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Attitude Media Manly Manners News @ Feb 22 2023

Newton falls to the South Sea Bubble

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. 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.” Levenson, Thomas. Newton and the Counterfeiter: The Unknown Detective Career of the World's Greatest Scientist (p. 243). Houghton Mifflin Harcourt. Kindle Edition. Levenson, Thomas. Newton and the Counterfeiter: The Unknown Detective Career of the World's Greatest Scientist (pp. 242-243). Houghton Mifflin Harcourt. Kindle Edition. Levenson, Thomas. Newton and the Counterfeiter: The Unknown Detective Career of the World's Greatest Scientist (p. 242). Houghton Mifflin Harcourt. Kindle Edition. Levenson, Thomas. Newton and the Counterfeiter: The Unknown Detective Career of the World's Greatest Scientist (p. 242). Houghton Mifflin Harcourt. Kindle Edition.

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