The Ascent of Money_ A Financial History Part 12

92 Lowenstein, Lowenstein, When Genius Failed When Genius Failed, p. 147.

93 Andre F. Perold, 'Long-Term Capital Management, L.P. (C)', Harvard Business School Case 9-200-09 (5 November 1999), pp. 1, 3. Andre F. Perold, 'Long-Term Capital Management, L.P. (C)', Harvard Business School Case 9-200-09 (5 November 1999), pp. 1, 3.

94 Idem Idem, 'Long-Term Capital Management, L.P. (D)', Harvard Business School Case 9-200-10 (4 October 2004), p. 1. Perold's cases are by far the best account.

95 Lowenstein, Lowenstein, When Genius Failed When Genius Failed, p. 149.

96 'All Bets Are Off: How the Salesmans.h.i.+p and Brainpower Failed at Long-Term Capital', 'All Bets Are Off: How the Salesmans.h.i.+p and Brainpower Failed at Long-Term Capital', Wall Street Journal Wall Street Journal, 16 November 1998.

97 See on this point Peter Bernstein, See on this point Peter Bernstein, Capital Ideas Evolving Capital Ideas Evolving (New York, 2007). (New York, 2007).

98 Donald MacKenzie, 'Long-Term Capital Management and the Sociology of Arbitrage', Donald MacKenzie, 'Long-Term Capital Management and the Sociology of Arbitrage', Economy and Society Economy and Society, 32, 3 (August 2003), p. 374.

99 Ibid., Ibid., pa.s.sim pa.s.sim.

100 Ibid., p. 365. Ibid., p. 365.

101 Franklin R. Edwards, 'Hedge Funds and the Collapse of Long-Term Capital Management', Franklin R. Edwards, 'Hedge Funds and the Collapse of Long-Term Capital Management', Journal of Economic Perspectives Journal of Economic Perspectives, 13, 2 (Spring 1999), pp. 192f. See also Stephen J. Brown, William N. Goetzmann and Roger G. Ibbotson, 'Offsh.o.r.e Hedge Funds: Survival and Performance, 1989-95', Journal of Business Journal of Business, 72, 1(January 1999), 91-117.

102 Harry Markowitz, 'New Frontiers of Risk: The 360 Degree Risk Manager for Pensions and Nonprofits', Harry Markowitz, 'New Frontiers of Risk: The 360 Degree Risk Manager for Pensions and Nonprofits', The Bank of New York Thought Leaders.h.i.+p White Paper The Bank of New York Thought Leaders.h.i.+p White Paper (October 2005), p. 6. (October 2005), p. 6.

103 'Hedge Podge', 'Hedge Podge', The Economist The Economist, 16 February 2008.

104 'Rolling In It', 'Rolling In It', The Economist The Economist, 16 November 2006.

105 John Kay, 'Just Think, the Fees You Could Charge Buffett', John Kay, 'Just Think, the Fees You Could Charge Buffett', Financial Times Financial Times, 11 March 2008.

106 Stephanie Baum, 'Top 100 Hedge Funds have 75% of Industry a.s.sets', Stephanie Baum, 'Top 100 Hedge Funds have 75% of Industry a.s.sets', Financial News Financial News, 21 May 2008.

107 Dean P. Foster and H. Peyton Young, 'Hedge Fund Wizards', Dean P. Foster and H. Peyton Young, 'Hedge Fund Wizards', Economists' Voice Economists' Voice (February 2008), p. 2. (February 2008), p. 2.

108 Niall Ferguson and Moritz Schularick, ' "Chimerica" and Global a.s.set Markets', Niall Ferguson and Moritz Schularick, ' "Chimerica" and Global a.s.set Markets', International Finance International Finance 10, 3 (2007), pp. 215-39. 10, 3 (2007), pp. 215-39.

109 Michael Dooley, David Folkerts-Landau and Peter Garber, 'An Essay on the Revived Bretton-Woods System', NBER Working Paper 9971 (September 2003). Michael Dooley, David Folkerts-Landau and Peter Garber, 'An Essay on the Revived Bretton-Woods System', NBER Working Paper 9971 (September 2003).

