The Bubble Act: New Perspectives from Passage to Repeal and Beyond 3031318935, 9783031318931

Table of contents :
Foreword
References
Acknowledgements
Contents
Editors and Contributors
About the Editors
Contributors
List of Figures
List of Tables
1 Introduction
References
2 The Bubble Act and the First Corporate Economy
2.1 Introduction
2.2 Business Incorporation Under the Bubble Act
2.3 Unincorporated Companies and the Power of Association
2.4 Revival and Repeal of the Bubble Act
2.5 Aftermath: From Repeal to Registration
References
3 ‘Mr Morice Is Said to Appear at the Head’: The Bubble Act and an Aborted Joint-Stock Slave-Trading Company
3.1 Introduction
3.2 The Death and (Brief) Rebirth of Joint-Stock Companies in the African Trade
3.3 Accrediting Investors
3.4 Contending with the Bubble Act
3.5 Conclusion
References
4 ‘That Ever-Memorable Year of Epidemical Infatuation’: Incorporation, the Jamaica Mines Company, and the Bubble Act of 1720
4.1 Introduction
4.2 Context
4.3 Formation
4.4 Failure
4.5 Conclusion
References
5 Pamphlet Poetry and the South Sea Bubble
5.1 Introduction
5.2 The Bubble Year
5.3 Describing a Bubble
5.4 Pamphlets, Doggerel, and Finance
5.5 Before the Crash: June to August 1720
5.6 Imagining the South Sea After the Crash: September–December 1720
5.7 Conclusion
References
6 Decoding the Bubble: Popular Magic, Financial Deception, and Eliza Haywood’s Memoirs of a Certain Island Adjacent to Utopia
References
7 Consequences Unintended: The Bubble Act and American Independence
7.1 Introduction
7.2 Bubble Trouble
7.3 Money for Me, Not Thee
7.4 Off to Gaol
7.5 Homespun Nonimportation
7.6 Hopes Dashed by the Bubble Act
7.7 Conclusion
Appendix: Full Transcript of Anon. 1768
References
8 Capitalism by Generalists: The Governance of the Ayr Bank and the Emergence of Professionalism in Mid-Eighteenth-Century Scottish Banking
8.1 Banking History in Scotland
8.2 The Ayr Bank
8.3 The Bankers
8.4 Learning to Be a Banker
8.5 Conclusion
References
9 Royal Charters, Royal Power, and the Business of Empire
9.1 Introduction
9.2 Evolution of the Joint-Stock Company Form
9.3 Royal Charters and Royal Neutrality
9.4 The Royal Charters
9.5 Royal Charters and For-Profit Businesses
9.6 Charters Under Attack
9.7 The Cost of a Charter
9.8 Conclusion
References
10 Babbage’s Age of Speculation: Calculating the Value of Life After the Repeal of the Bubble Act
10.1 Introduction
10.2 Speculating Lives
10.3 Babbage’s Value of Life
10.4 Reading Babbage; Reforming Life Assurance
10.5 Conclusion
References
11 The Repeal of the Bubble Act and the Debate Between the Currency School and the Banking School
11.1 The Repeal of the Bubble Act
11.2 The Legal Background
11.3 The Two Schools of Thought
11.4 The Causes of Financial Crises
11.5 Theory and Policy
11.6 Conclusion
References
12 Agency Houses in Bengal and the Indigo Bubble
12.1 Introduction
12.2 Background
12.3 The Bubble Act and Its Impact on the Metropolis and Colonies
12.4 The East India Company, Houses of Agency, and the Indigo Boom
12.5 Agency Houses and Indigo Trade Crisis
12.6 Toward the Companies Acts
12.7 Conclusion
References
13 Epilogue
References
Index

Citation preview

PALGRAVE STUDIES IN THE HISTORY OF FINANCE

The Bubble Act New Perspectives from Passage to Repeal and Beyond edited by

Helen Paul Nicholas Di Liberto D’Maris Coffman

Palgrave Studies in the History of Finance

Series Editors D’Maris Coffman, Bartlett Faculty of Built Environment, University College London, London, UK Tony K. Moore, ICMA Centre, Henley Business School, University of Reading, Reading, UK Martin Allen, Department of Coins and Medals, Fitzwilliam Museum, University of Cambridge, Cambridge, UK Sophus Reinert, Harvard Business School, Cambridge, MA, USA

The study of the history of financial institutions, markets, instruments and concepts is vital if we are to understand the role played by finance today. At the same time, the methodologies developed by finance academics can provide a new perspective for historical studies. Palgrave Studies in the History of Finance is a multi-disciplinary effort to emphasise the role played by finance in the past, and what lessons historical experiences have for us. It presents original research, in both authored monographs and edited collections, from historians, finance academics and economists, as well as financial practitioners.

Helen Paul · Nicholas Di Liberto · D’Maris Coffman Editors

The Bubble Act New Perspectives from Passage to Repeal and Beyond

Editors Helen Paul Economics Department University of Southampton Southampton, UK

Nicholas Di Liberto Bartlett School of Sustainable Construction London, UK

D’Maris Coffman BSCPM Bartlett School of Sustainable Construction London, UK

ISSN 2662-5164 ISSN 2662-5172 (electronic) Palgrave Studies in the History of Finance ISBN 978-3-031-31893-1 ISBN 978-3-031-31894-8 (eBook) https://doi.org/10.1007/978-3-031-31894-8 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Cover illustration: Iain chambers/Alamy Stock Photo This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

This work is dedicated to the memory of Aaron Graham MA(Oxon) MSt DPhil FRHistS, an inspirational educator and an exceptional scholar. Aaron is remembered for his collegiality and generosity to his fellow scholars, and for his nuanced approach to the history of the early modern economy.

