South Sea Company: Difference between revisions

[[File:ShareCertificate SouthSeaCompany 1733.jpg|thumb|1723 pro-forma power of attorney signed by a shareholder of the South Sea Company showing the companyCompany's coat of arms and the Latin motto {{lang|la|A Gadibus usque Auroram}} ("From [[Cadiz]] to Dawn", [[Juvenal]], [[Satires (Juvenal)|''Satires'']], 10)]]

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''')<ref>''Journals of the House of Commons'', volume 16: 1708–1711, p. 685.</ref> was a British [[joint-stock company]] founded in January 1711, created as a [[public-private partnership]] to [[Debt consolidation|consolidate]] and reduce the cost of the [[national debt]]. To generate income, in 1713 the company was granted a monopoly (the [[Asiento de Negros]]) to supply African slaves to the islands in the "[[South Seas]]" and [[South America]].<ref name=":0">{{Cite journal |last=Paul |first=Helen |date=2009 |title=The South Sea Company's slaving activities |url=https://www.southampton.ac.uk/assets/imported/transforms/content-block/UsefulDownloads_Download/326F907A8F434B05B2199578407AA4B6/0924.pdf |journal=Discussion Papers in Economics and Econometrics |issn=0966-4246}}</ref> When the company was created, Britain was involved in the [[War of the Spanish Succession]] 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 (shares)|flotation]] price. The notorious [[economic bubble]] thus created, which ruined thousands of investors, became known as the '''South Sea Bubble'''.

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]], 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 [[Act of Parliament|Acts of Parliament]] necessary for the scheme.<ref>Dorothy Marshall (1962). ''Eighteenth Century England''. pp. 121–130.</ref> 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.<ref name=":1">{{Cite book |last=Paul |first=Helen J. |url=https://www.worldcat.org/oclc/925312648 |title=The South Sea Bubble: an economic history of its origins and consequences |date=2013 |isbn=978-0-415-70839-5 |location=London |chapter= |oclc=925312648}}</ref>

A [[parliamentary inquiry]] 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 companyCompany was restructured and continued to operate for more than a century after the Bubble. The headquarters were in [[Threadneedle Street]], at the centre of the [[City of London]], the financial district of the capital. At the time of these events, the [[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.<ref>Walter Thornbury. "Threadneedle Street". [http://www.british-history.ac.uk/old-new-london/vol1/pp531-544 ''Old and New London'']. Volume 1 (London, 1878). pp. 531–544 – via British History Online. Accessed 21 July 2016.</ref>

=== Initial speculation ===

{{blockquotequote|Unless the Spaniards are to be divested of common sense, infatuate, and given up, abandoning their own commerce, throwing away the only valuable stake they have left in the world, and in short, bent on their own ruin, we cannot suggest that they will ever, on any consideration, or for any equivalent, part with so valuable, indeed so inestimable a jewel, as the exclusive trade to their own plantations.}}

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]] (GDP) for Britain at this point was estimated as £64.4 million.<ref>{{cite web| url = http://www.ukpublicspending.co.uk/budget_pie_ukgs.php?span=ukgs302&year=1717&view=1&expand=&units=b&fy=2010&state=UK#ukgs302| url-status = dead| archive-url = https://web.archive.org/web/20110728044409/http://www.ukpublicspending.co.uk/budget_pie_ukgs.php?span=ukgs302&year=1717&view=1&expand=&units=b&fy=2010&state=UK| archive-date = 2011-07-28| title = UK Budget Pie Chart for 2010 – Charts}} </ref>

Shares in the company were "sold" to politicians at the current market price; however, rather than paying for the shares, these recipients simply held the shares, with the option of selling them back to the company at any time, receiving the increase in market price. This method, as well as winning over the heads of government, the King's mistress, ''et al.'', had the advantage of binding their interests to the interests of the company: in order to secure profits, the stock needed to rise. 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.<ref>Cowles, chapter IV (esp. p. 146 for "bribe shares")</ref>

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]]<ref name=":1" />—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".<ref>{{cite web |last1=Odlyzko |first1=Andrew |title=An undertaking of great advantage, but nobody to know what it is: Bubbles and gullibility |url=http://www.dtc.umn.edu/~odlyzko/doc/mania17.pdf |website=University of Minnesota |access-date=22 October 2020}}</ref>

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.<ref>{{cite magazine |title=Der geplatzte Traum vom schnellen Geld |language=de |first=Peter |last=Alter |author-link=Peter Alter |magazine=[[Damals]] |year=2018 |volume=50 |issue=8 |pages=72–76}}</ref> This triggered [[bankruptcies]] amongst those who had bought on credit, and increased sales, including [[short selling]]{{citation needed|date=January 2018}} (i.e., selling borrowed shares in the hope of buying them back at a profit if the price fell).

