As oil prices tumble and we face high national debt, it seems particularly appropriate to reflect on the South Sea Bubble, a stock market crash from 300 years ago, and its contemporary documentation. Dr Karen Attar, research fellow at the Institute of English Studies, looks at the stories behind the headlines that were splashed across the news-sheets of the day.
The South Sea Company had been established in 1711, when it took over national short-term debt in exchange for a monopoly of trade to the Spanish colonies in South America. It was a high-risk venture, the foundation of which coincided with a national interest in gambling (viz. the highly successful Queen Anne (state) lotteries of 1710– 14). Its communication network via London’s general and specialist newspapers, including fake as well as genuine news, contributed to its success.
In April 1720 the South Sea Company absorbed the government’s long-term debt in exchange for stock, at ruinous terms which rendered high share prices essential. The company had no means to generate profits and needed a cash flow, so it resorted to various means to push up share prices, and gave out £574,000 of fictitious shares, which were not shown as expenses, to obtain support. Shares were sold at unrealistically inflated prices which kept rising from February until June 1720.
In August the bubble burst. Share prices fell, foreign investors moved their capital away from London, and some shareholders were impoverished. Following a parliamentary inquiry, some directors of the South Sea Company were fined heavily and, where relevant, expelled from parliament.
All of this was well documented at the time in pamphlets which could be written and published quickly. Herbert Somerton Foxwell (1849–1936), who collected writings pertaining to economic history, esteemed pamphlets highly because current opinion appeared in them before it had time to do so in monographs, and the South Sea Bubble suited his collecting propensities. These pamphlets passed to the University of London, with the rest of his 30,000-item collection, in 1903 as the founding section of the Goldsmiths’ [Company’s] Library of Economic Literature. Foxwell continued to collect, and more items are present in his second collection, now at Harvard University. The results of both collections are available digitally on the Making of the Modern World database.
Some items are by key players in the South Sea drama. For example, John Aislabie, chancellor of the exchequer from 1718–1721, Sir John Blunt, the financier and founder of the South Sea company, and Archibald Hutcheson, who before the crash warned that financial disaster was inevitable and who served on the parliamentary enquiry into the issue. Others are anonymous. Some are serious essays or reports such as ‘An Argument Proving that the South-Sea Company are Able to Make a Dividend of 38 per cent. for 12 Years‘ and ‘Considerations on the Present State of the Nation, as to Publick Credit, Stocks, the Landed and Trading Interests: With a Proposal for the Speedy Lessening of the Publick Debts (both 1720)’.
Others are literary and satirical, such as William Rufus Chetwood’s South-Sea, or, The Biters Bit: A Tragi-Comi-Pastoral Farce: Humbly Offer’d to the Reading of an Honest Director or Allan Ramsay’s Wealth, or, The Woody: A Poem on the South-Sea (both 1720), and also range from anonymous works to pieces by Jonathan Swift and Daniel Defoe. All are ephemeral.
While most material is in English, a little is in Dutch and in French (reminding us of the international dimensions of currency crises even then) such as a translation of John Aislabie’s speech defending himself in parliament, Discours apologetique du Sieur Jean Aislabie ecuyer (London, 1721), and the third and fourth letters from a Mr ‘A.Z.’ to Mr ‘N.N.’ on the origin, rise and appropriate collapse of trading in shares (‘wegens de opkomst of beginsel der actie-handel, der selver voortgang en genoegsaame ondergang’, Amsterdam, 1720).
Contemporary documents can have a force which it is difficult to replicate in monographs written centuries later. An example is The Case of the Right Honble John Aislabie, Esq. ([1721]). This work was clearly popular, as the publisher, stating his full address, advertises on the title page that he also has for sale Aislabie’s two speeches in the House of Lords against the bill for confiscating the estates of the late South Sea directors. Pages four and five list the South Sea shares bought by Aislabie between 30 January 1719 and 22 June 1720, when the books closed for the summer recess. The value begins in January 1719 at 130 and rises to 177 in April. In 1720 he buys shares valued at 348/9 in April and at 760 in June.
The 18th-century texts can be as moral as any later condemnations of greed, with the writer of one satirical pamphlet complaining: ‘Sure, some ill Planet rul’d when I was born! I have all my Life been building Castles in the Air, yet cou’d never get a Lodging in any one of them. (Bubble-Letters Written to the Merry Journalists in the Mad Year 1720, p. [17])’
After the market shock comes recovery. Although the South Sea Bubble affected the fortunes of some of the leading figures, the company survived, and the national economic effect was minimal. Industrial output and overseas trade barely changed. Agriculture, the main element of the early 18th-century economy, was not impacted and no widespread economic depression resulted.
Print reflects the restoration of calm. The printed catalogue for the Goldsmiths’ Library lists 187 items in the section on ‘finance’ for the turbulent year of 1720, and 106 for 1721 when the bubble was being investigated. Figures diminish for the years 1722–25 to between 27 and 35 (an average of 31 per year). Yet the South Sea affair has left its stamp on today’s world. Guy’s Hospital, now affiliated with King’s College London, is a tangible memorial. Its founder Thomas Guy made his fortune by selling his shares in the company.
The light shed on human individual and corporate behaviour provides lasting moral significance, as John Aislabie summarised: ‘This unhappy Affair, my Lords, began at a Time when the Passions and avaritious Desires of Mankind were grown up to a Madness and a Distemper, and one cannot without Pity look back upon the Rage and Folly of the Year. (Mr Aislabie’s Second Speech in his Defence in the House of Lords on Thursday, July 20, 1721, p. 14).’
Soberingly, the South Sea Company dealt in ‘human cargoes’ (the title of a book published by Colin Palmer in 1981 about the slave trade and featuring the Company). The economic phenomenon of bubble and crash did not depend on the nature of the business, and the slaves’ horrific tribulations were absent from contemporaneous political debate.
Yet well before the ‘Black Lives Matter’ protest, modern writers on the company and the bubble were quick to point out that it was the African slaves in whom the company traded, not bankrupted investors, who were the real victims of the South Sea Company’s activity.
‘Their sufferings were not part of the political debate, because they were invisible to Georgian society except as sources of profit’, wrote Helen J Paul in her 2011 publication, The South Sea Bubble. Now, with increased international focus through ‘Black Lives Matter’ on the brutality of the trans-Atlantic slave trade, we may reflect on the South Sea Bubble through a heightened social, as well as economic and political, lens.
Dr Karen Attar is a research fellow at the Institute of English Studies, School of Advanced Study, University of London. She has published widely on library history and aspects of special collections and is the reviews editor for Library & Information History.
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Cover image: Hogarthian image of the 1720 ‘South Sea Bubble’ from the mid-19th century, by Edward Matthew Ward, Tate Gallery