The South Sea Bubble Home
THE SOUTH SEA BUBBLE
A Stock Market Bubble
Harley, Earl of Oxford, was a well-known government figure who formed the South Sea Company in 1711 by an Act of Parliament. He wanted to improve the British Government's finances by paying back £10 million of debt, including military debentures.
The government offered six-percent interest to a company of merchants to take the debt from the government. To raise the £600,000 per annum it needed to pay the interest, the government placed new, permanent taxes on a number of products, including wines, vinegar, India goods, wrought silks, tobacco and whale-fins.
Harley granted the merchants sole rights to trade in the South Seas - what we would now recognise as the east coast of Latin America. People flattered Harley, calling the enterprise "the Earl of Oxford's masterpiece".
From the very beginning, the South Sea Company was expected to deliver huge profits. Everybody had heard of the gold and silver mines of Peru and Mexico. The mines were thought to be inexhaustible. Surely if the UK's manufactured products were shipped there, the natives would pay for them with one hundred times their weight in gold and silver.
Insiders spread a rumour that Spain would give the UK free-trade access to four of its ports in Chile and Peru in return for a share in its South Seas business. The rumour increased confidence in the South Sea Company and its share price rose on the stock market.
In fact, Philip V of Spain never had any intention of granting free trade rights to the UK in Latin America. There were some negotiations but their only results were that:
These results were a great disappointment to the Earl of Oxford and his followers, who were mocked with the Latin saying:
"The mountains are in childbirth - a ridiculous mouse will be born."
Public confidence in the South Sea Company was, however, not shaken. The Earl of Oxford announced that Spain would allow two further merchant ships to enter its ports in the first year of trade. He was pompous enought to publish a list of all the ports and harbours of the South Seas coasts open to trade with Great Britain. The first voyage of the annual ship was not made until 1717. The following year trade ceased after England declared war on Spain.
At the opening of Parliament in 1717, The King's speech drew attention to the poor state of public finances and recommended that the national debt should be reduced.
The two great financial institutions of the time, the South Sea Company and the Bank of England, made proposals to Parliament on the 20th of May. The South Sea Company proposed to raise its capital to £12 million and lend the government £2 million at five percent interest. The Bank of England made a similar proposal on its own behalf to lend money to the government.
Parliament debated the issues and finally passed three new acts. These were:
Through its dealings with the government, the name of the South Sea Company was continually in the public eye. Despite that fact that the company earned little from South American trade, it flourished as a financial institution. Shares in the company were in great demand and the directors began looking for ways to grow the company further.
John Law's Mississippi Scheme, which had been amazingly popular in France, inspired them with to try a similar scheme in England. They were not deterred by the expected failure of the Mississippi scheme. They were sufficiently arrogant to believe they could avoid the French problems and stretch loans infinitely far without default.
At the time when John Law's scheme reached its peak in France, and with people crowding in thousands to the Rue Quincampoix, and ruining themselves with their eagerness to participate in a flawed scheme, the South Sea directors presented their famous plan for paying off the national debt to Parliament.
Simultaneously, visions of boundless wealth were floated before fascinated eyes in two of Europe's principal countries. The English embarked on their career of extravagance somewhat later than the French; but as soon as the delirium seized them, they were determined not to be outdone.
On the 22nd of January, 1720, Parliament met to consider a proposal from the South Sea Company to wipe out the national debt. The company proposed to take on the entire state debt of £30,981,712 until midsummer 1727 at an interest rate of five percent. After this, Parliament could act to redeem the debt at any time or leave it with the South Sea Company 1727 at an interest rate of four percent.
The proposal was well-received. Supporters of the Bank of England proposed in Parliament that it should be the Bank rather than the South Sea Company that should take on the state debt.
Parliament agreed to leave the matter for five days of consideration.
Afraid that the Bank might offer better terms than they had, The South Sea Company improved the terms of their proposal to the government, allowing it to redeem the debt after four years rather than seven. The Bank, anxious not to be bettered, also sent a revised proposal to the government.
When Parliament debated the two offers, Mr. Robert Walpole acted as leader of the Bank's supporters while the Chancellor of the Exchequer, Mr. Aislabie, led support for the South Sea Company. On the 2nd of February, the South Sea Company's proposals were accepted as best for the country. Leave was given to bring in a bill to that effect.
Demand for the South Sea Company's shares on the stock exchange now reached fever point. The previous day shares had been at 130. They rose to 300 and then continued to rise as the bill passed its various stages through Parliament.
Mr. Walpole was almost the only statesman in the House who spoke out boldly against it. He warned:
Walpole's pleas fell on deaf ears. He was called a false prophet, and compared to a raven, croaking omens of evil.
His friends, however, compared him to Cassandra, predicting evils which would only be believed when they happened.
Parliament had once listened carefully to his every word. Now the debating chamber emptied whenever Walpole intended to speak on the South Sea question.
The Bill took two months to pass through the House of Commons. During this time, directors of the South Sea Company, especially Sir John Blunt, took every opportunity to talk up the price of the stock. Again, free trade agreements between England and Spain were said to be imminent. Silver from the mines of Potosi-la-Paz was to be brought to England until it would almost as plentiful as iron. The Mexicans would give all of the gold in their mines for cotton and woollen goods from England. The South Sea Company would be the richest the world had ever seen and every £100 invested in its shares would produce hundreds of pounds each year to investors.
The result of the talk was that shares rose to trade at almost £400 before settling to £330. They were trading at this price when the Bill was passed by the House of Commons, 172 in favour to 55 against.
The Bill was then rushed through the House of Lords at unparalleled speed. Several peers spoke heatedly against the scheme; but their warnings fell on deaf ears.
Lord North and Grey said the bill might prove fatal in its consequences, being calculated to enrich the few and impoverish the many.
The Duke of Wharton followed; but, as he only reeated the arguments stated by Walpole in the Lower House, little attention was paid him.
Earl Cowper followed and compared the bill to the famous horse of the siege of Troy. It would be received with great pomp and acclamations of joy, but bore within it treachery and destruction.
The Earl of Sunderland, speaking in favour of the Bill, tried to answer all objections.
On the 4th of April the Bill was read a first time; on the 5th, it was read a second time; on the 6th, it was committed; and on the 7th, was read a third time, and passed with 83 in favour and 17 against.
On the same day as the Bill was passed by the Lords, it received the Royal assent, and became the law of the land. A speculating frenzy had seized the Lords as well as the common people.
It seemed at if the whole nation had become obsessed with trading the stock of the South Seas Company. Exchange Alley was blocked by crowds every day. Cornhill became impassable because the number of carriages. Everybody came to purchase stock.
In the words of a ballad, published at the time, and sung about the streets, "Every fool aspired to be a knave". [A South Sea Ballad; or, Merry Remarks upon Exchange Alley Bubbles. To a new tune, called The Grand Elixir; or, the Philosopher's Stone Discovered.]
Then stars and garters did appear
The greatest ladies thither came,
Surprisingly, South Sea stock fell when the Bill became law. On the 7th of April shares traded at £310, and the next day at £290. The directors made every effort to keep the price up.
People with an interest in the Company gathered groups around them to speak of the treasures of the South American seas. Exchange Alley became crowded with attentive groups.
