How A Central Bank Caused One Of History's Biggest Cons

Authored by George Pickering via The Mises Institute,

In the summer of 1821, a roguish Scotsman named Gregor MacGregor arrived by boat in London, and initiated arguably the most audacious confidence scam in history.

MacGregor had spent much of the previous decade fighting as a soldier of fortune in the Venezuelan War of Independence, where he had manoeuvred his way up the ranks, eventually being promoted to general by Simón Bolívar. At some point during this period, local Central American rulers had granted MacGregor a large tract of land, most of which took the form of uninhabitable, malaria-ridden swamp along the Black River, in modern-day Honduras. Despite the poor economic prospects of his new acquisition, MacGregor was determined that the land should be his ticket to fortune, even if that required unconventional measures.

It was this series of events which led to the ‘founding’ of the non-existent country of Poyais.

Upon returning to Britain, MacGregor ingratiated his way into London’s high-society, claiming to be the sovereign prince, or ‘Cazique’, of a newly-formed, British-friendly colony on Central America’s Mosquito coast, supposedly named ‘Poyais’ after the Poyer peoples of that area.

In order to convince the British public of the realness of this imaginary country, MacGregor was forced to employ an extremely elaborate series of means, foremost amongst them being the publication of a 355-page guidebook for prospective settlers. This book, likely penned by MacGregor himself, contained a plethora of highly-detailed (and entirely fictitious) descriptions of every aspect of life in Poyais. These included convoluted descriptions of its tricameral parliamentary system and of its commercial and banking systems, distinctly designed uniforms for each regiment of its non-existent armed forces, a fully elaborated honours system, a Poyaisian coat of arms (featuring unicorns), and a national flag. The guidebook also offered detailed descriptions of the climate and agriculture of Poyais, not to mention of its resplendent capital city, and even claimed that the rivers of Poyais contained “globules of pure gold.”

In addition to the guidebook, MacGregor established Poyaisian government offices in London, Edinburgh and Glasgow, began having Poyaisian paper money and government documents professionally printed, and even commissioned the composition of songs about Poyais to be sung in the streets of Britain’s major cities.

The trick worked.

In late-1822 and early-1823, approximately 270 hopeful colonists set sail for Poyais, and MacGregor was able to raise £200,000 from the sale of Poyaisian ‘government bonds’ - with the loan being obliviously underwritten by the highly respectable City of London bank Sir John Perring, Shaw, Barber & co. - in addition to the money he had made by the sale of Poyaisian land certificates and paper money.

When the 50 surviving Poyais settlers made it back to London in October of 1823 with the news that none of it had been true, the resultant outrage exploded throughout the British press. MacGregor, however, had fled to Paris just days before their arrival, and was not only never convicted of any crime for his involvement of the Poyais scheme, but even went so far as to attempt to repeat the exact same scheme in France, in 1826.

How could this absurd con possibly have succeeded so completely in tricking the British investing public of the early-1820s?

The answer is to be found in the British banking system of the time, which was structured in a way that left it particularly able to fuel the kind of economic crises described by the ‘Austrian Business Cycle Theory’ of Ludwig von Mises. In the early-1820s, the British money supply outwardly appeared to be controlled in a very decentralised manner, with approximately 800 banks throughout the country having the right to issue their own banknotes, theoretically redeemable in gold.

However, at the centre of this system stood the Bank of England, Britain’s central bank, which not only had a monopoly on banknote issues in the London area, but was also legally privileged in a way that allowed the private banks of the time to use Bank of England notes as if they were gold, for reserves, clearing transactions, and redeeming their own private notes.

Thanks to these legal privileges of Bank of England notes, the private banks of the time were able to pyramid their own credit expansion and note issues atop their fractional reserves of Bank of England notes, which were themselves pyramided atop an even more fractional reserve of gold. This not only allowed a far greater overall extent of credit expansion than if Bank of England notes had not had these privileges, but also gave the Bank of England a huge influence on the extent of credit expansion by the broader British banking system, by altering the volume of its own note issues.

