Money, in addition and made the world rich. He is joining conversation by david dobbs. It. Harvard bookstores continues to authors in the work to our communities and other digital communities. Harvard. Com events. You also signed up for newsletter and chopper shelves from home. This discussion will conclude for some time for your questions. If you have a question for speakers go to the q a box. Ask a question and anytime and we will come to those at the end of the talk and we will work on answering as any of your questions is the time will allow. In just a moment i will post the harvard. Com link to purchase this book in the chat box. You purchase and contributions makes this virtual series possible. And now more than ever support the independent bookstores. So thank you. We sincerely appreciate your support now and always. Alex and finally, if we have other issues, technical issues we will do our best to resolve them quickly. Thank you for your patience and understanding. None pleased to introduce our speakers. Thomas is a professor of science and mit and the author of several previous titles including the hunt for walkins. Berlin, and newton and the counterfeiter. Hes also received several awards for his documentary films including the walter science documentary science award, the peabody award in new york chapter emmy. They enjoyed this evening in conversation by journalist and essayist, david dobbs. Author of the books my mothers lover and happiness. Discussing money for nothing fighting with history of science meets the history of finance. For the Financial Times and the kids book of the year award and he writes, he is a brilliant advisor with a grand view of history. Heres the modern financement fraud. A gripping story of scientists and swindlers. All too pertinent to our modern world. So now i would like to turn things over to tonights speakers did. Thomas thank you so much alex. Speech of tom, i was intrigued by this book from the getgo because of the title. It was a great song by dire straits but some other things as well. But as you mean to convey by the title. Thomas the great miracle of capitalism is captured by the immortal words, a cultural thing. If you recall, the slogan, i will gladly pay you on tuesday for a hamburger today. This 1 00 p. M. Popeye. The reason is so important is that his credit. And what credit does, what borrowing does is it creates money out of a promise that we make in the future. In figuring out how to do this than it can be sustained. It would be killed by crisis. The figuring out how to make credit working not just for todays drink or hamburger. But for the whole nation. The whole economy and the whole global system. Figuring that was one of the great innovations of what historians called early modern europe. David as your book details this from a lot of other innovations as well. What entitles us one is that i gave money and i got nothing. And your book titles money for nothing. And i am making money, and i didnt get anything. Theres a lot of those things here. What led you to our did you start this book and what led you to write it. Thomas all of my books the amount of something that bugs me. And usually coming out of some thread that i find another project that i may not have time or may not be appropriate to go into that project for you to do something out of place no one figured out. In this case, was doing some newton. Great crime story. And all this cool stuff. I started reading up about newton got into his life and character. I found that 20 years after the event that i was chronically no project, he had troubles with money. And famously said that i can. The motions of heavens but i cannot. The madness of the folly of the people. And i thought i want to know more about that that ultimately led to this. David that make sense. It is plain extremely role in this. Interesting. If he suffers from nothing is a secret about what happened. This was sort of the bubble of all levels. In god, but in that way. And also allow the foundation in a way. Thomas new students the integral character in the entire book. In the beginning and there at the end. The whole story hinges on this really sort of wonderful delicious horrifying financial crash that occurs in 1720. In the actual moment that the stock market turns, nurses going to boom from january but especially from april through the summer. In the right into the beginning of september. On. Much today, 300 years ago. It turned in the slide, it just always tech. Its happening 300 years ago. David remind me, that was. Then newton took the sort of, make my when he traded i think an annuity that was worth every year more than his salary. He put down cash. Temple bolling is stopped and then fell off a cliff. David thomas overalls like he t 20000 pounds. Theres a lot of money in 31st century led in 1720 was the equivalent of some millions today. Good been much more. He took a bath. He was a wreck. It bugged him. David did he have any money left. Thomas he did. He still had a job of painting okay and he still had a net. It was not on the street. He went from an ordinarily sort of modestly kind of middle Level Society to somebody whos general and the leak permits. Usually richer a few months. The real heartbreak was he got out of the market. One of the parts of the story ahead of the narrative. He got out and he figured hed made as much money as he needed. He was having with his return. The stop kept rising and started feeding on itself. The 2000 before that, the bubble, housing boom. With his real process, that was captioned, he had it. It was safe. And he couldnt stand watching it. Its was if a, and we were looking at it from the outside. As he was losing money. When not getting those gains. So i sold for an average run 50, canopy like six weeks to two months after he sold. So doubled again. And this is starting at the beginning around 100. So a really big rapid boom. Almost tenfold. Speedo diesel and embodying again. Thomas he actually bought some of his stuff. Not all of it. But any. David so as a whole, we can all say. [inaudible]. Look what he did. How did he will, tell us briefly about what created this. Thomas so theres two ways to look at this. As approximate set of decisions. There was a huge intellectual change. And took place in the mid 17 hundreds. Maybe the late 17th century. Two right around the time of the bubble. So 