One highly effective rumour was that Earl Stanhope had received overtures from the Spanish Government. The Spaniards were supposedly offering to exchange Gibraltar and Port Mahon for some places on the coast of Peru, for the security and enlargement of the trade in the South Seas. The Company was to be allowed to build and charter as many ships as they pleased to trade in South America and, in place of the usual 25 percent, they would pay no tax whatsoever to the King of Spain.
Visions of ingots danced before people's eyes and stock rose rapidly.
On the 12th of April, five days after the bill had become law, the directors offered one million shares to the public. Each share, backed by £100 of capital, was offered at £300, payable in 5 instalments of £60.
The offering was heavily oversubscribed and two million shares were issued.
In the first days of trading, the stock rose to £340 and subscriptions began trading for double the price of the first instalment.
The directors, seeking enrich themselves further, declared on the 21st of April that the midsummer dividend would be ten percent. Furthermore, all subscriptions would be entitled to the same dividend. The directors then announced a new offering for a second subscription of a million shares priced at £400 per share.
Such was the frantic eagerness of people of every class to speculate in the South Sea Company, that in the course of a few hours, the public subscribed to one and a half million shares.
Inspired by the South Sea Company, other schemes based on speculative greed were spawned. Every possible means was used to raise each offering of shares to an artificially high stock market price.
These schemes soon received the name of Bubbles. No other name could be more apt. Some of them lasted for a week, or a fortnight, before disappearing, while others did not even last a week. Every evening produced new schemes, and every morning new projects. The highest of the aristocracy were as eager in this hot pursuit of gain as the most plodding broker in Cornhill. The Prince of Wales became governor of one company, and is said to have profited by £40,000. [Coxe's Walpole, Correspondence between Mr. Secretary Craggs and Earl Stanhope.]
The Duke of Bridgewater started a scheme for the improvement of London and Westminster, and the Duke of Chandos another. There were nearly a hundred different projects, each more extravagant and deceptive than the next. To use the words of the "Political State" they were "set on foot and promoted by crafty knaves, then pursued by multitudes of covetous fools, and at last appeared to be, in effect, what their vulgar appellation denoted them to be - bubbles and mere cheats."
Nearly £1.5 million was won and lost in these bubbles, to the impoverishment of many a fool, and the enriching of many a rogue.
Some of the schemes were plausible enough. In normal times they could have been to everyone's advantage. But they were started merely with the view of selling shares in the market. The directors of each bubble company took the first opportunity of a rise in the share price to sell out and next morning the scheme was at an end.
Maitland, in his History of London, tells us that one of the projects which received great encouragement, was for the establishment of a company "to make deal-boards out of saw-dust." This is, no doubt, intended as a joke; but there is abundance of evidence to show that dozens of schemes hardly any more plausible ruined hundreds before they fell.
One of them raised £1 million for a perpetual motion wheel. Another was "for encouraging the breeding of horses in England, and improving of church lands, and repairing and rebuilding parsonage and vicarage houses." Why the clergy, who were so mainly interested in the latter clause, should have taken so much interest horse breeding, can only be explained by supposing that the scheme was promoted by a group of foxhunting parsons, once so common in England. The shares of this company were rapidly subscribed for.
An unknown adventurer started the scheme that showed, more completely than any other did, the utter madness of the people. It was entitled "company for carrying on an undertaking of great advantage, but nobody to know what it is."
If many credible witnesses had not verified the truth of this scheme, it would be impossible to believe that any person could have been duped by such a project. The genius who invented this bold assault on public credulity, merely stated in his prospectus that the required capital was £0.5 million, in five thousand shares of £100 each, deposit £2 per share.
Each subscriber, paying his deposit, would be entitled to £100 per annum per share. How this immense profit could be made, he did not condescend to inform anyone. He did, however, promise that, in one month's time, full particulars would be provided, and a call made for the remaining £98 of the subscription. Next morning, at nine o'clock, this great man opened an office in Cornhill. People crowded around his door, and when he closed at three o'clock, he found that one thousand shares had been subscribed for. In five hours, he had taken £2,000. He was content with his profit, and set off the same evening for the Continent. He was never heard of again.
Swift compared Exchange Alley to a gulf in the South Sea:
Subscribers here by thousands float,
Now buried in the depths below,
Meantime, secure on Garraway cliffs,
Another successful fraud was the "Globe Permits". These "permits" were just square pieces of playing cards. They were made to look impressive by the addition of a wax seal with the sign of the Glove Tavern in the neighbourhood of Exchange Alley. The seal was inscribed "Sail Cloth Permits". The permits gave their owners the right to subscribe, at some future time, to a new sailcloth factory. These permits sold for as much as sixty guineas in the Alley. They were promoted by a man who later became involved in the embezzlement and punishment of the South Sea directors.
Wealthy people, of both sexes, were deeply involved in all these bubbles. Men met with their brokers at taverns and cafes, while the ladies met theirs at clothes shops.
Of course, not all of the people subscribing to the schemes believed they had any true merit. All they wanted to do was get in early and sell at a higher price to a bigger fool. The confusion over prices was so great that shares in the same bubble were known to have been sold at the same instant for ten percent more at one end of Exchange Alley than at the other.
Sensible men foresaw clearly the impending ruin. Mr. Walpole did not cease his gloomy forebodings. His fears were shared by the thinking few, and impressed forcibly upon the government.
On the 11th of June, the day the Parliament went on holiday, the King published a proclamation, declaring that all these unlawful projects should be deemed public nuisances, and prosecuted. The King threatened brokers with a fine of £500 if they traded shares in bubble stocks. Despite this proclamation, roguish speculators carried them on, still encouraged by deluded people.
On the 12th of July, an order of the Lords Justices was published, dismissing all petitions for patents and charters, and dissolving all the bubble companies.
The following copy of their lordships' order, containing a list of all these nefarious projects, is interesting even today, when there is still a tendency to indulge in similar practices:
At the Council Chamber, Whitehall, the 12th day of July, 1720. Present, their Excellencies the Lords Justices in Council.
Their Excellencies, the Lords Justices in council, taking into consideration the many inconveniences arising to the public from several projects set on foot for raising of joint stock for various purposes, and that a great many of his Majesty's subjects have been drawn in to part with their money on pretence of assurances that their petitions for patents and charters, to enable them to carry on the same, would be granted: to prevent such impositions, their Excellencies, this day, ordered the said several petitions, together with such reports from the Board of Trade, and from his Majesty's Attorney and Solicitor General, as had been obtained thereon, to be laid before them, and after mature consideration thereof, were pleased, by advice of his Majesty's Privy Council, to order that the said petitions be dismissed, which are as follows:
1. Petition of several persons, praying letters patent for carrying on a fishing trade, by the name of the Grand Fishery of Great Britain.
2. Petition of the Company of the Royal Fishery of England, praying letters patent for such further powers as will effectually contribute to carry on the said fishery.
3. Petition of George James, on behalf of himself and divers persons of distinction concerned in a national fishery; praying letters patent of incorporation to enable them to carry on the same.
4. Petition of several merchants, traders, and others, whose names are thereunto subscribed, praying to be incorporated for reviving and carrying on a whale fishery to Greenland and elsewhere.
5. Petition of Sir John Lambert, and others thereto subscribing, on behalf of themselves and a great number of merchants, praying to be incorporated for carrying on a Greenland trade, and particularly a whale fishery in Davis's Straits.
6. Another petition for a Greenland trade.
7. Petition of several merchants, gentlemen, and citizens, praying to be incorporated, for buying and building of ships to let or freight.
