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Letters by a modern St. Ferdinand III about cults

Gab@StFerdinandIII - Plenty of cults exist - every cult has its 'religious dogma', its idols, its 'prophets', its 'science', its 'proof' and its intolerant liturgy of demands.  Cults everywhere:  Corona, 'The Science' or Scientism, Islam, the State, the cult of Gender Fascism, Marxism, Darwin and Evolution, Globaloneywarming, Changing Climate, Abortion....a nice variety for the human-hater, amoral, anti-rationalist to choose from.  It is so much fun mocking them isn't it ?

Tempus Fugit Memento Mori - Time Flies Remember Death 

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Thursday, July 17, 2014

Thomas Mackay, 'Extraordinary Popular Delusions and the Madness of Crowds” Ch. 1

France in 1720: Easy money, rising stock prices, no inflation ! Sound familiar ?

by StFerdIII

 Written in 1841, Mackay's classic work is a history of the madness of the mass. A good rule in life is that whatever the mass believes is 'science', a 'good deal', or a 'quick way' to make money; is quite likely a descent into madness. We can quote Schiller: “Anyone taken as an individual is tolerably sensible and reasonable – as a member of a crowd, he at once becomes a blockhead.” Harsh but maybe some truth in it. In the modern world the block-head theologies of globlaoneywarming, Islam-is-peace, evolution [scum to scientist via magic pixie dust]; and other mass-believing distortions and frauds abound – much of it financed of course by the grinning state. No wonder pyramid schemes are so commonly embraced, or hucksters selling penny-stocks of non-existent firms, so persistent and at times successful. Given the madness of crowds, no wonder in the undemocratic plurality of politics, the insane, the spendthrift, the corrupt, the mendacious and the illiterate become elected. Rhetoric over reality.

Mackay: Chapter 1 – The Mississippi Scheme

In broad outline the madness of the French state's Mississippi scheme is as follows.

-John Law, a Scot, a well-known fraud and failure, becomes the French minister of Finance [itself a bizarre story, the man did not even speak French that well].

-The French state circa 1715 was as usual, quite bankrupt, due in part to a parade of wars which it had lost to the English. French hegemony over Europe – a long cherished dream since the days of Clovis in the 6th century – had ended in miserable failure and ruin.

-Law's entry to the highest point of power in France, is a long, complicated tale, but basically he proposed the establishment of money in place of metal as the nation's currency. This would allow the French state to print money and inflate away its debt obligations [sound familiar ?].

-The French monarchy instructed Law, based on his published papers on money and trade; to establish a bank with his brother, the notes of which would be received in the form of taxes. This ensured that Law became a millionaire.

-Law made his bank notes payable on sight [a novel innovation which no other bank or state followed], and his bank notes became 15% more valuable than other notes [the banking system of the early 18th century was very decentralized with banks providing their own currency].

-In 1717 Law came up with his bizarre pyramid scheme, and given his banking success and prestige, was quickly able to convince the monarchy of its value. Basically the scam was to set up a stock-issuing firm, whose business interests centred on trade along the Mississippi river – at that time owned and controlled by France.

-At the same time Law's bank was turned into the Royal Bank of France and he was given a monopoly on gold and silver refining. As soon as the bank became a state-firm [in effect nationalized] the French monarchy began printing notes afresh – departing from the original terms of Law's bank, which was that the amount of specie in circulation be fully covered by deposits or credit within the bank.

-In 1719, the 'Mississippi company' was granted exclusive rights to all French trading in North America and the Far East. Shares were issued and eagerly bought up. In fact Law promised dividends that were so large, that the original share offering was 6 times over subscribed.

-As share prices quickly escalated and profits accrued, the clamour for more shares; and the greed to buy and sell shares for a profit reached mania-dimensions in 1719 and 1720. It seemed that every Frenchman from low-born to aristocrat was involved in buying and selling and buying again the shares of Law's Mississippi company.

-Share prices in the firm could rise 10-20 per cent within an hour. Law was embraced as a hero, a saviour, a magician.

-As the shares of the firm went inexorably upwards so too did the printing of paper money. The French market was flooded with notes. Out went old furniture, in came the new imports. Scrapped were the old carriages, built on commission were the new. Society seemingly flourished in 1720 as the money simply seem to appear by magic and consumption ran amok.

-Inevitably coin and metal fled the country, and France became denuded of both. In 1720 in a panic, Law issued an order that only a small quantity of coin could be possessed by any person. It was also forbidden to buy up jewellery, precious stones, and art. Inflation was the reason. Coin was leaving and the paper money was becoming worthless.

-The 'Mississippi Company' had produced no revenues, no profits, had engaged in no trade, and had no operations to speak of. By the mid-1720s the rise in share prices of several thousand percent had started to decline. Even the gullible wake up at some point.

-By the end of 1720, the shares in the firm had collapsed, French credit was non-existent and inflation was hyper. Law was forced to leave the country and his fortune was confiscated. The man was broke.

-By the time of Law's exile, the French national debt had risen to $3.1 billion or about $300 billion in today's terms.

The madness of easy money. Print and all will be well ! The madness of pursuing stocks of firms, about which you know nothing, except that your greed gets in the way of your good sense. The madness of believing that prices in stocks always rise. The madness in believing that whatever government tells you is either right or justified.

Those are the morals of John Law and his brief history of destruction in France. 


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