The 50th Law (with 50 Cent)

Interpretation: John Blunt was a pragmatic, hard-nosed
businessman with a single goal—to make a lasting fortune for himself
and his family. In the summer of 1719, however, this highly realistic
man caught a fever of sorts. When he began to read about what was
going on in Paris, he was struck by the drama of it all. He read vivid
stories about average Frenchmen suddenly making fortunes. He had
never thought prior to this that investments in joint-stock companies
could yield such quick results, but the evidence from France was
irrefutable. He wanted to bring similar good fortune to England, and in
crafting his plan he naturally imitated many of the features of Law’s
scheme, only increasing the scale of it.
What is striking here, however, is that one rather obvious question
never seemed to cross his mind. The scheme would depend on the
share price rising. If those who converted their government IOUs into
shares had to pay £200 per share instead of £100, they would receive
fewer shares, which would leave more shares for South Sea to sell to
the public and make a nice profit. If the shares were purchased at £200
they were now worth more if the price continued to rise and were sold
at some point. Seeing the price rise would lure more creditors to
convert their shares and more people to buy in. Everyone would win
only if the price kept rising. But how could the price keep rising if it
was not based on any real assets, such as trade? If the price started to
fall, as it inevitably would, panic would certainly set in, since people
would lose faith in the scheme, and this could only set off a chain
reaction of selling. How could Blunt not have foreseen this?
The answer is simple: Blunt’s mental time frame had shrunk to the
point where he lost the ability to look months down the road and
consider consequences. Mesmerized by events in France and
imagining all of the wealth and power he was on the verge of attaining,
he could focus only on the present, making sure the scheme launched
successfully. Its initial success only made him imagine it would trend
this way for a long time. As it progressed, he certainly understood that
he had to make the price rise even more quickly, and the only means of
doing so was to lure in more investors through generous terms of
credit. This would make the scheme even more precarious, one
solution incurring several new dangers. The Bubble Act and the
generous dividends carried even greater immediate risks, but by now
his time frame had shrunk to a matter of days. If only he could keep

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the ship afloat another week, he would find some new solution. Finally,
he ran out of time.
When people lose the connection between their actions and their
consequences, they lose their hold on reality, and the further this goes
the more it looks like madness. The madness that overcame Blunt soon
infected the king, the Parliament, and eventually an entire nation of
citizens renowned for their common sense. Once the English saw their
compatriots making large sums of money, it became a fact—the
scheme had to be a success. They too lost the ability to think a few
months ahead. Look at what happened to Sir Isaac Newton, paragon of
rationality. In the beginning he too caught the fever, but after a week
his logical mind could see the holes in the scheme, and so he sold his
shares. Then he watched others making much larger sums of money
than his paltry £14,000 and it bothered him. By August he had to get
back in, even though it was the absolute worst time to reinvest. Sir
Isaac Newton himself had lost the ability to think past the day. As one
Dutch banker observed of the scene in Exchange Alley, “[It resembled]
nothing so much as if all the Lunatics had escaped out of the
Madhouse at once.”