False Profits

A cautionary history of the Ponzi scheme, and what it tells us about our spiritual impoverishment.

I. Payoff at Infinity

In 1933, at the height of the worldwide economic depression, G. K. Chesterton wrote, “The modern world began by Bentham writing the Defense of Usury.” He was referring to Jeremy Bentham’s 1787 essay rejecting any state-imposed limit on interest rates. Bentham’s contemporary, Adam Smith, the father of free markets, nevertheless recommended such a limit, fearing that without it, profligates and projectors, which is to say, speculators, would suck up more and more money into riskier and riskier future “projections.”

Bentham’s paean to credit had more than a whiff of utopia about it. The idea was to put behind us the inhibitions we had about usury so that capital could be liberated to bloweth where it listeth, to be invested in innovation, in change, and so, in effect, in the future. Mere individual charity would be replaced by a centrally directed but abstract “Philanthropy.” Without limits on interest rates, the future itself could be liberated from the constraints of the past and the present. Through investment, the future could be gathered up and harvested now. It was a financial form of a secular messianism, through which mankind would initiate a new heaven on earth, rather than waiting on Providence to do it.

Like other universal projects of the Enlightenment, it was in fact an illuminatio praecox, a Premature Enlightenment. It lacked a grasp of the richly paradoxical view of salvation that the Catholic Church has sought to keep before her: we are already saved, but the judgment is yet to come and at a time be decided by God. Christ has already redeemed us, but Christ will come again in judgment. Grace already flows to us freely, but there are also works to be done, sufferings to be borne, and consequences from our actions to be endured. Heaven is here and heaven is not yet here. We stand at the intersection of Time and Eternity, the finite and the infinite—which is to say, the Incarnation—and we cannot ignore either.

Nor can we ignore the consequences of Original Sin, which blights all man’s projects with pride, until at their harvest when they are thrown into the fire. In this fallen world, what we call thievery is a sin. In the heaven of limitless credit, it is merely a transfer payment, a redistribution of wealth in the interest of egalitarian fairness.

As Bentham’s predecessor Bernard de Mandeville put it in his 1705 Fable of the Hive, thievery increases the velocity of the money taken. That is a good thing for society inasmuch as the thief would then put it into circulation buying things for himself—whores, in Mandeville’s provocative example, who would then pay their butchers and their grocers, who would then pay their blacksmiths, and so on. Organized thievery then would be a kind of stimulus package focused on job creation. Mandeville, it appears, neglected the fact that butchers, blacksmiths, grocers, and farmers would not stay around a place overrun by thieves, highwaymen, bounty hunters, and whores.

Bentham’s financial alchemy would “immanetize the Eschaton,” in Eric Voegelin’s phrase, and would consist of credit transactions, traveling at limitless velocity, transmuting goods into credit, the present into the projected future, time into infinity, and, as we might say, matter into spirit. It is a Gnostic project through and through, in which each person is swept up into the Spirit. People caught up in financial schemes based on a confidence in limitless credit behave and speak very much like End Time ecstatics who have been given a “Go to Heaven Free” card.

The Catholic Church has typically looked on such projects with more or less unease, as greater or lesser heresy. Is it surprising, therefore, that Catholics—Adele Spitzeder and Charles Ponzi—were responsible for history’s most infamous perpetual money machines, which magically spewed out “free” wealth until they suddenly exploded?

II. May the Light of Perpetual Credit Shine upon Them

Adele Spitzeder was born in Berlin in 1832, the daughter of professional stage singers. Her family moved to Vienna, where she attended expensive private schools and eventually took to the stage herself as an actress and singer, although not a very successful one. 

In 1866, her parents moved to Munich for a stage engagement, but her father died after the first performance, leaving her mother in poverty. Adele joined her in Munich, in possession of one suit, six dogs, 50 florins, a string of lesbian lovers, and a serious attachment to the high life in which she had been traveling.

Inflation was high in Bavaria and speculation had soared. As a result, the usury laws had been abolished and the trade in money was “freed” so that risky, short-term, high-interest loans became commonplace. By the spring of 1869, Adele was in debt to a number of usurers, and decided to extricate herself by “baptizing” usury.