110 Ben Bernanke, 'The Global Saving Glut and the U.S. Current Account Deficit', Homer Jones Lecture, St Louis, Missouri (15 April 2005). Ben Bernanke, 'The Global Saving Glut and the U.S. Current Account Deficit', Homer Jones Lecture, St Louis, Missouri (15 April 2005).

111 'From Mao to the Mall', 'From Mao to the Mall', The Economist The Economist, 16 February 2008.

112 For a critique of recent Federal Reserve policy, see Paul A. Volcker, 'Remarks at a Luncheon of the Economic Club of New York' (8 April 2008). In Volcker's view, the Fed has taken 'actions that extend to the very edge of its lawful and implied powers'. For a critique of recent Federal Reserve policy, see Paul A. Volcker, 'Remarks at a Luncheon of the Economic Club of New York' (8 April 2008). In Volcker's view, the Fed has taken 'actions that extend to the very edge of its lawful and implied powers'.

113 See e.g. Jamil Anderlini, 'Beijing Looks at Foreign Fields in Plan to Guarantee Food Supplies', See e.g. Jamil Anderlini, 'Beijing Looks at Foreign Fields in Plan to Guarantee Food Supplies', Financial Times Financial Times, 9 May 2008.

114 In the absence of the First World War, it may be conjectured, Germany would have overtaken Britain in terms of world export market share in 1926: Hugh Neuburger and Houston H. Stokes, 'The Anglo-German Trade Rivalry, 1887-1913: A Counterfactual Outcome and Its Implications', In the absence of the First World War, it may be conjectured, Germany would have overtaken Britain in terms of world export market share in 1926: Hugh Neuburger and Houston H. Stokes, 'The Anglo-German Trade Rivalry, 1887-1913: A Counterfactual Outcome and Its Implications', Social Science History Social Science History, 3, 2 (Winter 1979), pp. 187-201.

115 Aaron L. Friedberg, 'The Future of U.S.-China Relations: Is Conflict Inevitable?', Aaron L. Friedberg, 'The Future of U.S.-China Relations: Is Conflict Inevitable?', International Security International Security, 30, 2 (Fall 2005), pp. 7-45.

116 The average length of the financial careers of the current chief executive officers of Citigroup, Goldman Sachs, Merrill Lynch, Morgan Stanley and JP Morgan is just under twenty-five and a half years. The average length of the financial careers of the current chief executive officers of Citigroup, Goldman Sachs, Merrill Lynch, Morgan Stanley and JP Morgan is just under twenty-five and a half years.

Afterword: The Descent of Money 1 For some fascinating insights into the limits of globalization, see Pankaj Ghemawat, For some fascinating insights into the limits of globalization, see Pankaj Ghemawat, Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter (Boston, 2007). (Boston, 2007).

2 Frederic Mishkin, Weissman Center Distinguished Lecture, Baruch College, New York (12 October 2006). Frederic Mishkin, Weissman Center Distinguished Lecture, Baruch College, New York (12 October 2006).

3 Larry Neal, 'A Shocking View of Economic History', Larry Neal, 'A Shocking View of Economic History', Journal of Economic History Journal of Economic History, 60, 2 (2000), pp. 317-34.

4 Robert J. Barro and Jose F. Ursua, 'Macroeconomic Crises since 1870', Robert J. Barro and Jose F. Ursua, 'Macroeconomic Crises since 1870', Brookings Papers on Economic Activity Brookings Papers on Economic Activity (forthcoming). See also Robert J. Barro, 'Rare Disasters and a.s.set Markets in the Twentieth Century', Harvard University Working Paper (4 December 2005). (forthcoming). See also Robert J. Barro, 'Rare Disasters and a.s.set Markets in the Twentieth Century', Harvard University Working Paper (4 December 2005).

