THE SOUTH SEA BUBBLE.*
Ma. LEWIS MELVILLE has written an entertaining book about that strange outburst of frenzied speculation, the South Sea Bubble of 1720. He draws largely on contemporary letters and pamphlets to show how the country went mad over the South Sea scheme, just as France had gone mad over Law's Mississippi project a few months before. His account of the complex transactions of the South Sea Company would have been clearer if he had consulted the authoritative work of Professor W. R. Scott, whose knowledge of early British joint- stock companies is unrivalled. Mr. Melville should not, for example, have begun by saying that Harley, in founding tho South Sea Company in 1711, sought to discharge "the National Debt, which amounted to more than £9,000,000." The Debt was even then much larger than that. Harley's object was to fund the floating debt, which, then as now, was a troublesome burden. He passed an Act incorporating the holders of the unfunded loans and other creditors. The company exchanged its stock for the Government securities, and thus became the sole holder of the floating debt. In return the Government promised to pay 6 per cent. interest, guaranteed on certain customs revenues, and also gave the company the monopoly of trade with South America, excluding Dutch Guiana and Portuguese Brazil. The company was successfully formed. Its capital of nearly £10,000,000 was larger than that of the Bank of England, the East India Company, and the African Company put together. From the first its South Sea privileges proved illusory. Under the Treaty of Utrecht of 1713 the company secured the " assiento," entitling it to supply the Spanish colonies with 4,800 negro slaves annually for thirty years, and also the right to send one ship yearly to trade with the Spanish colonies. But the Spanish authorities put every possible obstacle in the way, so as to defend their monopoly of the colonial trade. Thus in 1718, on the rumour of war, the company's property in Spanish ports was seized, contrary to the terms of the treaty. The ill-will caused by such incidents steadily grew until war was declared on Spain in 1739. The company was unluck,y in its choice of agents, and seems never to have made profits commensurate with its trading risks. When peace was restored in 1748 it made no further attempt to trade with the South Seas. We may perhaps conjecture that the promoters never expected to profit by their monopoly. The prospects held out of importing treasure from the South Seas served to delude ignorant investors. But the company was in fact a great financial trust, which sought its gains by operating in the City rather than on the Spanish Main.
The South Sea Company had paid its way for eight years when in 1719 John Law's daring financial operations in Paris began to attract attention. Law, with the support of the Regent Orleans, had contrived to buy up the French East India, China, and Africa Companies and absorb them into his Mississippi Company, and undertook to pay off the French National Debt in Mississippi stock. As Director-General of the Banque Royale, he exercised immense influence, and he made his wild scheme so plausible that the French public entered into it with enthusiasm. Sir John Blunt, a clever and unscrupulous solicitor who was a director of the South Sea Company, thought that he might imitate John Law. The company in 1719 successfully converted a Lottery loan into stock issued at a modest premium. Early in 1720 it came forward with a scheme for taking over the whole funded Debt, mostly in annuities, to the amount of nearly £31,000,000, excluding the 1(.../us from the Bank of England and the East India Company, The • The sod& Saa Bubble. by Lewls Xelville. London: Daniel O'Z'onnot. ins. net.] soh3me, as publicly explained, was not necessarily chimerical, if it had been worked honestly and cautiously. But from the oiteet it was-tainted by fraud and corruption.. Sir John Blunt
was careful to buy Aislabie, the Chaneellor of the Exchequer, the elder James Craggs, Postmaster-General, and other Whig Ministers such as the Attorney-General, as well as leading Dourtiers of both sexes. The Court and the Ministry used their Influence in Parliament on behalf of the company. The only effective opposition came from the rival moneyed interests, especially the Bank of England. The company and the Bank bid against each other for the privilege of converting the Debt. The company began by offering £3,500,000; the Bank replied by offering £5,000,000. The company then offered over £7,500,000 if all the Debt was converted, while the Bank, with Walpole's approval, proposed to pay about £5,700,000 and to give annuitants Bank stock equivalent to seventeen years' purchase of their annuities. Fortunately for the Bank, its offer was rejected and the company's proposal was approved. The huge premium payable to the State compromised the scheme at the start, to say nothing of the heavy bribes that were to be paid to the Ministers and the Court. The directors, however, went gaily on. Mr. Melville describes the successive operations of the spring and summer of 1720, by which the directors worked up one of the most fantastic " booms " in financial history. They issued their stock at ever-increasing premiums; they lent money on their stock so that investors might take up more; they announced large dividends paid out of subscription money; they dealt heavily on their own account with the funds of the company; they credited their friends in
high quarters with profits made on the sale of fictitious stock— differences amounting in the ease of Charles Stanhope, for example, to a quarter of a million sterling. In short, they rigged the market with a skill and audacity that seem almost incredible. Early in 1720 South Sea stock of the nominal value of £100 was quoted at 126. The Conversion Act sent the market value up to 380 in March, and the directors' cunning operations
sent it higher and higher till it touched 1,050 on Midsummer Day. In June and again in August stock nominally worth £100 was issued and taken up at 1,000. Then the tide turned, when the South Sea Company took proceedings against other new com- panies which had been promoted in large numbers, and the price fell rapidly till in December it touched 124. Half of the moneyed classes were ruined, as the French had been. Mr. Melville quotes the epigram on Law's proceedings :—
" Lundi, rachetai des actions ; Mardi, je gagnai des millions ; Mercredi, j'arrangeai mon ménage; Jeudi, je pris un Oquipage ; Vendredi, je m'en fu s en bat,
Et Samedi, A l'Hopital."
The cynic will be diverted by Mr. Melville's elaborate account of the way in which Parliament dealt with the scandal. Much of the truth was unveiled, and some of the offenders were punished. But the Whigs thought that for political reasons they could not afford to probe the ulcer too deeply. The Chan- cellor of the Exchequer, who had made little short of a million profit, was expelled the House and heavily fined. The Post- master-General committed suicide. But Lord Sunderland, the Prime Minister, was exculpated by a party vote of 233 to 172; as a contemporary remarked, "a 172 was a great number against a Prime Minister." Charles Stanhope, who asserted that the company's brokers had made £250,000 for him without his consent, escaped condemnation in the House by three votes- 180 voting for him and 177 against him. The cashier of the company was smuggled away to Antwerp because he knew too much ; a Belgian noble who helped him to leave Antwerp so as to evade extradition proceedings was, according to Arthur Onslow, rewarded with £50,000 from the King's Civil List. The courtiers implicated went scot-free with their illicit gains. The Duchess of Kendal, the King's mistress, had received at least £15,000, and the Prince of Wales himself had speculated in South Sea stock. The directors and chief officials of the com- pany had shree-fourths of their estates confiscated, to the value of about £2,000,000. The House in Committee discredited itself by discussing each case in detail and deciding by a casual majority how much or how little of his property each of the offenders should keep. Hawes, who had made himself unpopular, returned his fortune at £40,031 and was allowed to retain only the odd £31. Blunt was given £1,000 out of a fortune of £183,349. But the public were disappointed at the relatively small proceeds of this arbitrary confiscation. Walpole, who had himself made
a vast fortune by dealing in South Sea stock and had known when to leave off, showed his political adroitness not only in arranging a fair compromise for the shareholders but also in keeping the Whig party together. A letter, quoted by Mr. Melville, from Aislabie to Walpole, thanking him for his kindness, is significant. To Walpole it seemed far more important that Whig unity should be upheld than that justice should be done to the Whig perpetrators and accomplices of a political and financial fraud.
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