8. Petition of Samuel Antrim and others, praying for letters patent for sowing hemp and flax.
9. Petition of several merchants, masters of ships, sail-makers, and manufacturers of sail-cloth, praying a charter of incorporation, to enable them to carry on and promote the said manufactory by a joint stock.
10. Petition of Thomas Boyd, and several hundred merchants, owners and masters of ships, sail-makers, weavers, and other traders, praying a charter of incorporation, empowering them to borrow money for purchasing lands, in order to the manufacturing sail-cloth and fine Holland.
11. Petition on behalf of several persons interested in a patent granted by the late King William and Queen Mary, for the making of linen and sail-cloth, praying that no charter may be granted to any persons whatsoever for making sail-cloth, but that the privilege now enjoyed by them may be confirmed, and likewise an additional power to carry on the cotton and cotton-silk manufactures.
12. Petition of several citizens, merchants, and traders in London, and others, subscribers to a British stock, for a general insurance from fire in any part of England, praying to be incorporated for carrying on the said undertaking.
13. Petition of several of his Majesty's loyal snbjects of the city of London, and other parts of Great Britain, praying to be incorporated, for carrying on a general insurance from losses by fire within the kingdom of England.
14. Petition of Thomas Burges, and others his Majesty's subjects thereto subscribing, in behalf of themselves and others, subscribers to a fund of 1,200,000 pounds, for carrying on a trade to his Majesty's German dominions, praying to be incorporated, by the name of the Harburg Company.
15. Petition of Edward Jones, a dealer in timber, on behalf of himself and others, praying to be incorporated for the importation of timber from Germany.
16. Petition of several merchants of London, praying a charter of incorporation for carrying on a salt-work.
17. Petition of Captain Macphedris, of London, merchant, on behalf of himself and several merchants, clothiers, hatters, dyers, and other traders, praying a charter of incorporation, empowering them to raise a sufficient sum of money to purchase lands for planting and rearing a wood called madder, for the use of dyers.
18. Petition of Joseph Galendo, of London, snuff-maker, praying a patent for his invention to prepare and cure Virginia tobacco for snuff in Virginia, and making it into the same in all his Majesty's dominions.
LIST OF BUBBLES
The following Bubble Companies were by the same order declared to be illegal, and abolished accordingly:
1. For the importation of Swedish iron.
2. For supplying London with sea-coal. Capital, three millions.
3. For building and rebuilding houses throughout all England. Capital, three millions.
4. For making of muslin.
5. For carrying on and improving the British alum works.
6. For effectually settling the island of Blanco and Sal Tartagus.
7. For supplying the town of Deal with fresh water.
8. For the importation of Flanders lace.
9. For improvement of lands in Great Britain. Capital, four millions.
10. For encouraging the breed of horses in England, and improving of glebe and church lands, and for repairing and rebuilding parsonage and vicarage houses.
11. For making of iron and steel in Great Britain.
12. For improving the land in the county of Flint. Capital, one million.
13. For purchasing lands to build on. Capital, two millions.
14. For trading in hair.
15. For erecting salt-works in Holy Island. Capital, two millions.
16. For buying and selling estates, and lending money on mortgage.
17. For carrying on an undertaking of great advantage, but nobody to know what it is.
18. For paving the streets of London. Capital, two millions.
19. For furnishing funerals to any part of Great Britain.
20. For buying and selling lands and lending money at interest. Capital, five millions.
21. For carrying on the Royal Fishery of Great Britain. Capital, ten millions.
22. For assuring of seamen's wages.
23. For erecting loan-offices for the assistance and encouragement of the industrious. Capital, two millions.
24. For purchasing and improving leasable lands. Capital, four millions.
25. For importing pitch and tar, and other naval stores, from North Britain and America.
26. For the clothing, felt, and pantile trade.
27. For purchasing and improving a manor and royalty in Essex.
28. For insuring of horses. Capital, two millions.
29. For exporting the woollen manufacture, and importing copper, brass, and iron. Capital, four millions.
30. For a grand dispensary. Capital, three millions.
31. For erecting mills and purchasing lead mines. Capital, two millions.
32. For improving the art of making soap.
33. For a settlement on the island of Santa Cruz.
34. For sinking pits and smelting lead ore in Derbyshire.
35. For making glass bottles and other glass.
36. For a wheel for perpetual motion. Capital, one million.
37. For improving of gardens.
38. For insuring and increasing children's fortunes.
39. For entering and loading goods at the custom-house, and for negotiating business for merchants.
40. For carrying on a woollen manufacture in the north of England.
41. For importing walnut-trees from Virginia. Capital, two millions.
42. For making Manchester stuffs of thread and cotton.
43. For making Joppa and Castile soap.
44. For improving the wrought-iron and steel manufactures of this kingdom. Capital, four millions.
45. For dealing in lace, Hollands, cambrics, lawns, &c. Capital, two millions.
46. For trading in and improving certain commodities of the produce of this kingdom, &c. Capital, three millions.
47. For supplying the London markets with cattle.
48. For making looking-glasses, coach glasses, &c. Capital, two millions.
49. For working the tin and lead mines in Cornwall and Derbyshire.
50. For making rape-oil.
51. For importing beaver fur. Capital, two millions.
52. For making pasteboard and packing-paper.
53. For importing of oils and other materials used in the woollen manufacture.
54. For improving and increasing the silk manufactures.
55. For lending money on stock, annuities, tallies, &c.
56. For paying pensions to widows and others, at a small discount. Capital, two millions.
57. For improving malt liquors. Capital, four millions.
58. For a grand American fishery.
59. For purchasing and improving the fenny lands in Lincolnshire. Capital, two millions.
60. For improving the paper manufacture of Great Britain.
61. The Bottomry Company.
62. For drying malt by hot air.
63. For carrying on a trade in the river Oronooko.
64. For the more effectual making of baize, in Colchester and other parts of Great Britain.
65. For buying of naval stores, supplying the victualling, and paying the wages of the workmen.
66. For employing poor artificers, and furnishing merchants and others with watches.
67. For improvement of tillage and the breed of cattle.
68. Another for the improvement of our breed of horses.
69. Another for a horse-insurance.
70. For carrying on the corn trade of Great Britain.
71. For insuring to all masters and mistresses the losses they may sustain by servants. Capital, three millions.
72. For erecting houses or hospitals, for taking in and maintaining illegitimate children. Capital, two millions.
73. For bleaching coarse sugars, without the use of fire or loss of substance.
74. For building turnpikes and wharfs in Great Britain.
75. For insuring from thefts and robberies.
76. For extracting silver from lead.
77. For making China and Delft ware. Capital, one million.
78. For importing tobacco, and exporting it again to Sweden and the north of Europe. Capital, four millions.
79. For making iron with pit coal.
80. For furnishing the cities of London and Westminster with hay and straw. Capital, three millions.
81. For a sail and packing cloth manufactory in Ireland.
82. For taking up ballast.
83. For buying and fitting out ships to suppress pirates.
84. For the importation of timber from Wales. Capital, two millions.
85. For rock-salt.
86. For the transmutation of quicksilver into a malleable fine metal.
Besides these bubbles, many others sprang up daily, in spite of the condemnation of the Government and the ridicule of the sane portion of the public. Print shops teemed with caricatures, and the newspapers with satires on the folly.
