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The South Sea Company (officially The Governor and Company of the merchants of Great Britain, trading to the South Seas and other parts of America, and for the encouragement of the Fishery) was a British
joint-stock company A joint-stock company is a business entity in which shares of the company's stock can be bought & sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their share (finance), shares (certificates of ownership). Sh ...
founded in January 1711, created as a public-private partnership to consolidate and reduce the cost of the
national debt In public finance, government debt, also known as public interest, public debt, national debt and sovereign debt, is the total amount of debt owed at a point in time by a government A government is the system or group of people govern ...
. To generate income, in 1713 the company was granted a monopoly (the
Asiento de Negros The ''Asiento de Negros'' was a monopoly contract between the Spanish Crown , coatofarms = Coat of Arms of Spanish Monarch.svg , coatofarms_article = Coat of arms of the King of Spain , image = (Felipe de Borbón) Inau ...
) to supply African slaves to the islands in the "
South Seas Today the term South Seas, or South Sea, is used in several contexts. Most commonly it refers to the portion of the Pacific Ocean south of the equator. In 1513, when Spanish conquistador Vasco Núñez de Balboa coined the term ''Mar del Sur'', o ...
" and
South America South America is a entirely in the and mostly in the , with a relatively small portion in the . It can also be described as the southern of a single continent called (see the ). The reference to South America instead of other cultural ...

South America
. When the company was created, Britain was involved in the
War of the Spanish Succession The War of the Spanish Succession (1701–1714) was an early-18th-century European war, triggered by the death in November 1700 of the childless Charles II of Spain Charles II of Spain (6 November 1661 – 1 November 1700), also known as The ...
and Spain and Portugal controlled most of South America. There was thus no realistic prospect that trade would take place, and as it turned out, the Company never realised any significant profit from its monopoly. However, Company stock rose greatly in value as it expanded its operations dealing in government debt, and peaked in 1720 before suddenly collapsing to little above its original flotation price. The notorious
economic bubble An economic bubble is a situation in which asset prices are much higher than the underlying fundamentals can reasonably justify. Bubbles are sometimes caused by unlikely and overly optimistic projections about the future. It could also be describ ...
thus created, which ruined thousands of investors, became known as the South Sea Bubble. The
Bubble Act The Bubble Act 1720 (also Royal Exchange and London Assurance Corporation Act 1719) was an Act of the Parliament of Great Britain The Parliament of Great Britain was formed in May 1707 following the ratification of the Acts of UnionAct of Un ...
1720 ( 6 Geo I, c 18), which forbade the creation of joint-stock companies without
royal charter A royal charter is a formal grant issued by a monarch under royal prerogative The royal prerogative is a body of customary authority, privilege, and immunity, recognized in common law and, sometimes, in civil law jurisdictions possessing ...

royal charter
, was promoted by the South Sea Company itself before its collapse. In Great Britain, many investors were ruined by the share-price collapse, and as a result, the national economy diminished substantially. The founders of the scheme engaged in
insider trading Insider trading is the trading of a public company A public company, publicly traded company, publicly held company, publicly listed company, or public limited company is a company whose ownership is organized via shares of stock which are int ...
, by using their advance knowledge of the timings of national debt consolidations to make large profits from purchasing debt in advance. Huge bribes were given to politicians to support the
Acts of Parliament Acts of parliament, sometimes referred to as primary legislation In parliamentary systems and presidential systems of government, primary legislation and secondary legislation, the latter also called delegated legislation or subordinate legislat ...
necessary for the scheme. Company money was used to deal in its own shares, and selected individuals purchasing shares were given cash loans backed by those same shares to spend on purchasing more shares. The expectation of profits from trade with South America was talked up to encourage the public to purchase shares, but the bubble prices reached far beyond what the actual profits of the business (namely the slave trade) could justify. A
parliamentary inquiry In parliamentary procedure Parliamentary procedure is the body of ethics, Procedural law, rules, and Norm (sociology), customs governing meetings and other operations of Club (organization), clubs, organizations, Legislature, legislative bodies, a ...
was held after the bursting of the bubble to discover its causes. A number of politicians were disgraced, and people found to have profited immorally from the company had personal assets confiscated proportionate to their gains (most had already been rich and remained so). Finally, the Company was restructured and continued to operate for more than a century after the Bubble. The headquarters were in
Threadneedle Street Threadneedle Street is a street in the City of London The City of London is a City status in the United Kingdom, city, Ceremonial counties of England, ceremonial county and local government district that contains the historic centre and th ...

Threadneedle Street
, at the centre of the
City of London The City of London is a City status in the United Kingdom, city, Ceremonial counties of England, ceremonial county and local government district that contains the historic centre and the primary central business district (CBD) of London. It c ...

City of London
, the financial district of the capital. At the time of these events, the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker, and still one of the bankers for t ...

Bank of England
was also a private company dealing in national debt, and the crash of its rival confirmed its position as banker to the British government.


Foundation

When in August 1710 Robert Harley was appointed
Chancellor of the Exchequer The chancellor of the Exchequer, often abbreviated to the chancellor, is a senior minister of the Crown Minister of the Crown is a formal constitutional term used in Commonwealth realm A Commonwealth realm is a sovereign state that ha ...
, the government had already become reliant on the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker, and still one of the bankers for t ...

Bank of England
, a privately owned company chartered 16 years previously, which had obtained a monopoly as the lender to Westminster, in return for arranging and managing loans to the government. The government had become dissatisfied with the service it was receiving and Harley was actively seeking new ways to improve the national finances. A new Parliament met in November 1710 resolved to attend to national finances, which were suffering from the pressures of two simultaneous wars: the
War of the Spanish Succession The War of the Spanish Succession (1701–1714) was an early-18th-century European war, triggered by the death in November 1700 of the childless Charles II of Spain Charles II of Spain (6 November 1661 – 1 November 1700), also known as The ...
with France, which ended in 1713, and the
Great Northern War The Great Northern War (1700–1721) was a conflict in which a coalition led by the Tsardom of Russia The Tsardom of Russia or Tsardom of Rus' (russian: Русское царство, ''Russkoye tsarstvo''; later changed to: , ''Rossiyskoy ...

Great Northern War
, which was not to end until 1721. Harley came prepared, with detailed accounts describing the situation of the national debt, which was customarily a piecemeal arrangement, with each government department borrowing independently as the need arose. He released the information steadily, continually adding new reports of debts incurred and scandalous expenditure, until in January 1711 the House of Commons agreed to appoint a committee to investigate the entire debt. The committee included Harley himself, the two Auditors of the Imprests (whose task was to investigate government spending), Edward Harley (the Chancellor's brother), Paul Foley (the Chancellor's brother-in-law), the
Secretary of the Treasury The United States secretary of the treasury is the head of the United States Department of the Treasury, which is concerned with all financial and monetary matters relating to the federal government, and, until 2003, also included several major ...
, William Lowndes (who had had significant responsibility for reminting the entire debased British coinage in 1696) and
John Aislabie John Aislabie or Aslabie (; 4 December 167018 June 1742), of Studley Royal, near Ripon, Yorkshire, was a British politician who sat in the English English usually refers to: * English language English is a West Germanic languages, West ...

John Aislabie
(who represented the
October Club The October Club was a group of Tory (British political party), Tory Members of Parliament, established after the 1710 British general election, 1710 General Election. The Club was active until approximately 1714. The group took its name from the s ...
, a group of about 200 MPs who had agreed to vote together). Harley's first concern was to find £300,000 for the next quarter's payroll for the British army operating on the Continent under the
Duke of Marlborough General (United Kingdom), General John Churchill, 1st Duke of Marlborough, 1st Prince of Mindelheim, 1st Count of Nellenburg, Prince of the Holy Roman Empire, (26 May 1650 – 16 June 1722 Old Style and New Style dates, O.S.) was an Englis ...

