The Ascent of Money: 2nd Episode

In the second episode of The Ascent of Money, Bonds of War, Niall begins with a bubble-and-bust case study that bankrupted the French monarchy and led to its collapse. He continues the story of Jean Law, a convict of London who was able to build upon the concept originated by the East India Trading Company to form the first Ponzi scheme. His success reached its breaking point with becoming the prime minister of France.

The problem was he didn’t know where to stop. He wanted to keep printing money to drive up the companies’ share price, making him the first insider trader of sorts. However, eventually it was discovered by the masses that shares sold in the Mississippi Company he created were worthless. When Law tried to lower the price of the shares, they free fell to over 90% of their original value.

The Mississippi bubble had burst, and Jean Law fled the country. Law’s folly set France’s financial economy into ruins, which led to revolution in France. This plunged Europe into a series of bloody wars, which brought about the exploits of Napoleon Bonaparte. Jacobson goes on to discuss the Rothschild’s, particularly Nathan Rothschild, and their rise in financial London. Nathan was a financial genius who mastered the London bond market. Nathan took money raised on the London bond market and converted it to gold to finance the war against France. He charged a hefty commission for this service. He also used his vast network of family members to buy and sell gold at the best prices around Europe. Nathan bought up as much gold as possible, projecting the war would carry on a long time. This did not happen, as Wellington defeated Bonaparte at the battle of Waterloo, which caused the price of gold to fall.

Faced with falling prices of gold, Nathan used the gold to make a risky move on the London bond market, buying up bonds even as the prices began to rise. Eventually, when bond prices had rose to an enormous value, he sold his holdings and made a fortune. With a large investment in British bonds, the Rothschild’s realized that any war in which Britain was the loser may cause the bonds to lose their value. During the American Civil war, the South did not have the finances to defeat the north.

The South looked to Britain for financial support. The Rothschild’s decided not to lend money to the British government to finance the South’s war effort. The South then decided to back their bonds with cotton at a prewar price. The South had set out to blackmail Britain with cotton by imposing an embargo on all cotton shipments to Liverpool. This devastated the British economy putting a quarter of the British public on poor relief and caused the price of cotton backed bonds to soar. Ferguson states that the North’s victory over the New Orleans’ ports crippled the cotton trade, causing the worth of cotton backed bonds to fall. The South tried to raise funds by printing money. This caused rapid inflation in the South as money began to lose value. Thus, the South no longer could finance the war against the North. Ferguson then goes on to discuss the aristocracy in Britain.

Long ago, most of the land in Britain was owned by a few wealthy land owners. What the land owners didn’t realize at the time was that when they borrowed money and used their lands as collateral, they needed to raise the funds to pay the loans back or they would lose their lands to the lenders, which is exactly what happened, leading to the first modern property crash.

The property crash brought about the rise of new money in Britain. Ferguson then discusses economic globalization, which was built on the back of the British Royal Navy. Trading with China began with drug trade backed by both the British and Chinese government. When China tried to back out, the Royal Navy came in and destroyed the Chinese army. This victory resulted in free drug trade, which eventually developed into more respectable business and global trade. Ultimately globalization was shattered by the outbreak of the First World War.