Joseph Spence wrote that [[Earl of Radnor|Lord Radnor]] reported to him "When Sir [[Isaac Newton]] was asked about the continuance of the rising of South Sea stock{{nbs}}&nbsp;... He answered 'that he could not calculate the madness of people'."<ref>Spence, Anecdotes, 1820, p. 368.</ref> He is also quoted as stating, "I can calculate the movement of the stars, but not the madness of men".<ref>John O'Farrell (2007), ''An Utterly Impartial History of Britain – Or 2000 Years of Upper Class Idiots In Charge'', Doubleday, {{ISBN|978-0-385-61198-5}}</ref> Newton himself owned nearly £22,000 in South Sea stock in 1722, but it is not known how much he lost, if anything.<ref>{{cite book|first=Richard S. |last=Westfall|title=Never at Rest: A Biography of Isaac Newton|url=https://archive.org/details/neveratrestbiogr00west|url-access=registration|year=1983|publisher=Cambridge University Press|pages=[https://archive.org/details/neveratrestbiogr00west/page/861 861]–862|isbn=9780521274357}}</ref> There are, however, numerous sources stating he lost up to £20,000<ref>Holodny, Elena (10 November 2017). [https://www.businessinsider.com/isaac-newton-lost-a-fortune-on-englands-hottest-stock-2016-1 "Isaac Newton Was a Genius, but Even He Lost Millions in the Stock Market"]. ''Business Insider''.</ref> (equivalent to £{{Format price|{{Inflation|UK|22000|1722}}}} in {{CURRENTYEAR}}).{{Inflation/fn|UK}}

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 [[Robert Walpole|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]] 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 ''[[War of Jenkins' Ear|Guerra del Asiento]]'', as the first [[Royal Navy]] 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]].<ref>Nelson (1945) states that the substantial illicit trade pursued by the South Sea Company officials under the Asiento “must be considered as a major cause of the War of Jenkins' Ear because it threatened to destroy the entire commercial framework of the Spanish Empire{{nbs}}&nbsp;... Unable to accept the destruction of its commercial system, Spain attempted to negotiate but requested that the company, as an evidence of good faith, should open its accounts for inspection by the Spanish representatives. Naturally, the directors refused, for compliance would have meant the complete exposure of the illegal traffic. Neither Spain nor the South Sea Company would yield. War was the inevitable result”.</ref><ref>Brown (1926, p. 663) says that The failure to comply with the accounting provisions of the Asiento treaty (in the context of Spanish knowledge of secret accounts kept by the South Sea Company which would prove clandestine trading) was a constant source of the friction which culminated in armed conflict.</ref><ref>For Hildner (1938), the war of 1739 might have been averted if the issues addressed by the commission established in 1732 to settle disputes over the Asiento had been resolved.</ref>

The South Sea Company established slave reception factories at [[Cartagena, Colombia]], [[Veracruz, Veracruz|Veracruz]], Mexico, Panama, [[Portobelo, Colón|Portobello]], [[La Guaira]], [[Buenos Aires]], [[La Havana]] and [[Santiago de Cuba]], and slave deposits at [[Jamaica]] and [[Barbados]]. Despite problems with speculation, the South Sea Company was relatively successful at [[Atlantic slave trade|slave trading]] 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.<ref>{{cite web|url=http://www.historycooperative.org/cgi-bin/justtop.cgi?act=justtop&url=http://www.historycooperative.org/journals/wm/58.1/eltis.html|title=History Cooperative – A Short History of Nearly Everything!|website=History Cooperative|url-status=dead|archive-url=https://archive.today/20091020132439/http://www.historycooperative.org/cgi-bin/justtop.cgi?act=justtop&url=http://www.historycooperative.org/journals/wm/58.1/eltis.html|archive-date=2009-10-20}}</ref> (Thus about 11% of the slaves died on the voyage: a relatively low mortality rate for the [[Middle Passage]].<ref>{{cite web|url=http://www.ehs.org.uk/ehs/conference2004/assets/paul.doc|title=The South Sea Company's slaving activities|first=Helen|last=Paul|url-status=dead|archive-url=https://archive.today/20121209151433/http://www.ehs.org.uk/ehs/conference2004/assets/paul.doc|archive-date=2012-12-09}}</ref>) The company persisted with the slave trade through two wars with Spain and the calamitous 1720 commercial [[Economic bubble|bubble]]. The company's slave trading peaked during 1725, five years after the bubble burst.<ref>Paul, H. J. (2010). ''The South Sea Bubble''.</ref>