5 Na.s.sim Nicholas Taleb, Na.s.sim Nicholas Taleb, Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets (2nd edn., New York, 2005) (2nd edn., New York, 2005) 6 Idem Idem, The Black Swan: The Impact of the Highly Improbable The Black Swan: The Impact of the Highly Improbable (London, 2007). (London, 2007).

7 Georges Soros, Georges Soros, The New Paradigm for Financial Markets: The Credit Crash of 2008 and What It Means The New Paradigm for Financial Markets: The Credit Crash of 2008 and What It Means, (New York, 2008), pp. 91 ff.

8 See Frank H. Knight, See Frank H. Knight, Risk Risk, Uncertainty and Profit Uncertainty and Profit (Boston, 1921). (Boston, 1921).

9 John Maynard Keynes, 'The General Theory of Employment', John Maynard Keynes, 'The General Theory of Employment', Economic Journal Economic Journal, 51, 2 (1937), p. 214.

10 Daniel Kahneman and Amos Tversky, 'Prospect Theory: An a.n.a.lysis of Decision under Risk', Daniel Kahneman and Amos Tversky, 'Prospect Theory: An a.n.a.lysis of Decision under Risk', Econometrica Econometrica, 47, 2 (March 1979), p. 273.

11 Eliezer Yudkowsky, 'Cognitive Biases Potentially Affecting Judgment of Global Risks', in Nick Bostrom and Milan Cirkovic (eds.), Eliezer Yudkowsky, 'Cognitive Biases Potentially Affecting Judgment of Global Risks', in Nick Bostrom and Milan Cirkovic (eds.), Global Catastrophic Risks Global Catastrophic Risks (Oxford University Press, 2008), pp. 91-119. See also Michael J. Mauboussin, (Oxford University Press, 2008), pp. 91-119. See also Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places More Than You Know: Finding Financial Wisdom in Unconventional Places (New York / Chichester, 2006). (New York / Chichester, 2006).

12 Mark Buchanan, Mark Buchanan, The Social Atom: Why the Rich Get Richer, Cheaters Get Caught, and Your Neighbor Usually Looks Like You The Social Atom: Why the Rich Get Richer, Cheaters Get Caught, and Your Neighbor Usually Looks Like You (New York, 2007), p. 54. (New York, 2007), p. 54.

13 For an introduction, see Andrei Shleifer, For an introduction, see Andrei Shleifer, Inefficient Markets: An Introduction to Behavioral Finance Inefficient Markets: An Introduction to Behavioral Finance (Oxford, 2000). For some practical applications see Richard H. Thaler and Ca.s.s R. Sunstein, (Oxford, 2000). For some practical applications see Richard H. Thaler and Ca.s.s R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness Nudge: Improving Decisions About Health, Wealth, and Happiness (New Haven, 2008). (New Haven, 2008).

14 See Peter Bernstein, See Peter Bernstein, Capital Ideas Evolving Capital Ideas Evolving (New York, 2007). (New York, 2007).

15 See for example James Surowiecki, See for example James Surowiecki, The Wisdom of Crowds The Wisdom of Crowds (New York, 2005); Ian Ayres, (New York, 2005); Ian Ayres, Supercrunchers: How Anything Can Be Predicted Supercrunchers: How Anything Can Be Predicted (London, 2007). (London, 2007).

16 Daniel Gross, 'The Forecast for Forecasters is Dismal', Daniel Gross, 'The Forecast for Forecasters is Dismal', New York Times New York Times, 4 March 2007.

17 The cla.s.sic work, first published in 1841, is Charles MacKay, The cla.s.sic work, first published in 1841, is Charles MacKay, Extraordinary Popular Delusions and the Madness of Crowds Extraordinary Popular Delusions and the Madness of Crowds (New York, 2003 [1841]). (New York, 2003 [1841]).

18 Yudkowsky, 'Cognitive Biases', pp. 110f. Yudkowsky, 'Cognitive Biases', pp. 110f.

19 For an introduction to Lo's work, see Bernstein, For an introduction to Lo's work, see Bernstein, Capital Ideas Evolving Capital Ideas Evolving , ch. 4. See also John Authers, 'Quants Adapting to a Darwinian a.n.a.lysis', , ch. 4. See also John Authers, 'Quants Adapting to a Darwinian a.n.a.lysis', Financial Times Financial Times, 19 May 2008.