An ingenious card-maker published a pack of South Sea playing-cards, which are now extremely rare. Each card, besides the usual figures, contained a very small caricature of a bubble company in one corner. The caricature was accompanied by an appropriate verse underneath. One of the most famous bubbles was "Puckle's Machine Company, "for discharging round and square cannon-balls and bullets, and making a total revolution in the art of war.
Its pretensions were summed up on the eight of spades:
A rare invention to destroy the crowd
The nine of hearts was a caricature of the English Copper and Brass Company, with the following verse:
The headlong fool that wants to be a swopper
The eight of diamonds celebrated the Company for the Colonization of Acadia, with this doggrel:
He that is rich and wants to fool away
And in a similar style every card of the pack exposed some unscrupulous scheme, and ridiculed the persons who had been duped.
The total money proposed for all of the bubble projects was more than £300 million, more than the value of all the land in England.
Let's now to return to the great South Sea Bubble, soon to swallow the fortunes of so many thousands of avaricious and credulous people.
During the whole of the month of May, South Sea Company stock continued to rise, and on the 28th it was quoted at £550. In four days after this it took a huge leap, rising to £890.
By this time, about two-thirds of the government annuitants had exchanged their government-backed securities for those of the South Sea Company.
It was now the general opinion that the stock could rise no higher, and many people began selling to lock in their profits. Many noblemen and people associated with the King were also anxious to sell out.
On the 3rd of June there were so many sellers and so few buyers in the Alley that the stock fell at once from £890 to £640.
The directors were alarmed, and gave their agents orders to buy. Their efforts succeeded. Towards evening confidence was restored, and the stock advanced to £750.
Using various methods, the directors kept the price rising until it reached £1,000 at the beginning of August. The bubble was now full-blown, and began to quiver and shake, preparatory to its bursting.
Many of the government annuitants expressed dissatisfaction with the directors, accusing them of favouritism in choosing who would receive shares in new subscription. Uneasiness grew when news began spreading that Sir John Blunt, the chairman, and some others, had sold their shares. During August the stock fell and by the 2nd of September it had reached £700.
Alarm was beginning to spread. The directors held a shareholders' meeting in Merchant Tailors' Hall, on the 8th of September. By 9am the hall was full to bursting point. Outside, an excited crowd, unable to get into the hall, blocked Cheapside.
The directors and their friends arrived in great numbers. Sir John Fellowes, the sub-governor, was called to the chair. He stated the purpose of the meeting, read the resolutions, and gave an account of the redeemable and un-redeemable funds position, and of subscriptions.
Mr. Secretary Craggs then made a short speech, commending the conduct of the directors. He urged that nothing could more effectively contribute to good of the Company than a united position among interested parties. He concluded with a motion to thank the directors for their prudent and skilful management, and to request they proceed in the manner they believed to be best for the Company.
Mr. Hungerford, who lobbied aggressively on behalf of the South Sea Company in Parliament, and who was suspected to have made a fortune by knowing the right time to sell out, spoke pompously at the meeting.
He said that he had seen the rise and fall, the decay and resurrection of many communities of this nature, but that, in his opinion, none had ever performed such wonderful things in so short a time as the South Sea Company. The Company had done more than the crown, the pulpit, or the bench could do. They had brought everyone together in one common pursuit; they had lessened all of the tensions and animosities of the nation.
The performance of the shares in the stock market had allowed wealthy men to vastly increase their fortunes. Country gentlemen had seen the value of their lands doubled and trebled. The Church had benefited too; many clergymen had made a great deal of money.
In short, the Company had enriched the whole nation, and he hoped they had not forgotten themselves. There was some hissing during the later parts of this speech, which in extravagance had come close to satire; but the directors and their friends, and all the winners in the room, applauded vehemently.
The Duke of Portland spoke positively too, expressing astonishment that anybody should be dissatisfied. Of course, he was one of the winners. His talk at the meeting prompted comparisons with the fat alderman in Joe Miller's Jests, who, whenever he had eaten a good dinner, folded his hands upon his paunch, and expressed doubt that there could be any hungry men in the world.
Several resolutions were passed at this meeting, but they failed to calm the doubts of increasingly fearful stock holders.
That evening the stock fell to £640. The following day, September 9. it fell to £540.
On the 12th of September, following desperate requests from Mr. Secretary Craggs, several conferences were held between the directors of the South Sea and the directors of the Bank of England. Following the meeting, a false report was circulated, stating that the Bank had agreed to circulate six millions of the South Sea Company's bonds. The stock rose again to £670 on this news; but in the afternoon, as soon as the report was known to be groundless, the stock fell to £580; the next day to £570, and so gradually to £400.
On September 13, Mr. Broderick, M.P. wrote to Lord Chancellor Middleton, "Various are the conjectures why the South Sea directors have suffered the cloud to break so early. I made no doubt but they would do so when they found it to their advantage. They have stretched credit so far beyond what it would bear, that specie proves insufficient to support it. Their most considerable men have drawn out, securing themselves by the losses of the deluded, thoughtless numbers, whose understandings have been overruled by avarice and the hope of making mountains out of mole-hills.
Thousands of families will be reduced to beggary. The consternation is inexpressible - the rage beyond description, and the case altogether so desperate that I do not see any plan or scheme so much as thought of for averting the blow, so that I cannot pretend to guess what is next to be done."
On September 23, with the stock still falling, Mr. Broderick, wrote, "The Company have yet come to no determination, for they are in such a wood that they know not which way to turn. By several gentlemen lately come to town, I perceive the very name of a South-Sea-man grows abominable in every country. A great many goldsmiths are already run off, and more will daily. I question whether one-third, nay, one-fourth, of them can stand it. From the very beginning, I founded my judgement of the whole affair upon the unquestionable maxim, that ten millions (which is more than our running cash) could not circulate two hundred millions, beyond which our paper credit extended. That, therefore, whenever that should become doubtful, be the cause what it would, our noble state machine must inevitably fall to the ground."
[Mr. Craggs gifted South Sea stock to Gay (the poet) in this disastrous year. The poet believed himself to be a wealthy man, with stock valued at £20,000. His friends tried to persuade him to sell his shares, but he dreamed of dignity and splendour and wanted to hold on for greater gains. They begged him to sell as many shares as would allow him to purchase an annuityto pay him £100 a year for life. The £100, said Fenton, "will make you sure of a clean shirt and a shoulder of mutton every day." The poet rejected this advice and all of the profit and principal were lost. Gay was so depressed that his life was endangered. - Johnson's Lives of the Poets.]
Soon, South Sea directors could not appear in the streets without being insulted. The government grew seriously alarmed at the state of affairs; riots were possible. Messages were sent to the King who was in Hanover, asking him to return immediately.
Mr. Walpole was asked to use his known influence with the directors of the Bank of England to persuade them to accept the proposal made by the South Sea Company to issue a number of their bonds. The Bank was unwilling to mix itself up with the affairs of the Company; it did not want to be involved in a disaster it could not solve, and received all overtures with reluctance.
But the universal voice of the nation called upon it to come to the rescue. Every person of note in commercial politics was called in to advise in the emergency. A rough draft of a contract drawn up by Mr. Walpole was ultimately adopted as the basis of further negotiations, and the public alarm abated a little.