Foreword

The Bubble Act is arguably the most important piece of securities legislation in history—with emphasis on the term arguably. Historians are divided in their views about the act’s effects. It has been seen variously as: a century-long constraint on British financial development (Scott 1910–1912, 1: 438; Temin and Voth 2005); an assertion of legislative privilege (Patterson and Reiffen 1990, cited in Harris 1994); a regulation prohibiting speculative excess (Scott 1910–1912, 1: 417); or an event that had relatively minor effects on British financial, political, and economic development (Harris 1994; McColloch 2013). Its enactment was coincident with dramatic shocks and changes in the financial markets and institutions in Great Britain. (The most notable of these shocks was the South Sea Bubble itself, after which the act is nicknamed.) Whether these changes are solely or primarily attributable to the landmark legislation is still cause for debate. Did the Bubble Act constrain Britain’s economic development? In 1912, W. R. Scott expressed the view that, following the passage of the act, ‘for upwards of a century, industry was deprived of the advantages of a certain kind of capital which would have otherwise been available; till early in the nineteenth century when, in spite of the law, unchartered companies began to be formed’ (1: 438). In other words, the Industrial Revolution happened despite barriers to capital allocation due to the Bubble Act, and but for this constraint, the Revolution could have occurred earlier.

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The counter assertion, the so called ‘Postan-Pollard’ hypothesis, is that there was ample investment capital in Britain to fund innovation in the early years of the Industrial Revolution, and that innovative debt and equity financing channels were not needed (Postan 1935; see also Hodgson 2021). A corollary is the theory more recently articulated by Harris (1994) that the Bubble Act in particular presented little or no barrier to the allocation of investment capital. Researchers have pointed to the prevalence of unincorporated companies in the eighteenth and early nineteenth centuries as evidence against binding constraints on the capacity to raise equity capital. It is well-documented that this type of company was used to finance infrastructure projects such as canals and turnpikes. This was the case both prior to the repeal of the act, and indeed afterwards. The insurance sector expanded in this manner as well. Pearson in this volume and in prior work documents numerous examples of unchartered insurance companies in the eighteenth and early nineteenth centuries. Freedman et al. (2012) construct a database of 512 firms launched during the Bubble Act period from 1720 to 1844, noting that this set is by no means exhaustive. One limitation of the argument that capital was not constrained is that it lacks a convincing counterfactual. Just because infrastructure and insurance projects could attract capital does not mean that other sectors were unaffected. Britain’s age of invention commenced in 1850 with a rise in patents and a proliferation of new technologies, and yet the venture capital for these innovations does not appear to have come from the pooling of investments in publicly traded joint-stock companies. Rather, it was provided by direct investment of individuals or informal networks of investors. The Industrial Revolution centred on manufacturing and international trade, i.e., two of the three main types of enterprises that were raising capital in Exchange Alley in the years 1719 and 1720. The third type was insurance. These are precisely the kinds of projects that were floated in 1719, until late 1720 when the bubble burst. A quantitative comparison of the firms listed by Scott (1910–1912, 3: 443–58) and Freedman et al. (2012) is instructive. Scott’s list classifies firms floated between September 1719 and August 1720 by industry. Freeman et al. (2012, 17–18, tab. 1.2 and fig. 1.1) list 512 firms floated in the period from 1720 to 1789. Of these, only ten were launched before 1751. Almost half are infrastructure projects. By contrast, a few of the companies listed by Scott in the Bubble period were related to infrastructure. Instead, many touted novel services, processes, and business ideas.

FOREWORD

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The largest fraction of firms was in manufacturing start-ups. Of these, the largest percentage was comprised of textile companies.1 They were young firms. In fact, many were simply proposals for firms. Nevertheless, their subscriptions (or minimally paid-in scrip) soared in value due to investor enthusiasm for their projects. The abrupt curtailment of joint-stock venture capital in 1720 might not have been due to the Bubble Act. It may have been caused by a loss of confidence amongst speculators when the market crashed. Historians point to the early 1820s as another period of new issues and speculative activity in Britain that occurred before the repeal of the act. Was it the ebb of animal spirits or capital market regulation that shut down a useful channel for the financing of innovation and altered investor preferences for certain kinds of financial products? Perhaps contemporary investors thought that infrastructure projects offered a more predictable, or more profitable, return on equity capital. It is hard to say, as history provides little evidence on the path not taken. The Industrial Revolution did occur before the re-emergence of a vibrant British equity market. This, in itself, does not disprove Scott’s observation that frictions imposed on venture finance may have delayed Britain’s technological transformation. Constraints on firm finance is only half the story. Shares are a mechanism for sharing profits, as well as a means to raise capital. Had a public capital market in venture shares survived the South Sea Bubble, then the ‘little bubbles’ would have also survived. The ‘little bubbles’ floated in the period from 1719 to 1720 were found in a variety of sectors including industry, mining, insurance, the service sector, and commodities, amongst others. They could have allowed the British investing class to share more

1 For example, of 190 firms listed in Scott (1912, 3: 443–58) as launched from

September 1719 to August 1720, 33 were manufacturing start-ups. Sixteen of these were textile-related with names such as: Making calico and muslin and improving cotton and wool in plantations; Company for the better making of crape; The Coulour Mill Company; Improvement of woad and better encouragement of dyers; Dealing in lace hollands cambric and lawn and to make the same in England; The Frame-work Knitters’ company or stocking makers’ company; Establish woollen factories in those countries adjoining the seacoast; Raising the growth of raw silk under a patent; Planting and manufacture of madder in Great Britain; Co-partnership for making calico in Great Britain; Co-partnership for making fine druggets in Ireland; Company for the cotton manufacture in Lancashire; Company for making Manchester stuffs or ‘dittees’; Make print paint and stain callicoes in England; Company for the encouragement of the wollen manufacture; Company for grinding wood dry, for the use of dyeing.