How does all of this relate to Gregor MacGregor?

Because the success of his Poyais scheme was only made possible thanks to the speculative mania which had been fuelled by Bank of England credit expansion through these channels. In an effort to reverse the monetary and price deflation which had been going on since 1819, the British government and the Bank of England decided, in 1822, to initiate a massive and coordinated policy of credit expansion.

Just as Mises’ Austrian Business Cycle Theory would lead us to expect, this credit expansion caused a boom of investment in risky ventures and ‘higher-order’ industries. Given the declining lending standards and borrowing costs which accompany any period of credit expansion, British investors jumped at the chance to invest extensively in the newly-independent states of Latin America, creating a speculative mania surrounding the investments of that continent, which played perfectly into the hands of MacGregor and his attempts to raise money for his non-existent kingdom.

It was in this way that the credit expansion of 1822-25 not only gave life to the most audacious confidence scheme in history, but also inflated a wider bubble which finally burst during the financial Panic of 1825, which was arguably the most severe economic crash experienced by Britain in the entire first half of the nineteenth century.

In recent years, central bank credit expansion has often repeated this trick of causing bubbles in absurd and risky investments, such as the ‘NINJA loans’ before the 2007/8 crisis, or the unprofitable tech startups during the dot-com bubble of 1997-2001. However, there is perhaps no lesson from history which more vividly illustrates the dangers of credit expansion-fuelled business cycles than the story of Gregor MacGregor and his imaginary country of Poyais.

Comments

American Dissident powow Wed, 07/18/2018 - 23:54 Permalink

The Lesson: All Central Banks are in the business of debasing currency.  All BIG Government seeks to debase culture and by default, the legal citizenry in the service of their Technocratic paymasters. All Technocratic advocates and the high managerial class that constitutes the "those on high" class, the owner class- fund it. And if its free, you are the product.

 

 

Here is where you are- in the shitter.

Meme unrelated

https://mobile.twitter.com/1Marchella/status/1019669742989131776/photo/1

In reply to by powow

Ms No TeamDepends Wed, 07/18/2018 - 23:26 Permalink

They used to hide more back then out of necessity.  There is a Jew somewhere behind it.  Giive me a minute and I'll find one.

Okay, first of all I noticed that Perring guy, who was the politician that backed him, married his cousin.  That is always the sign of a winner.  They say "He was the son of a poor man" and that is usually just cliché bullshit for a crypto but I'll be generous there.

Here it is:  Abraham Goldsmid.  His political backer was tied to banker slave traders.

"In 1808, Perring hosted a meeting of the 'friends of Lady Hamilton', a group of financiers organised by Abraham Goldsmid to raise money for Emma, Lady Hamilton, the mistress of Lord Nelson, following Nelson's death.[12]  

Goldsmid is the name of a family of Anglo-Jewish bankers who sprang from Aaron Goldsmid (died 1782), a Dutch merchant who settled in England about 1763.

https://en.wikipedia.org/wiki/Goldsmid_family

In reply to by TeamDepends

jin187 Ms No Thu, 07/19/2018 - 01:00 Permalink

There is a Jew somewhere behind it.  Giive me a minute and I'll find one.

I'm sure you will.  They're in your closet right now, and under your bed.  You probably accidentally put one in your ass earlier when you were reaching for your gerbil.  Everyone is a Jew, except you, right?  I'm a Jew.  I'm sure if you go back enough thousands of years, someone in the family fucked a Jew.  That's my in.  Looks like I'm next in line to join the Central Bank of Deepshadowbildernati.

I can never decide between laughing at you, pitying your stupidity, or hoping you retarded Nazi fucks get strung up right along side the commies and banksters.

In reply to by Ms No

Ms No jin187 Thu, 07/19/2018 - 01:19 Permalink

Nice try.  This is all coming out.  Will you continue to present yourself as it does?  I like people to be around when they are found wrong.  You could be a nice and normal Jew.  You also could be a traitor Jew that puts Israel and the tribe first while spreading your communism.  If that is the case book your rhinoplasty, pick a new name and a hiding spot because it's all coming out.  It's not going to be people like me who you have to worry about.  It's going to be everybody else that is new to the information.

