The Kings’ Pyramids
In the spring of 1720 everybody in London suddenly got rich. The South Sea Company had received from the Crown a monopoly on trade with the Spanish colonies in South America and had taken on part of the national debt. In January its shares stood at about a hundred and thirty pounds. In June they passed a thousand. Did it trade with South America? Hardly at all. But it had a royal charter, ministers sat among its shareholders, and the word was that the state wouldn’t let it fail.
To keep competitors out from under its feet, in June Parliament passed an act: only companies with a royal charter could sell shares to the public. Historians reckon the South Sea Company pushed it through itself, so the public’s money wouldn’t leak away to the neighbours. When a pyramid is growing, the first thing it does is close the market to other people’s pyramids.
By September the shares were worth less than two hundred pounds. Isaac Newton, they say, sold his shares early in the year and made a good profit. Then he couldn’t stand it, went back into the market right at the top and lost twenty thousand pounds. A genius, and he bought at the peak. He’s credited with saying that he could calculate the motions of the heavenly bodies but not the madness of people. Credited, mind you, without a reliable source. The loss, by all accounts, was real.
When the Owner Is the King
The same year, in France, the edifice built by a Scot called John Law came down. He had persuaded the Regent that the country needed to print paper money and set up a great company to develop Louisiana. The Mississippi Company issued shares, Law’s bank printed the money people bought those shares with, and Law himself became Controller General of Finances, which is to say the minister. In the spring of 1720 the shares started to fall, and the authorities announced they would hold the price at nine thousand livres. They didn’t. By December the shares were worth a thousand, and Law had fled France.
Look at how these stories are built. The Crown gives a company a privilege. The company gives the Crown money and eases its debts. The public buys the shares because the King stands behind the company. As long as everybody believes, everybody gets rich. But then someone tries to sell first, and it turns out there’s nobody to buy, and the King who started the whole thing has no intention of paying.
Here the pyramid is covered by protection. We simple folk can’t manage that. When our protection collapses, the pyramid collapses with it. When the royal kind collapses, the King issues a decree, names the guilty, and the pyramid suddenly turns out to have been a private matter between citizens. Convenient.
The Bank That Was Allowed to Print
A hundred and seventy years went by, and the tale was told again in Italian, with a new twist. This time the privilege wasn’t trade. A bank was allowed to print money itself. Dickie mentions the story in passing, as background to the Sicilian unrest. But the background is worth it.
In 1892 it came out that the Banca Romana had been printing more money than it was allowed to. And it was one of the few banks the state allowed to print money at all. Heaps of banknotes were found with identical serial numbers. The money went to leading politicians for their election campaigns. Then something else came out: an inspection back in 1889 had found a hole in the bank, and the government had buried the report. When it all came out, the lira weakened. Silver, and even the bronze small change, drained abroad. People had nothing to pay with, and mutual aid societies in the north of Italy started issuing their own substitutes for money. In 1893 the Bank of Italy was set up, and in time it became the single central bank. The Prime Minister, Giolitti, who was mixed up in the scandal, resigned.
A bank prints money, and the politicians are in its debt. No mafioso could have come up with a better scheme. And none would have been allowed to.
A Charter for Every Occasion
One floor down, nobody is crowned and nobody prints anything. Down there people write a charter, collect other people’s deposits and wait to see whether anyone will check where they went.
At the start of the twentieth century, on Elizabeth Street in Manhattan, there was a “Co-operative Society of Sicily”. Under its charter, Critchley writes, it promoted co-operative ventures and could act as agent and broker for any person, company, firm or corporation. In other words, do anything at all. Among its directors sat a man who called himself Salvatore Saracino. His real name was Joseph Palermo, and in Italy he had been sentenced in absentia to thirty-one years for a double murder and a kidnapping. People said that in 1907 he ran off with the depositors’ money from his bank on the Upper East Side. Critchley stresses: people said. Nobody set out to prove it.
The charter allows everything, and there’s no oversight. The English saw the danger of that sort of freedom almost two hundred years before Saracino, when in 1720 they decided no company could do without a royal charter. They decided it, as we’ve seen, in the interests of the biggest pyramid. But the idea was sound: register companies “turnkey, express, no questions asked” and you’ve opened the door to every Saracino. These days they ask more. Dull. And right.
I Forgive All My Debts
And the last story, the oldest. No shares here, no printing press, no pyramid. A king simply borrows and then doesn’t pay. That’s all.
In the 1340s King Edward III of England started a war with France. To fight it, he borrowed enormous sums from the Florentine banking houses of the Bardi and the Peruzzi. Then he stopped paying. Both houses collapsed. The Florentines were the best bankers in Europe and knew how to count, and there was only one thing they didn’t know how to do: make a king pay back a debt. You can’t sue a king.
We know how to fight on credit too. In 1930 the great war between Masseria and Maranzano broke out in New York, and the main task, Critchley writes, was to finance it. Valachi testified that the biggest contributor was Gagliano, the very same lath contractor—a hundred and forty thousand dollars. Others gave five thousand a week. Was he paid back? Valachi later said that as far as he knew Gagliano never got a cent back. The fighters were paid twenty-five dollars a week. And Maranzano himself, the king of that war, died in 1931 and left mortgages on houses, eighteen thousand in securities and tens of thousands of dollars in the bank. Not ruined, notice. Whoever financed the war got power, not money. Sometimes that’s the same thing. More often it isn’t.
Don Vincenzo knew this rule in his own way. Once the municipal hospital ordered a year’s laundry from us in advance and asked for time to pay. The Don agreed: big order, solid city. The city paid two years later, and at a discount, because the budget had changed. The Don never again gave credit to anyone who could fine you for coming to ask for what’s yours. “The King pays last,” he used to say. “And sometimes it’s not even a king, just a man with a seal.”
The Bottom Line
The Crown hands out a privilege, a bank prints too much, a charter allows everything, a king doesn’t pay back his debt—the troubles are different, and so are the cures. One thing they share: if power stands behind a business, the price shows whether people believe in the power, not in the business. As for debts, kings, town councils and warlords forgive them gladly. Their own.