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CHAP. ment offered 5 per cent. on the debt, to be reduced after 1727 to 4 per cent. Out of the savings a sinking fund would be formed, which at that date would amount to £1,200,000 a year. For the privilege of taking over the national debt the company offered £3,500,000 to be forthwith applied to reducing it to £47,800,000. This proposal was introduced to the house of commons by Aislabie on January 22, 1720, with the assurance that, if accepted, it would extinguish the debt in twenty-five years. There were already whispers that Aislabie had been a recent purchaser of South Sea stock, it was said to the amount of £27,000. Thomas Brodrick, one of the discontented whigs, who had voted against the ministry on the peerage bill, intervened with the suggestion that a transaction so beneficial to the undertakers should be thrown open to public competition. As the general sense of the house was in its favour, Aislabie found himself compelled to agree to receive further proposals. The Bank authorities then offered £5,000,000 for the same privileges as the company, whereupon the South Sea directors advanced upon the Bank's proposal and bid £7,567,000, which was accepted.

The act received the royal assent on April 7, 1720.1 It may well be asked what equivalents the South Sea Company expected to obtain for this prodigious sum? The company's prospective resources may be classified under four heads. First, the profits of the Asiento, though experience had shewn their uncertainty, were reckoned by anticipation at £200,000 per annum, and wild tales were afloat of inestimable acquisitions to be made in the South Seas. Secondly, the allowance from the treasury for the charge of management was fixed at roughly £10,000 a year. Thirdly, so long as the company received from the government 5 per cent. instead of employing capital at 4 per cent., they enjoyed a margin of profit. But, lastly, the gain was really looked for in the increased market value of their stock. The infection of the French Mississippi mania which arose from a scheme projected by Law, a Scottish adventurer, was already in the air of London, and the South Sea Company was acclaimed as "the English Mississippi". The failure of the Bank of England to obtain

16 G. I., c. 4.

1720

THE SOUTH SEA BUBBLE.

295

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the concession was followed by a fall of Bank stock, while the CHAP stock of the South Sea Company advanced with astonishing rapidity pending the passage of the bill through parliament. Quoted at 128 on January 1, 1720, before the end of March the shares had reached over 330. Two and a quarter millions were subscribed on April 14 at the price of 300 per cent. fixed by the directors. By the end of May the company had purchased two-thirds of the annuities.

During the months of the company's feverish prosperity the rage for stock-jobbing, which had for some years been noticeably growing, transformed English society. The spectacles witnessed by Paris while the Mississippi scheme was popular were re-enacted here. "There are few in London," wrote Edward Harley, the younger, on February 25, "that mind anything but the rising and falling of the stocks."1 Regardless of the severe restrictions imposed by the law upon the formation of companies, new joint-stock schemes sprang up every day. Despite the advice of Walpole, the Prince of Wales allowed himself to be constituted governor of the Welsh Copper Company. The Duke of Bridgewater formed a company for building houses in London and Westminster, and the Duke of Chandos became head of the York Buildings Company. Two important corporations owe their origin to this period, the Royal Exchange and London Assurance Companies; but they had to pay £600,000 towards the liquidation of the arrears of the civil list as a condition of obtaining their charters. In the wake of these genuine schemes there rose to the surface a countless number of bubbles. Some of them, indeed, appear to have had rational industrial objects. There were, however, others which had lunacy written upon their faces, such as a scheme of £1,000,000 "for a wheel for perpetual motion," and others again which in sane times would be stamped as obviously fraudulent. Such was a prospectus for the formation of a company for carrying on an undertaking of great advantage, but nobody to know what it is. Every subscriber who deposits £2 per share to be entitled to £100 per annum." Even this prospectus attracted in five hours to its office in Cornhill deposits to the amount of £2,000, with which the projector decamped. The craze gave occasion to countless caricatures and pasquin

1 Portland MSS., v., 593 ; cf. ibid., p. 597.

CHAP. ades, of which last "A South Sea Ballad," printed in the seventh volume of the Parliamentary History, is a witty specimen.

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It was computed that the sums sought to be raised by speculative undertakings amounted to as much as £300,000,000 sterling. A check was attempted in the spring session of 1720 by a statute making illegal bubble companies affecting to act in a corporate capacity, or, where chartered, abusing their charters by embarking ultra vires in speculative projects.1 The ministry had before their eyes the recent fall of Law, and the public indignation which was pursuing his patron, the regent. On the day that parliament rose, June 11, the king published a proclamation in conformity with the tenor of the new act, which was to take effect on the 20th, declaring all unlawful projects a public nuisance, threatening the promoters with prosecution, and forbidding any broker, under a penalty of £500, from buying or selling any shares in them. The warning proved ineffective, and the South Sea directors, thinking that a limitation of the channels of speculation was likely to improve the market price of their shares, induced the lords justices, appointed regents during the absence of the king in Hanover, instead of the prir.ce, then in disgrace with his father, to proclaim no fewer than eighty-six bubble companies illegal and abolished accordingly. For a few days after the proclamation the anticipations of the directors were realised, and on July 16 the South Sea shares rose, for the last time, to 1,000.