Duke of Marlborough
. This funding was provided by a private consortium of Edward Gibbon, grandfather of the historian, George Caswall, and
Hoare's Bank C. Hoare & Co., also known as Hoares, is a British private bank, founded in 1672 by Richard Hoare, Sir Richard Hoare; it remains family-owned and is currently managed by the eleventh generation of his direct descendants. It is the second oldest b ...
. The Bank of England had been operating a
Lottery A lottery is a form of gambling File:A photo of a gambling stand in Paris.jpg, A gambling stand in Paris Gambling (also known as betting) is the wagering of money or something of Value (economics), value (referred to as "the stakes") on an ...
on behalf of the government, but in 1710 this had produced less revenue than expected and another begun in 1711 was also performing poorly; Harley granted the authority to sell tickets to John Blunt, a director of the
Hollow Sword Blade CompanyThe Hollow Sword Blades Company was a British joint-stock company founded in 1691 by a goldsmith, Sir Stephen Evance, for the manufacture of Grind, hollow-ground rapiers. In 1700 the company was purchased by a syndicate of businessmen who used the ...
, which despite its name was an unofficial bank. Sales commenced on 3 March 1711 and tickets had completely sold out by the 7th, making it the first truly successful English state lottery. The success was shortly followed by another larger lottery, "The Two Million Adventure" or "The Classis", with tickets costing £100, with a top prize of £20,000 and every ticket winning a prize of at least £10. Although prizes were advertised by their total value, they were in fact paid out by instalments in the form of a fixed annuity over a period of years, so that the government effectively held the prize money as borrowings until the whole value had been paid out to the winners. Marketing was handled by members of the Sword Blade syndicate, Gibbon selling £200,000 of tickets and earning £4,500 commission, and Blunt selling £993,000. Charles Blunt (a relative) was made Paymaster of the lottery with expenses of £5,000.


Conception of the Company

The national debt investigation concluded that a total of £9 million was owed by the government, with no specifically allocated income to pay it off. Edward Harley and John Blunt had jointly devised a scheme to consolidate this debt in much the same way that the Bank of England had consolidated previous debts, although the Bank still held the monopoly for operating as a bank. All holders of the debt (creditors) would be required to surrender it to a new company formed for the purpose, the South Sea Company, which in return would issue them shares in itself to the same nominal value. The government would make an annual payment to the Company of £568,279, equating to 6% interest plus expenses, which would then be redistributed to the shareholders as a dividend. The company was also granted a monopoly to trade with South America, a potentially lucrative enterprise, but one controlled by Spain, with whom Britain was at war.Carswell p.52-54 At that time, when the continent of America was being explored and colonized, Europeans applied the term "South Seas" only to South America and surrounding waters. The concession both held out the potential for future profits and encouraged a desire for an end to the war, necessary if any profits were to be made. The original suggestion for the South Sea scheme came from William Paterson, one of the founders of the Bank of England and of the financially disastrous
Darien Scheme The Darien scheme was an unsuccessful attempt, backed largely by investors of the Kingdom of Scotland Kingdom may refer to: Monarchy * A type of monarchy * A realm ruled by: **A king, during the reign of a male monarch **A queen regnant, durin ...
. Harley was rewarded for delivering the scheme by being created Earl of Oxford on 23 May 1711 and was promoted to
Lord High Treasurer The post of Lord High Treasurer or Lord Treasurer was an English government position and has been a British government position since the Acts of Union of 1707. A holder of the post would be the third-highest-ranked Great Officers of State (Un ...
. With a more secure position, he began secret peace negotiations with France.


Initial speculation

The scheme to thus consolidate all government debt and to manage it better in the future held out the prospect of all existing creditors being repaid the full nominal value of their loans, which at the time before the scheme was publicised were valued at a discounted rate of £55 per £100 nominal value, as the lotteries were discredited and the government's ability to repay in full was widely doubted. Thus bonds representing the debt intended to be consolidated under the scheme were available for purchase on the open market at a price that allowed anyone with advance knowledge to buy and resell in the immediate future at a high profit, for as soon as the scheme became publicised the bonds would once again be worth at least their nominal value, as repayment was now more certain a prospect. This anticipation of gain made it possible for Harley to bring further financial supporters into the scheme, such as James Bateman and Theodore Janssen.
Daniel Defoe Daniel Defoe (; born Daniel Foe; c. 1660 – 24 April 1731) was an English writer, trader, journalist, pamphleteer and spy. He is most famous for his novel ''Robinson Crusoe'', published in 1719, which is claimed to be second only to the Bible i ...

Daniel Defoe
commented:
The originators of the scheme knew that there was no money to invest in a trading venture, and no realistic expectation that there would ever be a trade to exploit, but nevertheless the potential for great wealth was widely publicised at every opportunity, so as to encourage interest in the scheme. The objective for the founders was to create a company that they could use to become wealthy and that offered scope for further government deals.


Flotation

The
royal charter A royal charter is a formal grant issued by a monarch under royal prerogative The royal prerogative is a body of customary authority, privilege, and immunity, recognized in common law and, sometimes, in civil law jurisdictions possessing ...

royal charter
for the company, based on that of the Bank of England, was drawn up by Blunt who was paid £3,846 for his services in setting up the company. Directors would be elected every three years and shareholders would meet twice a year. The Company employed a Cashier, Secretary and Accountant. The Governor was intended as an honorary position, and was later customarily held by the monarch. The charter allowed the full court of directors to nominate a smaller committee to act on any matter on its behalf. Directors of the Bank of England and of the
East India Company The East India Company (EIC), also known as the Honourable East India Company (HEIC), East India Trading Company (EITC), the English East India Company or (after 1707) the British East India Company, and informally known as John Company, Com ...
were barred from being directors of the South Sea Company. Any ship of more than 500 tons owned by the Company was to have a Church of England clergyman on board. The surrender of government debt for Company stock was to occur in five separate lots. The first two of these, totaling £2.75 million from about 200 large investors, had already been arranged before the company's charter was issued on 10 September 1711. The government itself surrendered £0.75 million of its own debt held by different departments (at that time individual office holders were at liberty to invest government funds under their control to their own advantage before it was required for government expenditure). Harley surrendered £8,000 of debt and was appointed Governor of the new company. Blunt, Caswall and Sawbridge together surrendered £65,000, Janssen £25,000 of his own plus £250,000 from a foreign consortium, Decker £49,000, Sir Ambrose Crawley £36,791. The company had a Sub-Governor, Bateman; a Deputy Governor, Ongley; and 30 ordinary directors. In total, nine of the directors were politicians, five were members of the Sword Blade consortium, and seven more were financial magnates who had been attracted to the scheme. The company created a coat of arms with the motto ''A Gadibus usque ad Auroram'' ("from Cadiz to the dawn", from
Juvenal Decimus Junius Juvenalis (), known in English as Juvenal ( ), was a Roman Roman or Romans most often refers to: *, the capital city of Italy *, Roman civilization from 8th century BC to 5th century AD *, the people of ancient Rome *', shorte ...

Juvenal
,
Satires Satire is a genre Genre () is any form or type of communication in any mode (written, spoken, digital, artistic, etc.) with socially-agreed-upon conventions developed over time. In popular usage, it normally describes a Category of being, ...
, 10) and rented a large house in the City of London as its headquarters. Seven sub-committees were created to handle its everyday business, the most important being the "committee for the affairs of the company". The Sword Blade company was retained as the Company's banker and on the strength of its new government connections issued notes in its own right, notwithstanding the Bank of England's monopoly. The task of the Company Secretary was to oversee trading activities; the Accountant, Grigsby, was responsible for registering and issuing stock; and the Cashier, Robert Knight, acted as Blunt's personal assistant at a salary of £200 per annum.


The slave trade

The
Treaty of Utrecht The Peace of Utrecht was a series of peace treaties A peace treaty is an agreement between two or more hostile parties, usually countries or government A government is the system or group of people governing an organized commun ...

Treaty of Utrecht
of 1713 granted Britain an ''
Asiento de Negros The ''Asiento de Negros'' was a monopoly contract between the Spanish Crown , coatofarms = Coat of Arms of Spanish Monarch.svg , coatofarms_article = Coat of arms of the King of Spain , image = (Felipe de Borbón) Inau ...
'' lasting 30 years to supply the Spanish colonies with 4,800 slaves per year. Britain was permitted to open offices in
Buenos Aires Buenos Aires ( or ; ), officially Autonomous City of Buenos Aires, is the capital Capital most commonly refers to: * Capital letter Letter case (or just case) is the distinction between the letters that are in larger uppercase or cap ...

