nothing – The South Sea Bubble and the Invention of Modern Capitalism, Published September 2020