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broadly in the economic gains of the Industrial Revolution. If investors had been allowed to continue trading in the shares of these firms it would have been easier to construct a highly diversified portfolio of financial instruments and thereby reduce the specific risk of investing in a new enterprise. It is not obvious that concentrating the ownership of industrial firms in the hands of individuals, or a localised network, was socially beneficial. The essays in this volume bring considerable new information to light about the Bubble Act. They contribute to the ongoing discourse about its relevance to the important events in the eighteenth century, from the first global stock market crash of 1720, to the emergence of large-scale infrastructure finance and to the financing of the Industrial Revolution. The editors have assembled an impressive group of scholars to re-examine the economic, historical, cultural, social, and political dimensions of the act. Collectively they have enriched the debate about the Bubble Act by expanding the space of discourse geographically and thematically. This is a wonderful volume of new research and a major contribution to current interpretations of the remarkable events of the year 1720 and their resounding effects through the course of the eighteenth century. William N. Goetzmann Edwin J. Beinecke Professor of Finance and Management Studies Yale School of Management Yale University New Haven, CT, USA

References Freeman, Mark, Robin Pearson, and James Taylor. 2012. Shareholder Democracies? Corporate Governance in Britain and Ireland before 1850. Chicago: University of Chicago Press. Harris, Ronald. 1994. The Bubble Act: Its Passage and Its Effects on Business Organization. Journal of Economic History 54 (3): 610–27. Hodgson, Geoffrey M. 2021. Financial Institutions and the British Industrial Revolution: Did Financial Underdevelopment Hold Back Growth? Journal of Institutional Economics 17 (3): 429–48.

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McColloch, William E. 2013. A Shackled Revolution? The Bubble Act and Financial Regulation in Eighteenth-Century England. Review of Keynesian Economics 1 (3): 300–313. Patterson, Margaret, and David Reiffen. 1990. The Effect of the Bubble Act on the Market for Joint Stock Shares. Journal of Economic History 50 (1): 163–71. Postan, M. M. 1935. Recent Trends in the Accumulation of Capital. Economic History Review 6 (1): 1–12. Scott, William Robert. 1910–1912. The Constitution and Finance of English, Scottish and Irish Joint-Stock Companies to 1720. Vol. 3. Cambridge: Cambridge University Press. Temin, Peter, and Hans-Joachim Voth. 2005. Credit Rationing and Crowding Out during the Industrial Revolution: Evidence from Hoare’s Bank, 1702– 1862. Explorations in Economic History 42 (3): 325–48. William N. Goetzmann is the Edwin J. Beinecke Professor of Finance and Management Studies at the Yale School of Management and the faculty director of the school’s International Center for Finance. His research focus includes financial history, stock markets, hedge funds, alternative investments and behavioural finance. He is the author of Money Changes Everything: How Finance Made Civilization Possible (Princeton, 2016) and co-editor of The Great Mirror of Folly: Finance, Culture, and the Crash of 1720 (Yale, 2013) and The Origins of Value: The Financial Innovations That Created Modern Capital Markets (2005).

Acknowledgements

D’Maris Coffman and I would like to thank our wonderful co-editor, Nick Di Liberto, for his sterling work on this volume. He was originally our copy editor but made such a contribution to this book that he deserves to have his name on the spine. We are also grateful to the team at Palgrave, particularly Tula Weis, Ellie Duncan, and Aishwarya Balachandar. Their good-humoured support and patience made this project much easier. We also wish to thank all of our contributors for agreeing to write about the Bubble Act. We are grateful to all of them. Will Goetzmann encouraged us to put the project together and kindly wrote the preface. We thank Julian Hoppit for agreeing to write the epilogue, especially given that he has retired from the hurly burly of academic life. Larry Neal was also very kind in giving us detailed feedback on our proposal which helped us to avoid various pitfalls. We also received valuable feedback from two anonymous reviewers and thank them too. Ron Harris’s work on the Bubble Act is the foundation of our book, and we thank him for his supportive response when we approached him about our project. We were able to convene a virtual workshop on the Bubble Act in 2020 which was funded by the Economic History Society. We are grateful to the society for their support, and to the chair of the Women’s Committee, Dr. Sheryllynne Haggerty, for allowing us to use the committee’s traditional November workshop to plan our book. We should also acknowledge our

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ACKNOWLEDGEMENTS

institutions: the Bartlett School of Sustainable Construction at UCL and the University of Southampton. D’Maris would like to acknowledge her father, A. J. Coffman, who sadly died in June 2022 before this book was completed. To him, the practice of law was also the practice of legal history. As such, he had an abiding interest in histories of corporate governance and was thus familiar with the Bubble Act and its repeal, as well as with the South Sea Bubble itself. Her father first introduced D’Maris to the Bubble Act and its repeal when she was a teenager and encouraged her interest in the history of stock markets and in British history more generally.

Contents

1

Introduction Helen Paul

2

The Bubble Act and the First Corporate Economy Robin Pearson

3

‘Mr Morice Is Said to Appear at the Head’: The Bubble Act and an Aborted Joint-Stock Slave-Trading Company Matthew David Mitchell

4

‘That Ever-Memorable Year of Epidemical Infatuation’: Incorporation, the Jamaica Mines Company, and the Bubble Act of 1720 Aaron Graham

5

Pamphlet Poetry and the South Sea Bubble Claire Wilkinson

6

Decoding the Bubble: Popular Magic, Financial Deception, and Eliza Haywood’s Memoirs of a Certain Island Adjacent to Utopia Alison Daniell

1 13

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63 85

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7

Consequences Unintended: The Bubble Act and American Independence Robert E. Wright

8

9

10

11

Capitalism by Generalists: The Governance of the Ayr Bank and the Emergence of Professionalism in Mid-Eighteenth-Century Scottish Banking Paul Kosmetatos

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163

Royal Charters, Royal Power, and the Business of Empire Helen Paul

195

Babbage’s Age of Speculation: Calculating the Value of Life After the Repeal of the Bubble Act Edward Gillin

221

The Repeal of the Bubble Act and the Debate Between the Currency School and the Banking School Charles Read

