Voltaire was a famous French historian, philosopher and scam artist.

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Yep. In the early 1700s, the well-known enlightenment thinker played the French government for a huge sum of money which had him living like a king thereafter.

It was 1729 when Voltaire linked up with a French mathematician named Charles de la Condamine. This French explorer and mathematician had figured out a loophole in the state lottery and had a plan by which he and Voltaire could make a fortune.
The French economy was in decline back then. The government was running a large deficit (spending more than it made) and financing of government activities was achieved mainly through two channels. The first being taxation and the other being issuance of bonds.

A bond is an instrument of debt. With a government bond, people lend the state money and in return are promised their money back with interest after a certain time period.

However, because the French government was so broke…they had to resort to some clever tactics to pay their creditors back. They had to cut interest rates in order to make their debt cheaper. Basically, instead of paying someone back 5% on their loan, the government said “we’ll pay you 3%”.

voltaireThe only drawback was that because interest rates were now lower, government bonds were less valuable…and so demand fell. This obviously made it harder for the government to borrow money and finance further spending. They had to come up with a solution.

Their brilliant idea: combine a state lottery with government bonds.

In 1728, the French finance minister launcheda program where bondholders would be able to buy lottery tickets linked to the value of their bonds. If all went well, bond owners who won the lottery would win the face value of their bonds valued at the old interest rates plus a nice jackpot that would set them up for life. The prize on offer was 500,000 livres. At that time, 30,000 livres a year in annual income was considered very, very rich. 500,000 was a fortune.

This idea was supposed to increase new bond sales, earn money for the government and raise the value of existing bonds all at the same time. A triple threat!

And it might have worked…if the finance minister had only double checked his math.

The problem was that the lotto tickets were linked to the bond but not to the price. French citizens were able to buy a lottery ticket for every bond at 1/1000th of the bond’s value. So if a French bond was worth 1000 livres, the lottery ticket would cost 1 livre.

Essentially if you were buying these special lottery tickets you could get a fantastic discount. So while Imight go to my local corner store and buy a $5 lotto ticket, you could get that same ticket for cheaper so long as you bought a bond that was cheaper than $5000 ($5*1000).

Easy to see why that could become a problem.


Additionally the jackpot on offer was much greater than the total value of all the tickets. So if you could buy up all the tickets you were guaranteed not only to win, but also to profit.

That’s where Voltaire and La Condamine enter the story, because that’s exactly what they did.

The duo formed a syndicate in order to take advantage of the undercooked lottery rules. That group would go on to buy as many cheap government bonds as possible – and win an incredible amount of money. Month after month they would collect the jackpot, 500,000 or even 600,000 French livres (a massive sum in that time), with Voltaire acting as the group’s front man.

In all, the syndicate made the equivalent of $41 million in today’s money.


The syndicate was eventually scuppered due to Voltaire himself, as the man couldn’t resist needling the French government. An extremely sardonic individual, Voltaire would write mocking phrases on the back of the winning lottery tickets he cashed. Things like “here’s to the good idea of…La Condamine”.

French government officials eventually traced the lottery tickets back to the syndicate, but there was really little they could do. What Voltaire and La Condamine were doing wasn’t technically illegal.

Okay, so in the end it wasn’t really a “scam.” They didn’t really break the law. What they were really doing was arbitraging a broken system.

In finance, arbitrage refers to the practice of taking advantage of a price difference between two markets.

For example, if U.S. government bonds were offering investors a 9% return and the bank was lending money at 3%, you could theoretically borrow 1000 dollars (where you would be on the hook for $1,030) and then use that money to buy government bonds which pay out $90, or 9%, after a year.

Once you cashed out your bonds you would have your principal ($1,000) plus your return ($90). You would then pay back the bank ($1,090-$1,030) and walk away with $60. Because bonds are considered very safe, and the chance of default is super low, this would be considered a (almost) risk-free venture.

Obviously that’s a very simplistic example, but the take aways clear. If you’re able to do this on a much larger scale, you’d be able to walk away with a huge risk-free profit. A million dollars yields $60,000 – and so on and so forth.

This theory of arbitrage is kind of like a dream for savvy investors, because of the guaranteed returns. All the return, for none of the risk? Sign me up please!

That’s why Voltaire and La Condamine were so eager to jump on the opportunity 300 years ago. They were conducting a risk-free arbitraged investment that would make any modern-day hedge fund manager applaud in admiration.


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