Buenos Aires
,
Caracas Caracas (, ), officially Santiago de León de Caracas, abbreviated as CCS, is the capital and largest city of Venezuela, and the center of the Metropolitan Region of Caracas (or Greater Caracas). Caracas is located along the Guaire River in the ...

Caracas
,
Cartagena Cartagena or Carthagena may refer to: Places Chile *Cartagena, Chile, a commune in Valparaíso Region Colombia *Cartagena, Colombia, a city in the Bolívar Department, the largest city with this name **Roman Catholic Archdiocese of Cartagena, an ...

Cartagena
,
Havana Havana (; Spanish Spanish may refer to: * Items from or related to Spain: **Spaniards, a nation and ethnic group indigenous to Spain **Spanish language **Spanish cuisine Other places * Spanish, Ontario, Canada * Spanish River (disambiguati ...

Havana
,
Panama Panama ( , ; es, link=no, Panamá ), officially the Republic of Panama ( es, República de Panamá), is a transcontinental country This is a list of countries located on more than one continent A continent is one of several ...

Panama
,
Portobello Portobello, Porto Bello, Porto Belo, or Portabello may refer to: Places Brazil * Porto Belo Ireland * Portobello, Dublin * Cathal Brugha Barracks, Dublin formerly ''Portobello Barracks'' New Zealand * Portobello, New Zealand, on Otago Peninsula ...
and Vera Cruz to arrange the
Atlantic slave trade The Atlantic slave trade, transatlantic slave trade, or Euro-American slave trade involved the transportation by slave traders of various enslaved African African(s) may refer to: * Anything from or pertaining to the continent of Africa: ** ...
. One ship of no more than 500 tons could be sent to one of these places each year (the ''Navío de Permiso'') with general trade goods. One quarter of the profits were to be reserved for the King of Spain. There was provision for two extra sailings at the start of the contract. The Asiento was granted in the name of
Queen Anne Queen Anne often refers to: * Anne, Queen of Great Britain (1665–1714), queen of England, Scotland and Ireland (1702–1707) and of Great Britain (1707–1714) **Queen Anne style architecture, an architectural style from her reign, and its revival ...

Queen Anne
and then contracted to the company. By July the company had arranged contracts with the
Royal African Company The Royal African Company (RAC) was an English mercantile ( trading) company set up in 1660 by the royal Stuart family and City of London The City of London is a City status in the United Kingdom, city, Ceremonial counties of England, cerem ...
to supply the necessary African slaves to Jamaica. Ten pounds was paid for a slave aged over 16, £8 for one under 16 but over 10. Two-thirds were to be male, and 90% adult. The company trans-shipped 1,230 slaves from Jamaica to America in the first year, plus any that might have been added (against standing instructions) by the ship's captains on their own behalf. On arrival of the first cargoes, the local authorities refused to accept the Asiento, which had still not been officially confirmed there by the Spanish authorities. The slaves were eventually sold at a loss in the West Indies. In 1714 the government announced that a quarter of profits would be reserved for
Queen Anne Queen Anne often refers to: * Anne, Queen of Great Britain (1665–1714), queen of England, Scotland and Ireland (1702–1707) and of Great Britain (1707–1714) **Queen Anne style architecture, an architectural style from her reign, and its revival ...

Queen Anne
and a further 7.5% for a financial adviser, Manasseh Gilligan. Some Company board members refused to accept the contract on these terms, and the government was obliged to reverse its decision. Despite these setbacks, the company continued, having raised £200,000 to finance the operations. In 1714 2,680 slaves were carried, and for 1716–17, 13,000 more, but the trade continued to be unprofitable. An import duty of 33
pieces of eight The Spanish dollar, also known as the piece of eight ( es, Real de a ocho, , , or ), is a silver Silver is a chemical element Image:Simple Periodic Table Chart-blocks.svg, 400px, Periodic table, The periodic table of the chemical el ...
was charged on each slave (although for this purpose some slaves might be counted only as a fraction of a slave, depending on quality). One of the extra trade ships was sent to Cartagena in 1714 carrying woollen goods, despite warnings that there was no market for them there, and they remained unsold for two years. It has been estimated that the company transported a little over 34,000 slaves with mortality losses comparable to its competitors, showing that slave trading was a significant part of the company's work, and that it was carried out to the standards of the day. Its trading activities therefore offered a financial motivation for investment in the company.


Changes of management

The company was heavily dependent on the goodwill of government; when the government changed, so too did the company board. In 1714 one of the directors who had been sponsored by Harley, Arthur Moore, had attempted to send 60 tons of private goods on board the company ship. He was dismissed as a director, but the result was the beginning of Harley's fall from favour with the company. On 27 July 1714, Harley was replaced as Lord High Treasurer as a result of a disagreement that had broken out within the Tory faction in parliament. Queen Anne died on 1 August 1714; and at the election of directors in 1715 the Prince of Wales (the future King
George IIGeorge II or 2 may refer to: People * George II of Antioch (seventh century AD) * George II of Armenia (late ninth century) * George II of Abkhazia (916–960) * Patriarch George II of Alexandria (1021–1051) * George II of Georgia (1072–1089) * ...
) was elected as Governor of the Company. The new King
George IGeorge I or 1 may refer to: People * Patriarch George I of Alexandria (floruit, fl. 621–631) * George I of Constantinople (d. 686) * George I of Antioch (d. 790) * George I of Abkhazia (ruled 872/3–878/9) * George I of Georgia (d. 1027) * Yuri D ...
and the Prince of Wales both had large holdings in the company, as did some prominent Whig politicians, including
James Craggs the Elder James Craggs the Elder (1657 – 16 March 1721), of Jermyn Street, Westminster and Charlton, Lewisham, Kent, was an English financier and Whig politician who sat in the English House of Commons, English and British House of Commons from 1702 to ...
, the Earl of Halifax and Sir Joseph Jekyll. James Craggs, as Postmaster General, was responsible for intercepting mail on behalf of the government to obtain political and financial information. All Tory politicians were removed from the board and replaced with businessmen. The Whigs Horatio Townshend, brother in law of
Robert Walpole Robert Walpole, 1st Earl of Orford, (26 August 1676 – 18 March 1745; known between 1725 and 1742 as Sir Robert Walpole) was a British British may refer to: Peoples, culture, and language * British people, nationals or natives of the Unit ...

Robert Walpole
, and the
Duke of Argyll Duke of Argyll ( gd, Diùc Earra-Ghàidheil) is a title, created in the Peerage of Scotland The Peerage of Scotland ( gd, Moraireachd na h-Alba, sco, Peerage o Scotland) is the section of the Peerage A peerage is a legal system histori ...
were elected directors. The change of government led to a revival of the company's share value, which had fallen below its issue price. The previous government had failed to make the interest payments to the company for the preceding two years, owing more than £1 million. The new administration insisted that the debt be written off, but allowed the company to issue new shares to stockholders to the value of the missed payments. At around £10 million, this now represented half the share capital issued in the entire country. In 1714 the company had 2,000 to 3,000 shareholders, more than either of its rivals. By the time of the next directors' elections in 1718 politics had changed again, with a schism within the Whigs between Walpole's faction supporting the Prince of Wales and James Stanhope's supporting the King. Argyll and Townshend were dismissed as directors, as were surviving Tories Sir Richard Hoare and George Pitt, and King George I became governor. Four MPs remained directors, as did six people holding government financial offices. The Sword Blade Company remained bankers to the South Sea, and indeed had flourished despite the company's dubious legal position. Blunt and Sawbridge remained South Sea directors, and they had been joined by Gibbon and Child. Caswall had retired as a South Sea director to concentrate on the Sword Blade business. In November 1718 Sub-Governor Bateman and Deputy Governor Shepheard both died. Leaving aside the honorary position of Governor, this left the company suddenly without its two most senior and experienced directors. They were replaced by Sir John Fellowes as Sub-Governor and Charles Joye as Deputy.


