Money for Nothing

June 22, 2020
Wall Street owes its origins to a previous pandemic, according to this colorful and well-informed history of the ideas behind modern finance. Science journalist Levenson (The Hunt for Vulcan) notes that when Trinity College shut its doors in 1665 due to the ravages of bubonic plague, Isaac Newton self-isolated at his family home in Woolsthorpe, England, where he laid the foundations for his theories of physics and calculus (“the mathematics of change”). Levenson links those innovations and other scientific revolution advances to the South Sea Bubble of 1711–1720, the world’s first and “archetypal” stock market crash, when shares of the South Sea joint stock company rose from 100 to 1,000 British pounds within a year, then plummeted. He also chronicles the development of actuarial mathematics by mathematician and astronomer Edmond Halley (who predicted the return of Halley’s Comet), documents the selling of public debt to raise money for the Nine Years’ War against France, and notes that safeguards enacted in the aftermath of the 2008 stock market crash have already been rolled back. Levenson has a keen eye for obscure yet revealing anecdotes, and sketches historical figures with verve. This erudite and entertaining history offers a fresh take on high finance.

July 1, 2020
Did the Scientific Revolution and European wars of the eighteenth and seventeenth centuries plant the seeds for the 2008 financial crisis? Levenson (Einstein in Berlin, 2003) attempts to answer this question in this detailed historical account that connects seemingly unrelated developments. He argues that the creation of the British stock trade, the theories developed by Newton, Halley, and Locke, and the establishment of government debt to finance wars set financial markets on an innovative but risky path. Readers are introduced to compelling and memorable figures and events, but it is not until the book's final chapter and epilogue that a straight line is drawn from London's Exchange Alley of the seventeenth century to the 2008 financial crisis. Two additional factors that contributed to the collapse of Lehman Brothers and the resulting financial crisis?the loosening of federal regulations and overleveraged banks?are given relatively superficial treatment. Still, the book lays the groundwork for the reader to contemplate the earliest origins of complex financial instruments. Well-written and thoroughly fascinating, this book would be a good fit for large collections serving undergraduate and graduate students.(Reprinted with permission of Booklist, copyright 2020, American Library Association.)

Starred review from June 1, 2020
The story of government debt finance, which sounds boring but definitely isn't. Science writer and MIT professor Levenson reminds readers that rulers throughout history have taxed citizens to pay bills. During wars, this proved insufficient, so they borrowed from rich people and often didn't pay it back. As a result, governments paid higher interest than private borrowers and sometimes found no lenders. Alternatives such as seizing church money created other difficulties, but unpaid soldiers wreaked havoc. Britain solved this problem around 1700 when clever men invented the joint-stock company, which would exchange government bonds for stock in their business. The bonds were collateral for loans that the company would invest, make a profit, and pay dividends. What could go wrong? Succeeding in business takes time and expertise, but joint-stock shares had value immediately. One could profit trading them, and savvy company owners, with insider knowledge (not then illegal) and a printing press, went to town. Levenson's fascinating subject, the South-Sea Company, was not the first but the most memorable. In 1711, Parliament approved a plan to trade its bonds for South-Sea stock, which they believed would skyrocket because the company possessed exclusive trade rights in South America. This trade never amounted to much, but few paid attention. The company absorbed a great deal of government debt and satisfied both owners and shareholders until 1720, when--for reasons no one, including the author, can explain--stock prices shot upward during a buying frenzy and then collapsed. While historians often portray this as a scam, Levenson points out that it worked. Despite recriminations following the crash, British leaders understood that issuing bonds that buyers could trade or use as collateral was a superb way to borrow. Other nations did not catch on for another century, during which time Britain's ability to raise immense quantities of money allowed it to "punch above its weight class" in wars against far more populous and wealthy nations. An enthralling account of an economic revolution that emerged from a scandal.

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