The 50th Law (with 50 Cent)

6
Elevate Your Perspective
The Law of Shortsightedness
t is in the animal part of your nature to be most impressed by what
you can see and hear in the present—the latest news reports and
trends, the opinions and actions of the people around you, whatever
seems the most dramatic. This is what makes you fall for alluring
schemes that promise quick results and easy money. This is also what
makes you overreact to present circumstances—becoming overly
exhilarated or panicky as events turn one direction or the other.
Learn to measure people by the narrowness or breadth of their
vision; avoid entangling yourself with those who cannot see the
consequences of their actions, who are in a continual reactive mode.
They will infect you with this energy. Your eyes must be on the larger
trends that govern events, on that which is not immediately visible.
Never lose sight of your long-term goals. With an elevated
perspective, you will have the patience and clarity to reach almost
any objective.
Moments of Madness
All through the summer and early fall of 1719 the Englishman John
Blunt (1665–1733), one of the lead directors of the South Sea
Company, followed the latest news from Paris with increasing anxiety.
The French were in the midst of a spectacular economic boom, fueled
primarily by the success of the Mississippi Company, an enterprise
started by the expatriate Scotsman John Law to exploit the riches in
the Louisiana territories controlled by the French. Law sold shares in
the company, and as its price kept rising, Frenchmen of all classes
were cashing out and becoming fabulously wealthy. The word

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millionaire itself was coined in these months to refer to such nouveaux
riches.
Such news made Blunt angry and envious. He was a loyal
Englishman. With the success of the Mississippi Company, Paris was
drawing in investment capital from all over Europe. If this continued,
France would soon become the finance capital of the world, surpassing
Amsterdam and London. Such newfound power for the French could
only spell disaster for England, its archenemy, particularly if another
war broke out between them.
More personally, Blunt was a man of great ambition. He was the
son of a humble shoemaker; from early on in his life he aimed to
ascend to the highest levels of English society. His means of getting
there, he believed, would be through the financial revolution sweeping
Europe, which centered on the increasing popularity of joint-stock
corporations like Law’s and like the South Sea Company. As opposed
to building wealth through the traditional means of owning land,
which was expensive to manage and highly taxable, it was relatively
easy to earn money through purchasing stock, and profits were tax
free. Such investments were all the rage in London. Blunt had plans to
turn the South Sea Company into the biggest and most prosperous
joint-stock company in Europe, but John Law had stolen his thunder
with a bold venture, and with the full backing of the French
government. Blunt would simply have to come up with something
bigger and better, for his sake and for the future of England.
The South Sea Company had been formed in 1710 as an enterprise
that would handle and manage part of the English government’s
enormous debts, in exchange for which the company was to be granted
a monopoly on all English trade with South America. Over the years
the company did almost no trading but served as an informal bank for
the government. Through his leadership of the company, Blunt had
forged relationships with the wealthiest and most powerful
Englishmen, most notably King George I (1660–1727) himself, who
became one of its biggest investors and was named governor of the
company. Blunt’s motto in life had always been “Think big,” and it had
served him well. And so, as he racked his brain for a way to outdo the
French, he finally hit upon a scheme in October of 1719 that was
worthy of his motto and that he felt certain would change the course of
history.

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The greatest problem facing the English government, headed by the
king, was the massive debts it had incurred over the course of thirty
years during the wars that had been fought with France and Spain, all
financed through borrowing. Blunt’s proposal was simple and quite
astounding: The South Sea Company would pay the government a nice
fee in order to completely take over the debt, valued at a whopping £31
million. (The company would receive in exchange an annual interest
payment on the debt.) The company would then privatize this £31
million debt and sell it as if it were a commodity, as shares in the South
Sea Company—one share equaling £100 of debt. Those who had lent
the government money could convert their IOUs into equivalent shares
in the South Sea Company. The shares that were left over would be
sold to the public.
The price for one share would start at £100. As with any stock, the
price could rise and fall, but in this case, if played right, the price
would only go up. The South Sea Company had an intriguing name and
held out the possibility that it would also begin trading in the vast
wealth in South America. It was also the patriotic duty of English
creditors to participate in the scheme, since they would be helping to
cancel the debt while potentially making much more money than the
annual interest payments the government paid them. If the share price
rose, as it almost certainly would, buyers could cash out for a profit
and the company could afford to pay nice dividends. Like magic, debt
could be transformed into wealth. This would be the answer to all of
the government’s problems, and it would assure Blunt lasting fame.
When King George first heard of Blunt’s proposal in November of
1719, he was quite confused. He could not understand how such a
negative (debt) could be instantly turned into a positive. Besides, this
new jargon of finance went straight over his head. But Blunt spoke
with such conviction that he found himself swept up in his enthusiasm.
After all, he was promising to solve George’s two greatest problems in
one fell swoop, and it was hard to resist such a prospect.
King George was massively unpopular, one of the most unpopular
English kings of all time. It was not totally his fault: he was not English
by birth but German. His title previously had been the Duke of
Brunswick and Elector of Hanover. When Queen Anne of England died
in 1714, George was her closest living Protestant relative. But the
moment he ascended the throne his new subjects found him not to
their liking. He spoke English with a horrific accent, and his manners