Adele offered to pay 8 percent interest per month (as opposed to the 3 percent per year that the regular banks were paying). How did she do it? That’s my secret, she told investors. In reality, however, she did it by paying investors’ interest in advance, at first, with part of the principal they had just given her; then, later, with money from the principal of later investors.  It was a completely impossible system, at least in the long run, because she was simply siphoning future money into the present, creating a larger and larger deficit that would have to be met somehow, some day short of eternity, with an infinite amount of interest payment, from an infinite number of investors.

She inspired such confidence at first, however, with her quick payments of fantastically high interest to early investors, that this in itself created a credit fever in the region, so that people, asking few questions, began taking their money out of real banks and lining up for a chance to give it to Adele. The mounting waves of investment kept ahead of the mounting interest payments. It helped that most investors did not cash out, but continually re-invested their “profits.” Adele and her eventually large staff did not re-invest the remaining principal of the money that was invested with them, but stuffed the “leftover” into boxes and closets.

From that cash, Adele extracted what she needed to support her lifestyle and what would reinforce her reputation for generosity—for example, she set up the “Munich People’s Kitchen,” which could seat 4,000 diners who were offered affordable meals. In the countryside, she was called the “angel of the poor.” Her business, she would piously emphasize, was intended just for their benefit. She disarmingly confessed that, in fact, she had no collateral with which to back up the deposits, but—she seemed to say—the Lord will provide.

On the other hand, Adele was attractive and had plenty of “Sapphic sisters,” as she called them, with whom, in private, she smoked cigars, drank, and debauched. She acquired a house and lived there with her girlfriend (and principal banking assistant), Rosa Ehinger, upstairs in an elaborate love-nest, complete with red silk sheets on their bed. The main floor, however, which was open to visitors, was bedecked with crucifixes, holy pictures, and votive lamps. She dressed in severe long black dresses, with a gold jewel-studded cross around her neck (inspiring a fashion fad in Munich) and attended church and visited countryside shrines with a great show of piety.

Adele conducted business in an inn down the street, where farmers from all over Bavaria crowded in for long hours of waiting to get to the transaction windows, under a large sign that was inscribed “Tue recht und scheue niemand” (“Do right and fear no one”) where they could hand over their money. Some sold their farms to raise cash to invest, believing they could live on the interest from their proceeds.


She donated heavily to the Church, and purchased a newspaper, Vaterland, where her practices were defended against criticism. In some churches, the project of this “Modern Gold-Fairy” was advertised as being blessed by Heaven. She paid her agents huge commissions as a way of making them more fervent (and more tightly complicit) evangels.

Adele’s “Women’s Bank” investors, especially her female investors, became convinced that her more staid bank competitors harassed her simply for “acting like a man”—for engaging in business—and actually, they thought, for beating men at their own game with her financial innovations.

Adele cultivated connections with the Ultramontane faction in the Catholic Church, and so entangled herself into the politics that pitted the Vatican-friendly clerical and political factions of Bavaria against the liberals and secularists of Prussia. Loyalty to the pope meant supporting his efforts to retain the Papal States and, later, aligned one against Bismarck and Prussia in the looming Kulturkampf and with the secretive Austrian attempt to organize an independent Catholic state within Bavaria (with the financial support of a network of Catholic business and banking enterprises).

The ethnic and religious identities of Adele and most of her supporters entangled them in all this. Her “People’s Bank” investors were, by and large, poor Catholic peasants, who felt and were further encouraged to feel that they had been shut out of power and wealth by the usury practiced by Jewish bankers. Adele’s operation acted like a magnet and an amplifier for these sentiments, so there were political and religious implications to her scheme. The Archbishop of Munich, Gregor Scherr—a predecessor of Joseph Ratzinger, incidentally, as Munich’s primate—issued a warning against the Dachauer Bank, but his standing among the populace had been diminished. He had earlier aligned himself first with the liberals who had opposed the First Vatican Council’s declaration of papal infallibility, but after it had been issued, fell into line behind Rome and thereby found himself at odds with the group of popular and respected theologians and clerics headed by Ignaz von Döllinger.