243

12

Agency Houses in Bengal and the Indigo Bubble Tehreem Husain and Nadeem Aftab

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13

Epilogue Julian Hoppit

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Index

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Editors and Contributors

About the Editors Helen Paul is a lecturer in Economics and Economic History at the University of Southampton and an Honorary Associate Professor at the Bartlett School of Sustainable Construction, UCL. She was the Honorary Secretary of the Economic History Society and is now a member of the council of the Royal Historical Society. She studied at the University of Oxford and the University of St Andrews. Her research interests include the South Sea Company and the history of the British slave trade. Nicholas Di Liberto is an honorary assistant researcher at the Bartlett School of Sustainable Construction, UCL, with a focus on the history of economic ideas and environmental history. He is co-editor and translator of Jean Lescure, General and Periodic Crises of Overproduction (2023), as well as the translator of Albert Aftalion, Periodic Crises of Overproduction (forthcoming). D’Maris Coffman is a Professor of Economics and Finance of the Built Environment at The Bartlett, University College London, where she serves as the Director and Head of Department of the Bartlett School of Sustainable Construction. From 2009 to 2015, she founded and ran the Centre for Financial History at Newnham College, Cambridge. Professor Coffman works at the interstices of economic geography, economic

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EDITORS AND CONTRIBUTORS

history and infrastructure economics. She is a Distinguished Visiting Professor at Tsinghua University’s Department of Earth System Science and a Visiting Professor at the University of Milan’s Department of Economics, Management and Quantitative Methods. She is a co-editor of the Palgrave Studies in the History of Finance series and Coordinating Editor and an Editor-in-Chief of Elsevier’s Structural Change and Economic Dynamics.

Contributors Nadeem Aftab is a Senior Lecturer in Banking and Finance at the University of Northampton. Prior to his current position, he had ten years of experience working for the State Bank of Pakistan, where he was Joint Director of Monetary Policy, Financial Stability, and Bank Supervision. Alison Daniell completed her Ph.D. at the English Department of the University of Southampton in 2020. Her research explored how married women of the long eighteenth century experienced coverture and the ways in which female-authored fiction of the same period engaged with and reimagined those experiences. She was a 2021 Chawton House Fellow and co-convenor of the cross-disciplinary Adventurous Wives conference (May 2021). Alison is a qualified barrister and practised for a number of years in divorce and family law. She has previously lectured in law at UCL, where she remains a research associate. She currently works in the Widening Participation directorate at the University of Southampton. Edward Gillin is a historian of nineteenth-century architecture and science. He specialises in the ways in which knowledge of nature has shaped past engineering and technological innovation. He is a lecturer at the Bartlett School of Sustainable Construction at University College London. Aaron Graham was a Lecturer in Early Modern British Economic History at University College London. He published widely on finance, government, and empire in the eighteenth century, most recently Bills of Union: Money, Empire and Ambitions in the Mid-Eighteenth Century British Atlantic (2021), and was working on a book on slavery, society, and the state in Jamaica between 1770 and 1840.

EDITORS AND CONTRIBUTORS

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Julian Hoppit is the Astor Professor of British History emeritus at University College London. His first book was Risk and failure in English business, 1700–1800 (Cambridge, 1987) and his most recent is The Dreadful Monster and Its Poor Relations: Taxing, Spending and the United Kingdom, 1707–2021 (2021). He is a fellow of the British Academy, where he oversees its Research in Economic and Social History record series. Tehreem Husain is the Economic History Society Power Fellow (2022/23) and a Visiting Fellow at the Department of Economic History at the London School of Economics and Political Science. She is also a financial journalist and has previously worked at the Monetary Policy Department of the State Bank of Pakistan. Paul Kosmetatos is a Lecturer in International Economic History at the University of Edinburgh. His monograph The 1772–73 British Credit Crisis (Palgrave, 2018) investigates in depth one of the first purely financial crises which was contained by an equally novel last resort lending operation by the Bank of England. Prior to embarking on his academic career in Financial History, he worked for over a decade as an investment banker in the city of London. Matthew David Mitchell is an Associate Professor of British History at the University of the South in Sewanee, Tennessee. He is a Fellow of the Royal Historical Society and author of The Prince of Slavers: Humphry Morice and the Transformation of Britain’s Transatlantic Slave Trade, 1698–1712 (Palgrave Studies in the History of Finance, 2020). Robin Pearson is a Professor of Economic History at the University of Hull, UK. He has published widely on British and international economic and business history, with one focus on insurance. Books include Insuring the Industrial Revolution (2004), which won the Wadsworth Prize for Business History; and Shareholder Democracies? Corporate Governance in Britain and Ireland before 1850 (2012), co-authored with Mark Freeman and James Taylor, which was awarded the Ralph Gomory Prize for Business History. Current projects include ‘Global Cultures of Risk: Insurance in Non-Western Contexts, 1870–1980’, with Martin Lengwiler (Basel), funded by the Swiss National Science Foundation. Charles Read is a British Academy Postdoctoral Fellow in History and an Affiliated Lecturer in Economics at the University of Cambridge. He

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is also a Fellow, Tutor, College Lecturer, and Director of Studies at Corpus Christi College and a Research Associate at the Centre for Financial History at Darwin College. He is the author of two books about the relationship between economic policy and financial stability in the United Kingdom: The Great Famine in Ireland and Britain’s Financial Crisis (Oct. 2022) and Calming the Storms: The Carry Trade, the Banking School and British Financial Crises since 1825 (Dec. 2022). His research has won the Thirsk-Feinstein Ph.D. Dissertation Prize, the T. S. Ashton Prize, and the New Researcher Prize of the Economic History Society and a prize from the International Economic History Association for the best doctoral dissertation completed in 2015, 2016 or 2017. He has previously worked as a writer and editor for The Economist and as a research associate at an investment bank in London. Claire Wilkinson is an Assistant Professor in English at Robinson College, Cambridge. Her principal research interests are in literature, economics, and intellectual history between 1688 and 1750. Robert E. Wright (Ph.D., History, SUNY Buffalo, 1997) is a senior faculty fellow at the American Institute for Economic Research in Great Barrington, Massachusetts, USA. He is the (co)author of 24 books including, with Janice Traflet, Fearless: Wilma Soss and America’s Forgotten Investor Movement (All Seasons Press, 2022). Formerly, he taught at New York University, Temple University, the University of Virginia, and several liberal arts colleges.