War

In 1718 war broke out with Spain once again, in the
War of the Quadruple Alliance The War of the Quadruple Alliance (1718–1720) was caused by Spanish attempts to recover territories in Italy Italy ( it, Italia ), officially the Italian Republic ( it, Repubblica Italiana, links=no ), is a country consisting of delimi ...
. The company's assets in South America were seized, at a cost claimed by the company to be £300,000. Any prospect of profit from trade, for which the company had purchased ships and had been planning its next ventures, disappeared.


Refinancing government debt

Events in France now came to influence the future of the company. A Scottish economist and financier, John Law, exiled after killing a man in a duel, had travelled around Europe before settling in France. There he founded a bank, which in December 1718 became the Banque Royale, national bank of France, while Law himself was granted sweeping powers to control the economy of France, which operated largely by royal decree. Law's remarkable success was known in financial circles throughout Europe, and now came to inspire Blunt and his associates to make greater efforts to grow their own concerns. In February 1719 Craggs explained to the House of Commons a new scheme for improving the national debt by converting the annuities issued after the 1710 lottery into South Sea stock. By Act of Parliament, the company was granted the right to issue £1,150 of new stock for every £100 per annum of annuity which was surrendered. The government would pay 5% per annum on the stock created, which would halve their annual bill. The conversion was voluntary, amounting to £2.5 million new stock if all converted. The company was to make an additional new loan to the government pro rata up to £750,000, again at 5%. In March there was an abortive attempt to restore the Old Pretender, James Edward Stuart, to the throne of Britain, with a small landing of troops in Scotland. They were defeated at the
Battle of Glen Shiel The Battle of Glen Shiel, or gd, Blàr Ghleann Seile, took place on 10 June 1719 in the West Scottish Highlands The Highlands ( sco, the Hielands; gd, a’ Ghàidhealtachd , 'the place of the Gaels The Gaels (; ga, Na Gaeil ; gd, Na G ...

Battle of Glen Shiel
on 10 June. The South Sea company presented the offer to the public in July 1719. The Sword Blade company spread a rumour that the Pretender had been captured, and the general euphoria induced the South Sea share price to rise from £100, where it had been in the spring, to £114. Annuitants were still paid out at the same money value of shares, the company keeping the profit from the rise in value before issuing. About two-thirds of the in-force annuities were exchanged.


Trading more debt for equity

The 1719 scheme was a distinct success from the government's perspective, and they sought to repeat it. Negotiations took place between Aislabie and Craggs for the government and Blunt, Cashier Knight and his assistant and Caswell. Janssen, the Sub Governor and Deputy Governor were also consulted but negotiations remained secret from most of the company. News from France was of fortunes being made investing in Law's bank, whose shares had risen sharply. Money was moving around Europe, and other flotations threatened to soak up available capital (two insurance schemes in December 1719 each sought to raise £3 million). Plans were made for a new scheme to take over most of the unconsolidated national debt of Britain (£30,981,712) in exchange for company shares. Annuities were valued as a lump sum necessary to produce the annual income over the original term at an assumed interest of 5%, which favoured those with shorter terms still to run. The government agreed to pay the same amount to the company for all the fixed-term repayable debt as it had been paying before, but after seven years the 5% interest rate would fall to 4% on both the new annuity debt and also that assumed previously. After the first year, the company was to give the government £3 million in four quarterly installments. New stock would be created at a face value equal to the debt, but the share price was still rising and sales of the remaining stock, i.e. the excess of the total market value of the stock over the amount of the debt, would be used to raise the government fee plus a profit for the company. The more the price rose in advance of conversion, the more the company would make. Before the scheme, payments were costing the government £1.5 million per year.Carswell p.102-107 In summary, the total government debt in 1719 was £50 million: * £18.3m was held by three large corporations: ** £3.4m by the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker, and still one of the bankers for t ...

Bank of England
** £3.2m by the
British East India Company The East India Company (EIC), also known as the Honourable East India Company (HEIC), East India Trading Company (EITC), the English East India Company or (after 1707) the British East India Company, and informally known as John Company, Com ...
** £11.7m by the South Sea Company * Privately held redeemable debt amounted to £16.5m * £15m consisted of irredeemable annuities, long-fixed-term annuities of 72–87 years, and short annuities of 22 years remaining to expiry. The purpose of this conversion was similar to the old one: debt holders and annuitants might receive less return in total, but an illiquid investment was transformed into shares that could be readily traded. Shares backed by national debt were considered a safe investment and a convenient way to hold and move money, far easier and safer than metal coins. The only alternative safe asset, land, was much harder to sell and transfer of its ownership was legally much more complex. The government received a cash payment and lower overall interest on the debt. Importantly, it also gained control over when the debt had to be repaid, which was not before seven years but then at its discretion. This avoided the risk that debt might become repayable at some future point just when the government needed to borrow more, and could be forced into paying higher interest rates. The payment to the government was to be used to buy in any debt not subscribed to the scheme, which although it helped the government also helped the company by removing possibly competing securities from the market, including large holdings by the Bank of England. Company stock was now trading at £123, so the issue amounted to an injection of £5 million of new money into a booming economy just as interest rates were falling.
Gross Domestic Product Gross domestic product (GDP) is a monetary Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in the ...
(GDP) for Britain at this point was estimated as £64.4 million.


Public announcement

On 21 January the plan was presented to the board of the South Sea Company, and on 22 January
Chancellor of the Exchequer The chancellor of the Exchequer, often abbreviated to the chancellor, is a senior minister of the Crown Minister of the Crown is a formal constitutional term used in Commonwealth realm A Commonwealth realm is a sovereign state that ha ...
John Aislabie John Aislabie or Aslabie (; 4 December 167018 June 1742), of Studley Royal, near Ripon, Yorkshire, was a British politician who sat in the English English usually refers to: * English language English is a West Germanic languages, West ...

John Aislabie
presented it to Parliament. The House was stunned into silence, but on recovering proposed that the Bank of England should be invited to make a better offer. In response, the South Sea increased its cash payment to £3.5 million, while the Bank proposed to undertake the conversion with a payment of £5.5 million and a fixed conversion price of £170 per £100 face-value Bank stock. On 1 February, the company negotiators led by Blunt raised their offer to £4 million plus a proportion of £3.5 million depending on how much of the debt was converted. They also agreed that the interest rate would decrease after four years instead of seven, and agreed to sell on behalf of the government £1 million of Exchequer bills (formerly handled by the Bank). The House accepted the South Sea offer. Bank stock fell sharply. Perhaps the first sign of difficulty came when the South Sea Company announced that its Christmas 1719 dividend would be deferred for 12 months. The company now embarked on a show of gratitude to its friends. Select individuals were sold a parcel of company stock at the current price. The transactions were recorded by Knight in the names of intermediaries, but no payments were received and no stock issued – indeed the company had none to issue until the conversion of debt began. The individual received an option to sell his stock back to the company at any future date at whatever market price might then apply. Shares went to the Craggs:
the Elder ''The Elder'' is an independent film adaptation of the 1981 Kiss (band), Kiss concept album, ''Music from "The Elder"''. The film's plot derives from that concept, devised by Kiss co-founder Gene Simmons. The film is being produced by British auth ...
and the Younger; Lord Gower; Lord Lansdowne; and four other MPs. Lord Sunderland would gain £500 for every pound that stock rose; George I's mistress, their children and Countess Platen £120 per pound rise, Aislabie £200 per pound, Lord Stanhope £600 per pound. Others invested money, including the Treasurer to the Navy, Hampden, who invested £25,000 of government money on his own behalf. The proposal was accepted in a slightly altered form in April 1720. Crucial in this conversion was the proportion of holders of irredeemable annuities who could be tempted to convert their securities at a high price for the new shares. (Holders of redeemable debt had effectively no other choice but to subscribe.) The South Sea Company could set the conversion price but could not diverge much from the market price of its shares. The company ultimately acquired 85% of the redeemables and 80% of the irredeemables.