20 The following is partly derived from Niall Ferguson and Oliver Wyman, The following is partly derived from Niall Ferguson and Oliver Wyman, The Evolution of Financial Services: Making Sense of the Past, Preparing for the Future The Evolution of Financial Services: Making Sense of the Past, Preparing for the Future (London / New York, 2007). (London / New York, 2007).

21 The Journal of Evolutionary Economics The Journal of Evolutionary Economics. Seminal works in the field are A. A. Alchian, 'Uncertainty, Evolution and Economic Theory', Journal of Political Economy Journal of Political Economy, 58 (1950), pp. 211-22, and R. R. Nelson and S. G. Winter, An Evolutionary Theory of Economic Change An Evolutionary Theory of Economic Change (Cambridge, MA, 1982). (Cambridge, MA, 1982).

22 Thorstein Veblen, 'Why is Economics Not an Evolutionary Science?' Thorstein Veblen, 'Why is Economics Not an Evolutionary Science?' Quarterly Journal of Economics Quarterly Journal of Economics, 12 (1898), pp. 373-97.

23 Joseph A. Schumpeter, Joseph A. Schumpeter, Capitalism, Socialism and Democracy Capitalism, Socialism and Democracy (London, 1987 [1943]), pp. 80-4. (London, 1987 [1943]), pp. 80-4.

24 Paul Ormerod, Paul Ormerod, Why Most Things Fail: Evolution, Extinction and Economics Why Most Things Fail: Evolution, Extinction and Economics (London, 2005), pp. 180ff. (London, 2005), pp. 180ff.

25 Jonathan Guthrie, 'How the Old Corporate Tortoise Wins the Race', Jonathan Guthrie, 'How the Old Corporate Tortoise Wins the Race', Financial Times Financial Times, 15 February 2007.

26 Leslie Hannah, 'Marshall's "Trees" and the Global "Forest": Were "Giant Redwoods" Different?', in N. R. Lamoreaux, D. M. G. Raff and P. Temin (eds.), Leslie Hannah, 'Marshall's "Trees" and the Global "Forest": Were "Giant Redwoods" Different?', in N. R. Lamoreaux, D. M. G. Raff and P. Temin (eds.), Learning by Doing in Markets, Firms and Countries Learning by Doing in Markets, Firms and Countries (Cambridge, MA, 1999), pp. 253-94. (Cambridge, MA, 1999), pp. 253-94.

27 The allusion is of course to Richard Dawkins, The allusion is of course to Richard Dawkins, The Selfish Gene The Selfish Gene (2nd edn., Oxford, 1989). (2nd edn., Oxford, 1989).

28 Rudolf Hilferding, Rudolf Hilferding, Finance Capital: A Study of the Latest Phase of Capitalist Development Finance Capital: A Study of the Latest Phase of Capitalist Development (London, 2006 [1919]). (London, 2006 [1919]).

29 'Fear and Loathing, and a Hint of Hope', 'Fear and Loathing, and a Hint of Hope', The Economist The Economist, 16 February 2008.

30 Joseph Schumpeter, Joseph Schumpeter, The Theory of Economic Development The Theory of Economic Development (Cambridge, MA, 1934), p. 253. (Cambridge, MA, 1934), p. 253.

31 Bertrand Benoit and James Wilson, 'German President Complains of Financial Markets "Monster" ', Bertrand Benoit and James Wilson, 'German President Complains of Financial Markets "Monster" ', Financial Times Financial Times, 15 May 2008.

List of Ill.u.s.trations Photographic acknowledgements are given in parentheses. Every effort has been made to contact all copyright holders. The publishers will be happy to make good in future editions any errors or omissions brought to their attention.