Making money seemed like the result of a magical formula that the rich kept secret. Adele was ostensibly offering the Catholic peasantry the key to the formula whereby they could redistribute the wealth more “justly,” according to their estimation.

Indeed, the liberation of credit was a revolutionary solvent for dissolving social hierarchies, as Mandeville and Bentham had foreseen. It was a dinner gong announcing the Heavenly Banquet on earth, from which everyone, without distinction, might partake while seated on a whirlwind of infinite credit. Worldly society began to fall apart, as one later writer put it:

Many of the depositors were seduced into an extravagant mode of life in reliance on their increased income; the laborers bore their toil less willingly, and, where possible, would remit their labor; the lower class of civil officers, who are very poorly paid in Bavaria, become more accessible to bribery, and yielded to the enticement of corruption, while the insolence and idleness of servants, who felt that a few hundred dollars invested would give them an ample income, became the bane of the household.

When one businessman blithely asked of the bank staff one day about security for his investment, the ladies behind the window whipped out a box of cash (of the earlier investments of the day), counted out his deposit in full, shoved it back at him and told him that he could “go to Hell with it.” His confidence shaken, the man fell to his knees and begged forgiveness, pleading with the ladies to take back his deposit. Fear and greed were only two reasons why most people hesitated in withdrawing their principal. Most just rolled over their matured principal back into the bank for another round—essentially choosing to continue dangling over the abyss of confidence—and allowing the entire project to continue for a while longer, even as the danger continued to grow. Their faith in Adele only increased because she made it seem like she was doing them a great favor by allowing them to deposit their money with her. It seemed that she was acting under the huge burden of limitless charity, and so they never felt tempted to think of themselves as greedy or as complicit with her in theft, but rather as needy and as charitable, in turn, when they encouraged others to do the same.

In mid-November 1872, after three years of bounty, came the Deluge.

The regular banks organized a group of 40 or so large depositors in the Dachauer Bank to demand the payment of their deposits and interest all at once, and this the bank could not do. This produced a sudden crack in public confidence.

When 200 protesters from the countryside gathered in the street outside the inn and threatened to take their money by force if necessary, the police were summoned to calm the crowd, and Adele was spirited out the back door to safety.

The next day, as the run on the bank continued, the municipal authorities took possession of the building, but Adele had disappeared, taking with her all the available cash and some of the account books, others of which she had burned.

More than 30 thousand customers lost their money—about eight million guilders—when Adele’s operation closed down.  Some impoverished farmers committed suicide. Finances in Bavaria took a huge blow, and the cause of the Ultramontane faction in the Church was diminished.

In June 1873, at 41 years of age, Adele went to trial for “fraudulent bankruptcy.” 

Letters she proudly produced at her trial made abundantly clear the extravagance of her sordid life and love affairs, but she laid them open for inspection with an air of nonchalance about her private life, because they also evidenced her investors’ devotion to her and the generosity she had lavished on them.

Many of her early investors had indeed been paid their promised interest. It was the more numerous group of later investors that had lost their money when the Dachauer Bank closed. Adele seems to have believed that the bank could have kept fulfilling its promises, but that its closing had made that impossible, and so blamed the persecution of the municipal authorities, not herself, for the losses. As with other millennial movements and other confidence schemes, many of Adele’s rank-and-file followers continued to believe in her even after her failure, and attributed that failure to the interference of others.  Non-Catholics—Protestants and secularists alike—blamed the disaster on Jesuitical intrigues that exploited the credulity and superstition of ignorant and simple Catholics who sought miracles, fomenting ethnic animosities. 

The court sentenced Adele to three years in prison. After her release, a stage manager hired her to star in a production of Schiller’s 1800 play about Mary Stuart—that Catholic queen opposed and beheaded by heretics—but the authorities nervously shut down the production before it began.

She organized and led an unsuccessful foreign tour of an all-female orchestra. Back in Munich she started up a new bank under her old system, but it was closed down almost immediately. She then tried again, without much success, to go on stage as an actress and singer. She died in poverty in 1895.