List of Figures

Fig. 3.1 Fig. 7.1

Fig. 7.2

Fig. 7.3

Fig. 7.4

Fig. 8.1

Dates of inquiries into Morice’s project Coin rating table for Pennsylvania and New York, 1758 (Source The New-York Pocket Almanac, for the Year 1759. By Poor Tom, Philomath. New York: Printed and Sold by Hugh Gaine, at the Bible & Crown in Hanover-Square. [1758]) New York’s Spanish pistole rating used in James Alexander’s Account Book (Source Alexander Account Books, vol. 2, entry of 10 November 1741, MS Group 70, Alexander, James and William Papers, 1711–1909, New Jersey Historical Society, Newark) Colonial exchange rates/par of exchange, 1740 (Source Two Letters to Mr. Wood, on the Coin and Currency in the Leeward Islands 1740, 61) Typical colonial sheriff sale advertisement, 1768 (Source New York Gazette or Weekly Post Boy, no. 1350, 14 November 1768) Occupational Self-identification of Scottish Provincial Bank Partners, 1750–1787 (% of total for each bank). ‘Professions’ includes all medical, legal and clerical/educational self-identifications. ‘Merchants & Manufacturers’ includes retail as well as wholesale trades (Sources For Ayr: Kosmetatos [2014, 168]; for Dundee: Boase [1867, xviii–xix]; and for all others: Munn [1981, 152–55])

44

133

134

136

142

176

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LIST OF FIGURES

Fig. 11.1 Fig. 11.2 Fig. 12.1 Fig. 12.2 Fig. 12.3

The Overstone cycle of trade The ‘hard calculator’ Company and Private Trade (Source Tripathi [1954, 347, 351, 359, 367, 375, 406, 415]) Decade-Wise Exports of Indigo, Opium, and Cotton (Source Kumar and Desai [1983, 846]) Indigo Prices, 1822–1830 (Source Singh [1966, 313])

250 253 271 277 278

List of Tables

Table 8.1

Table Table Table Table

8.2 12.1 12.2 12.3

Distribution of Scottish provincial bank directors and officers upon, or close to, the founding of their co-partnerships, 1763–1770 George Home’s contributions to the Mirror (1779) Private Remittable Capital of Bengal East India Houses of Agency in London, 1828 Prices of Indian Goods, 1813–1832 (Prices in sicca rupee)

177 182 274 274 279

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CHAPTER 1

Introduction Helen Paul

The tercentenary of the South Sea Bubble was marked in 2020. It coincided with the global pandemic and political protests about civil rights following the death of George Floyd. In Britain, the statue of Edward Colston was thrown into Bristol harbour. Colston had made his money with a joint-stock company which held a royal charter, the Royal African Company (RAC).1 The RAC worked together with another similar company, the South Sea Company (SSC), to ship enslaved Africans to the Caribbean and mainland America. This crime against humanity was made possible by the legal privileges granted by the British Crown and upheld by the British state.2 The surviving documents, such as charters or share certificates, only tell half the story. Much more attention has been given to the financial bubble which inflated and then burst on 1 For a history of the RAC, see Davies (1957). 2 For a history of the South Sea Company, see Carswell (2002).

H. Paul (B) Economics and Economic History, University of Southampton, Southampton, UK e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 H. Paul et al. (eds.), The Bubble Act, Palgrave Studies in the History of Finance, https://doi.org/10.1007/978-3-031-31894-8_1

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H. PAUL

the London stock market in 1720 than to the actual business activities of the SSC, horrific though they were (Paul 2021, 888–89). As Julian Hoppit (2002) noted in his seminal article on the subject, the myths of the South Sea Bubble are numerous and persistent. The focus, particularly for popular historians, has been on the themes of fraud and folly. The inner workings of joint-stock companies, and their development, can seem dull by comparison. Yet, the legal and regulatory landscape of the early modern era is an important area of study. The Bubble Act, nicknamed after a financial crash which was itself nicknamed after the SSC, is part of that landscape. It is one of the most famous pieces of early English company law. The Bubble Act’s full title is An Act for better securing certain Powers and Privileges intended to be granted by His Majesty by Two Charters for Assurance of Ships and Merchandizes at Sea, and for lending Money on Bottomry; and for restraining several extravagant and unwarrantable Practices therein mentioned (6 Geo 1, c. 18). Under its nickname, the act became part of the mythology of the South Sea Bubble itself. There has been a scholarly debate about the effect of the act on the development of joint-stock companies, particularly with regard to economic growth and innovation.3 Was it a hindrance or help to society? Or did it simply not matter because it was too badly framed to be used in a court of law? For many economic historians, Ron Harris’s (1994) argument that the act had little effect has been highly convincing. Harris was, of course, discussing whether the act had an impact on the English economy specifically. This book considers the act’s effect outside of England’s borders and also what happened after the repeal of the act in 1825. It also looks at how the act was seen, or overlooked, by those outside of the business world. The eleven chapters bring together different aspects of the Bubble Act and its afterlife, rather than simply rehearsing older debates. The South Sea Bubble of 1720 is still an emblem of financial fraud and public folly. It is mentioned every time there is a major financial issue, no matter what type. The Bubble Act, which by its very nickname is clearly associated with the bubble, has received less attention. The doyen of financial historians, W. R. Scott, writing in the early years of the twentieth century, argued that the act had affected the development of the jointstock company for over a century (Harris 1994, 610). This has sometimes