INTEGRATED ILl.u.s.tRATIONS.

p. 22: The Cerro Rico at Potosi (Sergio Ballivian) p. 28: Clay tablet from Mesopotamia, c c. 2nd millennium BC (Trustees of the British Museum) p. 29: Clay tablet (reverse side) from Mesopotamia, c c. 2nd millennium BC (Trustees of the British Museum) p. 40: The arrest of Gerard Law (Mirrorpix) p. 43: Quentin Ma.s.sys The Banker The Banker (1514), (photo RMN) (1514), (photo RMN) p. 45: Page from the 'secret book' of the Medici (Archive di Stato di Firenze) p. 66: j.a.panese government ten-year bond (Emba.s.sy of j.a.pan in the UK) p. 70: Pieter van der Heyden after Pieter Breugel the Elder, The Battle about Money The Battle about Money, after 1570 (Metropolitan Museum of Art) p. 77: A 5 per cent consol (July 1785) (Hersh L. Stern, Annuity Museum) p. 95: Confederate cotton bond with coupons (Michael Vidler) p. 97: Confederate 'greyback' State of Louisiana $5 bill (Louisiana State Museum) p. 105: A German billion mark note from 1923 (Ron Wise) p. 130: The oldest share (1606), (www.oldest-share.com) p. 144: A share in the Compagnie des Indes Compagnie des Indes (Bibliotheque Nationale) (Bibliotheque Nationale) p. 147: Scene in the rue Quincampoix, 1719 (Historic New Orleans Collection) p. 154: Engraving from The Great Scene of Folly The Great Scene of Folly (1720) (Historic New Orleans Collection) (1720) (Historic New Orleans Collection) p. 155: Bernard Picart, Monument Consecrated to Posterity Monument Consecrated to Posterity (1721) (Harvard Business School) (1721) (Harvard Business School) p. 170: Alan Greenspan and Kenneth Lay (PA Images) p. 179: New Orleans after Katrina (Adrian Pennink) p. 191: Alexander Webster preaching in Edinburgh (Dawn Mcquillan) p. 194: Calculations for the original Scottish Ministers' Widows' Fund (National Archives, Scotland) p. 197: Sir Walter Scott's life insurance policy (Scottish Widows) p. 201: Women and men in the workhouse (Ramsay Macdonald Papers, National Archives) p. 203: Men dining in the St Marylebone workhouse (Peter Higginbotham) p. 212: Milton Friedman (University of Chicago) p. 237: Stowe House (National Trust) p. 239: Three generations of aristocracy: the first, second and third Dukes of Buckingham (Stowe House Preservation Trust: Stowe School photographic archives) p. 244: Hunger marchers in Detroit (Walter P. Reuther Library) p. 245: 'Smash Ford-Murphy Police Terror' protest (Walter P. Reuther Library) p. 248: It's A Wonderful Life It's A Wonderful Life (PA Images) (PA Images) p. 257: Danny Faulkner with his helicopter (Dallas Morning News) p. 290: William Jardine (Jardine, Matheson) p. 291: James Matheson (Jardine, Matheson) p. 311: Jaime Roldos Aguilera of Ecuador and Omar Torrijos of Panama (Getty) p. 315: George Soros (Soros) p. 318: Chancellor of the Exchequer, Norman Lamont (PA Images) PLATES.

1. Page from Fibonacci's Liber Abaci Liber Abaci, published 1202 (reproduced by kind permission of the Ministero per i Beni e le Attivita Culturali, Italy, Biblioteca n.a.z.ionale Centrale Firenze)2. Botticelli's Adoration of the Magi Adoration of the Magi (Alinari) (Alinari)3. Nathan Mayer Rothschild (N.M. Rothschild & Sons)4. Cartoon from Le Rire Le Rire (Mary Evans Picture Library) (Mary Evans Picture Library)5. Union guns.h.i.+ps on the Mississippi (Museum of the Confederacy)6. The Dutch Empire (Dutch National Archives)7. Emanuel de Witte, Beurs van Amsterdam Beurs van Amsterdam, 1653 (Rijksmuseum Amsterdam)8. Portrait of John Law (Louisiana State Museum)9. Map of Louisiana (Louisiana State Museum)10. Louisiana (Louisiana State Museum)11. Tokyo earthquake12. Richard 'd.i.c.kie' Scruggs (New York Times)13. Ken Griffin, founder and CEO of Citadel (Citadel)14. Grenville diptych15. Diego Rivera's Garden Court Mural, North wall (Detroit Inst.i.tute of Arts)16. Diego Rivera's Garden Court Mural, South wall (detail) (Detroit Inst.i.tute of Arts)17. Details from Charles Darrow's original Atlantic City Monopoly Monopoly 18. The original Mr Monopoly 18. The original Mr Monopoly19. Old Chongqing (photograph by G. H. Thomas, author of An American in China: 1936-19 An American in China: 1936-1939)20. Modern Chongqing