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were so coarse, and he was always avid for more money. Despite his
advanced age he was constantly chasing after women other than his
wife, none of whom were particularly attractive. In the first years of his
reign there were several coup attempts, and the public might have
welcomed the change if they had succeeded.
George desperately wanted to prove to his new subjects that he
could be a great king, in his own way. What he hated most of all was
the crushing debts the government had incurred before he ascended
the throne. George had an almost allergic reaction to any kind of debt,
as if his own blood were being leeched.
Now here was Blunt offering him the chance to cancel the debt and
bring prosperity to England, strengthening the monarchy in the
process. It was almost too good to be true, and he threw his full weight
behind the proposal. He assigned the chancellor of the exchequer,
John Aislabie, the task of presenting the proposal to Parliament in
January 1720. Parliament would have to approve it in the form of a
bill. Almost immediately Blunt’s proposal stirred up fierce opposition
among several MPs, some of whom found it ludicrous. But in the
weeks after Aislabie’s speech, opponents of the bill watched in dismay
as support for their side slowly withered away. Advance shares in the
venture had been virtually gifted to the wealthiest and most powerful
Englishmen, including prominent members of Parliament, who,
sensing the sure profits they personally would gain, now gave their
approval to the bill.
When the bill passed in April of that year, King George himself
showed up at the South Sea House and deposited £100,000 for shares
in the new venture. He wanted to display his confidence in it, but such
a step was hardly necessary, as the buildup to the bill’s passage had
captured the public and interest in South Sea Company shares had
already reached a fever pitch. The center of activity was an area of
London known as Exchange Alley, where almost all stocks were sold.
Now the narrow streets in and around the alley were clogged with
traffic growing thicker by the day.
At first it was mostly the wealthy and influential who came in their
fancy coaches to buy up shares. Among the buyers were also artists and
intellectuals—including John Gay, Alexander Pope, and Jonathan
Swift. Soon Sir Isaac Newton felt the pull and invested a good chunk of
his savings, £7,000. A few weeks later, however, he felt doubt. The

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price was rising, but what rises can surely fall, and so he cashed out,
doubling his initial investment.
Soon rumors began to circulate that the company was about to
initiate trade in South America, where all kinds of riches lay buried in
the mountains. This only added fuel to the fire, and people from all
classes began to converge on London to buy up shares in the South Sea
Company. Blunt, it was reported, was a financial alchemist who had
found the secret of transforming debt into wealth. In the countryside
farmers pulled up from under their beds their life savings in coins and
sent their sons and nephews to buy as many shares as possible. The
fever spread to women of all classes, who normally did not dabble in
such things. Now actresses were rubbing elbows with duchesses in
Exchange Alley. All the while, the price kept rising, over £300 and
soon £400.
Like France before it, the country was now experiencing a
spectacular boom. On May 28 the king celebrated his sixtieth birthday,
and for someone who had been known for his frugality, it was the most
lavish party anyone had ever seen, with enormous tubs full of claret
and champagne. One woman at the party flaunted her new wealth by
encrusting her dress with jewels worth over £5,000. Everywhere in
London the wealthy were tearing down mansions and replacing them
with houses that were even larger and grander. Porters and footmen
were now quitting their jobs and buying expensive coaches and hiring
porters and footmen of their own. One young actress made such a
fortune, she decided to retire; she rented out an entire theater to say
good-bye to her adoring fans. An aristocratic lady was astonished one
evening at the opera to see that her former maid now occupied a more
expensive box in the theater than her own. Jonathan Swift wrote in a
letter to a friend, “I have enquired of some that have come from
London, what is the religion there? They tell me it is South Sea stock.
What is the policy of England? The answer is the same. What is the
trade? South Sea still. And what is the business? Nothing but South
Sea.”
In this midst of this feverish buying and selling spree, there stood
John Blunt at the pump, doing whatever he possibly could to stimulate
the interest in South Sea shares and keep the price rising. He sold the
stock in various subscriptions, offering generous terms of payment,
sometimes requiring only a 20 percent advance to get in. For every
£400 invested, Blunt would lend £300. He wanted to keep up the