Inflating the share price

The company then set to talking up its stock with "the most extravagant rumours" of the value of its potential trade in the New World; this was followed by a wave of "speculating frenzy". The share price had risen from the time the scheme was proposed: from £128 in January 1720, to £175 in February, £330 in March and, following the scheme's acceptance, £550 at the end of May. What may have supported the company's high multiples (its P/E ratio) was a fund of credit (known to the market) of £70 million available for commercial expansion which had been made available through substantial support, apparently, by Parliament and the King. Shares in the company were "sold" to politicians at the current market price; however, rather than paying for the shares, these recipients simply held on to what shares they had been offered, with the option of selling them back to the company when and as they chose, receiving as "profit" the increase in market price. This method, while winning over the heads of government, the King's mistress, et al., also had the advantage of binding their interests to the interests of the Company: in order to secure their own profits, they had to help drive up the stock. Meanwhile, by publicising the names of their elite stockholders, the Company managed to clothe itself in an aura of legitimacy, which attracted and kept other buyers.


Bubble Act

The South Sea Company was by no means the only company seeking to raise money from investors in 1720. A large number of other joint-stock companies had been created making extravagant (sometimes fraudulent) claims about foreign or other ventures or bizarre schemes. Others represented potentially sound, although novel, schemes, such as for founding insurance companies. These were nicknamed "Bubbles". Some of the companies had no legal basis, while others, such as the Hollow Sword Blade company acting as the South Sea's banker, used existing chartered companies for purposes entirely different from their creation. The York Buildings Company was set up to provide water to London, but was purchased by Case Billingsley who used it to purchase confiscated Jacobite estates in Scotland, which then formed the assets of an insurance company.Carswell p.116-117 On 22 February 1720 John Hungerford raised the question of bubble companies in the House of Commons, and persuaded the House to set up a committee, which he chaired, to investigate. He identified a number of companies which between them sought to raise £40 million in capital. The committee investigated the companies, establishing a principle that companies should not be operating outside the objects specified in their charters. A potential embarrassment for the South Sea was avoided when the question of the Hollow Sword Blade Company arose. Difficulty was avoided by flooding the committee with MPs who were supporters of the South Sea, and voting down by 75 to 25 the proposal to investigate the Hollow Sword. (At this time, committees of the House were either 'Open' or 'secret'. A secret committee was one with a fixed set of members who could vote on its proceedings. By contrast, any MP could join in with an 'open' committee and vote on its proceedings.) Stanhope, who was a member of the committee, received £50,000 of the 'resaleable' South Sea stock from Sawbridge, a director of the Hollow Sword, at about this time. Hungerford had previously been expelled from the Commons for accepting a bribe. Amongst the bubble companies investigated were two supported by Lords Onslow and Chetwynd respectively, for insuring shipping. These were criticised heavily, and the questionable dealings of the Attorney-General and Solicitor-General in trying to obtain charters for the companies led to both being replaced. However, the schemes had the support of
Walpole Walpole may refer to: People * Walpole (surname) ** Robert Walpole (1676-1745), British statesman * Baron Walpole, a title in the Peerage of Great Britain * Walpole G. Colerick (1845–1911), American politician * Walpole Vidal (1853–1914), 19 ...

Walpole
and Craggs, so that the larger part of the Bubble Act (which finally resulted in June 1720 from the committee's investigations) was devoted to creating charters for the
Royal Exchange Assurance Corporation The Royal Exchange Assurance, founded in 1720, was a British insurance company. It took its name from the location of its offices at the Royal Exchange, London. Origins The Royal Exchange Assurance emerged from a joint stock insurance enterpris ...
or London Assurance Corporation. The companies were required to pay £300,000 for the privilege. The Act required that a joint stock company could be incorporated only by Act of Parliament or
Royal charter A royal charter is a formal grant issued by a monarch under royal prerogative The royal prerogative is a body of customary authority, privilege and immunity, recognized in common law In law, common law (also known as judicial precedent or ...

Royal charter
. The prohibition on unauthorised joint stock ventures was not repealed until 1825. The passing of the Act gave a boost to the South Sea Company, its shares leaping to £890 in early June. This peak encouraged people to start to sell; to counterbalance this the company's directors ordered their agents to buy, which succeeded in propping the price up at around £750.


Top reached

The price of the stock went up over the course of a single year from about £100 to almost £1000 per share. Its success caused a country-wide frenzy—
herd behavior Herd behavior is the behavior Behavior (American English) or behaviour (British English; American and British English spelling differences#-our, -or, see spelling differences) is the Action (philosophy), actions and mannerisms made by indivi ...
—as all types of people, from peasants to lords, developed a feverish interest in investing: in South Seas primarily, but in stocks generally. One famous apocryphal story is of a company that went public in 1720 as "a company for carrying out an undertaking of great advantage, but nobody to know what it is". The price finally reached £1,000 in early August 1720, and the level of selling was such that the price started to fall, dropping back to £100 per share before the year was out. This triggered
bankruptcies Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditor A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. ...
amongst those who had bought on credit, and increased selling, even
short selling In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money avail ...

short selling
(i.e., selling borrowed shares in the hope of buying them back at a profit if the price fell). Also, in August 1720, the first of the installment payments of the first and second money subscriptions on new issues of South Sea stock were due. Earlier in the year John Blunt had come up with an idea to prop up the share price: the company would lend people money to buy its shares. As a result, many shareholders could not pay for their shares except by selling them. Furthermore, a scramble for liquidity appeared internationally as "bubbles" were also ending in Amsterdam and Paris. The collapse coincided with the fall of the
Mississippi Company The Mississippi Company (french: Compagnie du Mississippi; founded 1684, named the Company of the West from 1717, and the Company of the Indies from 1719) was a corporation holding a business monopoly in French colonies in North America and the ...
of John Law in France. As a result, the price of South Sea shares began to decline.


Recriminations

By the end of September the stock had fallen to £150. Company failures now extended to
bank A bank is a financial institution Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), stat ...

bank
s and
goldsmith A goldsmith is a Metalworking, metalworker who specializes in working with gold and other precious metals. Nowadays they mainly specialize in jewelry-making but historically, goldsmiths have also made cutlery, silverware, platter (dishware), pl ...

goldsmith
s, as they could not collect loans made on the stock, and thousands of individuals were ruined, including many members of the
aristocracy Aristocracy ( grc-gre, ἀριστοκρατία , from 'excellent', and , 'rule') is a form of government A government is the system or group of people governing an organized community, generally a state State may refer to: A ...
. With investors outraged,
Parliament In modern politics and history, a parliament is a legislative A legislature is an assembly Assembly may refer to: Organisations and meetings * Deliberative assembly A deliberative assembly is a gathering of members (of any kind of ...
was recalled in December and an investigation began. Reporting in 1721, it revealed widespread
fraud In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment, is described by ...

fraud
amongst the company directors and corruption in the Cabinet. Among those implicated were
John Aislabie John Aislabie or Aslabie (; 4 December 167018 June 1742), of Studley Royal, near Ripon, Yorkshire, was a British politician who sat in the English English usually refers to: * English language English is a West Germanic languages, West ...

John Aislabie
(the Chancellor of the Exchequer),
James Craggs the Elder James Craggs the Elder (1657 – 16 March 1721), of Jermyn Street, Westminster and Charlton, Lewisham, Kent, was an English financier and Whig politician who sat in the English House of Commons, English and British House of Commons from 1702 to ...
(the
Postmaster General A Postmaster General, in Anglosphere The Anglosphere is a group of English-speaking nations that share common cultural and historical ties to the United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as ...
),
James Craggs the Younger James Craggs the Younger (9 April 168616 February 1721), was an English statesman. Life Craggs was born at Westminster, the son of James Craggs the Elder. Part of his early life was spent abroad, where he made the acquaintance of George I of G ...
(the
Southern Secretary The Secretary of State for the Southern Department was a position in the Cabinet (government), cabinet of the government of the Kingdom of Great Britain up to 1782, when the Southern Department became the Home Office. History Before 1782, the r ...
), and even Lord Stanhope and Lord Sunderland (the heads of the Ministry). Craggs the Elder and Craggs the Younger both died in disgrace; the remainder were
impeached Impeachment is the process by which a legislative body or other legally constituted tribunal initiates charges against a public official An official is someone who holds an office (function or mandate, regardless whether it carries an actual ...
for their corruption. The Commons found Aislabie guilty of the "most notorious, dangerous and infamous corruption", and he was imprisoned. The newly appointed
First Lord of the Treasury The First Lord of the Treasury is the head of the Lords Commissioners of the Treasury, commission exercising the ancient office of Lord High Treasurer in the United Kingdom, and is by convention also the Prime Minister of the United Kingdom, pri ...
,
Robert Walpole Robert Walpole, 1st Earl of Orford, (26 August 1676 – 18 March 1745; known between 1725 and 1742 as Sir Robert Walpole) was a British British may refer to: Peoples, culture, and language * British people, nationals or natives of the Unit ...