3 See William N. Goetzmann’s preface in this volume for an overview.

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been read as a statement that economic growth itself was delayed, or that it affected the timing of the Industrial Revolution.4 The canal mania, and turnpike mania before it, took place before the repeal of the Bubble Act in 1825.5 There were clearly other ways to raise capital than by obtaining a royal charter. However, for many, the work of Ron Harris has been definitive. Harris’s two articles on the Bubble Act, published in 1994 and 1997, established that the act had not blocked entrepreneurs from organising themselves. The act prohibited the creation of joint-stock companies unless the projectors could obtain either a royal charter or an act of Parliament. However, entrepreneurs were not obliged to create a joint-stock company at all and could use other forms such as partnerships (Harris 1997, 675). There were clearly several different ways to obtain capital and to organise a business. Projectors, entrepreneurs, and investors were focused on achieving their goals; the legal structure which underpinned their activities was simply means to an end. In an era of low to moderate regulation and enforcement, a gap emerged between the letter of the law and what was permitted in practice. The historiography of the corporate form can lapse into a deterministic narrative. Out of the primordial soup of early modern business history emerges a succession of organisational types, each one an improvement upon the last. In certain versions, the Bubble Act is a break in this evolutionary process. In others, the act is unable to block the inevitable emergence of a superior breed of corporation. Neither version fits the messy reality whereby a variety of different organising structures, some sharing common features, co-existed. It is often taken for granted in the literature that limited liability is better than unlimited liability. Therefore, the ‘ideal’ or ‘modern’ company will have this feature. Yet, there were successful businesses run as partnerships with unlimited liability. There is also a reason why unlimited liability was deemed to be desirable: it incentivised a collective responsibility for good management. This was particularly important in pre-modern states without proper regulatory bodies to enforce good practice. The choice between the two different types of liability involved a trade-off. The continued use of unlimited liability was not the result of a reactionary, 4 One of the editors recently received an anonymous review from someone who believed that the act had completely blocked Britain’s economic growth for a century (ignoring the Transport Revolution inter alia). Needless to say, this was Reviewer 2. 5 For canalisation, see Harris (1997, 675). For the turnpike boom, see Bogart (2005).

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anti-business, landed class who were intent on stifling the Industrial Revolution at birth. Similarly, there are pros and cons to allowing a non-human entity to have its own legal personality, i.e., to become incorporated. This too is often promoted as an essential ingredient of modernity, but it can allow human actors to evade culpability. A joint-stock company can issue shares, and shareholders can easily sell their shares to third parties via the stock market. The RAC and the SSC also had the benefits of limited liability and separate legal identities. However, the fact that a company is a ‘joint-stock’ does not automatically imply that all these other features are present.6 The term ‘joint-stock’, like company or corporation, is often used without much precision. No wonder there is confusion about what the Bubble Act did, or did not, achieve and what precisely was being regulated. The act permitted the creation of specific types of companies, created by royal charter of act of parliament. It did not manage to block the creation of other business arrangements. In the preface, William N. Goetzmann sets out the main competing theories about the act’s economic effects. He begins with W. R. Scott’s influential view that the act constrained the development of certain corporate forms, and potentially also economic development itself. Postan and Pollard’s counterargument focuses on the various projects which were funded during the lifetime of the act, including much of the transport infrastructure. Harris’s work expands on the Postan-Pollard approach. However, Goetzmann points out that there are still some gaps that need to be discussed. He particularly highlights the fact that infrastructure and insurance projects may have flourished, but this does not cover the entire economy. Ultimately, was the course of the Industrial Revolution altered by the act, or was it not? The following chapters discuss not only the Bubble Act and its repeal but also the intellectual and cultural debates around the legislation. The authors tend to agree with Harris that the act had little effect within England itself. The situation outside England’s borders was more mixed. The eleven chapters deal with the real economic effects, or the lack of them, as well as the perceived importance of the legislation in the popular imagination. The eleven chapters are not meant to be the ‘last word’ on the act, but to open up avenues of future research and to address some longstanding misconceptions.

6 For the issue of limited liability, see Walker (1931, 101–3).

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In Chapter 2, Robin Pearson focuses on the insurance market. The Bubble Act created two new marine insurance companies. The other intended role of the act, as an early piece of regulatory legislation, was far less successful. Pearson shows that there was a lack of clarity about exactly how relevant laws should be interpreted. In fact, an unintended consequence of the Bubble Act was that it prompted company projectors to word their founding documents much more carefully. To show that they were not in contravention of the law, promoters took greater care in framing their charters, incorporating acts and deeds of settlement. Conversely, a large number of unincorporated stock companies appeared which were technically in breach of the Bubble Act. A number of them were insurance companies. Pearson explains how this played out in practice, given the British state’s unwillingness to enforce the Bubble Act through the courts. In Chapter 3, Matthew David Mitchell outlines how the legal quandaries posed by the Bubble Act presented a challenge to the schemes of one company promoter, Humphrey Morice. Morice had outfoxed the RAC as one of the new players in the transatlantic slave trade. He had developed a new, more efficient business strategy to enrich himself at the expense of enslaved Africans. His success in this hideous trade attracted would-be investors to his proposed new slaving company. Morice wanted to make sure that his scheme would be compliant with the Bubble Act. He sought several different legal opinions, but there was no common view. The lack of consensus worried Morice enough for him to abandon the exercise. Mitchell shows how the act was interpreted by contemporary legal experts in radically different ways. The confusion helps to explain why the act was so little used in practice, at least in England. In Chapter 4, Aaron Graham revisits Harris’ argument that the Bubble Act had a limited effect. Graham uses the Jamaica Mines Company as a case study. The company was formed in the famous Bubble year in order to prospect for precious metals and minerals in Jamaica. Graham demonstrates that it was not a fraudulent ‘bubble company’ of the type often mentioned in the historiography of the South Sea Bubble, even though the company itself did collapse within a year. The Jamaica Mines Company (otherwise known as the Royal Mines Company of Jamaica) had been set up using a patent. The Bubble Act was then revised with the addition of a clause to prevent the illegal use of patents. The act did not affect the company’s creation or its downfall. Graham argues that the

