A Little Math To Wealth
August 21, 2013 2 Comments
During the early part of the eighteenth century, the French government issued a series of bonds to help raise money. With the decline of the French economy in the 1720s, they were forced to cut the interest rates on the bonds, which drastically diminished the market value of said bonds. This resulted in the French government having considerable difficulty in raising money via new bond sales.
Le Pelletier-Desforts, Deputy Finance Minister for France, had a “brilliant” idea as to how to raise the value of existing bonds, encourage the sale of new bonds, and earn some money for the government- a trifecta. His idea was to allow bond owners to buy a lottery ticket linked to the value of their bonds (each ticket costing 1/1000th of the bond’s value). The winner would get the face value of their bond, which was much more than what they could get on the market, plus a ‘jackpot’ of 500,000 livres, which would make the winner instantly insanely rich- essentially set for life.
Unfortunately for the government, the mathematics behind this new fundraising scheme was vastly flawed. If a person owned a bond worth a very small amount, with the lotto ticket for the bond costing just 1/1000th of the value, he/she could buy the lotto tickets extremely cheaply, yet their lotto ticket had just as much of a chance of winning as someone who owned a bond for 100,000 livres and had to buy their ticket for 100 livres. The mathematician, de la Condamine realized that if he was able to buy up a large percentage of the existing small bonds, split into 1,000 livres a bond, he could then buy each lotto ticket for just 1 livre. If he owned enough of these small bonds, he could quickly give himself the bulk of the entrees in the lotto while spending much less than the jackpot, thus assuring he’d win quite often and always win much more than he put in.
Although de la Condamine was already reasonably wealthy, he was attracted to the vast riches that could be gleaned from gaming the lottery. However, he did not want to risk his own wealth or reputation to do so. This is where Voltaire comes in. Voltaire was not rich nor particularly famous at this point,he was just the youngest son of bourgeoisie parents, but he was extremely charismatic, well connected, and had developed a healthy distrust and dislike for the French government.
De la Condamine proposed that he and Voltaire create a syndicate with various wealthy patrons and Voltaire as the front man. The group would buy up as many cheap government bonds as possible and win an amazing amount of money in the process. Finding investors and buying up the cheap bonds was easy. The problem was now that there were only a handful of notaries one could go to get the lottery tickets. If one person was seen to be the recipient of most of the lottery tickets, the scheme would quickly fail as the government would realize what was happening. Voltaire again proved his worth working out a deal with one of the notaries empowered to issue lotto tickets.
The plan worked. The syndicate collected their winnings every month from the government office, making themselves copious amounts of money and paying shares of the winnings out appropriately to those involved.
The syndicate carried on winning the huge jackpot month after month, but the plan was let down by Voltaire being Voltaire. Generally most people would write things on the back of their lotto tickets, usually good luck phrases. Voltaire, in his typical fashion, would instead write phrases mocking the government and officials, as well as simply partially giving away their scheme and who was involved, like “Here’s to the good idea of Marie De La Condamine”. He’d then sign the tickets with various made up names.
The organizers of the lottery eventually realized from this that many of the prizes were being won by the same group and they quickly figured out who was behind it. The French finance minister took the syndicate and Voltaire to court, but as the group had done nothing illegal, they were allowed to keep the prize money. However, the lottery was cancelled after the court case against Voltaire’s syndicate collapsed.
In total, in little over a year, Voltaire himself got to keep around 500,000 livres of the total prize money, with the rest being distributed among the syndicate. Both Voltaire and de la Condamine were now ridiculously wealthy, and were able to pursue their scientific and literary endeavors at their leisure.
De la Condamine continued his work in mathematics, and led a trip to the Andes where he attempted to measure the circumference of the Earth and to determine whether or not the Earth was a perfect sphere or not (as they discovered, not). Such was his wealth, that he was able to fund the entire trip himself. While in South America, de la Condamine also mapped the Amazon River, the first scientific exploration of the region. In addition, he helped define the length of a meter, among many other major accomplishments.
Voltaire used his lottery winnings to invest in business opportunities, often using information he learned from well placed individuals, like when to buy and sell certain shares of various ventures. While today this would be called insider trading, there was no law against it in eighteenth century France. He continued to alienate everybody powerful he came into contact with – from Parisian society to Frederick the Great of Prussia, to the government of Geneva; in this, his wealth came in handy as he was constantly in need of escaping the wrath of the authorities in one city or another, and even found himself exiled from Paris.