Robert Walpole
, successfully restored public confidence in the financial system. However, public opinion, as shaped by the many prominent men who lost money, demanded revenge. Walpole supervised the process, which removed all 33 of the company directors and stripped them of, on average, 82% of their wealth. The money went to the victims and the stock of the South Sea Company was divided between the Bank of England and the East India Company. Walpole made sure that King George and his mistresses were protected, and by a margin of three votes he managed to save several key government officials from impeachment. In the process, Walpole won plaudits as the savior of the financial system while establishing himself as the dominant figure in British politics; historians credit him for rescuing the Whig government, and indeed the Hanoverian Dynasty, from total disgrace.


Quotations prompted by the collapse

Joseph Spence wrote that Lord Radnor reported to him "When Sir
Isaac Newton Sir Isaac Newton (25 December 1642 – 20 March 1726/27) was an English mathematician A mathematician is someone who uses an extensive knowledge of mathematics Mathematics (from Greek: ) includes the study of such topics a ...

Isaac Newton
was asked about the continuance of the rising of South Sea stock... He answered 'that he could not calculate the madness of people'." He is also quoted as stating, "I can calculate the movement of the stars, but not the madness of men". Newton himself owned nearly £22,000 in South Sea stock in 1722, but it is not known how much he lost, if anything. There are, however, numerous sources stating he lost up to £20,000 (equivalent to £ in ).


A trading company

The South Sea Company was created in 1711 to reduce the size of public debts, but was granted the commercial privilege of exclusive rights of trade to the Spanish Indies, based on the treaty of commerce signed by Britain and the
Archduke Charles Archduke Charles Louis John Joseph Laurentius of Austria, Duke of Teschen (german: link=no, Erzherzog Karl Ludwig Johann Joseph Lorenz von Österreich, Herzog von Teschen; 5 September 177130 April 1847) was an Austrian Empire, Austrian field-mars ...
, candidate to the Spanish throne during the
War of the Spanish Succession The War of the Spanish Succession (1701–1714) was an early-18th-century European war, triggered by the death in November 1700 of the childless Charles II of Spain Charles II of Spain (6 November 1661 – 1 November 1700), also known as The ...
. After
Philip VPhilip V may refer to: * Philip V of Macedon (221–179 BC) * Philip V of France (1293–1322) * Philip II of Spain, also Philip V, Duke of Burgundy (1526–1598) * Philip V of Spain (1683–1746) {{hndis, Philip 06 ...

Philip V
became the King of Spain, Britain obtained at the 1713
Treaty of Utrecht The Peace of Utrecht was a series of peace treaties A peace treaty is an agreement between two or more hostile parties, usually countries or government A government is the system or group of people governing an organized commun ...

Treaty of Utrecht
the rights to the slave trade to the Spanish Indies (or
Asiento de Negros The ''Asiento de Negros'' was a monopoly contract between the Spanish Crown , coatofarms = Coat of Arms of Spanish Monarch.svg , coatofarms_article = Coat of arms of the King of Spain , image = (Felipe de Borbón) Inau ...
) for 30 years. Those rights were previously held by the Compagnie de Guinée et de l'Assiente du Royaume de la France. The South Sea Company board opposed taking on the slave trade, which had showed little profitability when chartered companies had engaged in it, but it was the only legal type of commerce with the Spanish Colonies as they were a closed market. To increase the profitability, the Asiento contract included the right to send one yearly 500-ton ship to the fairs at Portobello and
Veracruz Veracruz (), formally Veracruz de Ignacio de la Llave (), officially the Free and Sovereign State of Veracruz de Ignacio de la Llave ( es, Estado Libre y Soberano de Veracruz de Ignacio de la Llave), is one of the 31 states which, along with Me ...
loaded with duty-free merchandises, called the ''Navío de Permiso''. The Crown of England and the King of Spain were each entitled to 25% of the profits, according to the terms of the contract, that was a copy of the French Asiento contract, but
Queen Anne Queen Anne often refers to: * Anne, Queen of Great Britain (1665–1714), queen of England, Scotland and Ireland (1702–1707) and of Great Britain (1707–1714) **Queen Anne style architecture, an architectural style from her reign, and its revival ...

Queen Anne
soon renounced her share. The King of Spain did not receive any payments due to him, and this was one of the sources of contention between the Spanish Crown and the South Sea Company. As was the case for previous holders of the Asiento, the Portuguese and the French, the profit was not in the slave trade but in the illegal contraband goods smuggled in the slave ships and in the annual ship. Those goods were sold at the Spanish colonies at a handsome price as they were in high demand and constituted unfair competition with taxed goods, proving a large drain on the Spanish Crown trade income. The relationship between the South Sea Company and the Government of Spain was always bad, and worsened with time. The Company complained of searches and seizures of goods, lack of profitability, and confiscation of properties during the wars between Britain and Spain of 1718–1723 and 1727–1729, during which the operations of the Company were suspended. The Government of Spain complained of the illegal trade, failure of the company to present its accounts as stipulated by the contract, and non-payment of the King's share of the profits. These claims were a major cause of deteriorating relations between the two countries in 1738; and although the Prime Minister
Walpole Walpole may refer to: People * Walpole (surname) ** Robert Walpole (1676-1745), British statesman * Baron Walpole, a title in the Peerage of Great Britain * Walpole G. Colerick (1845–1911), American politician * Walpole Vidal (1853–1914), 19 ...

Walpole
opposed war, there was strong support for it from the King, the House of Commons, and a faction in his own Cabinet. Walpole was able to negotiate a treaty with the King of Spain at the
Convention of Pardo The Convention of Pardo, also known as the Treaty of Pardo or Convention of El Pardo, was a 1739 agreement between Kingdom of Great Britain, Britain and Enlightenment in Spain, Spain. It sought to resolve trade issues between the two countries and ...
in January 1739 that stipulated that Spain would pay British merchants £95,000 in compensation for captures and seized goods, while the South Sea Company would pay the Spanish Crown £68,000 in due proceeds from the Asiento. The South Sea Company refused to pay those proceeds and the King of Spain retained payment of the compensation until payment from the South Sea Company could be secured. The breakup of relations between the South Sea Company and the Spanish Government was a prelude to the '' Guerra del Asiento'', as the first
Royal Navy The Royal Navy (RN) is the United Kingdom's naval warfare Naval warfare is combat Combat ( French for ''fight'') is a purposeful violent conflict meant to physically harm or kill the opposition. Combat may be armed (using weapon A ...
fleets departed in July 1739 for the Caribbean, prior to the declaration of war, which lasted from October 1739 until 1748. This war is known as the
War of Jenkins' Ear The War of Jenkins' Ear (known as in Spain) was a conflict between Britain Britain usually refers to: * United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usa ...
.


Slave trade under the Asiento

Under the
Treaty of Tordesillas The Treaty of Tordesillas, ; pt, Tratado de Tordesilhas . signed in Tordesillas, Spain on June 7, 1494, and authenticated in Setúbal, Portugal, divided the newly-discovered lands outside Europe between the Portuguese Empire The Portuguese ...