On September 20, a general meeting of the South Sea Company was held at Merchant Tailors' Hall. Resolutions were passed empowering the directors to agree with the Bank of England, or any other persons, to circulate the Company's bonds, or make any other agreement with the Bank which they should think proper.
One of the speakers, a Mr. Pulteney, said it was most surprising to see the extraordinary panic which had engulfed the people. Men were running around terrified, their imaginations filled with some great disaster, the form and dimensions of which nobody knew.
"Black it stood as night - Fierce as ten furies - terrible as hell."
At a general court of the Bank of England held on September 22, the governor informed officials that several meetings had been held to discuss the South Sea Company.
A resolution was proposed, and carried unanimously, empowering the Bank's directors to agree to circulate South Sea Company bonds in any way they thought proper.
Thus both parties had received authority to act as they thought best in the public interest.
Books were opened at the Bank for a subscription for £3 million on the usual terms.
The public leapt on the issue enthusiastically and, due to a morning rush, it looked like the subscription would be filled in one day. Before noon, however, the tide turned. Despite everything that had been done, the South Sea Company's stock was sinking fast again. Their bonds were in such discredit, that a run started on the reputable goldsmiths and bankers who had lent money on South Sea stock. The goldsmiths and bankers had to close their shops and run away. The Sword-blade Company, once the chief cashiers of the South Sea Company, stopped payments. This started a great run on the Bank of England itself, which was now forced to pay out money faster than they had received it from subscriptions that morning.
The following day, September 29, was a holiday, giving the Bank a little breathing space which they used to good effect. There was no good news, however, for the South Sea Company who saw their stock fall quickly to £150 and then, more gradually, to £135.
The Bank, finding they were not able to restore public confidence and stem the tide of ruin without running the risk of being swept away itself refused to carry out the agreement with the South Sea Company. They were under no obligation whatever to continue; for the contract was nothing more than the rough draught, in which blanks had been left for important particulars, and which contained no penalty for withdrawal.
"And thus," to use the words of the Parliamentary History, "were seen, in the space of eight months, the rise, progress, and fall of that mighty fabric, which, being wound up by mysterious springs to a wonderful height, had fixed the eyes and expectations of all Europe, but whose foundation, being fraud, illusion, credulity, and infatuation, fell to the ground as soon as the artful management of its directors was discovered."
At its height, the delusion of wealth seemed to corrupt the very character of the nation.
The Parliamentary inquiry discovered disgraceful behaviour. Nations, like individuals, cannot become desperate gamblers with impunity. Punishment is sure to overtake them sooner or later.
A celebrated writer, Smollett, is quite wrong when he says, "that such an era as this is the most unfavourable for a historian; that no reader of sentiment and imagination can be entertained or interested by a detail of transactions such as these, which admit of no warmth, no colouring, no embellishment; a detail of which only serves to exhibit an inanimate picture of tasteless vice and mean degeneracy." On the contrary, if Smollett had been receptinve, he might have discovered that the subject is capable of inspiring as much interest as even a novelist can desire. For, is there no warmth in the despair of a plundered people? Is there no life in the picture that might be drawn of the woes of hundreds of impoverished and ruined families? of the wealthy of yesterday become the beggars of to-day? of the powerful and influential changed into exiles and outcasts, and the voice of self-reproach and imprecation resounding from every corner of the land? Is it a dull or uninstructive picture to see a whole people shaking suddenly off the trammels of reason, and running wild after a golden vision, refusing obstinately to believe that it is not real, till, like a deluded hind running after a will o the wisp, they are plunged into a quagmire?
But history has too often been written in this false spirit. The intrigues of unworthy courtiers to gain the favour of still more unworthy kings; or the records of murderous battles and sieges have been debated, and told repeatedly, with great style; while the circumstances which have most deeply affected the common people, have been passed over as dry and dull.
During the progress of this famous bubble, England presented a unique spectacle. The public mind was in a state of unwholesome greed. Men were no longer satisfied with the slow but sure profit of industry. The hope getting rich quickly made them pay little attention to their normal daily duties. Moral decline also resulted. The overbearing insolence of ignorant men, who were suddenly successful through gambling, made better men blush, that gold should have power to raise the unworthy so quickly in society. The arrogance of some of these "cyphering cits," as they were described by Sir Richard Steele, was remembered when they fell on hard times.
In the Parliamentary inquiry, many of the directors suffered more for their insolence than for their embezzlement.
One of them, who, in the full-blown pride of an ignorant rich man, had said that he would feed his horse on gold, was reduced almost to living on bread and water. Every haughty look, every overbearing speech, was remembered and repaid a hundred-fold in poverty and humiliation.
George I shortened his intended stay in Hanover, and returned to England, arriving on the 11th of November. Parliament was summoned to meet on the 8th of December. In the mean time, public meetings were held in every considerable town of the empire, at which petitions were adopted, seeking retribution on the South Sea directors whose fraudulent practices had brought the nation to the brink of ruin.
Nobody seemed to think that the nation itself was as guilty as the South Sea Company. Nobody blamed the credulity and greed of the people or the degrading lust for gain, which had swallowed up every noble quality in the national character. Nobody blamed the greed which had made people run with such frantic eagerness into the net held out by schemers. These things were never mentioned. The people were a simple, honest, hard-working people, ruined by a gang of robbers, who were to be hanged, drawn, and quartered without mercy. This was virtually the unanimous feeling of the country. The two Houses of Parliament were equally unreasonable. Before the guilt of the South Sea directors was known, punishment was the only cry. The King, in his speech from the throne, expressed his hope that they would remember that all their prudence, temper, and resolution were necessary to find out and apply the proper remedy for their misfortunes. Several Parliamentarians speakers indulged in the most violent invectives against the directors of the South Sea project.
Lord Molesworth was especially vehement. "It had been said by some, that there was no law to punish the directors of the South Sea Company, who were justly looked upon as the authors of the present misfortunes of the state. I think they ought, upon this occasion, to follow the example of the ancient Romans, who, having no law against parricide, because their legislators supposed no son could be so unnaturally wicked as to embrue his hands in his father's blood, made a law to punish this heinous crime as soon as it was committed. They adjudged the guilty wretch to be sown in a sack, and thrown alive into the Tyber. He looked upon the contrivers and executors of the villanous South Sea scheme as the parricides of their country, and should be satisfied to see them tied in like manner in sacks, and thrown into the Thames." Other members spoke equally angrily.
Mr. Walpole was more moderate. He recommended that Parliament's first duty to restore public confidence. "If the city of London were on fire, all wise men would aid in extinguishing the flames, and preventing the spread of the conflagration before they inquired after the incendiaries. Public confidence had received a dangerous wound, and lay bleeding, and they ought to apply a speedy remedy to it. It was time enough to punish the assassin afterwards."
On December 9 the House agreed to try to solve the country's financial problems and to punish the people who had caused the problem. The inquiry proceeded rapidly. The directors were ordered to account fully for of all their actions. Resolutions were passed to the effect that the disaster was caused mainly by the vile arts of stock trading, and that nothing would do more to restore public confidence than a law to prevent this infamous practice. Mr. Walpole then rose, and said, that as he had "previously hinted, he had spent some time on a scheme to restore public finances, but that the execution of it depended on a position which had been laid down as fundamental. He thought it proper, before he opened out his scheme, to be informed whether he might rely upon that foundation. It was, whether the subscription of public debts and encumbrances, money subscriptions, and other contracts, made with the South Sea Company should remain in the present state?" This question resulted in a vigorous debate. It was finally agreed, by 259 to 117, that all these contracts should remain in their present state, unless altered by a general meeting of the South Sea Company, or set aside by due course of law.