A general panic ensued among the threatened companies. The York Buildings Company's shares fell at once 100 per cent., and in a few days the shares of this and other companies ordered to be prosecuted found no buyers at any price. As always happens at such crises, other shares declined in sympathy. But the heavy falls of South Sea stock soon after the middle of August were due to the action of the directors themselves. While in May annuities had been bought up at 375 per cent., in August the directors raised their terms. The stock was computed at 800 per cent., and the outstanding annuitants, who had deposited their securities, received, as compared with those who sold their annuities in May, a correspondent diminution. When this allotment became known some of the dissatisfied annuitants demanded a rescission of their contracts. They 16 G. I., c. 18.

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1720 DECLINE OF SOUTH SEA COMPANY'S CREDIT. 297 complained that they had signed the books without reading the CHAP. short letter of attorney heading each page empowering three nominees of the company to make terms on their behalf. Redress being refused, the quotations began to fall. The directors endeavoured to check the decline by declaring a dividend of 30 per cent., payable at Christmas, and not less than 50 per cent. in subsequent years. But the sales continued, and by the middle of September quotations had fallen below 400. The directors were now sufficiently humbled to consider an application to the Bank of England for help, and Walpole was invited to come forward as intermediary. He drew up a memorandum on September 19 as the foundation of a future agreement, called "the Bank contract". Reluctant at the outset to come into the agreement, the Bank, seeing the progressive depreciation of South Sea stock, refrained from completing the contract, and on November 10, when the quotation had fallen to 210, repudiated it altogether. Nor, though it instituted legal proceedings, did the company venture to expose its affairs in a court of law.

In the course of the debate on the South Sea Company's proposal Walpole had eloquently predicted a danger to the constitution as likely to arise from making its directors masters of the public credit. As the company rose on a tide of prosperity, these anticipations, pressed upon the king, gave him some alarm. Sunderland, a speculative republican, Craggs, his creature, and Aislabie, were deeply involved in the company's affairs. The king and Bernstorff began to feel distrust. "The cabal," as the ministers were called, would, it was suggested, "be able for the future to give laws to the king and his son, and even remove them when they shall think proper." "There is," wrote Bernstorff, " a necessity to change hands." It was evident to Stanhope and Sunderland that, unless the ministry were to be dismissed, there must be a reconciliation both with the prince and with the prince's following. The result of a consultation with Townshend, Walpole, and Devonshire was the sudden reappearance of the prince at court on April 23.

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1 "Count Bernsdorf's Project," May 7, 1720, Portland MSS., v., 595, where Oxford appears by mistake for Orford (p. 596), and where the date must be the date of the copy. See also an undated and variant version in Townshend MSS., P. 106.

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CHAP. On June 4 Walpole received the appointment of paymaster of the forces, more lucrative, though less dignified, than the chancellorship of the exchequer. The probable secret of his acceptance was that it involved little chance of collision with Sunderland, who resigned the presidency of the council in favour of Townshend. “His [Sunderland's] temper was so violent," as Walpole afterwards explained, " that he would have done his best to throw me out of window." Stanhope and James Craggs the younger, who had succeeded to Addison in March, 1718, remained secretaries of state. Argyll, about whom the quarrel between king and prince had raged so furiously, had in February, 1719, made his peace and been appointed lord steward. His enemy Marlborough continued to hold office as captain-general.

The continuous fall of South Sea stock during the autumn involved the whole system of credit. On June 24 Bank stock had stood at 263; on October 24 it was 145. Minor commercial ventures strewed the City with wreckage. Ruin was widespread. While a few made large profits, hundreds of families were crippled or beggared, and the losers were more vociferous than the winners. Sunderland was a heavy sufferer. The Duke of Portland and Lords Lonsdale and Irwin were constrained to apply for governorships in the West Indies. To the chagrin of the losers was added the resentment of those who attributed their losses to the nefarious practices of the directors. Their anger reached even to the king himself, as governor of the company. He had left for Hanover on June 14 and, during the autumn, dispatch after dispatch urged his return. It was hoped that his presence would have an encouraging effect and check the fall of quotations. It was feared that a panic might encourage the pretender to a fresh attempt. On November 9 George landed at Margate, but so far was the hoped-for effect from being realised that a week later South Sea stock had fallen from 211 to 135.

Parliament met on December 8. In the house of commons the desire for vengeance was dominant. The South Sea directors were ordered to produce an account of their proceedings, and the commons in their address undertook " to punish the authors of our present misfortunes". While Bolingbroke

'The Lords Justices to the King, September 21, R. O., MS., State Papers, Dom., G. I., bundle 25, no. 193.

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