funded, that is, the interest and not the capital was paid; the interest was secured upon the customs, and the fund of ten millions became Formation of the capital of the company of creditors, who were in

the South Sea Company. 1711.

duced to allow their claims to be thus funded by the promise of the monopoly in the mercantile advantage which Spain had granted England at Utrecht. This came to but little, the Assiento, or supply of slaves, and the admission of a yearly ship of 500 tons burden to the American colonies. Even this advantage was lost in the difficulties which arose with Alberoni, The first ship did not sail till 1717, and as far as the South Sea trade went Harley's plan was a failure. But the credit gained by the Company in the transaction was good, other lines of trade were opened up, and the Company became great, flourishing and powerful.

In 1717 Walpole had been very desirous to diminish the National Debt. He established the first sinking fund, borrowing £600,000 at only four per cent., using this money to pay off liabilities bearing a higher interest, and applying the money thus saved to the extinction of the debt. He also, taking advantage of the value of Government credit, induced both the Bank and the South Sea Company to accept a lower rate of interest for the money they had already advanced, and to advance between them nearly £5,000,000 more, for the purpose of paying off as far as possible those holders of redeemable debts

The South Sea
Scheme.

1720.

who refused to accept the lowered rate of interest. The great South Sea Scheme of 1720 was in principle nothing but a repetition of this manœuvre. The South Sea Company, believing devoutly in the power of credit, was anxious to extend itself as far as possible. The Government was so eager for the reduction of the debt that the King had made special mention of it in the speech with which he opened Parliament in the close of 1719. Under these circumstances the proposition of Blunt, director of the South Sea Company, found a ready hearing with the ministers. Between them an arrangement was devised, perfectly justifiable and harmless as far as the principle of it went. The bulk of the Government debt consisted in redeemable and irredeemable annuities, on all of which large interest was paid, and on which that interest must continue to be paid unless the holder of the annuity voluntarily reduced it. There is said to have been about sixteen millions of each class of security. Government wished to bring the whole mass into one general fund, bearing a lower rate of interest, and the South Sea Company was so greedy of the Government credit, that it expressed itself anxious to add the whole of this enormous amount to its

1720]

THE SOUTH SEA SCHEME

951

capital. It is plain that any transaction of the sort, as far as regarded the irredeemable annuities, must have been entirely voluntary. All that the Government could do was to allow the Company to persuade the holders to exchange their annuities for shares in the Company. With regard to the holders of redeemable annuities, payment in full must be offered, but that payment might be given in shares of the Company. In other words, those who accepted the exchange became proprietors in the Joint-stock South Sea Company to the amount of their claim on the Government. With regard to the Government, the South Sea Company alone became creditor, instead of a multitude of old annuitants, and was contented to receive henceforward, instead of the seven or eight per cent. the annuitants had received, five per cent. till the year 1727, and after that four per cent. till the capital as well as the interest should be returned, for the fund was made a redeemable one. If the transaction were thoroughly successful the capital of the South Sea Company would be increased by about thirtytwo millions, advanced to Government at five per cent., and Government would have to pay five per cent. interest instead of seven or eight, besides having the power of redeeming the capital.

Competition

companies.

So great were the advantages understood to be gained by this accession of capital in Government hands, that other companies wished to share in them. It was voted by of other a large majority that these advantages should be put up to public competition. The Bank of England and the South Sea Company set to work outbidding each other, the latter finally proposing terms which were virtually a payment to Government of seven millions and a half. This money was to be devoted to the public service, to pay off debts contracted to the end of the year 1722, and after that as much as possible of the capital of the South Sea Company itself. It is plain that for the success of this scheme two things were requisite. In the first place, a readiness on the part of the public to accept the Company's shares in exchange for their Government annuities; without that Government would not be freed, nor would the Company get its increased capital. But this exchange would of course bring in no ready money. Secondly, therefore, a large number of new shareholders would be required to subscribe, paying for their shares in ready money, in order to meet the demands of those holders of redeemable annuities who refused all exchange, and to cover the heavy premium of £7,000,000. Now both of these objects were dependent on the popularity of the Company's shares; and it was in this that the mistake of the arrangement lay; Govern

ment had in fact made too good a bargain. By an extensive system of bribes large sums of fictitious capital were invented and distributed gratis among influential members of the Government, and still more largely among the hungry Hanoverian courtiers, whose influence it was regarded as all important to secure. All fear of the success of the scheme was almost immediately removed. So great was the belief in the vast Company, backed up by this huge accession of Government credit, so well had the directors done their business, that a very large majority of the annuitants pressed with extreme haste to accept the terms offered, though those terms were very low. The public were then invited to subscribe the new capital. Five separate subscriptions of upwards of a million were in succession opened, and all filled, with equal rapidity.

The rage for stock-jobbing.