The next day Mr. Walpole outlined his scheme to put the nation's finances in order. He proposed to take £9 million of South Sea stock into the Bank of England, and the same sum into the East India Company, upon certain conditions.
The House received this plan favourably. The Bank of England and the East India Company were ordered to consider the proposals. Neither wanted to help; the plan met with heated but fruitless opposition at the general meetings called to discuss it. They eventually agreed to circulate the South Sea bonds, and a bill to that effect was carried through both Houses of Parliament.
At the same time a bill was introduced preventing the South Sea directors, governor, sub-governor, treasurer, cashier, and clerks from leaving Great Britain for twelve months. These people were also barred from selling their estates and effects. All the most influential members of the House supported the bill. Mr. Shippen, seeing Mr. Secretary Craggs in his place as a minister in the House of Commons, launched a fierce personal attack.
Shippen was convinced that the rumours circulating of that Cragg's conduct in the South Sea business would be sufficient to damage the minister fatally. Shippen said he was glad to see a British House of Commons resuming its pristine vigour and spirit, and acting with so much unanimity for the public good. It was necessary to secure the persons and estates of the South Sea directors and their officers; "but," he added, looking fixedly at Mr. Craggs as he spoke, "there were other men in high station, whom, in time, he would not be afraid to name, who were no less guilty than the directors." Mr. Craggs arose in fury, and said, that if the innuendo were directed against him, he was ready to give satisfaction - fight a duel - with any man who questioned him, either in the House or out of it.
Loud cries of order immediately arose on every side. Amid the uproar Lord Molesworth got up, and expressed his wonder at the boldness of Mr. Craggs in challenging the whole House of Commons. He, Lord Molesworth, though, past sixty, would answer Mr. Craggs in the House. He trusted there were plenty of young men beside him, who would not be afraid to challenge Mr. Craggs outside of the House. Other members rose simultaneously; everybody seemed to be shouting at once. The Speaker called for order in vain. The confusion lasted several minutes, during which Lord Molesworth and Mr. Craggs were almost the only members who stayed their seats. At last the call against Mr. Craggs became so violent that he thought he had better explain his un-parliamentary words. He said, that by giving satisfaction to those who questioned his conduct in that House, he did not mean that he would fight, but that he would explain his conduct. Here the matter ended, and the House proceeded to debate how they should conduct their inquiry into the affairs of the South Sea Company. Ultimately, a Secret Committee of thirteen was appointed, with power to send for persons, papers, and records. The Lords were as zealous and as hasty as the Commons. The Bishop of Rochester said the scheme had been like a pestilence. The Duke of Wharton said he would give up his dearest friend if he had been engaged in the project and that the House should show no respect for that type of person. The nation had been shamefully and flagrantly plundered and he would go as far as anybody in the punishment of the offenders. Lord Stanhope said, that every penny owned by the criminals, whether directors or not directors, ought to be confiscated, to make good the public losses. During all this time the public was in a high state of excitement was extreme. From Coxe's Walpole we learn that the very name of a South Sea director became synonymous with every kind of fraud and villainy.
Petitions from all parts of the kingdom were presented, demanding justice for an injured nation, and the punishment of the fraudsters. Moderate men, who would not go to extreme lengths, even in the punishment of the guilty, were accused of being accomplices. They were repeatedly insulted in anonymous letters and publicly.
The accusations against Mr. Aislabie, Chancellor of the Exchequer, and Mr. Craggs, another minister, were so loud that the House of Lords agreed to investigate them at once.
On January 21, all brokers concerned in the South Sea scheme were ordered to lay before the House an account of any transactions they had made for any officers of the Treasury or Exchequer since 1719. When this account was delivered, it appeared that large quantities of stock had been transferred to Mr. Aislabie. Five of the South Sea directors, ineluding Mr. Edward Gibbon, the grandfather of the celebrated historian, were ordered into the custody of Parliament. A motion tabled by Earl Stanhope was passed unanimously. The motion stated that the acceptance of shares without paying for them; or the purchase of shares by any director or agent of the South Sea Company, for the benefit of any member of the administration, or any member of either House of Parliament, during such time as the South Sea Bill was pending in Parliament, was a notorious and dangerous corruption.
Another resolution was passed a few days later. This one stated that several directors and officers of the Company had committed a notorious fraud and breach of trust when they clandestinely sold their own stock to the Company. In doing so they had been the principle cause of the country's financial problems.
Mr. Aislabie resigned his office as Chancellor of the Exchequer, and left Parliament until the formal inquiry into his guilt was considered by the House.
In the mean time, Knight, the treasurer of the Company, who was entrusted with all the dangerous secrets of the dishonest directors, packed up his books and documents, and fled from the country. He travelled in disguise in a small boat to France.
The Committee of Secrecy informed the House of the event. The House then agreed unanimously that two proposals should be presented to the King. The first requested that a reward be offered for the capture of Knight. The second requested immediate orders be given to prevent other officers of the South Sea Company escaping from Britain.
The ink was hardly dry upon these proposals before they were carried to the King by Mr. Methuen. The same evening a royal proclamation was issued, offering a reward of two thousand pounds for the capture of Knight. The Commons ordered the doors of the House to be locked, and the keys to be placed upon the table. General Ross, one of the members of the Committee of Secrecy, to the house that the Committee had already discovered the most serious fraud ever contrived to ruin a nation. In due time they would lay evidence before the House. In the mean time, in order to get more evidence, the Committee thought it necessary to remove the liberty of the some of the directors and principal South Sea officers, and to seize their papers. A motion to this effect was carried unanimously. Sir Robert Chaplin, Sir Theodore Janssen, Mr. Sawbridge, and Mr. F. Eyles, all members of the House, and directors of the South Sea Company, were summoned to their places in Parliament, to answer for their corrupt practices.
Sir Theodore Janssen and Mr. Sawbridge tried to clear themselves. The House heard them patiently, and then ordered them to withdraw. A motion was then made, and carried unanimously, that they had been guilty of a notorious breach of trust; had occasioned much loss to many of his Majesty's subjects, and had endangered the public finances. They were immediately expelled from the House, and taken into the custody of the sergeant-at-arms. Sir Robert Chaplin and Mr. Eyles, attending four days afterwards, were also expelled the House.
It was resolved that the King should be asked to tell his overseas ambassadors to apply for Knight to surrendered to the British authorities. The King at once agreed, and messengers were immediately despatched to all parts of Europe.
Among the directors arrested, was Sir John Blunt, the man believed to be the main player in the scheme. According to Pope, in a long letter to Lord Bathurst, Blunt was a dissenter, a religious man, who professed to be a great believer. Blunt constantly criticised the luxury and corruption of the age, and the bias of parliaments. He was particularly eloquent against greed in great and noble persons. He was originally a scribe, and afterwards became, not only a director, but the most active manager of the South Sea Company. Pope does not tell us when Blunt began to criticise greed in the the great and noble. He certainly must have seen enough of it to justify his severest criticism but if the Blunt had been free from greed himself, his protest would have had a better effect. Blunt was taken to the House of Lords where was interrogated. He refused to answer several important questions. He said he had been questioned already by a committee of the House of Commons. He did not remember his answers, so he might contradict himself and therefore he refused to answer. This declaration, in itself, was an indirect proof of guilt. He was again asked urgently whether he had ever sold any shares to any member of the administration, or any member of the Houses of Parliament, in order to secure the passing of the bill. Blunt again refused to answer. He wished to treat the House with all possible respect, he said, but he thought he should not incriminate himself. After several unsuccessful attempts to refresh his memory, he was told to leave. A violent discussion ensued between the friends and opponents of the government. It was asserted that the government was happy with and might even have suggested the convenient silence of Sir John Blunt.
