These are my notes for the K5M Book Club on the book Money, by Jacob Goldstein.
Chapter 7: The Invention of Millionaires
Man, we jump into this chapter with some of the violent history of capitalism. “… looting and pillaging and harvesting cinnamon and getting rich” for hundreds of years. Sucks to be on the other end of that.
Monopoly
So an entire country is using John Law’s paper money to pay their taxes, issued by his private bank. And then John starts a new company, Company of the West, AKA the Mississippi Company, which is granted a monopoly on all France’s trade along the Mississippi river and later,
… absorbed the Compagnie des Indes Orientales (“Company of the East Indies”), the Compagnie de Chine (“Company of China”), and other rival trading companies and became the Compagnie Perpetuelle des Indes on 23 May 1719 with a monopoly of French commerce on all the seas. –Wikipedia
It’s hard to reconcile my own idea of free but regulated trade with the idea of government provided monopolies. (I mean, I guess that is how most cable companies still work today.) Monopolies are bad!
New Orleans
How has New Orleans managed to maintain some aspect of its French history all these years? I feel like it has held onto that more than Boston or other cities that identify with an “old country”.
The regent seems to be REALLY helping out John Law. Why? Is it for the good of France? Is it to enrich himself? I can’t help but be suspicious of the whole thing…
The Banque Royale
So the king, actually the regent because the king isn’t 13 years old yet, “takes over” the bank. The new banque charter says they will print as much as they want, and John Law believes that “more paper money would lead to more trade, which would make everybody better off.”
Since we’re in the early days of paper money I understand how that is true, but where is the line between encouraging trade and inflation?
Buy The Old Before The New
The part where John Law says you can’t buy the new shares of the Mississippi Company that is eating up the competition and generating riches in America unless you own the old shares is GENIUS.
Imagine an IPO of a company that you could only get in on if you owned some other company. Of course you’d go buy a share of that old fusty company. And then that price would go up too. This probably wouldn’t be legal today but it seems like something I should try for KmikeyM somehow.
Then he did it again! So you have these first generation shares that allow access to the more exciting second gen that allow access to the third generation of HOT NEW SHARES.
Imagine if there was a shoe drop where you could only get the hot new sneaker if you owned the previous two generations of that sneaker. That would be great! The price on the secondary sneaker market of those old shoes would pop!
“The covetous man is always in want.” – Horace
So the Regent keeps enabling John. And John LOVES it. He takes over more and more of the French economy and keeps selling shares and people are FREAKING OUT and coming to buy and trade shares. John becomes the wealthiest non-royal in France and owns, among other things, 45,000 books.
45,000 books! That’s a lot of books! Karl Lagerfeld owned 300,000 but that was hundreds of years later. George Lucas only owns about 27,000. What a wimp.
So all this wealth is from selling shares that promise great fortune from the exploits of the Mississippi Company. But the problem is that it’s HARD to make money in America and people keep dying. John gets so desperate he pushes for new laws so he can send criminals over to settle and generate returns.
Note: When your plan for profits is based on the labor of prisoners you have crossed a line and you are a bad person.
Oh, but guess what, it doesn’t work…
The Real Economy
“The real economy” is a very cool phrase in that it includes all economic activity outside of finance. It’s like, you’re not in the REAL ECONOMY unless you make stuff! It seems kind of socialist doesn’t it? The power of the worker and all that?
So John flooded France with paper money on the promise of riches from New Orleans, but that caused inflation, and no riches came back. Being that he controlled the economy he tried to force people to use paper money as it was dawning on them it was worthless and i love the loopholes people came up with!
Can’t use precious metal in coins? Fine, this is jewelry.
Can’t have jewelry that is too big? Fine, this is a religious symbol and I love God now.
At some point THE REAL ECONOMY, aka the farmers, stopped accepting paper money. John was fucked.
Tension
I like this idea that for the system of government and banks to work there needs to be tension and arguing and conflict. No one person can have too much power in relation to money or you end up with bad greedy choices.
Also, it means the arguing and fighting is GOOD! That’s a weird idea but it reminds me of when Marcus and I were running Chroma and we’d get into these LONG drawn out arguments about some issue. We’d go from minor disagreement to major disagreement to once I was so mad I just walked out of the office! But in the end we always managed to find some middle ground way that I think most often was better than my idea or his idea.
That’s a nice final lesson for the end of part 2: Argue about everything that matters!