a Revealingly, the increase for female graduates was from 2.3 to 3.4 per cent. The masters of the universe still outnumber the mistresses.

b 401(k) plans were introduced in 1980 as a form of defined contribution retirement plan. Employees can elect to have a portion of their wages or salaries paid or 'deferred' into a 401(k) account. They are then offered choices as to how the money should be invested. With a few exceptions, no tax is paid on the money until it is withdrawn.

c The conquistadors came looking for both gold and silver. Columbus's first settlement, La Isabela in Hispaniola (now the Dominican Republic), was established to exploit local deposits of gold. He also believed he had found silver, but the only traces have subsequently been shown to have been in the sample ores Columbus and his men had brought from Spain.

d From the marriage of Ferdinand and Isabella in 1474 until the eighteenth century, the country we call Spain was technically the union of two kingdoms: Aragon and Castile.

e The Fibonacci sequence appears in The Da Vinci Code The Da Vinci Code, which is probably why most people have heard of it. However, the sequence first appeared, under the name matrameru matrameru (mountain of cadence), in the work of the Sanskrit scholar Pingala. (mountain of cadence), in the work of the Sanskrit scholar Pingala.

f The term was used for books which recorded income and profits as well as specific agreements or contracts of importance. The other books kept by the Medici were the libro di entrata e uscita libro di entrata e uscita (book of income and expenditures) and the (book of income and expenditures) and the libro dei debitori e creditori libro dei debitori e creditori (book of debtors and creditors). (book of debtors and creditors).

g Technically, the monopoly applied only within a 65-mile radius of London and, as in the eighteenth century, private banks were not prohibited from issuing notes.

h Illiquidity is when a firm cannot sell sufficient a.s.sets to meet its liabilities. It has the right amount of a.s.sets, but they are not marketable because there are too few potential buyers. Insolvency is when the value of the liabilities clearly exceeds the value of the a.s.sets. The distinction is harder to draw than is sometimes a.s.sumed. A firm in a liquidity crisis might be able to sell its a.s.sets, but only at prices so low as to imply insolvency.

i In the same period mortgage debt has risen from 54 per cent of disposable personal income to 140 per cent.

j A ratio known to economists as Marshallian k after the economist Alfred Marshall. Strictly speaking, k is the ratio of the monetary base to nominal GDP.

k This should not be confused with the yield to maturity, which takes account of the amount of time before the bond is redeemed at par by the issuing government.

l Hence the name 'consols' for the new standardized British government bonds.

m At one point, when the Director of the Prussian Treasury, Christian Rother, attempted to modify the terms after the loan contract had been signed, Nathan exploded: 'Dearest friend, I have now done my duty by G.o.d, your king and the Finance Minister von Rother, my money has all gone to you in Berlin . . . now it is your turn and duty to yours, to keep your word and not to come up with new things, and everything must remain as it was agreed between men like us, and that is what I expected, as you can see from my deliveries of money. The cabal there can do nothing against N. M. Rothschild, he has the money, the strength and the power, the cabal has only impotence and the King of Prussia, my Prince Hardenberg and Minister Rother should be well pleased and thank Rothschild, who is sending you so much money [and] raising Prussia's credit.' That a Jew born in the Frankfurt ghetto could write in these terms to a Prussian official speaks volumes about the social revolution Nathan Rothschild and his brothers personified.