The Duke of Wharton made a comment about the Earl Stanhope, which the latter deeply resented. Stanhope felt so ill that he left the House. He was cupped immediately - blood was drawn to the surface of the skin by forming a partial vacuum over the spot. He was also deliberately bled - a treatment of the time - the following morning, but to little effect. Towards evening he became drowsy, and died. The sudden death of this statesman caused great grief to the nation. George I shut himself up for some hours in his closet, inconsolable for his loss.
Knight, the treasurer of the company, was captured at Tirlemont, near Liege. The catch was made by one of the secretaries of Mr. Leathes, the British resident at Brussels and Knight was placed in Antwerp's citadel. Repeated applications were made to the court of Austria to extradite him up, but without success. Knight threw himself on the protection of the states of Brabant, and demanded to be tried in that country. It was a privilege granted to the states of Brabant by one of the articles of the Joyeuse Entree, that every criminal apprehended in that country should be tried in that country. The states insisted on their privilege, and refused to deliver Knight to the British authorities. The British continued to apply but, in the mean time, Knight escaped from the citadel.
On February 16 the Committee of Secrecy made their first report to the House. They stated that their inquiry had been difficult. Everyone they had interrogated had tried to defeat the ends of justice. In some of the account-books false entries had been made. In others, there were entries of money, with blanks for the name of the stockholders. There were frequent alterations, and in some of the books pages had been torn out. They also found that some extremely important had been destroyed altogether or had disappeared. They discovered that, before the South Sea Act was passed, there was an entry in the Company's books of the sum of £1,259,325, for stock stated to have been sold for £574,500 pounds. This stock was all fictitious and had been disposed of to promote the passing of the bill. It was noted as sold on various days, and at various prices, from £150 to £325. Being surprised to see so many shares sold at a time when the Company was not empowered to increase their capital, the committee decided to investigate the whole transaction. The governor, sub-governor, and several directors were brought before them, and questioned vigorously. The Committee found that, at the time these entries were made, the Company was not in possession of such a quantity of stock. Pursuing the inquiry, they found that the fictitious stock was for the benefit of pretended purchasers and no mutual agreement was made for its delivery at any certain time. No money was paid to the Company by the supposed purchasers. The result of this was that if the stock had fallen, they would have sustained no loss. If, on the contrary, the price of stock advanced (as it actually did by the success of the scheme), the difference resulting from the higher price was to be paid to the "purchasers". Accordingly, after the passing of the act, the account of stock was made up and adjusted. Mr. Knight, and the pretended purchasers were paid the difference out of the Company's cash. This fictitious stock, which had been chiefly at the disposal of Sir John Blunt, Mr. Gibbon, and Mr. Knight, was distributed among several members of the government, by way of bribe, to facilitate the passing of the bill. Bribes were as follows:
To the Earl of Sunderland £ 50,000 of this stock; to the Duchess of Kendal £10,000; to the Countess of Platen £10,000; to her two nieces £10,000; to Mr. Secretary Craggs £30,000; to Mr. Charles Stanhope (one of the Secretaries of the Treasury) £10,000; to the Swordblade Company £50,000 pounds. It also appeared that Mr. Stanhope had received the enormous sum of £250,000 as the difference in the price of some stock, through the hands of Turner, Caswall, and Co., but that his name had been partly erased from their books, and altered to Stangape.
Aislabie, the Chancellor of the Exchequer, had made profits still more abominably. He had an account with the same firm, who were also South Sea directors, to the amount of £794,451. In addition he advised the Company to make their second subscription one million and a half, instead of a million, by their own authority, and without any warrant. The third subscription had been conducted in a manner equally disgraceful. Mr. Aislabie's name was down for £70,000; Mr. Craggs, senior, for £659,000; the Earl of Sunderland's for £160,000; and Mr. Stanhope for £47,000.
This first report was succeeded by six less important reports from the Committee. At the end of the last, the committee declared that the absence of Knight prevented them from carrying on their inquiries any further.
The first report printed and taken into consideration two days later. After a very angry and animated debate, a series of resolutions were agreed to, condemning the conduct of the directors, of the members of the Parliament and of the administration concerned with them. The resolutions declared that they ought to make reparation out of their funds for the injury they had done the public. Their practices were declared to be corrupt, infamous, and dangerous; and a bill was ordered to be brought in for the relief of the unhappy sufferers.
Mr. Charles Stanhope was the first person brought to account for his share in these transactions. In his defence he stated that, for some years, he had put all his money in Mr. Knight's hands. He had paid for any stock Mr. Knight had taken for him. As for the stock that had been bought for him by Turner, Caswall, and Co. he knew nothing about it. Whatever had been done in that matter was done without his authority, and he could not be responsible for it. Turner and Co. said it was obvious to any unbiased person that Mr. Stanhope was the owner of the £250,000 lodged with that firm to his credit. The greatest efforts were made to save Charles Stanhope. Lord Stanhope, the son of the Earl of Chesterfield, went round the wavering members, using all his eloquence to persuade them either to vote for the acquittal or to be absent from the vote. Many weak-headed country gentlemen were led astray by his persuasions and Stanhope was acquitted by a majority of three.
The acquittal caused the greatest discontent throughout the country. Mobs of a menacing character assembled in different parts of London; riots were feared, especially as the questioning of a still greater offender was expected by many to have a similar outcome.
Mr. Aislabie, whose high office and great responsibilities should have kept him honest, even had character was weak, was justly regarded as perhaps the greatest criminal of all. His case began on the day following the acquittal of Mr. Starthope. Great excitement prevailed, and the lobbies and avenues of the house were crowded with people, impatient to know the result. The debate lasted the whole day. Mr. Aislabie found few friends. His guilt was so apparent and so heinous that nobody would speak in his favour. It was agreed, without dissent, that Mr. Aislabie had encouraged and promoted the destructive South Sea scheme with a view to his own exorbitant profit. He had conspired with the directors in practices that threatened to the ruin the kingdom's finances. For his offences, it was agreed he be ignominiously expelled from the House of Commons, and made a close prisoner to the Tower of London. He was to be prevented from leaving the kingdom for a year, or until the end of the next session of Parliament. He was to make out a correct account of all his estate in order that it be used to compensate people who had lost as a result of his malpractice. The verdict was greeted with public joy. Although it was delivered at half-past twelve in the morning, it soon spread over the city. Several people illuminated their houses in token of their joy. On the following day, when Mr. Aislabie was taken to the Tower, a mob assembled on Tower-hill with the intention of hooting and pelting him. Not succeeding in this, they lit a large bonfire, and danced around it in delight. Several bonfires were lit in other places. London presented the appearance of a holiday, and people congratulated one another heartily.
The rage after the acquittal of Mr. Stanhope had grown so great that nobody could tell where it would have ended if Mr. Aislabie's trial had met with similar verdict.