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.<ref>Archivo General de Indias, Seville, Spain IG2785</ref> 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 permits being granted 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%.<ref>McLachlan, (1940), pp. 130–131</ref> Accounts for the voyage of the ''Royal Prince'' were not presented until 1733, following continuous demands by Spanish officials. They reported profits of £43,607.<ref>Archivo General de Indias, Seville, Spain C266L3</ref> 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.<ref>{{cite journal |last1=Hildner |first1=Ernest G. |title=The Role of the South Sea Company in the Diplomacy Leading to the War of Jenkins' Ear, 1729-1739 |journal=The Hispanic American Historical Review |date=August 1938 |volume=18 |issue=3 |pages=322–341 |doi=10.2307/2507151 |jstor=2507151}}</ref>{{rp|341}}

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.<ref>Elking, Henry [1722] (1980). ''A view of the Greenland Trade and whale-fishery''. Reprinted: Whitby: Caedmon. {{ISBN|0-905355-13-X}}</ref>

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]]n island of [[Föhr]].<ref>{{cite book|first=Uwe |last=Zacchi |language=de |title=Menschen von Föhr. Lebenswege aus drei Jahrhunderten |publisher=Boyens & Co. |location=Heide |year=1986 |isbn=978-3-8042-0359-4 |page=13}}</ref> Other costs were badly controlled and the catches remained disappointingly few, even though the company was sending up to 25 ships to [[Davis Strait]] and the [[Greenland]] seas in some years. By 1732 the company had accumulated a net loss of £177,782 from their eight years of Arctic whaling.<ref>Anderson, Adam [1801] (1967). ''The Origin of Commerce''. Reprinted: New York: Kelley.</ref>

|July 1711||rowspan="3" |[[Robert Harley, 1st Earl of Oxford and Earl Mortimer|Robert Harley, 1st Earl of Oxford]]||rowspan="5" | Sir James Bateman || [[Samuel Ongley (died 1726)|Samuel Ongley]]

|August 1712 ||[[Ambrose Crowley|Sir Ambrose Crowley]]

|October 1713 ||rowspan="4" |[[Samuel Shepheard (died 1719)|Samuel Shepheard]]

|February 1715 ||[[George II of Great Britain|George, Prince of Wales]]

|February 1718 ||rowspan="4" |[[George I of Great Britain|King George I]]

|November 1718 ||rowspan="2" | John Fellows

|February 1719 ||[[Charles Joye]]

|February 1721 ||rowspan="3" |[[Sir John Eyles, 2nd Baronet|Sir John Eyles, Bt]]||rowspan="2" | John Rudge

|July 1727 ||rowspan="6"|[[George II of Great Britain|King George II]]

|February 1730 ||[[John Hanbury (1664–1734)|John Hanbury]]

|February 1733 ||[[Richard Hopkins (died 1736)|Sir Richard Hopkins]] ||rowspan="2" |[[John Bristow]]

|February 1735 ||[[Peter Burrell (1692–1756)|Peter Burrell]] <!-- Not verified which of persons on this dab page (if any) -->

|March 1756 ||rowspan="3" |[[John Bristow]] ||[[John Philipson]]

|February 1756 ||rowspan="2" |Lewis Way

|January 1760 ||rowspan="9" |[[George III of the United Kingdom|King George III]]

||February 1763 ||rowspan="2" |Lewis Way ||Richard Jackson

|January 1771 ||rowspan="3" | [[Thomas Coventry (politician)|Thomas Coventry]]|| vacant (?)

|January 1772 ||John Warde

|March 1775 ||[[Samuel Salt]]

|January 1793 ||rowspan="2" |[[Benjamin Way]] ||[[Robert Dorrell]]

|February 1802 ||[[Peter Pierson]]

|February 1808 ||rowspan="5" |[[Charles Bosanquet]]<!-- Correctness of link not verified --> ||rowspan="2" |Benjamin Harrison

|1820 ||rowspan="2" | [[George IV of the United Kingdom|King George IV]]

|January 1826||rowspan="3" |Sir Robert Baker

|1830 || [[William IV of the United Kingdom|King William IV]]

|July 1837 ||rowspan="2" |[[Queen Victoria]]

|January 1838 ||Charles Franks || [[Thomas Vigne]]<!-- Correctness of link not verified -->