n This was J. A. Hobson, author of Imperialism: A Study Imperialism: A Study (1902). Though still renowned as one of the earliest liberal critics of imperialism, Hobson articulated a cla.s.sically anti-Semitic hostility towards finance: 'In handling large ma.s.ses of stocks and shares, in floating companies, in manipulating fluctuations of values, the magnates of the Bourse find their gain. These great businesses - banking, broking, bill discounting, loan floating, company promoting - form the central ganglion of international capitalism. United by the strongest bonds of organisation, always in closest and quickest touch with one another, situated in the very heart of the business capital of every State, controlled, so far as Europe is concerned, chiefly by men of a single and peculiar race, who have behind them many centuries of financial experience, they are in a unique position to control the policy of nations.' (1902). Though still renowned as one of the earliest liberal critics of imperialism, Hobson articulated a cla.s.sically anti-Semitic hostility towards finance: 'In handling large ma.s.ses of stocks and shares, in floating companies, in manipulating fluctuations of values, the magnates of the Bourse find their gain. These great businesses - banking, broking, bill discounting, loan floating, company promoting - form the central ganglion of international capitalism. United by the strongest bonds of organisation, always in closest and quickest touch with one another, situated in the very heart of the business capital of every State, controlled, so far as Europe is concerned, chiefly by men of a single and peculiar race, who have behind them many centuries of financial experience, they are in a unique position to control the policy of nations.'

o In the language of economics the relations.h.i.+ps can be simplified as MV MV = = PQ PQ where where M M is the quant.i.ty of money in circulation, is the quant.i.ty of money in circulation, V V is the velocity of money (frequency of transactions), is the velocity of money (frequency of transactions), P P is the price level and is the price level and Q Q is the real value of total transactions. is the real value of total transactions.

p Murder rather than euthanasia was Preobrazhensky's forte; he was of all the Bolshevik leaders the one most directly implicated in the execution of Nicholas II and his family.

q The highest recorded inflation rate in history was in Hungary in July 1946, when prices increased by 4.19 quintillion per cent (419 followed by sixteen zeros).

r At the time of writing (March 2008), a funeral in Zimbabwe costs 1 billion Zimbabwean dollars. The annual inflation rate is 100,000 per cent.

s A ratio of stock prices divided by earnings including dividends. The long-run average (since 1871) of the price-earnings ratio in the United States is 15.5. Its maximum was reached in 1999: 32.6. It currently stands at 18.6 (figures for the Standard and Poor's 500 index, as extended back in time by Global Financial Data).

t Between 1580 and 1640 the crowns of Spain and Portugal were united.

u Technically, the removal of uncertainty about future dividends gave the shares the character of preference shares or even bonds.

v A measure of the success of the Bank of Amsterdam was that consumer price inflation fell from 2 per cent per annum between 1550 and 1608 to 0.9 per cent p.a. between 1609 and 1658 and just 0.1 per cent p.a. between 1659 and 1779. The nearly eight-fold appreciation in the VOC stock price therefore compares reasonably well with the inflation-adjusted performance of modern stock markets.

w Traces of the survivors can still be found in the Acadiana parishes of St Charles, St James and St John the Baptist.

x The Bubble Act made it illegal to establish new companies without statutory authority and prevented existing companies from conducting activities not specified in their charters.

y This is the interest rate at which banks lend balances held at the Federal Reserve to one another, usually overnight. The Federal Open Market Committee, which is made up of the seven Federal Reserve Board governors and the presidents of the twelve regional Federal Reserve banks, sets a target rate at its regular meetings. The Federal Reserve Bank of New York has the job of making this rate effective through open market operations (buying or selling bonds in the New York market).

z His wording was characteristically opaque: 'Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks . . . But how do we know when irrational exuberance has unduly escalated a.s.set values . . . ? We as central bankers need not be concerned if a collapsing financial a.s.set bubble does not threaten to impair the real economy . . . But we should not underestimate, or become complacent about, the complexity of the interactions of a.s.set markets and the economy'.