50 70 years. There were big changes in the way that britain and europe in general thought about all kinds of important things. Basically, scientific revolution. In some of the things that go along with it for a long with britains in england and then threaten Political Revolution sorted which makes the role of parliaments and running the country and in funding the country much more important than we had previously done. David this was potentially a new set of tools and sort of calibrating or money moves and how it works. Any for the first time appear that is possible to manage it is not right. Or market. Thomas never people who are really thinking about running the whole sort of business of the nation in the way that would maximize national power. I thought it in france, they thought it in london. There was his belief in on some level they had practice. They figured it out. This is a cartoon right but theres a cartoon with truth to it. You can almost reduce with scientific truth with two core concepts. One is that you quantify to gain more understanding to gain the annuity to protect in the future. One of the critical things with some of his basic mathematical ideas that including especially crucially mentions right invention. Its all about money over time. The other thing the newton and any others did, just one person. Newton was sort of an avatar. Not just sort of looking at this but systematic observing and experimenting on the world. Findings in getting this information and performing on it. It will allows you not just think about abstract things. Every even just celestial things like rice jupiter going to be in six months time or what governs the moon of the tides. The idea of math and quantification. Can be applied to you and me are now figuring out how to buy and borrow all these things. One of the things he gets worked out is the present value of things. By the peace plan maybe a business worship is way to do things over time it makes money. What is its value right now and how we take the income stream going to wait on this piece of length or 20 years. How i think about how that money or how much money is worth. David so your ability to. The change over time. And he said earlier, newton said he could reject the dynamics of the human cause or something to that effect. So its kind of like what we are trying to look at right now with managing this pandemic and knowing the virus is one thing but predicting with the peoples leaders will do is another. So in a way, this is again in a cartoonish way, is it helpful to say that this book is a story of how modern finance is founded and then actually quickly quickly counted and also sort of like the science of this. When they thought they had the knowledge to control and. The markets and control them so they can call a growing. And leached some powerful forces. In some cases there is so they could not control them. Thomas i think that is is one of the things that i found, actually fairly late in sort of trying to figure out how to make book sing is a passage, he is in some way sort of the first generalist. One of the first, is a propagandist. A small thinker. I think they know that he was from the very beginning, he had such enthusiasm for this new idea. An essay on projects. In sort of catalog of an celebration of all the things that people were trying to do, new ways to comb the land. He just loved that stuff. And as britain actually invented the tool of the credit. Really aggressively. Actually inventing what we now call the idea of a National Debt. If this the thing that has a birthday right. Theres and 5093. The reason he has a, his up until then the europeans and certainly in england, the idea behind running estate finance was that ultimately rest on the person, the first rule, the money. Any any removes by the time you get to this period of time. In theory, is the first. What happened in the 1690s is that it changed. Parliament control. Authorizing i acted parliament in trying different Revenue Streams that they could create. This was a radical change in something as seemingly dull and boring as borrowing money to pay the soldiers. On since the foe watches all of the stuff, there is a point where you have a point. So daniel watches all of this in a season of work. In england is able to do things with this borrowing. Like wars with france and so forth. And really expanding its reach and power by having access to credit in a way that other european agents were not able to do. He said this is our secret power. Any prices passage only talks about how the government raises debts and then manages them. And in creates an elaborate metaphor. This machine. This was amazing. Because he has his vision of it. Something you can really have this rational design and control of. But its also explicitly the idea. David as permissible as the covers. And again, the outlook and then it happened to occur and thats what calculus is all about. I think it is interesting to that in any other ways, so at the time, the general outline of it, again you talk about why this was so vital to britain. They regrouped. There figuring out how to have their cake and will, the wrong metaphor. I would do this. So that was why it was time to see countries with more soldiers because they could raise money quicker. Thomas the bubble itself emerges from in some ways successes of the first attempts to use the new ideas about money towards credit to their advantage. Because what happened is that britain gets involved in a series of wars last until 1815. As the one of the things that defines it is the wars against louis the 14th. In the last of british war against france. Inning with napoleon. That the parameters. So in the first round, invention of the National Debt is responsible for the extraordinary cost of war. The britain cannot or can roll out of every day and keeping the army in the field. So they start raising really quite fast starting from 1693. In the first war and is in the kind of group a little. But another war starts and they keep doing the same thing. They always borrow in the right when a crisis is there. In the war turns to crap. And for decades and decades and high Interest Rates brightest so by the mid. The money the government takes in from all of its sources is on the debt that has been a accumulated over the past 25 years. David so the key here was a found a way will actually, this