CHAPTER 5: BUBBLES AND ADAM SMITH.
This chapter explores how laws enabling debt to be bought and sold transformed Britain. Suddenly, vast quantities of money and value were being created out of nothing. The effect was dramatic and widely commented on. Some people thoroughly approved, while others saw a new kind of tyranny taking over – a tyranny of fictitious wealth.
Speculators and ‘projectors’[1] soon realized that when money and other types of value can be created out of nothing, different types of debt can be created and used to raise prices, and therefore value. Assets can be bought with money made from nothing, prices can be talked up, more money can be created to fuel and satisfy demand, and – hey presto! – when the assets are re sold, sky-high profits are made. The table was laid for an orgy of speculative greed – and the orgy began almost immediately.
‘It was as if all the lunatics had escaped from the madhouse at once’ commented a Dutch observer.[2]Hysteria for speculation took hold of public life. English poets, novelists, and playwrights wrote and argued about the virtues and vices of ‘Lady Credit’ – and joined in the orgy themselves. A whole century of literature – Daniel Defoe, Jonathan Swift, Alexander Pope, along with many less famous writers – was given over to satirising the new society of speculators and credit-worshippers.[3]Hogarth did the same in art.
The profits of speculation left ‘honesty with no defence against superior cunning’ wrote Jonathan Swift in Gulliver’s Travels.[4] Speculations in credit ‘ruin silently… like poison that works at a distance… by the strange and unheard-of engines of interest, discounts, tallies, transfers, debentures, shares, projects, and the devil-and-all of figures and hard names,’ wrote Daniel Defoe, author of Robinson Crusoe.[5]
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