It was however in its secondary effects, rather than in its immediate consequences, that the scheme exerted the most extraordinary influence. There was a great deal of money in the country, and there was no satisfactory way of using it. Much had been hoarded, for there were not then as now numerous industrial investments in the market in which small sums could be employed. The apparent success of the South Sea Company, and the promises which it held out for rapid fortune-making, excited the spirit of speculation to the highest degree, and companies sprang into existence with unexampled rapidity. Some were real and serious-waterworks, paving companies, and companies for the improvement of all branches of manufacture. Some were mere transparent impostures as a company for the importation of Spanish donkeys, for the fixing of quicksilver, or for wheels of perpetual motion. It did not matter much what they were, for the rage for stock-jobbing was such that any hardy promoter of a company might hope to float it at all events till he had himself realized a handsome fortune. Change Alley became a scene of the wildest excitement-people in all lines of life hurrying to buy and sell as during the railway mania of our own time. But among all the companies the South Sea Company maintained its pre-eminence, and its shares rose, till in August the £100 share was worth £1000. The Company continued to promise largely, even fifty per cent. profits. The absurdity and danger of such reckless proceedings began to become obvious. The nominal value of all the shares in all the companies then existing was held to be £500,000,000, or twice the value of all the land in England. But many of these companies, being unchartered, were illegal, and had no right to issue shares,

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THE SOUTH SEA SCHEME

953

and the legitimate companies, especially the South Sea, looked with jealousy at their illegal competitors. Apparently unconscious how much their own success depended upon the universal delusion, they proceeded to prosecute some companies which had acted Bursting of illegally. The effect was instantaneous. The nation the bubble. began to return to its senses; the bubble burst, and the stocks of all unchartered companies fell with extreme rapidity. In the universal ruin they carried with them the South Sea Company. The panic was as rapid as the eagerness to purchase had been. Before the end of September South Sea stock was at 175. The difference between that sum and the £1000 which they had touched will give some measure of the loss involved. The ruin among all classes was unspeakable.

So great was the desolation that it was found necessary for Parliament to intervene. Not that the great Company itself was in any way bankrupt, its shares were still at a large premium, they never fell below 175; not that any law of political economy had been broken; Government had never pledged itself to support the credit of the Company, or to force either its shares or its engagements on the public; but simply because private speculation Punishment of had caused so vast an amount of misery, and because the directors. the nation was exasperated at it, interference became absolutely necessary. Examination into all the details of the plan no doubt proved a considerable amount of venality on the part of the ministry, of bribery and fraud on the part of the directors. But even thus it was freely acknowledged that under no old law had any crime been committed, and it required a retrospective Act of Parliament and the creation of a temporary crime to bring the directors within the reach of punishment. As Gibbon said, the steps taken were in fact an act of popular vengeance and contrary to justice. They consisted in the appropriation of the private property of the directors to the amount of £2,000,000 for distribution among the sufferers, the remission of the £7,000,000 due by the Company to Government, the payment of all the just liabilities to the Company, and a division of the capital that then remained, about thirty-three per cent., among the proprietors.

Supremacy

These measures are due exclusively to Walpole, the one man specially fitted from his financial abilities to deal with the present crisis, and in whose favour it was remembered of Walpole. that he had been out of office when the plan was set on foot. The official inquiries into the circumstances of the South Sea

1721.

Scheme left him indeed in a position of undisputed supremacy in the House. Several members of the Government were implicated in the frauds of the Company; Aislabie, the Chancellor of the Exchequer, was found guilty and expelled the House. The younger Craggs died of smallpox before the inquiry was completed, and his father committed suicide. Charles Stanhope was acquitted by a majority of three only, and although Sunderland was declared innocent by a large majority, public opinion was so strong against him that he had to leave the ministry. In the following year he died. During the angry debates which arose on these matters Lord Stanhope had been attacked with virulence by the Duke of Wharton, and the anger which he had felt had been such as to cause a rush of blood to the head, of which he died shortly before his relative Charles Stanhope was acquitted. There remained no possible rival to Walpole, who with his brother-in-law Townshend returned to power as First Lord of the Treasury. Thus, when the new Parliament assembled, he found himself absolute master of the field, at the head of an unbroken Whig party, supported by an overwhelming majority, and for twenty years maintained his position, to the immense advantage of England and to the lasting security of the reigning house. Not that the Jacobites were as yet extinct, but they were silenced in Parliament, and had to rely upon conspiracy or Jacobite hopes. foreign assistance. Their hopes in fact were at this moment in some respects higher than ever, for the disturbance and discontent caused by the collapse of the South Sea Scheme, together with the birth of an heir to the House of Stuart in the person of Prince Charles Edward, seemed to afford them an opportunity for greater activity. The Stuart papers prove the existence of a wellorganized intrigue, under the management of a Committee of five, Lord Orrery, the Earl of Arran Lord Orford's brother, Lord North, Lord Gower, and Atterbury Bishop of Rochester. The letters display in a very curious manner the false hopes with which the party were constantly buoyed up. Atterbury indeed showed signs of considerable

Revival of

Bishop Atterbury's plot.

wisdom, the reintroduction of Walpole and Townshend to the ministry seemed to him a great blow to the cause. "The reconciliation," he writes, "is not yet hearty and sincere, but I apprehend it will by degrees become so. The Tories have no good foundation on which to stand. Disaffection and uneasiness will continue everywhere, and probably increase. The bulk of the nation will be ever in the true interest and on the side of justice. The present settlement will perhaps be detested