To reduce the power of the privately-owned Bank of England, a plan was hatched by Robert Harley, the Earl of Oxford, for a group of merchants to assume parts of Britain’s national debt in return for an annual payment of three million pounds for a set period and a monopoly of the trade to the South Seas i.e. South America. The group then assumed the title the South Sea Company. Extravagant notions of the available riches in faraway fields were fostered and the company’s stock flourished until, in early 1720, it offered to take on the entire national debt. The British state’s creditors were encouraged to swap what they were owed for company shares and speculation then carried South Sea stock to ten times its nominal value. Then the chairman and directors sold out, the bubble burst and the stock collapsed. Thousands were ruined.
Companies of all kinds had been floated to surf on this tidal wave of interest in South Sea stock. They soon got the nickname of Bubbles, the most appropriate description that the popular imagination could invent. Some of them lasted for a week or a fortnight, while others were only around for a day. The most preposterous of all showed the complete madness of the people sucked in. It was started by an unknown adventurer who is definitely a candidate for the title of the unknown soldier of cynicism. His venture was entitled a “company for carrying on an undertaking of great advantage, but nobody to know what it is”. The genius who mounted this bold and successful test of public gullibility merely stated in his prospectus that the required capital was half a million, in five thousand shares of one hundred pounds each, with a required deposit of two pounds per share. Each subscriber, paying his deposit, would be entitled to one hundred pounds per annum per share.
How this enormous profit was to be obtained he did not inform them at that time. Instead he promised that after a month full particulars would be announced and a call made for the remaining ninety-eight pounds of the subscription. The very next morning, at nine o’clock, this entrepreneur opened an office in Cornhill in London. Crowds flocked to his door and when he shut up shop at three o’clock, he found that the deposits had been paid for one thousand of his shares. He was thus, after five hours, the possessor of two thousand pounds. Content with his day’s work, he set off that same evening for the Continent. He was never heard of again.
With the death of Louis XIV, the finances of France were in a bad state but the Duke of Orleans became Regent and this meant everything to a Scottish gambler called John Law who was a friend of the Duke and a man convinced that no country could prosper without a paper currency. In May 1716, a royal edict authorised Law to establish a bank. He made all his banknotes payable at sight and in the coin current at the time they were issued. This was a masterstroke and immediately made his notes more valuable than precious metals. The latter were constantly liable to depreciation by the tampering of the government.
Law publicly declared at the same time that a banker deserved to be put to death if he issued notes without having sufficient security to answer all demands. It was not long before the trade of the country felt the benefit and branches of his bank were established in several cities. In the meantime, Law started the project that has handed his name down to posterity. He proposed to establish a company that would have the exclusive privilege of trading to the Mississippi river and the province of Louisiana, where the country was supposed to abound in precious metals. This company was set up in August 1717.
It was then that the frenzy of speculation began. Law’s bank had brought about so much economic good that any promises for the future were swallowed but, when the bank became a public institution, the Regent ordered a printing of notes to the amount of a billion livres. Law helped inundate France with this paper money, which, based on no solid foundation, was sure to cause a crash, sooner or later.
Law otherwise devoted his attention to the Mississippi project, the shares of which were rapidly rising in spite of the opposition of Parliament. At least three hundred thousand applications were made for fifty thousand new shares. Every day the value of the old shares rose and new applications became so numerous that it was deemed advisable to create three hundred thousand new shares so the Regent could take advantage of the popular enthusiasm to pay off the national debt.
From the tremendous pressure of the crowds, accidents continually occurred in the narrow rue de Quincampoix where Law lived. A story goes that a hump-backed man who stood in the street made considerable money by lending his hump as a writing surface to the speculators. The great masses of customers and spectators drew all the low life of Paris to the spot and constant riots and disturbances occurred. At nightfall, it was often found necessary to send in a detachment of soldiers to clear the street.
Thus the system continued to flourish until the beginning of 1720. The warnings of the Parliament that this massive creation of paper money would bankrupt the country were disregarded but, despite every effort made to stop its exodus, the stores of precious metals in France continued to be smuggled to England and Holland. The little coin that was left in the country was hoarded until the scarcity became so great that trade could no longer be conducted. An edict then forbade any person to have more than five hundred livres (then the equivalent of twenty pounds sterling) of coin in his or her possession, under threat of a heavy fine, plus confiscation.
It was also forbidden to buy up jewellery, plate and precious stones. Informers were encouraged by the promise of getting half of any amount they might discover.
Lord Stair, the English ambassador, said that it was now impossible to doubt the sincerity of Law’s conversion to Catholicism, as he had established an inquisition after having given ample evidence of his faith in transubstantiation by turning gold into paper.
All payments were then ordered to be made in paper and even more notes were printed – to the tune of more than a billion and a half livres – but nothing now could make the people feel the slightest confidence in something that was not exchangeable for metal. Coin, which the Regent aimed to depreciate, only rose in value on every fresh attempt to reduce it.
The value of shares in the Mississippi stock had also tumbled and few people still believed the tales that had once been told of the immense wealth of that region. A last trick was therefore tried to restore public confidence in the Mississippi project.
A general conscription of all the homeless in Paris was made by order of the government. More than six thousand of the poorest of the population were press-ganged, as if in wartime. These unfortunates were provided with clothes and tools and told they would be shipped off to New Orleans to work in the gold mines. They were then paraded day after day through the streets with their picks and shovels before being sent off in small detachments to the ports to be shipped to America. Two thirds of them never reached their destination but melted into the countryside. There they sold their tools for whatever they could get and returned to their old way of life. In less than three weeks, half of them were back in Paris.
Sometimes cynicism is wrapped up in a man simply knowing his strengths and limitations. Take JP Morgan in the 1907 American financial crisis, sitting alone in a room in his home, smoking cigars, while all the ordinary bankers were huddled in the next room, presumably with ties loosened and pencils perched over their ears. When a servant entered and ventured to ask him if he had a plan, he said, “No.” By way of reassurance, he added that he knew someone would come through the door with the right plan and then, he also knew, he would be the person to know it was the right one. Who knows that much today?
W. C. Fields made The Bank Dick. In this film, Fields plays a drunk named Egbert Sousé who trips a fleeing bank robber and becomes a security guard at the bank as a result. Upon being introduced to his daughter’s boyfriend, Og Oggilby, an official at the bank, Egbert remarks, “Og Oggilby… sounds like a bubble in a bathtub.”
Egbert talks Og into embezzling money from the institution. In order to divert a bank examiner from discovering the theft, Egbert takes him to his favourite bar and asks if “Michael Finn” has been in yet – a signal that the barman, one of the Three Stooges – is to spike the examiner’s drink. During Fields’ career, Hollywood standards demanded that good be rewarded and evil be punished but, in The Bank Dick, Fields’ character lies, cheats and steals and yet at the end is rewarded with wealth and fame.
Willie Sutton’s autobiography denied that he’d ever explained why he robbed banks by saying “because that’s where the money is”. Though the apocryphal quotation became known as Sutton’s Law, he dismissed the story but, at the same time, admitted that, had anyone ever asked him, he probably would have said it.
Why did I rob banks? Because I enjoyed it. I loved it. I was more alive when I was inside a bank, robbing it, than at any other time in my life.