company was in a place to take the first shot. And they consolidate this debt. And then they sell it the right to receive the payment of it. And you can buy stock in theory right. So the package he did it as an asset. In a sense it was but only if you count it as an asset into the top. Thomas absolutely it was asset. What they do, is the britain borrowed what they call a lottery ticket. And they made payments for years. They bought it it they sold annuities so the people could buy a guaranteed payment for a lifer to lives. The sold history of debt related they all have different terms in different strengths. In one of the things about almost all of them was the people who left the money or lent money to the government, lottery tickets or whatever in return. They could keep the income stream. But they could not sell the underlying asset. David by the contract. Thomas so they sent a hundred pounds of the government. They would do the 5 pounds or 8 pounds or whatever it was per year. With a would never get there hundred pounds back. They just keep getting their income streams. Assuming the company said lets get rid of this complete mess. Too complicated. Nobody gets her money. We will trade our stock if you give us your debt, the government will allow us to create more stock. Youll get a reduced rate. We will use we can, the fund the trading operation that will make us all very rich. And best of all if you take stock instead of holding onto your debt that you want the money back, just walked down to exchange. And say that i can who wants it. In the government is better terms. And it was supposed to be a win win win kind of deal. The problem was they were right. This, debt and work on a small scale before this. Could work on and has worked since. But they set it up and away that would if it had worked, if it had all come together. What made the people who work inside of the company before the deal happened, insanely rich. Mr. Than you can imagine. Mr. Than anybody had previously done. David something vaguely familiar. It. Thomas yes. David the government agreed to this. They were so desperate target and generally have a choice. Thomas they really needed to solve this problem. David is good for them at the time. What ensued was well until me a little bit and begin to in a minute. How the bubble essentially was a combination seems to me from the description as some people ran this company and others who became allies and so on, there are people who are receiving and also a lot of people receiving annuities. Tell me the role that the role of what we now call the stock market. Is that right. Thomas david the modern one. The center round jonathans coffeehouse. How did that get started. Thomas and aggression in the book on coffeehouse, we dont have time to get into it but. David recipe it. Thomas exactly. The stock market, there been joke Stock Companies for 150 years or more at that point. But up until the 1680s or so, there were very few shares there were almost never traded. Maybe an African Company which was a slave company. They were in fact companies that have shares that in theory can move but they very rarely did. David intended to be bought and sold by a very small group of people right. I. Thomas in the 1680s, the started to change. And very rapidly. A lot of new Companies Formed all kinds of things. Mining companies, insurance companies. They called this, the 1690s, roughly 21750, call the financial revolution. The term amongst historians of the period in one of the arguments in the book is understanding this revolution is simply a part of the scientific revolution. A large intellectual transformation going on. And the people did not separate. And tomorrow ill be a financial revolutionist. Edmund talley was working on the math of the life insurance. Mood newton himself writing about how credit and Interest Rates work david and quantify how important things work. Thomas yes and people still, there were enormously broad here. But anyway, the stock market existed. Originally the stockbrokers work in this building called the royal exchange. They got booted out for basically being too loud and obnoxious and moved more or less about 100 yards to this little alleyway. It had i think for five coffee shops. They just sort of set up in the company rooms. They started training there. The most important of those was jonathans which sort of became the center of what was increasingly understood as the london stock exchange. Nothing left of that now. But if you go to this like this horrible little post blitz you know, bland building. No windows. His little blue oval plaques, this where jonathan was. Speech of nothing quite there. Thomas the thing about the bubble it self, the key thing was honey designed the deal. This was the first time, the thing to remember about it is yes, this is a bubble and yes there was deception previous people voted to deceive others. And sometimes the same people were actually calling others while they were fooling themselves. This was the first time that this had happen so the deal would set up with a really fatal flaw in the middle of it. Nobody ever said how much, what the value of what the piece of debt was. This is the how the modern bond market first starts to form and people in financial will tell you, the stock, may where the headlines come but theband, may where the action. I. Much, much larger and the fate of nations hacks on the been market in a way the stock market reflects but done drive. Thats starting right here. And they set up a really interesting deal. Its a deal that could have worked under certain circumstances but the way they set it up had a flaw in it that meant that first of all, the whole idea worked only if the stock stayed expensive. So sometime around the momented plunged you were doomed. You were supposedly buying these assets put you were also just buying the rise. Because it was expected to go up. Went up 50 pounds yesterday and ill be rich. How people buy stocks now. Yeah. Just this email from the wall street journal every day called the Intelligent Investor and right now theres an amateur boom in options trading, and im reading this going, ive seen this before and it happened in june 1720. Yes. In fact. In 1720 they were using the same options we use today. Call options, put options, buy options and sell options. Theres very little new under thank you sun an