Newton and the Counterfeiter (30 page)

Even so, Newton continued to play an important public role. The Mint still demanded a surprising amount of his time and effort, especially once the fate of the Great Recoinage became clear. As he had predicted, the recoinage, however successful as an industrial operation, was a failure as monetary policy. The decision to recoin without devaluing had the predicted result: silver continued to flow across the English Channel, buying continental gold at cheaper prices than those offered by the exchange rate between silver shillings and golden guineas. By 1715, most of the new silver specie struck through 1699 had vanished. In response, more or less by accident, the basis of British currency shifted from silver to a new gold standard.

Newton, first of necessity and then with more intention, oversaw this shift. In doing so, he found himself exploring the same kind of global information networks he had used to advance his arguments in the
Principia.
This time, instead of data on the tides and observations of comets and the motion of pendulums at various spots on the planet, he investigated what he quickly realized was a worldwide trade in gold. By 1717, he was able to sum up in detail what was going on. Gold was much cheaper in China and India than in Europe, Newton told the Treasury. That imbalance sucked silver—much of it mined originally in the New World—not just out of England but out of the entire European continent. This was its own kind of action at a distance: the faraway, almost occult attraction of Asian gold markets putting European silver into a predictable trajectory, one to be explained with the same habits of mind that had brought the revolutionary study of gravity to its completion thirty years earlier.

At the same time, Newton remained alert to the limitations of seeing metal as the only true money. He defended the idea that paper, government borrowing at interest, could repair the deficiencies of an all-metal money supply. In essence, he argued for an inflationary policy, suggesting that the various experiments in debt of the previous decade—Malt Lottery tickets, Bank of England notes, Exchequer bills, and the rest—were practical and prudent answers to shortfalls in hard money. In a strikingly modern-sounding passage, he wrote, "If interest be not yet low enough for the advantage of trade and designs of setting the poor on work ... the only proper way to lower it is more paper credit till by trading and business we can get more money." And even more radically he wrote, "Tis mere opinion that sets a value upon [metal] money," adding, "We value it because we can purchase all sorts of commodities and the same opinion sets a like value upon paper security."

In this Newton's was the minority view; even his old currency ally Lowndes disagreed with such an accommodating idea of the role of credit in the currency. Newton was right, though, and his notion closely approximates the modern conception of money. But these new conceptions of money were still poorly understood, even by someone with his analytical powers. In the last decade of his life, Newton would find out just how easy it was to be overcome by the promises written on bits of fancy paper.

It had seemed a good idea at the time. In 1711, English speculators formed the South Sea Company to take advantage of opportunities created by the War of Spanish Succession. They intended to exploit a government-granted monopoly trade with Spain's Latin American colonies, at a time when Spain could not enforce its own control of commerce there. The price paid for the monopoly: the South Sea Company agreed to take over some of Britain's official debt—that whole bestiary of obligations, bonds, and lotteries issued to pay for the nation's wars. The company recapitalized the debt with a loan of £2.5 million to the government and then converted the older obligations it had received into shares in the new company.

The promised trade never materialized, and the company began to act almost exclusively as a kind of bank—and an innovative one at that. In 1719, Parliament passed a bill permitting the South Sea Company to purchase more government obligations, again converting a range of public debts into a single, easily tradable form: stock in a company that could be bought and sold on the nascent market in London's Exchange Alley.

The creation of a permanent, easily transferable debt would prove to be a very valuable tool, one that some historians have credited with financing the great leap to global power the British Empire achieved over the next century and a half. But that financial revolution did not occur without the occasional setback—including, notably, the fiasco of the South Sea Bubble.

The bubble began with rumors circulating in January 1720 — set in motion by company insiders in a game as old as markets — that the trading side of the South Sea enterprise was about to take off. Exchange Alley bit, hard. South Sea stock rose from £128 to £175 a share within a month, and then the announcement of a new deal for the company to take on yet more national debt kicked the price up to £330 by the end of March.

That was just the beginning. The sense that there was easy money to be found fueled a speculative boom. By May, the price of South Sea stock topped £550, and just a month later, shares in the company peaked at £1,050, propelled to those heights by the announcement of a ten percent dividend, to be paid in midsummer.

Then it fell apart, fast. However it had begun, by the end the South Sea Company had devolved into a pyramid scheme, the classic con in which money from the last investors goes to pay off earlier punters with rewards that seem—and are—too good to be true. Eventually, all such schemes run out of new takers, and they collapse. Shares in the company started to fall in July, although in August they still commanded as much as £800. Then the bottom fell out. The stock price crashed to £175 within a month, wiping out virtually all those investors who had leaped, just weeks before, onto what had seemed an infallible money-making machine.

Among those last-in, first-crushed losers: Isaac Newton. He had actually been one of the early, and hence in theory, least vulnerable investors in the company. He listed a substantial amount of South Sea stock among his holdings as early as 1713, and he had sense enough to sell some of his shares into the rising market of April 1720. But the stock continued to rise, and Newton, watching as bolder players held on for a further threefold gain—on paper—succumbed a second time. In June, at the very peak of the boom, he directed his agent to purchase an additional £1,000 of stock. He bought more shares a month later, just as the price was beginning its slide. When the crash came, his niece, Catherine Conduitt, reported that his losses topped £20,000, roughly forty years of his base salary as Master of the Mint.

Newton, of all people, should have been able to penetrate the flaw in the math behind the South Sea fraud, the same that lies at the heart of every pyramid scheme. Look at the promised payments over time, expand the series—the very type of problem Newton first solved in 1665—and in short order the sums on offer exceed the total available store of money to pay them. Yet people who are offered a gold-plated promise of twenty percent or better returns on their money leap for the prize again and again. Newton did too.