III. Carlo Ponzi Goes for Broke

Charles Ponzi, a cradle Catholic, became the “Patron Saint of the Roaring Twenties,” as one writer put it. In any event, he gave his name to an entire class of financial fraud.

Carlo Ponzi was born in the town of Lugo in northern Italy in 1882. On November 15, 1903, he arrived in Boston from Liverpool aboard the S.S. Vancouver, with $2.50 in his pocket.

He first traveled to Canada, where he was imprisoned in Montreal for check forgery. Then, back in the States, he went to prison in Atlanta for trying to smuggle Italian immigrants into the country. He worked as a mason’s helper, a traveling salesman, and a dishwasher. He went back to Boston, met and married a young woman of Italian descent, and for a while, beginning in 1918, worked in his father-in-law’s grocery store.

Seemingly in an off-hand way, he hit on the idea of a kind of mass arbitrage of postal stamp vouchers from one country to another. All he needed were investors so that he could buy enough to make it worthwhile. In theory, it was a plausible enough idea to appeal to people, although, in practice, because of the massive red tape involved in each little transaction, it was actually impossible to do. No matter. Ponzi never used any investors’ money to make the exchanges, anyway. The idea was simply a way to make people have faith in him, to place their confidence in him. He traded in nothing material, but rather in pure confidence. “It’s very simple,” he later admitted about his method. “First, the psychology of greed. Then, the psychology of fear. Men and women are children a few years older.”

He simply raked in the money and stored it in cans and closets, and later in real banks. And he paid the fantastically high interest rates (“Double your money in ninety days!”) that he promised out of the advanced principal of the deposits, and then, afterwards, the mounting interest payments of early investors out of the cash that later investors were shoveling in his direction.

He deployed sales agents who worked on commission. Most people were so thrilled to get their interest payments that, not only did they not touch the principal they had invested, but they also reinvested their interest payments as new principal.

Ponzi’s scheme, run through his “Securities Exchange Company” on State Street in Boston, appealed strongly to his fellow poor Catholics, mostly Italian and Irish immigrants, who thought they were beating the blueblood Protestants in Back Bay at their own game. He was cheered on the street. His parish priest was one of his investors. It was not uncommon to find people who felt privileged and fortunate to be able to give Ponzi their money. Crowds gathered on the sidewalk outside his office, waiting to unload their cash. In 1919, Charles Ponzi had been worth essentially nothing. One year later, he had a mansion in Lawrence, Massachusetts; a chauffeur-driven, bright blue Locomobile; controlling interest in several businesses, including a bank; and fine clothes, including gold-tipped canes.

“I hit the American people where it hurt—in the pocketbook,” he would say later. “Those were confused, money-mad days. Everybody wanted to make a killing. I was in it plenty deep, rolling in other people’s money.”

When the edifice of his operation began to crash, many of his investors stood out on the street “loudly proclaiming his honesty and swearing that all the fuss was stirred up by Wall Street interests jealous of this friend of the common people.” A writer in the Washington Evening Star noted that “it must be said of him that whatever his game, he has certainly played it well.” 

By the time his scheme began to crack in 1920, 40,000 people had deposited $15 million with him. The US District Attorney, during an audit of Ponzi’s books, gave an interview to reporters in which he said, “As I told Ponzi the other day, … he is either a benefactor deserving of the blessing of the public, officials and all alike, or he should be in jail. Ponzi agreed to that.”

When the bubble burst because he was “robbing Peter to pay Paul,” as he put it, millions were lost and he went to jail for mail fraud. Six Boston banks failed and Ponzi’s investors were paid back, at most, only 30 percent of their principal.

Eventually, after serving out his seven-year sentence, the feds deported Ponzi to Italy. He bounced around before the Second World War, winding up in Brazil, where he died in a charity hospital in 1949.

In an interview shortly before he died, he reflected on his scam in Boston. “Even if they never got anything for it, it was cheap at that price,” he said. “Without malice aforethought I had given them the best show that was ever staged in their territory since the landing of the Pilgrims! It was easily worth 15 million bucks to watch me put the thing over.”

