There’s this evocative term that emerges from the history of 19th-century investment scams: grifters. These are people who misrepresent their profession, move into a town, gain the confidence of the community, pull off some kind of petty heist, and hit the road with money in tow.
It’s an ancient tradition that draws on every form of human fallibility.
Gold in this Dirt!
There’s an absolutely fabulous rendering of this very thing in the first three episodes of season two of Anne With an E, Netflix’s rendering of the classic novel Anne of Green Gables. Sad truth: I never read this novel. Among those who have, they give the new series brutal reviews. For my part, I am nuts for the show. It’s charming, scary, thrilling, and overall wonderful.
But back to the grifters. Two people show up in town to live at Anne’s homestead on Prince Edward Island. One is just a worker down on his luck, and he is paid to help around the farm. The other poses as a geologist examining the land for oil for some company in England for which he supposedly works.
The scam that he perpetuates begins with whispers. The geologist is working away and pretends to discover a wonderful truth. There is gold in the soil. He can see it through his microscope. He shares the secret with a well-heeled citizen who is supposedly good with money. As the grifter explains, he is now faced with a moral quandary. If he tells his company, the company will take all the land and pillage the profits. Or he could just tell the citizens themselves and cut the company out of the deal.
He finishes his little talk with the good citizen by swearing the man to secrecy.
Of course, within a day, everyone in town knows about the gold discovery. They hold a town hall meeting. The townspeople demand that the geologist cough up all the information he has. He does so. His (hidden) partner demands that the geologist quit the company for which he works and put his money where his mouth is. He should invest, and send in soil samples to England from other people’s land. The geologist agrees.
Everyone cheers! Riches await!
The fake geologist says the testing is expensive, costing each landowner about half a year of income. The rich guy in town agrees to lend money to everyone who needs it, at some interest. Many agree. Can’t make money without spending money or borrowing it! Everyone in town gets gold fever, dreaming of wild riches and never having to work again. So they dig deep. The result is that the people of the town give the grifters huge pile of cash.
Anne discovers the scam, but it is too late to stop the pillaging. The two grifters run off in the middle of the night with the cash. Everyone then feels silly and embarrassed. It takes fully six months for the sense of humiliation to abate, for marriages and friendships to be restored, and for people to get back to work and remember that making money is a grind and hardly ever just a matter of accidental riches.
Gold and Crypto
Watching this was a great experience because it is a solid reminder that scams will always be with us. The sector known as crypto is replete with them. I get tips every day. Most are terrible. Some I regret not taking.
Almost every day, the highest-performing cryptoasset is something I’ve never heard of and won’t hear about again after next week. That doesn’t necessarily mean that crypto in general – or even this specific token – is a scam. But it does indicate that there is enough irrational exuberance in the air to make scamery profitable. The exuberance part is based on something real. The irrational part is the problem.
It’s amazing how people allow their imaginations to swamp rationality when the prospect of riches is involved. We suspend our incredulity to feed our hopes of economic emancipation from the daily grind.
Is the crypto market afflicted with this problem? Absolutely. In spades. Was gold? Absolutely. Not today, perhaps, but in the 19th century, gold fever was real. People undertook enormous sacrifices to get it, my own ancestors among them.
That fact does not take away from the reality that for some 6,000 years, gold has represented stable and sound money, an unequaled store of value. The existence of Bernie Madoff does not discredit stocks. The existence of Bitconnect does not discredit blockchain technology.
Here’s the lesson: that an asset or innovation is subject to scamery, pushed by grifters, invested in by the deluded and avaricious, does not mean it is not a good idea. You can observe the fallacy with any new discovery that has ever appeared in the history of humankind.
Gold, with a reputation for impeccability and honesty, was for many generations subjected to exactly the same scams and hence smears that crypto faces today.
Despite such a history, despite the gold standard’s having been destroyed by governments around the world in order to feed the appetite for leviathan, gold remains the standard for monetary systems. Crypto now comes along to replicate many of the features of gold but with an added benefit of decentralization and a supply controlled by a strict protocol. The best part: it does not require or seek management by governments and financial intermediaries.
There will always be scams. We need the incredulous always to be with us, to protect us from enthusiasm that robs us of rationality. There is no such thing as something for nothing, and quick riches will always be an illusive dream.
Except when they are not. Sometimes being ahead of others in knowledge is highly lucrative. Wisdom comes with knowing the difference between what is real, what is fake, and what is a pretty good bet on the uncertainty of the future.
Grifters are good at exploiting our hopes and dreams but seek only to rob us. This was true in the 19th century. It is true In our own times, and in all times.