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company was in fact hampered by the fact that its patent granted it too much power, rather than too little. In Chapter 5, Claire Wilkinson discusses the rich literary heritage of the Bubble Year. Although the writings of Daniel Defoe and other well-known authors have received a great deal of attention from literary scholars, the pamphlet poetry of the period has been relatively neglected. Wilkinson notes that there is also more focus on work published after the South Sea Bubble burst, than material published during the period when the bubble was inflating. The poems offer a contemporary perspective on the changing fortunes of the stock market and its investors. Notably, they do not mention the Bubble Act itself. Given the keen interest that a variety of different authors took in the market, this omission is an important one. It implies that the act was not seen by these authors as being particularly noteworthy. In Chapter 6, Alison Daniell also focuses on the literature of the Bubble period. She provides a close reading of Eliza Haywood’s critique of the South Sea Bubble. Daniell argues that Haywood was influenced by the debates about revisions to the laws on witchcraft, rather than any discussion of the Bubble Act. Both Chaps. 4 and 5 indicate that the Bubble Act was not seen as an important piece of legislation which required a response from writers of fiction. Instead, contemporary concerns about magic as a type of trickery influenced Haywood’s assessment of the South Sea Company itself. In Chapter 7, Robert E. Wright reconsiders Harris’ argument but with regard to the American colonies. In 1741, the act was extended to all the dominions, colonies, and plantations. This, Wright argues, led to the Imperial Crisis and was a step on the road to the Declaration of Independence. The colonists were hamstrung by the framing of the act and unable to deal with a major economic crisis. This was obviously an unintended consequence but a grave one. The Bubble Act may have had little effect on England itself, but, according to Wright, it helped to cleave England from one of its major colonies. In Chapter 8, Paul Kosmetatos also considers the situation beyond England’s borders. The Bubble Act applied only nominally in Scotland. More importantly, the Bank of England’s monopoly did not extend north of the border. Kosmetatos analyses the history of banking in Scotland and, in particular, the crisis of the failure of the Ayr Bank in 1772. There were three chartered banks, but also a plethora of unchartered ones. The unchartered banks operated under a ‘co-partnership’ corporate

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form instead. This was a Scottish invention designed to exploit a grey area in the law. The Scottish banks using the co-partnership format were not limited by the ‘rule of six’ as their English counterparts were. This feature of the Scottish system was far more important than the Bubble Act in shaping the nature of Scottish banking. In Chapter 9, Helen Paul discusses the hitherto neglected issue of the royal charter. The act mentions that royal charters could be used to create a joint-stock company. It is often assumed that it is difficult or costly to obtain such a charter. As the mechanism by which they are granted is opaque, this is a hypothesis which is very difficult to test. Paul argues that charters were obtained by organisations, whether companies or charities, which reinforced royal power. That power is not politically neutral or negligible, now or at the time of the Bubble Act itself. After the repeal of the act, royal charters were issued to a number of companies engaged in colonisation or the extraction of resources from the colonies. Some operated like quasi-governments with their own police forces and soldiers. Royal charters are not simply a relic of empire, as they continue to be used, or misused, to bolster the existing power structure. Even the British Broadcasting Corporation can only exist due to the rights granted by its charter. In Chapter 10, Edward Gillen analyses the insurance market after the repeal of the Bubble Act in 1825. This was a time of financial chaos which challenged attempts to understand the workings of the market and speculation itself. Charles Babbage was one of a number of influential thinkers concerned with the problem of speculation. Babbage, as a mathematician, was also interested in a mechanised calculation, which he believed could bring order to a disordered system. Gillen discusses the intellectual debates which were prompted by the 1825 crisis, particularly with regard to the life insurance industry. The industry was still affected by issues of limited liability even after the repeal of the Bubble Act. It was not until the middle of the nineteenth century that these issues were resolved by new legislation. In Chapter 11, Charles Read also discusses the intellectual debates following the repeal of the Bubble Act. The Bank of England (or the Bank) came into conflict with the private or country banks, particularly after joint-stock banks were permitted by new legislation in 1826. Two schools of thought held divergent views about how the banking system should operate. The Currency School supported the Bank and argued that only one institution should be allowed to issue banknotes. The Banking

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School supported the rights of the Bank’s competitors. Read demonstrates how the repeal of the Bubble Act was followed by a wave of legislation which gradually chipped away at the Bank of England’s privileges. The Bank’s defenders argued that these changes destabilised the financial system, causing repeated crises. The Banking School, by contrast, blamed the Bank of England’s own policies. In Chapter 12, Tehreem Husain and Nadeem Aftab focus on the crisis year of 1825. The Bubble Act had not prevented unincorporated companies from engaging in long-distance trade. The act did not directly affect the economy of Bengal, Britain’s first trading post in colonial India, even if it had affected the American colonial economy. The economic problems of 1825 caused a collapse of the market for indigo, an important dyestuff. Husain and Aftab discuss the effects this had on a type of unincorporated joint-stock company known as an agency house. The collapse of numerous agency houses led to a debate about legislation for limited liability corporations. The eventual changes in the legal framework in India echoed earlier developments in Britain itself. Julian Hoppit in his epilogue identifies three main themes which have emerged. Firstly, the act must be examined with reference to other legislation of the same period. Secondly, the actual consequences of the act must be considered. Thirdly, the act performs a function as ‘an organising myth’. The use of the term ‘Bubble Act’ links a complicated piece of legislation with the mythical version of the South Sea Bubble itself. The act becomes tainted by association and hence removed from its context. Hoppit highlights the difficulties which the authorities had in enforcing the legislation, given the weaknesses of the early modern state. He also points out that even the major capital infrastructure projects, such as the turnpike roads, were minnows in comparison with the hugely expensive railway schemes of the nineteenth century. The railways changed the investing landscape. However, it is the earlier context which matters for our discussions of the Bubble Act. Harris’s work on the Bubble Act is the foundation of the work undertaken in this volume. As Hoppit points out, there is still yet more to be done. This volume is not meant to be comprehensive, but to build on the work which has gone before. In doing so, we have aimed to recruit experts from different disciplinary backgrounds who can offer new insights. At the very least, the book should help non-specialists to clarify what that act did, and did not, set out to do. It should also demonstrate that legislation did not, as if by magic, become enforceable all on

