You can con all of the people some of the time, and some of the people all of the time, but you can’t con all of the people all of the time. However, you can con enough people long enough to cause a financial crisis.

 

The name Isaac Newton evokes for most people the discovery of the law of gravity[1] and if they remember enough of their school physics his three laws of motion. For those with some knowledge of the history of mathematics his name is also connected with the creation of calculus.[2] However, Newton lived eighty-four years and his life was very full and very complex, but most people know very little about that life. One intriguing fact is that in 1720/21 Newton lost £25,000 in the collapse of the so-called South Sea Bubble. A modern reader might think that £25,000 is a tidy sum but not the world. However, in 1720 £25,000 was the equivalent of several million ponds today. Beyond this, when he died about eight years later his estate was still worth about the same sum. Taken together this means that Isaac Newton was in his later life a vey wealthy man.

These details out of Newton’s later life raise a whole lot of questions. Amongst other, how did he become so wealthy? What was the South Sea Bubble and how did Newton come to lose so much money when it collapsed? Science writer and Renaissance Mathematicus friend,[3] Tom Levenson newest book, Money for Nothing [4], offers detailed answers to the last two questions but not the first[5].

Both Newton and the South Sea Bubble play central roles in Levenson’s book but they are actually only bit players in his story. The real theme of the book is the birth of the modern world of political and capitalist finance in which both the creation of the South Sea Company and its eventual collapse played a dominant role. You can find explanations and the origins of all the gobbledegook that gets spouted in tv, radio and print-media finance reports, derivatives, call and put options, etc. It is also here that the significance Newton as a central figure becomes clear. There were other notable figures in the early eighteenth century, who made or lost greater fortunes than the substantial loses that Newton suffered, but he is really here for different and important reasons.

One reason for Newton’s presence is, of course, his role as boss of the Royal Mint during this period and his secondary role as financial consultant and advisor. Another reason is that central feature of this new emerging world of finance was the application of mathematical modelling, parallel to the mathematical modelling in physics and astronomy, in which Newton is very much the dominant figure, not just in the very recently created United Kingdom.  

We get introduced the work of William Petty and Edmond Halley, who applied the recently created branches of mathematics, statistics and probability, to social and political problems.

I found particular interesting the work of Archibald Hutchinson, who I’d never come across before, who carried out a deep and extensive mathematical analysis of the South Sea Company scheme, basically to turn the national debt into shares of a joint stock company, which promised a dividend, could not work as it existed because the South Sea Company would never generate enough profit to fulfil its commitments to its shareholders. Whilst the South Sea Company was booming and everybody was scrabbling to obtain shares at vastly inflated prices, Hutchinson’s cool analytical warnings of doom were ignored, he was truly a prophet crying in the wilderness. After the event when he had been proved right nobody was interested in hearing, I told you so.

Another fascinating figure, who was new to me, is John Law, a brilliant mathematician and felon[6], who landed up in France and through his mathematical analysis became the most powerful figure in French financial politics. Law created the comparatively new concept of paper money (new that is in Europe, the Chinese had had printed paper money for centuries by this time) and the Mississippi Company, which served a similar function to the South Sea Company, to deal with the French national debt. The Mississippi Company collapsed just as spectacularly as the South Sea Company and Law was forced to flee France.

Levenson goes on to show how the French and UK governments each dealt with the financial disasters that their experiments in modern finance had delivered up. The French government basically returned to the old methods, whereas the UK government now moved towards the future world of capitalist finance, which gave them a financial advantage over their much greater and richer rival in the constant wars that the two colonial powers waged against each other throughout the eighteenth century.

The book features a cast that is a veritable who’s who of the great and the infamous in England in the early eighteen century. As well as Isaac Newton and Edmund Halley we have, amongst many others, Johnathan Swift, Daniel Defoe, Alexander Pope, John Gay, Georg Handel, William Hogarth, Sarah Churchill, Duchess of Marlborough (who played the market and made a fortune), Charles Montagu, 1^st Earl of Halifax (Newton’s political patron), Christopher Wren and Uncle Bob Walpole and all.

The book closes with an epilogue, which draws the very obvious parallels between the financial crisis caused by the South Sea Bubble and the worldwide one caused in in 2008 but the collapse of the very rotten American derivative market based on mortgages. Echoing the adage that those who don’t know history are doomed to repeat it. History really does have its uses.

The hard back is nicely presented, with an attractive type face and the apparently, in the meantime, obligatory grey in grey prints. There are not-numbered footnotes scattered throughout the text, which explain various terms or expand on points in the narrative but otherwise the book has, what I regard as the worst option, hanging endnotes giving the sources for the direct quotes in the text. There is an extensive bibliography, which our author has very obviously read and mined and an excellent index.

Levenson has written a big in scope and complex book with multiple interwoven layers of mathematical, financial, political and social history that taken together, illuminate an interesting corner of early eighteenth-century life and outline the beginnings of our modern capitalist world. The result is a dense story that could be a challenge to read but, as one would expect of the professor for science writing at MIT, Levenson is a first class storyteller with a light touch and an excellent feel for language, who guides his readers through the tangled maze of the material with a gentle hand. There is much to ponder and digest in this fascinating and rich slice of truly interdisciplinary history, which will leave the reader, who braves its complexities, enriched and possibly wiser than they were before they entered the world of the notorious South Sea Bubble.

[1] As I have pointed out in the past, he didn’t discover the law of gravity he proved it, which is something different.

[2] As I pointed out long ago in a blog post that is no longer available, neither Newton nor Leibniz invented/discovered (choose your term according to your philosophy of mathematics) calculus, even created is as step too far.

[3] Disclosure: Several years ago, I read through Tom’s original book proposal and more recently one chapter of the book, to see if the facts about Newton were correct, but otherwise had nothing to do with this book apart from the pleasure of reading it.  

[4] Money for Nothing: The South Sea Bubble and the Invention of Modern Capitalism, Head of Zeus ltd., London, 2020.

[5] For this you will have to read other books including, perhaps, Tom’s earlier excellent Newton book, Newton and the Counterfeiters: The Unknown Detective Career of the World’s Greatest Scientist, Houghton Mifflin Harcourt, Boston & New York, 2009.

[6] Why I refer to John Law as a felon is a much too intriguing story that I’m going to spoil in in this review; for that you are going to have to read Professor Levenson’s book