IV. Welcome to the Confidence Singularity!

A headline in the Chicago Daily Tribune at the height of the chaos that Charles Ponzi’s scheme had produced gave out his secret: “Ponzi Reveals Philosopher’s Stone: 0+0=$.” Infinite money would gather into the present if past and future substance could be transmuted into credit and drawn down to zero.

Did the first payments of impossibly high interest to the investors function as mere pay-offs for complicity in a dubious game, or as a means to disarm and extort the recipients, distorting their judgment and increasing their faith and confidence in something they would not have believed otherwise?

With good reason, investors believed that loss of faith—loss of confidence—would not just be the result of the failure of the project, but that it would actually cause the failure of the project. If everyone lost faith, it would break the miraculous flow of money that was caused and initiated by that faith. Bound up as they were with others, failure to have faith would cause their own downfall and the downfall of all the others, and their confidence, also bound up with others, would cause their wealth, and the wealth of others, to increase.

The problem here is that out on the hungering edge of the project—the ever-expanding region of the most recent investors, the risk of confidence grows exponentially. And so, the earlier investors, to “keep confidence up,” hid the risk to the new investors in order to lead them into keeping the money flow going. Confidence cannot grow to infinity—where an infinite number of investors get their payoff. Long before that singularity, the confidence necessary to overcome the fear of greater and greater risk reaches an unsustainable point. Greater and greater energy has to be expended, wilder and wilder promises have to be made and greater and greater pressures aimed at potential investors. Everyone invested in the front end of the scheme must deny more and more vigorously the rapidly materializing evidence of impossibility, in order to calm down the later investors and keep the machine running. Testimony of confidence must be shouted louder and louder over the noise of the grinding mechanism. In this real world, still short of the Second Coming, the machine breaks at some point shy of the Event Horizon, and the entire mechanism falls apart.

Ponzis and pyramid schemes enshrine self-interest. Using altruism (family, ethnic ties, for example—in-group solidarity) to entwine others in a scheme of essential self-interest implicates one in the exploitation of the vulnerable, not in giving charity to them.

C.S. Lewis explained this indirectly in The Abolition of Man. While contemplating the social mechanism of eugenics, he observed that it consists in the present generation’s withdrawing resources from its ancestors as well as from its descendants, in order to enrich itself. This is Ponzi’s 0+0=$ with a vengeance. The present opens the coffers of the past and the future and empties them. This is, as we might put it, a transfer payment between generations, a redistribution of wealth from past and future to the point of the present generation. We refuse to honor the claims of the past upon us, and we refuse to provide for the needs of the future. We become supremely “free”—past and present must bow to our Almighty Choice. And it is our choice. Just as it is our choice if we commit suicide. Which we do, in this case because, as Lewis points out, free of the obligations to the past and the future, we step off into the void. At the moment we reach the greatest power to choose, we have nothing left to choose. We have no more freedom.

That is why Adele Spitzeder’s and Carlo Ponzi’s schemes were so un-Catholic, even though they entangled Catholics. So it is with Ponzi and pyramid schemes today, even when they involve “affinity scams” of Catholics playing with the confidence of other Catholics. They don’t typically tweak millennial excitement, but sheer laziness, envy, and greed.

After the Spitzeder fiasco, a Boston lawyer and Unitarian, William Wells, wrote a long essay about it, attributing the fantastic promises of Adele to the ignorant miracle-mongering nature of Catholicism. He was surely abashed, then, when the Unitarians of Boston were caught up en masse less than a decade later, in 1880, in a huge scheme, almost precisely similar to Spitzeder’s—the “Woman’s Bank” of Boston.  And although Catholic Ponzi may have given his name to a generic form of confidence fraud, he was by no means its inventor. Such schemes began in America long before him. Indeed, men and women of all ages, religions, political leanings, nationalities, and ethnic identities have initiated and been caught up in such schemes. And they continue to be right down to the present. It is usual to account for people’s involvement in these schemes simply by pointing to universal human greed and naïveté, to a simple hankering for advantage and good fortune, to a susceptibility to suggestion, and to the excitement of gain and the fear of being left behind while everyone else gets rich, without regard to religious belief.