In reply to by jin187

Ms No jin187 Thu, 07/19/2018 - 02:13 Permalink

As a Jew can you explain to me why a large portion of both American and Israeli Jews feel so entitled to be protected militarily by other nations, even against the populations will?  This is a mystery to me.  These are our kids and our money.  I don't remember being thanked by one Jew ever.  On the contrary all I hear is more demands.  I have never felt entitled to anything of somebody else's, let alone their children's lives, so this is really foreign to me.  Is it the Hitler thing that brings about this tremendous sense of entitlement?  

In reply to by jin187

vladiki Putrid_Scum Thu, 07/19/2018 - 06:20 Permalink

According to ancestry.com, Bernanke is his great grandson.   "Trickle down"  "2% inflation" "the Phillips curve" "kick starting the economy", stealing from taxpayers and savers to give to Wall St and borrowers,  "demand management", "forward guidance" "savings glut" "debt doesn't matter", endlessly manipulated data.  Different century.  Same bullshit.

In reply to by Putrid_Scum

venturen TeamDepends Thu, 07/19/2018 - 09:06 Permalink

you left our "He was a commissioner for exchequer bills[1] and senior partner of the banking firm John Perring, Shaw, Barber & Co., which having sufferered in the Panic of 1825, resulted in Perring losing his estates"

 

back in the old days...when it failed....you lost....no Blankfien retires with billions....THANKS TO THE TAXPAYERS

 

BIG DIFFERENCE....capitalism is ugly...crony capitalism is a crime!

In reply to by TeamDepends

amanfromMars Thu, 07/19/2018 - 00:53 Permalink

In recent years, central bank credit expansion has often repeated this trick of causing bubbles in absurd and risky investments, such as the ‘NINJA loans’ before the 2007/8 crisis, or the unprofitable tech startups during the dot-com bubble of 1997-2001. However, there is perhaps no lesson from history which more vividly illustrates the dangers of credit expansion-fuelled business cycles than the story of Gregor MacGregor and his imaginary country of Poyais.

Oh? Do you not think the more recent Federal Reserve/Central Banking Systems QE Program after the 2007/8 crisis much more vividly illustrates the dangers of credit expansion, revealing as it does, for all practical purposes, that money virtually grows on trees/is conjured up from nothing to keep the decrepit machine still working hard on its fast and furious Ponzi magic, robbing Peters to pay Pauls and Petras to pay Paulines ?

How very odd ... whenever the scale of the deception is hugely embiggened.

Ghost who Walks Thu, 07/19/2018 - 08:15 Permalink

I think the story captures some of the nature of the "animal spirits" who were investing furiously at the time. It's not only the "Grifter" that matters, its also the psychology of the "Marks" who are chasing yield.

I guess this is a Brothers Grimm tale for current times.

surf@jm Thu, 07/19/2018 - 08:47 Permalink

Hillary MacClinton and the Clinton foundation......

"Acquitted, MacGregor attempted lesser Poyais schemes in London over the next decade. In 1838, he moved to Venezuela, where he was welcomed back as a hero. He died in Caracas in 1845, aged 58, and was buried with full military honours in Caracas Cathedral."

Full honors in Venezuela.......LMAO!......

Posa Thu, 07/19/2018 - 11:29 Permalink

von Measels wants a permanent credit shortage to strangle economies... the problem of credit swarming to wild speculative adventures can be easily solved by rationing credit (through commercial bank loans) with lowest rates and abundance of capital -- as well as deposit protection--to legitimate manufacturing, agriculture and commerce (as designated by the The North American Industry Classification System (NAICS)); then related commercial and residential real estate; and then everything else ( with no deposit protection and limited credit access--- especially margin loans and similar loans for M&As, equity buybacks etc).

 

There.  Solved it without destroying the economy