aa The company was originally going to be called Enteron until the Wall Street Journal Wall Street Journal pointed out that 'enteron' is a Greek-derived word for the intestines. pointed out that 'enteron' is a Greek-derived word for the intestines.

ab A typical Gulf Coast homeowner's policy has a Hurricane Deductible Endors.e.m.e.nt, with a percentage deduction applying to any claim for 'direct physical loss or damage to covered property caused by wind, wind gust, hail, rain, tornadoes, or cyclones caused by or resulting from a hurricane'. However, there is usually an exclusion along these lines: 'We do not insure . . . for any loss which would not have occurred in the absence of one or more of the following excluded events', such as 'Water Damage, meaning . . . flood, surface water, waves, tidal water, tsunami, seiche [lake wave], overflow of a body of water, or spray from any of these, all whether driven by wind or not'. Moreover, 'We do not insure for such loss regardless of: (a) the cause of the excluded event; or (b) other causes of the loss; or (c) whether other causes acted concurrently or in any sequence with the excluded event to produce the loss; or (d) whether the event occurs suddenly or gradually . . .' This is a cla.s.sic example of small print designed to limit the insurer's liability in a way not readily intelligible to the policy-holder.

ac US property and casualty insurance companies had net after-tax income of $43 billion in 2005 and $64 billion in 2006, compared with an average of less than $24 billion in the preceding three years.

ad Scruggs's a.s.sociate Timothy Balducci was taped offering $40,000 to Judge Lackey. 'The only person in the world outside of me and you that has discussed this is me and d.i.c.k,' Mr Balducci told Lackey. 'We, uh, like I say, it ain't but three people in this world that know anything about this . . . and two of them are sitting here, and the other one, uh, being Scruggs . . . He and I, um, how shall I say, for over the last five or six years there, there are bodies buried that, that you know, that he and I know where.' On 1 November 2007 Balducci called Scruggs to tell him that the Judge now felt 'a little more exposed on the facts and the law than he was before' and to ask if Scruggs 'would do a little something else, you know, to 'bout 10 or so more'. Scruggs said he would 'take care of it'.

ae For a further discussion of this crucial distinction see the Afterword, pp. 343-4.

af The human propensity to shut stable doors after horses have bolted is well ill.u.s.trated by the history of fire insurance. It was after after the New York fire of 1835 that American states began to insist that insurance companies maintain adequate reserves. It was the New York fire of 1835 that American states began to insist that insurance companies maintain adequate reserves. It was after after the Hamburg fire of 1842 that reinsurance was developed as a way for insurance companies to share the risk of major disasters. the Hamburg fire of 1842 that reinsurance was developed as a way for insurance companies to share the risk of major disasters.

ag Wallace was also a member of the Philosophical Society of Edinburgh, to which he presented his 'Dissertation on the Numbers of Mankind in Ancient and Modern Times', a work which in some respects antic.i.p.ated Thomas Malthus's later Essay on the Principle of Population Essay on the Principle of Population.

ah Scott was a victim of the financial crisis triggered by the first Latin American debt crisis (see Chapter 2). Perhaps he was also a victim of his own appet.i.te for real estate. To help finance the cost of his beloved country seat at Abbotsford, the author had become a sleeping partner in the printers that published his books, James Ballantyne and Co., and the a.s.sociated publis.h.i.+ng house of John Ballantyne & Co. He was also an investor in his own publisher, Archibald Constable, believing that the returns on these equity stakes would be superior to traditional royalties. He kept these business interests secret, believing them to be incompatible with his standing as a Clerk to the Court of Sessions and a Sheriff. The failure of Ballantyne and Constable in 1825 left Scott with debts of between 117,000 and 130,000. Rather than sell Abbotsford, Scott vowed to write his way back into the black. He succeeded, but at considerable cost to his own health, dying in 1832. Had he died earlier, the creditors would have been the beneficiaries of the Scottish Widows policy.