Nevertheless, these schemes often appear in religious guise. The New Age variety—often involving “gifting scams” and straight-out pyramid schemes (and often populated by ex-Catholics who have decided that the Church will not lead them to enlightenment nor the world to a heaven on earth)—are nothing more than burnished versions of the politically radical Spiritualism of the last half of the 19th century, popular among progressives who had lost their faith and no longer had clergy around to warn them against necromancy. With a blatant misplacement of religious faith—having turned Faith into Confidence—they might sit around a table at a dark séance, being asked to place their money—via the table in front of them—in the “treasury of heaven,” where angels could make it multiply wondrously to help those less fortunate (like those present).  Their “investments” vanished before the lights came up, and they came back week after week to have improbably-high installments materialize in the dark, until one week when the spirit medium vanished, along with all the principal in the spirit bank.

Most notoriously, these days, Ponzi and pyramid schemes are associated with New Age groups, “human potential” organizations, and Pentecostal groups saturated in the “prosperity gospel” or the “gospel of abundance.”  All of these, in fact, in their equating personal prosperity with grace, trace their lineage back to Luther and Calvin, where salvation was an essentially individual drama acted out between the individual soul and God, not one involving the Church and all of humankind.

The heresies spawned by and during the Reformation and the religious and secular messianisms that followed have made people in our age particularly susceptible to such manipulation, by vesting material prosperity as a sign of grace, an early payment on a promise of infinity.  Indeed, the early Protestants’ criticism of Catholic clerics’ trade in indulgences was not so much a criticism of trading in grace as it was a criticism of having earthly limits on such trade (since grace from the Treasury of Heaven is free and without worldly taint), which they believed amounted to having it hoarded by and administered through the middle-men of the Church, rather than by anyone whatsoever for himself alone.

Following Luther, one overcomes one’s earthly despair and doubts brought on by worldly evidence of pervasive corruption by a bold assertion of the certainty of salvation. This is how Calvin’s solution to kill off the earthly man and let the Divine take his place, how he came to place an unswerving trust in those Elect who he believed had already experienced this rare and secret illuminatio. Neither Luther nor Calvin seem to have been able to perceive the sacramental nature of the world within its darkness. The only window in their world-prison opened in the solitary cell of their souls. Their solution seems to have been a Gnostic one, of putting the world aside and opting for themselves to live already in heaven, as if matter no longer mattered. Or, as Francis Bacon advised in The New Atlantis, setting aside heaven, and just getting on with mucking about in the dirt here below—but turning the material dirt into spiritual gold. All this matter could be transmuted into spirit by a science that would erect an ever-larger but dematerialized representation of it in the form of a universal body of interlinked knowledge—a sort of purified spiritual replacement, controlled by Man, not by God. And controlled, in the end, by an abstract, amoral, and impersonal Man—embodied in the omnicompetent state—not by concrete, individual, personal, and moral men.

Western society has long been playing a Ponzi scheme with its own cultural, spiritual, and material resources for half a millennium. But there are widespread and growing cracks in the confidence needed to keep it going. These are most apparent out on the hungering edges of the project. But those hungering edges are close by us, including, for example, eugenic rationalization, the dismemberment of marriage, and sexual “liberation,” the postmodern reconfiguration of knowledge, the collapse of matter into cyberspace, as well as the progressive dematerialization of financial markets. Because it operates at such a large scale, individuals—at least for now—can perhaps quietly cash out some of their cultural resources in various ways, and preserve them off the grid, as it were (in the Church, for example), before the confidence singularity is upon them. But the moment when that will no longer be possible is soon approaching, and as it closes in, its velocity is increasing.

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About John B. Buescher 14 Articles
John B. Buescher received his Ph.D. in Religious Studies from the University of Virginia. From 1991 to 2007 he was the head of the Voice of America's Tibetan Broadcast Service. His books include The Other Side of Salvation: Spiritualism in the Nineteenth-Century Religious Experience (Skinner House Books, 2004), The Remarkable Life of John Murray Spear: Agitator for the Spirit Land (University of Notre Dame Press, 2006), and The President's Medium: John Conklin, Abraham Lincoln, and the Emancipation Proclamation (Richard W. Couper Press, 2019).