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demand and make people feel that they might be missing out on their
one chance for wealth. Soon the price had passed £500 and kept on
rising. By June 15, he had set the subscription price at an astronomical
£1,000, with only 10 percent down to get in and 10 percent
installments spread out over four years. Few could resist such terms.
That very month King George had Blunt knighted. Now a baronet, Sir
John Blunt stood at the pinnacle of English society. Yes, he was rather
unattractive to look at and he could be quite pompous. But he had
made so many people so wealthy that he was now England’s most
cherished celebrity.
As the rich and powerful prepared to leave London for the summer
months, the mood was downright giddy. Blunt affected a confident and
carefree air, but underneath it he was beginning to feel worried, even
panicky. There were so many things he had failed to foresee. He had
inadvertently inspired a rash of new speculative ventures, some
involving legitimate ideas and some patently absurd, such as the
development of a wheel of perpetual motion. People were now feeling
the fever and were pouring some of their money into these new joint-
stock companies. Every £1 of cash that went into these was one £1 less
that people had to spend on the South Sea Company, and that was a
growing problem, since there was only so much cash in England, and
there were limits to how far he could go by offering credit. Similarly,
people were beginning to pour their money into land as a safe
investment for the future, often cashing out their South Sea stock for
such purposes. Blunt himself had been doing that very thing,
unbeknownst to the public.
More troubling still, the French had lost faith in the Mississippi
venture and were pulling out their money; cash had become scarce and
the French economy had now fallen into a sudden depression. This
would certainly affect the mood in London. Before people returned
from their summer holidays, Blunt had to take action.
Working with Parliament, he got passed the Bubble Act of 1720,
which banned all joint stocks not authorized by royal charter. This
would put an end to rampant speculation. But this solution created
consequences he did not foresee. Thousands of people had poured
their savings into these new businesses, and as these were now
outlawed, they had no way of getting their money back. Their only
recourse was to sell South Sea shares. Many of those who had used
credit to buy South Sea shares saw themselves facing installments they

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could no longer afford. They tried to cash out as well. The price of
South Sea shares began to fall. That August crowds were forming
outside the South Sea house as people felt desperate to sell.
Near the end of August Blunt became desperate himself. He decided
to launch his fourth money subscription, once again at £1,000. Now
the terms were even more generous than ever, and on top of it he was
promising an astonishingly large Christmas dividend of 30 percent, to
be followed by an annual dividend of 50 percent. Some were pulled
back into the scheme by such alluring terms, including Sir Isaac
Newton himself. But others, as if waking up from a dream, began to
wonder about the whole thing: how could a company that had not
traded for anything yet in South America, whose only tangible asset
was the interest the government paid it on its debt, afford to dish out
such large dividends? Now what had seemed like alchemy or magic
appeared to be a downright hoax on the public. By early September the
selling off had turned into a panic, as almost everyone rushed to
convert paper shares into something real, into coin or metal of any
kind.
As the panic for cash accelerated, the Bank of England was nearly
brought down—it came close to running out of currency. It was now
clear in England that the party was over. Many had lost their fortunes
and life savings in the sudden downfall. Isaac Newton himself had lost
some £20,000, and from then on the mere mention of finance or
banks would make him ill. People were trying to sell whatever they
could. Soon there was a wave of suicides, including that of Charles
Blunt, Sir John’s nephew, who slashed his throat after learning the
exact nature of his losses.
Blunt himself was hounded in the streets and nearly killed by an
assassin. He had to quickly escape London. He spent the rest of his life
in the town of Bath, scraping by on the very modest means still left to
him after Parliament seized almost all of the money he had earned
through the South Sea scheme. Perhaps in his isolation he could
contemplate the irony of it all—he had indeed changed the course of
history and assured his fame for all time, as the man who had conjured
up one of the most absurd and destructive schemes ever devised in the
history of business.
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