The loss undoubtedly hurt, though Newton had not gone so far as to bet all he had on the bubble. He continued to be one of the largest individual owners of East India Company stock, with £11,000 invested in that much more stable business as of 1724, and the value of his estate as calculated a few years later topped £32,000, excluding his landholdings in Lincolnshire. So by any measure he remained a wealthy man. But the memory of the disaster pained him, and it was said he hated it when anyone so much as mentioned the South Sea Company in his hearing. It may not have been just the money lost that irked him so. Rather, it also seems that he saw he had been played for a sucker, like any mere unphilosophical fool. Once, speaking of the spellbinding rise in South Sea shares at the peak of the mania, he told Lord Radnor "that he could not calculate the madness of the people."

Whatever Newton's regrets, his friends remembered him in his last years as generally content, a more benign figure than the ferocious intellectual infighter of his earlier years. Despite his wealth, he lived moderately: bread and butter for breakfast, wine usually only at dinner. According to his niece, he hated cruelty to animals. He was genial to old friends, and despite his history of aloof unsociability, he became something of a paterfamilias to his extended family. He was a fixture at weddings, where "he would on those occasions lay aside gravity, be free, pleasant, and unbended." Even better, from the family's point of view, "He generally made a present of £100 to the females and set up the men to trade and business."

As Newton passed into his eighties, the pace of his public life slowed. He ceased to take much active interest in the Royal Society, and some of his comments there betray a man more lost in memory than caught up in current intellectual concerns. The Mint he mostly left to its own devices, ultimately passing its management on to his niece's husband, John Conduitt, who succeeded him as Master. From 1722, his health began to decline. Gout and a nasty respiratory illness were enough to persuade him to move to Kensington in 1725, then considered to be "a little way of in the country," with sweeter air than the fug of London proper. Through that year and the next, he continued to read and write and think, his studies still centered almost exclusively on biblical history.

In February 1727, a visitor came to call. He found Newton attempting to ready his
Chronology of Ancient Kingdoms
for the printer. The old man entertained his guest by reading from the manuscript until dinnertime. A few days later, Newton attended a meeting of the Royal Society. The next day, he had an excruciating pain in his abdomen, caused by what was diagnosed as a stone in the bladder. The illness persisted for almost two weeks, and then, briefly, he felt the worst of his suffering abate. This hint of recovery was an illusion. He lost consciousness on March 19, and died in the early hours of the twentieth. At the last, Isaac Newton refused to take communion in the Church of England.

Before his death, Newton offered his own version of an epitaph. In perhaps his most famous moment of self-reflection, he wrote:

I don't know what I may seem to the world, but as to myself, I seem to have been only like a boy playing on the sea shore, and diverting myself in now and then finding a smoother pebble or a prettier shell than ordinary, whilst the great ocean of truth lay all undiscovered around me.

Those who had known him took a different view. In 1730, John Conduitt was considering the design of Newton's monument in Westminster Abbey. He received a letter from a man
who had once engaged Newton's thoughts as deeply as anyone ever would. Nicholas Fatio de Duillier remembered when the Principia had appeared like prophecy, a revelation. Thus he proposed the text for the inscription to be carved into the memorial: "
Nam hominem eum fuisse, si dubites, hocce testatur marmor
." The phrase can be translated, "If you doubt there was such a man, this monument bears witness."

This book has depended on the kindness—and much more—of a host of people. Three of them are tied for first among equals: my editors Rebecca Saletan (Houghton Mifflin Harcourt) and Neil Belton (Faber and Faber), and my agent, Theresa Park. There is no gift I could have received to match the sustained, critical attention that I have received from Becky and Neil. Theresa's involvement in this book extends to its prehistory, and her kind and implacable guidance has been invaluable throughout the project. My thanks also to Deanne Urmy, who guided the book through its final preparation for publication.

I must also thank Bantam's Ann Harris, editor of my previous book,
Einstein in Berlin,
who extended the extraordinary education she gave me in the art of writing on that book by working through the ideas that became this one. Every writer should have such a generous sounding board.

Etienne Benson—now Dr. Benson, then a graduate student at MIT—was an invaluable research assistant, smart, fast, and insightful. My thanks as well to Houghton's Larry Cooper, whose manuscript editing was both rigorous and humane; the readers of this book may not know they owe him a debt of gratitude, but they do. Becky's assistant editor, Thomas Bouman, ably helped in the editing of the book, and only those who have done it themselves know just how much I owe him for his heroic work turning my footnotes into a publishable resource.

I have also benefited greatly from the help of the Newton scholarly community, fabulously learned and a group unusual, in my experience, in their generous welcome to a newcomer. Cambridge University's Simon Schaffer has a global network of students and colleagues who have benefited from his seemingly inexhaustible insights into Newton's work and times; I am just the latest who needs to thank him for early advice and the review of several versions of the manuscript.

Jan Golinski of the University of New Hampshire and Mark Goldie of Cambridge University did the same—several meetings, reviews of the manuscript, advice and encouragement. Many from the broader community in the history of science and economics also gave me invaluable help. Peter Galison at Harvard University gave me early advice and reviewed a late draft. David Bodanis, science writer and public intellectual extraordinaire, gave the manuscript a close read and a very sensitive critique. My MIT colleagues Peter Temin and Ann McCants, and my friend from across the river, Boston University's Zvi Bodie, reviewed the economic history sections of the book and improved the arguments there immensely.

Physicists Sean Carroll and Lisa Randall sought to straighten out any kinks in my explication of Newton's physics. Matthew Strassler listened to a lot of attempts to make sense of the roots of his science. Hilary Putnam once again gave me the enormous compliment of his unique combination of formidable learning and meticulous attention as he listened to my accounts of Newton. It should go without saying, but I'll say it anyway, that any errors of fact or interpretation that remain in this book are mine alone.