{{IncompleteExpand list|date=January 2010}}<!-- MS General court Minutes from 1840 need to be examined -->

== In fiction ==

* {{citation |last= Brown |first=V.L. |year= 1926 |title= The South Sea Company and Contraband Trade |journal=[[The American Historical Review]] |volume=31 |issue=4 |pages= 662–678 |doi=10.2307/1840061|jstor=1840061 }}

* 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.{{nbs}}&nbsp;498–538. [https://www.researchgate.net/publication/227708231_The_micro-foundations_of_the_early_London_capital_market_Bank_of_England_shareholders_during_and_after_the_South_Sea_Bubble_1720-251 online]

* {{citation |title=The South Sea Bubble |last=Carswell |first=John |year=1960 |publisher=Cresset Press |location=London }}

* {{citation |title=The Great Swindle: The Story of the South Sea Bubble |last=Cowles |first=Virginia |year=1960 |publisher=Harper |location=New York }}

* {{citation |last=Dale |first=Richard S. |year=2005 |title=Financial markets can go mad: evidence of irrational behaviour during the South Sea Bubble |journal=Economic History Review |volume=58 |issue=2 |pages=233–271 |doi=10.1111/j.1468-0289.2005.00304.x |s2cid=154836178 |display-authors=etal}}

* {{citation |last= Hildner |first=E.G. Jr. |year= 1938 |title= The Role of the South Sea Company in the Diplomacy leading to the War of Jenkins' Ear, 1729–1739 |journal= The Hispanic American Historical Review |volume=18 |issue=3 |pages= 322–341 |doi=10.2307/2507151|jstor=2507151 }}

* {{citation |title= Trade and Peace With Old Spain, 1667–1750 |last= McLachlan |first=J.O. |year=1940 |publisher=Cambridge University Press |location=Cambridge }}{{ISBN?}}

* {{citation |title=The London Stock Exchange |last=Michie | first=R.C. | year=2001 | publisher=Oxford University Press | location=Oxford | chapter=From Market to Exchange, 1693–1801 | isbn=978-0-19-924255-9 }}

* {{citation |last= Nelson |first=G.H. |year=1945 |title= Contraband Trade Under the Asiento |journal=[[The American Historical Review]] |volume=51 |issue=1 |pages=55–67 |doi=10.2307/1843076|jstor=1843076 }}

* {{citation |last=Shea |first=Gary S. |year=2007 |title=Understanding financial derivatives during the South Sea Bubble: The case of the South Sea subscription shares |journal=Oxford Economic Papers |volume=59 |issue=Supplement 1 |pages=i73–i104 |doi=10.1093/oep/gpm031 |url=http://www.st-andrews.ac.uk/~wwwecon/CDMA/papers/wp0512.pdf }}

* {{citation |last1=Temin |first1=Peter |last2=Voth |first2=Hans-Joachim |year=2004 |title=Riding the South Sea Bubble |journal=[[American Economic Review]] |volume=94 |issue=5 |pages=1654–1668 |doi=10.1257/0002828043052268 |url=http://www.aeaweb.org/articles.php?doi=10.1257/0002828043052268 }}

* {{citation |title= Política Española y Comercio Colonial 1700–1789 |last= Walker |first=G.J. |year=1979 |publisher=Editorial Ariel |location=Barcelona }}

* {{citation |title=A Conspiracy of Paper |last=Liss |first=David |year=2000 |publisher=Random House |location=New York |isbn=978-0-375-50292-7 |url-access=registration |url=https://archive.org/details/conspiracyofpape00liss }}. ''Novel set in the South Sea Company bubble.''

* {{citation |title=Sea Change |last=Goddard |first=Robert |year=2000 |publisher=Bantam Press |location=London |isbn=978-0-593-04667-8 |page=416 }}. ''Novel set against the background of the South Sea bubble.''

* {{webarchive |url=https://web.archive.org/web/20140106143016/http://www.thesouthseabubble.com/ |date=6 January 2014 |title=Charles McKay's Account of The South Sea Bubble in Modern English}}

* {{webarchive |date=2012-12-09 |url=https://archive.today/20121209151433/http://www.ehs.org.uk/ehs/conference2004/assets/paul.doc |title=Helen Paul's Account of The South Sea Company's slave trading activities}}