Treaty of Tordesillas
, Spain was the only European power that could not establish factories in Africa to purchase slaves. The slaves for the Spanish America were provided by companies that were granted exclusive rights to their trade. This monopoly contract was called the slave Asiento. Between 1701 and 1713 the Asiento contract was granted to France. In 1711 Britain had created the South Sea Company to reduce debt and to trade with the Spanish America, but that commerce was illegal without a permit from Spain, and the only existing permit was the Asiento for the slave trade, so at the
Treaty of Utrecht The Peace of Utrecht was a series of peace treaties A peace treaty is an agreement between two or more hostile parties, usually countries or government A government is the system or group of people governing an organized commun ...

Treaty of Utrecht
in 1713 Britain obtained the transfer of the Asiento contract from French to British hands for the next 30 years. The board of directors was reluctant to take on the slave trade, which was not an object of the company and had shown little profitability when carried out by chartered companies, but they finally agreed on 26 March 1714. The Asiento set a sale quota of 4,800 units of slaves per year. An adult male slave counted as one unit; females and children counted as fractions of a unit. Initially the slaves were provided by the
Royal African Company The Royal African Company (RAC) was an English mercantile ( trading) company set up in 1660 by the royal Stuart family and City of London The City of London is a City status in the United Kingdom, city, Ceremonial counties of England, cerem ...
. The South Sea Company established slave reception factories at
Cartagena, Colombia Cartagena ( , also ), known in the colonial era as Cartagena de Indias (), is a city A city is a large human settlement.Goodall, B. (1987) ''The Penguin Dictionary of Human Geography''. London: Penguin.Kuper, A. and Kuper, J., eds (1996) ''Th ...

Cartagena, Colombia
,
Veracruz, Mexico Veracruz (), formally Veracruz de Ignacio de la Llave (), officially the Free and Sovereign State of Veracruz de Ignacio de la Llave ( es, Estado Libre y Soberano de Veracruz de Ignacio de la Llave), is one of the 31 states which, along with Me ...
, Panama,
Portobello Portobello, Porto Bello, Porto Belo, or Portabello may refer to: Places Brazil * Porto Belo Ireland * Portobello, Dublin * Cathal Brugha Barracks, Dublin formerly ''Portobello Barracks'' New Zealand * Portobello, New Zealand, on Otago Peninsula ...
,
La Guaira La Guaira () is the capital city of the Venezuelan Vargas (state), state of the same name (formerly named Vargas) and the country's main port. It was founded in 1577 as an outlet for Caracas, to the southeast. The town and the port were badly ...

La Guaira
,
Buenos Aires Buenos Aires ( or ; ), officially Autonomous City of Buenos Aires, is the capital Capital most commonly refers to: * Capital letter Letter case (or just case) is the distinction between the letters that are in larger uppercase or cap ...

Buenos Aires
, La Havana and
Santiago de Cuba Santiago de Cuba is the second-largest city in Cuba and the capital city of Santiago de Cuba Province. It lies in the southeastern area of the island, some southeast of the Cuban capital of Havana. The municipality extends over , and contain ...

Santiago de Cuba
, and slave deposits at
Jamaica Jamaica (; ) is an island country An island country or an island nation is a country A country is a distinct territory, territorial body or political entity. It is often referred to as the land of an individual's birth, residence or ...

Jamaica
and
Barbados Barbados is an island country An island country or an island nation is a country A country is a distinct territory, territorial body or political entity. It is often referred to as the land of an individual's birth, residence or c ...

Barbados
. Despite problems with speculation, the South Sea Company was relatively successful at
slave trading The history of slavery spans many cultures Culture () is an umbrella term which encompasses the social behavior Social behavior is behavior Behavior (American English) or behaviour (British English; American and British English spellin ...
and meeting its quota (it was unusual for other, similarly chartered companies to fulfill their quotas). According to records compiled by David Eltis and others, during the course of 96 voyages in 25 years, the South Sea Company purchased 34,000 slaves, of whom 30,000 survived the voyage across the Atlantic. (Thus about 11% of the slaves died on the voyage: a relatively low mortality rate for the Middle Crossing.) The company persisted with the slave trade through two wars with Spain and the calamitous 1720 commercial
bubble Bubble or Bubbles may refer to: Physical bubbles * Bubble (physics), a globule of one substance in another, usually gas in a liquid ** Soap bubble, commonly referred to as a "bubble" People * Bubbles, a contestant on ''Real Chance of Love ( ...
. The company's trade in human slavery peaked during the 1725 trading year, five years after the bubble burst. Between 1715 and 1739, slave trading constituted the main legal commercial activity of the South Sea Company.


The annual ship

The slave Asiento contract of 1713 granted a permit to send one vessel of 500 tons per year, loaded with duty-free merchandise to be sold at the fairs of
New Spain New Spain, officially the Viceroyalty of New Spain ( es, Virreinato de Nueva España, ), or Kingdom of New Spain, was an integral territorial entity of the Spanish Empire The Spanish Empire ( es, link=no, Imperio Español), also known as th ...

New Spain
,
Cartagena Cartagena or Carthagena may refer to: Places Chile *Cartagena, Chile, a commune in Valparaíso Region Colombia *Cartagena, Colombia, a city in the Bolívar Department, the largest city with this name **Roman Catholic Archdiocese of Cartagena, an ...

Cartagena
, and
Portobello Portobello, Porto Bello, Porto Belo, or Portabello may refer to: Places Brazil * Porto Belo Ireland * Portobello, Dublin * Cathal Brugha Barracks, Dublin formerly ''Portobello Barracks'' New Zealand * Portobello, New Zealand, on Otago Peninsula ...
. This was an unprecedented concession that broke two centuries of strict exclusion of foreign merchants from the Spanish Empire. The first ship to head for the Americas, the ''Royal Prince'', was scheduled for 1714 but was delayed until August 1716. In consideration of the three annual ships missed since the date of the Asiento, the permitted tonnage of the next ten ships was raised to 650. Actually only seven annual ships sailed during the Asiento, the last one being the Royal Caroline in 1732. The company's failure to produce accounts for all the annual ships but the first one, and lack of payment of the proceeds to the Spanish Crown from the profits for all the annual ships, resulted in no more permits being granted to the Company's ships after the Royal Caroline trip of 1732–1734. In contrast to the "legitimate" trade in slaves, the regular trade of the annual ships generated healthy returns, in some case profits were over 100%. Accounts for the voyage of the ''Royal Prince'' were not presented until 1733, following continuous demands by Spanish officials. They reported that profits of £43,607. Since the King of Spain was entitled to 25% of the profits, after deducting interest on a loan he claimed £8,678. The South Sea Company never paid the amount due for the first annual ship to the Spanish Crown, nor did it pay any amount for any of the other six trips.


Arctic whaling

The Greenland Company had been established by Act of Parliament in 1693 with the object of catching whales in the Arctic. The products of their "whale-fishery" were to be free of customs and other duties. Partly due to maritime disruption caused by wars with France, the Greenland Company failed financially within a few years. In 1722 Henry Elking published a proposal, directed at the governors of the South Sea Company, that they should resume the "Greenland Trade" and send ships to catch whales in the Arctic. He made very detailed suggestions about how the ships should be crewed and equipped. The British Parliament confirmed that a British Arctic "whale-fishery" would continue to benefit from freedom from customs duties, and in 1724 the South Sea Company decided to commence whaling. They had 12 whale-ships built on the River Thames and these went to the Greenland seas in 1725. Further ships were built in later years, but the venture was not successful. There were hardly any experienced whalemen remaining in Britain, and the Company had to engage Dutch and Danish whalemen for the key posts aboard their ships: for instance all commanding officers and harpooners were hired from the
North Frisia North Frisia (; ; ) is the northernmost portion of Frisia, located in Schleswig-Holstein, Germany between the rivers Eider River, Eider and Vidå, Wiedau. It also includes the North Frisian Islands and Heligoland. The region is traditionally inhab ...
n island of
Föhr Föhr ( ''Fering'' North Frisian: ''Feer''; da, Før) is one of the North Frisian Islands The North Frisian Islands are the Frisian Islands off the coast of North Frisia North Frisia or Northern Friesland is the northernmost portion of Frisia, ...
. Other costs were badly controlled and the catches remained disappointingly few, even though the Company was sending up to 25 ships to
Davis Strait Davis Strait (french: Détroit de Davis) is a northern arm of the Atlantic Ocean that lies north of the Labrador Sea. It lies between mid-western Greenland and Baffin Island in Nunavut, Canada. To the north is Baffin Bay. The strait was named for ...
and the
Greenland Greenland ( kl, Kalaallit Nunaat, ; da, Grønland, ) is an autonomous territory An autonomous administrative division (also referred to as an autonomous area, entity, unit, region, subdivision, or territory) is a subnational administra ...