To increase public satisfaction further, Sir George Caswall, of Turner, Caswall, & Co. was expelled from the House on the following day, and ordered to refund the sum of £250,000.
The Earl of Sunderland was next to be considered. Every effort was made to clear him. As the case against him rested chiefly on the evidence of Sir John Blunt, great pains were taken to discredit Sir John's words, especially in a matter affecting the honour of a peer and privy councillor. The government's friends rallied around the Earl. It was rumoured that a verdict of guilty against him would bring a Tory government into power. He was eventually acquitted, by a majority of 233 to 172; but the country was convinced of his guilt. Great indignation was expressed everywhere and menacing mobs assembled in London again. Happily no disturbances took place.
The elder Mr. Craggs died the day before his case came up. It was generally believed that he had poisoned himself. It appeared that grief for the loss of his son, who had died of smallpox five weeks earlier, had been preying on his mind. Craggs had been dishonestly amassing riches for the benefit of this dearly beloved son, who had been one of the Secretaries of the Treasury. Yet the son for whom he had acted dishonourably was now dead. The dread of further exposure troubled Cragg's mind and ultimately brought on an apoplectic fit, which caused his death. Cragg left a fortune of a million and a half, which was afterwards confiscated for the benefit of those who had lost in the South Sea bubble.
One by one every director of the Company was tried. £2,014,000 was confiscated from their estates towards reparations. Each man was allowed to keep a certain amount, in proportion to his conduct and circumstances, to begin life anew. Sir John Blunt was only allowed £5,000 out of his fortune of upwards of £183,000; Sir John Fellows was allowed £10,000 out of £243,000; Sir Theodore Janssen, £50,000 out of £243,000; Mr. Edward Gibbon, £10,000 out of £106,000; Sir John Lambert, £5000 out of £72,000.
Those less deeply involved were treated more leniently. Gibbon, the historian, whose grandfather was the Mr. Edward Gibbon above, gave an interesting account of the proceedings in Parliament at this time. (Memoirs of his Life and Writings.) He acknowledges that he is not an unbiased observer but makes the point that all the writers of the time were prejudiced on the other side. If only on the principle that we should hear both sides of the argument, his opinion should be heard.
Gibbon says, "In the year 1716, my grandfather was elected one of the directors of the South Sea Company, and his books exhibited the proof that before his acceptance of that fatal office, he had acquired an independent fortune of 60,000 pounds. But his fortune was overwhelmed in the shipwreck of the year twenty, and the labours of thirty years were blasted in a single day. Of the use or abuse of the South Sea scheme, of the guilt or innocence of my grandfather and his brother directors, I am neither a competent nor a disinterested judge. Yet the equity of modern times must condemn the violent and arbitrary proceedings, which would have disgraced the cause of justice, and rendered injustice still more odious. No sooner had the nation awakened from its golden dream, than a popular, and even a Parliamentary clamour, demanded its victims; but it was acknowledged on all sides, that the directors, however guilty, could not be touched by any known laws of the land. The intemperate notions of Lord Molesworth were not literally acted on; but a bill of pains and penalties was introduced - a retroactive statute, to punish the offences which did not exist at the time they were committed. The Legislature restrained the persons of the directors, imposed an exorbitant security for their appearance, and marked their character with a previous note of ignominy. They were compelled to deliver, upon oath, the strict value of their estates, and were disabled from making any transfer or alienation of any part of their property. Against a bill of pains and penalties, it is the common right of every subject to be heard by his counsel at the bar. They prayed to be heard. Their prayer was refused, and their oppressors, who required no evidence, would listen to no defence. It had been at first proposed, that one eighth of their respective estates should be allowed for the future support of the directors; but it was speciously urged, that in the various shades of opulence and guilt, such a proportion would be too light for many, and for some might possibly be too heavy. The character and conduct of each man were separately weighed; but, instead of the calm solemnity of a judicial inquiry, the fortune and honour of thirty-three Englishmen were made the topics of hasty conversation, the sport of a lawless majority; and the basest member of the committee, by a malicious word, or a silent vote, might indulge his general spleen or personal animosity. Injury was aggravated by insult, and insult was embittered by pleasantry. Allowances of 20 pounds or 1 shilling were facetiously moved. A vague report that a director had formerly been concerned in another project, by which some unknown persons had lost their money, was admitted as a proof of his actual guilt. One man was ruined because he had dropped a foolish speech, that his horses should feed upon gold; another, because he was grown so proud, that one day, at the Treasury, he had refused a civil answer to persons much above him. All were condemned, absent and unheard, in arbitrary fines and forfeitures, which swept away the greatest part of their substance. Such bold oppression can scarcely be shielded by the omnipotence of Parliament. My grandfather could not expect to be treated with more lenity than his companions. His Tory principles and connexions rendered him obnoxious to the ruling powers. His name was reported in a suspicious secret. His well-known abilities could not plead the excuse of ignorance or error. In the first proceedings against the South Sea directors, Mr. Gibbon was one of the first taken into custody, and in the final sentence the measure of his fine proclaimed him eminently guilty. The total estimate, which he delivered on oath to the House of Commons, amounted to 106,543 pounds 5 shillings 6 pence, exclusive of antecedent settlements. Two different allowances of 15,000 pounds and of 10,000 pounds were moved for Mr. Gibbon; but, on the question being put, it was carried without a division for the smaller sum. On these ruins, with the skill and credit of which Parliament had not been able to despoil him, my grandfather, at a mature age, erected the edifice of a new fortune. The labours of sixteen years were amply rewarded; and I have reason to believe that the second structure was not much inferior to the first."
The next consideration for Parliament, after the directors were punished was to put the nation's finances in order, reducing its debt. Walpole's plan had not worked. The capital stock of the South Sea Company at the end of 1720 was worth £37 million, of which the stock allotted to all the stock holders amounted to just £24 million. £13 million belonged to the Company in their corporate capacity and was the profit they had made from the bubble.
To the relief of the shareholders, over £8 million was taken from the Company, and divided among shareholders, making a dividend of about 33 pounds 6 shillings 8 pence per share.
Parliament then ordered that anyone who had borrowed money from the South Sea Company secured at the time of borrowing on stock transferred to the Company, would be free of their debt after payment of ten percent of the sum borrowed.
The Company had lent about £11 million at a time when prices were unnaturally raised and got back £1.1 million.
It was a long time before the public finances were restored completely. Free enterprise, like Icarus, had soared too high, and melted the wax of her wings. Like Icarus, she had fallen into a sea, and learned, while floundering in its waves, that her proper element was solid ground. She has never since attempted so high a flight.
In times of great prosperity that have followed the South Sea Bubble, there has generally been a tendency to over-speculation. If people are too anxious to profit without any real foundation to their enterprises, their finances can drop into an abyss that it's difficult to escape from.
Bubble companies, similar to those created in the South Sea project, lived for a short time again in the year of the famous panic, 1825.
Then, as in 1720, rogues gathered a rich harvest from the greedy, but both suffered when the day of reckoning came.
The schemes of 1836 threatened similarly disastrous results; but they were averted before a bubble had the chance to grow disastrously big.
The South Sea project is still, and we can only hope will always remain, the greatest example in British history, of the infatuation of the people with commercial gambling.
From the bitter experience of that time, we may learn how dangerous it is to allow unrestrained speculation to take enormous profits from inadequate causes.