Greenland
seas in some years. By 1732 the Company had accumulated a net loss of £177,782 from their eight years of Arctic whaling. The South Sea Company directors appealed to the British government for further support. Parliament had passed an Act in 1732 that extended the duty-free concessions for a further nine years. In 1733 an Act was passed that also granted a government subsidy to British Arctic whalers, the first in a long series of such Acts that continued and modified the whaling subsidies throughout the 18th century. This, and the subsequent Acts, required the whalers to meet conditions regarding the crewing and equipping of the whale-ships that closely resembled the conditions suggested by Elking in 1722. In spite of the extended duty-free concessions, and the prospect of real subsidies as well, the Court and Directors of the South Sea Company decided that they could not expect to make profits from Arctic whaling. They sent out no more whale-ships after the loss-making 1732 season.


Government debt after the Seven Years' War

The company continued its trade (when not interrupted by war) until the end of the
Seven Years' War The Seven Years' War (1756–1763) is widely considered to be the first global conflict in history, and was a struggle for world supremacy between Kingdom of Great Britain, Great Britain and Kingdom of France, France. In Europe, the conflict ar ...
(1756–1763). However, its main function was always managing government debt, rather than trading with the Spanish colonies. The South Sea Company continued its management of the part of the
national debt In public finance, government debt, also known as public interest, public debt, national debt and sovereign debt, is the total amount of debt owed at a point in time by a government A government is the system or group of people govern ...
until it was disestablished in 1853, at which point the debt was reconsolidated. The debt was not paid off by
World War I World War I, often abbreviated as WWI or WW1, also known as the First World War or the Great War, was a global war A world war is "a war engaged in by all or most of the principal nations of the world". The term is usually reserved for ...

World War I
, at which point it was consolidated again, under terms that allowed the government to avoid repaying the principal.


Armorials

The armorials of the South Sea Company, according to a
grant of arms left, Swedish grant of arms from 1562. A grant of arms or a governmental issuance of arms are actions, by a lawful authority such as an officer of arms An officer of arms is a person appointed by a sovereign or Sovereign state, state with author ...

grant of arms
dated 31 October 1711, were: ''Azure, a globe whereon are represented the Straits of Magellan and Cape Horn all proper and in sinister chief point two herrings haurient in saltire argent crowned or, in a canton the united arms of Great Britain''. Crest: ''A ship of three masts in full sail''. Supporters, dexter: ''The emblematic figure of Britannia, with the shield, lance etc all proper''; sinister: ''A fisherman completely clothed, with cap boots fishing net etc and in his hand a string of fish, all proper''.


Officers of the South Sea Company

The South Sea Company had a governor (generally an honorary position), a subgovernor, a deputy governor and 30 directors (reduced in 1753 to 21).See, for 1711–21, J Carswell, ''South Sea Bubble'' (1960) 274-9; and for 1721–1840, see British Library, Add. MSS, 25544-9.


In fiction

*
David Liss David Liss (born March 16, 1966) is an American writer of novels A novelist is an author An author is the creator or originator of any written work such as a book or play, and is also considered a writer. More broadly defined, an author is "th ...
' historical-mystery novel ''A Conspiracy of Paper'', set in 1720 London, is focused on the South Sea Company at the top of its power, its fierce rivalry with the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker, and still one of the bankers for t ...

Bank of England
and the events leading up to the collapse of the "bubble". * Charles Dickens novels are littered with stock-market speculations, villains, swindlers and fictional speculators: ** ''Nicholas Nickleby'' (1839) – Ralph Nickleby's great Joint Stock Company, United Metropolitan Improved Hot Muffin and Crumpet Baking and Punctual Delivery Company. ** ''Martin Chuzzlewit'' (1844) – Anglo-Bengalee Disinterested Loan and Life Company, modeled loosely on the South Sea Bubble, is in essence a classic Ponzi scheme. ** ''David Copperfield'' (1850) – The false accounting by the sycophant Uriah Heep, clerk to lawyer Mr Wickfield. ** ''Little Dorrit'' (1857) – The financial house of Mr Merdle. * Robert Goddard (novelist), Robert Goddard's novel ''Sea Change'' (2000) covers the aftermath of the "bubble" and the attempts by politicians to evade responsibility and prevent a Jacobitism, Jacobite restoration.


See also

* List of stock market crashes and bear markets * SSC coinage * Tulip mania * History of company law in the United Kingdom * Whaling in the United Kingdom * Mississippi Bubble * Buttonwood Agreement USA 1792


Notes


References

;Historical * * Carlos, Ann M. and Neal, Larry. (2006) "The Micro-Foundations of the Early London Capital Market: Bank of England shareholders during and after the South Sea Bubble, 1720–25" ''Economic History Review'' 59 (2006), pp. 498–538
online
* * * * Dale, Richard (2004). ''The First Crash: Lessons from the South Sea Bubble'' (Princeton University Press.) * Freeman, Mark, Robin Pearson, and James Taylor. (2013) "Law, politics and the governance of English and Scottish joint-stock companies, 1600–1850." ''Business History'' 55#4 (2013): 636-652
online
* Harris, Ron (1994). "The Bubble Act: Its Passage and its Effects on Business Organization." '' The Journal of Economic History,'' 54 (3), 610–627 * * Hoppit, Julian. (2002) "The Myths of the South Sea Bubble," ''Transactions of the Royal Historical Society,'' (2002) 12#1 pp 141–16
in JSTOR
* Kleer, Richard A. (2015) "Riding a wave: the Company's role in the South Sea Bubble." ''The Economic History Review'' 68.1 (2015): 264-285
online
*Löwe, Kathleen (2021)
Die Südseeblase in der englischen Kunst des 18. und 19. Jahrhunderts. Bilder einer Finanzkrise
', Berlin: Reimer. * * McColloch, William E. (2013) "A shackled revolution? The Bubble Act and financial regulation in eighteenth-century England." ''Review of Keynesian Economics'' 1.3 (2013): 300-313
online
* Mackay, C. ''Extraordinary Popular Delusions and the Madness of Crowds'' (1841) * Marshall, Dorothy. (1962) ''Eighteenth Century England'' Longman. pp 121–30. * * * Paul, Helen Julia (2010) ''The South Sea Bubble: an economic history of its origins and consequences'', ''Routledge Explorations in Economic History'
online
short summary * Paul, Helen. (2013) ''The South Sea Bubble: An Economic History of its Origins and Consequences'' Routledge, 176pp. * Paul, Helen
''The "South Sea Bubble", 1720''EGO - European History Online
Mainz
Institute of European History
2015, retrieved: March 17, 2021
pdf
. * Plumb, J. H. (1956) ''Sir Robert Walpole, vol. 1, The Making of a Statesman''. ch 8 * * * Stratmann, Silke (2000) ''Myths of Speculation: The South Sea Bubble and 18th-century English Literature''. Munich: Fink * ;Fiction * . ''Novel set in the South Sea Company bubble.'' * . ''Novel set against the background of the South Sea bubble.''


External links

*


Famous First Bubbles – South Sea Bubble
* *
The South Sea Bubble
audio programming with Melvyn Bragg and guests, BBC Radio 4. {{Authority control 1711 establishments in Great Britain British slave trade Age of Sail Chartered companies Companies established in 1711 Corruption in the United Kingdom Defunct companies of the United Kingdom Economic bubbles Economic history of Great Britain Financial crises History of banking Political scandals in the United Kingdom South Sea Bubble British companies established in 1711