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its own. The act was hard to interpret in places and hardly ever used as the basis of a prosecution. For all the high-handed complaints about merchants and moneymen, the political elite needed them to bolster the British economy. As Britain was seemingly always at war, legislators would not have hamstrung themselves with legislation that completely destroyed economic innovation. John Brewer (1989) famously referred to the ‘Sinews of Power’, meaning the financial underpinning of the war machine. The large-scale chartered companies, such as the RAC but also the East India Company (EIC), were not merely private enterprises but also part of an imperial project.7 They were permitted under the terms of the Bubble Act and attracted funds from a smaller rentier class. The earliest dedicated advice manual to the stock market in Britain is Every Man His Own Broker by Thomas Mortimer. This somewhat eccentric mix of low humour and technical exposition was a publishing success. It first appeared in 1761 and was unchallenged until a number of other works appeared in the dying years of the eighteenth century. The London Stock Exchange, as a purpose-built trading floor, was not yet built. Mortimer advised his readers to stay away from speculation and the lure of Exchange Alley, where much of the early share trading took place. Instead, he directed his followers to place their money within the great chartered trading companies and government debt. This was not only low risk but, according to the author, a patriotic move. Mortimer reminds us that there were few ways in which an outsider, even a shareholder, could monitor the inner workings of a company. Therefore, the safest course was to stick to the companies which were close to the state. Shares were not to be traded frequently, but investors should operate a buy-and-hold strategy. The supposed audience, rentiers who lacked personal connections within the business world, were told to tread extremely carefully (Crosthwaite et al. 2022, 33–41). For Mortimer, finance was not respectable, even if it was essential to the state. As Hoppit points out, it was the railway age that expanded the London Stock Exchange. Once share traders left coffeehouses and alleyways and moved to a purpose-built and imposing edifice, and submitted themselves to formal rules of behaviour, they became respectable. The Victorian rentier’s view of shares was very different from Mortimer’s (Crosthwaite et al. 2022, 43–57). Limited liability was no longer such as

7 For a discussion of the EIC’s role as part of an imperial project, see Stern (2011).

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frightening concept as it once had been. These changes in people’s mental maps sometimes happened imperceptibly. However, they help to explain why earlier generations objected to concepts such as limited liability or incorporation, and why there were attempts to regulate economic entities in ways that would not be done today. There was no perfect company form, waiting to be hewn out of a marble block. There were always multiple business arrangements which people could adapt to carry out their activities. Management theorists may be enamoured of the big twentieth-century organisations which dominated the industrial landscape, but bigger is not always better (Wilkins 1996, 119–24). For many early modern entrepreneurs, a partnership or family business worked well. These could, like the Crowley family’s ironworks, be large by the standards of the day (Flinn 1960, 51). Yet smaller businesses, then as now, are the backbone of the economy. They did not require much more than a partnership arrangement to set up. Unlimited liability, or legal personality, has different social meanings within a family business. Academics have tended to focus on the big infrastructure projects, such as the canals and the turnpike roads, which needed a larger number of investors than could be found in one family or partnership. Even these schemes, at least in the early years, relied on networks of investors who often knew each other and who were bound by social codes as well as legal ones (Pearson and Richardson 2001, 660). The structure chosen to carry out the scheme was merely a tool, not an end in itself. Ultimately, businesspeople were not seeking the perfect corporate form, but merely something which would do the job. If they had been prevented by a hostile legal system, then we would see more evidence of criticism or courtroom battles. Economic growth was not completely halted by the Bubble Act, and business activity continued apace. Of course, as Goetzmann notes, we do not have an alternative reality in which the act never existed to act as a controlled experiment. Limited liability and incorporation are seen now, with hindsight, as being essential catalysts to the Industrial Revolution and to the later business leviathans of the modern era. By contrast, unlimited liability and unincorporated entities are seen as undesirable. Yet, there were good reasons why previous generations favoured unlimited liability, and why they were hesitant about allowing incorporation. Many of these reasons were dependent upon the context of the time. The past is another country; they do things differently there.

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References Bogart, Dan. 2005. Did Turnpike Trusts Increase Transportation Investment in Eighteenth-Century England? Journal of Economic History 65 (2): 439–468. Brewer, John. 1989. The Sinews of Power: War, Money, and the English State, 1688–1783. New York: Alfred A. Knopf. Carswell, John. 2002. The South Sea Bubble. London: Cresset Press. Crosthwaite, Paul, Peter Knight, Nicky Marsh, Helen Paul, and James Taylor. 2022. Invested: How Three Centuries of Stock Market Advice Reshaped Our Money, Markets, and Minds. Chicago and London: University of Chicago Press. Davies, K.G. 1957. The Royal African Company. London: Longmans, Green. Flinn, Michael W. 1960. Sir Ambrose Crowley and the South Sea Scheme of 1711. Journal of Economic History 20 (1): 51–66. Harris, Ronald. 1994. The Bubble Act: Its Passage and Its Effects on Business Organization. Journal of Economic History 54 (3): 610–627. —–—. 1997. Political Economy, Interest Groups, Legal Institutions, and the Repeal of the Bubble Act in 1825. Economic History Review 50 (4): 675–96. Hoppit, Julian. 2002. The Myths of the South Sea Bubble. Transactions of the Royal Historical Society 12 (2002): 141–165. Paul, Helen. 2021. The South Sea Bubble and the Erasure of Slavery and Impressment. English Studies 102 (7): 888–900. Pearson, Robin, and David Richardson. 2001. Business Networking in the Industrial Revolution. Economic History Review 54 (4): 657–679. Stern, Philip. 2011. The Company-State: Corporate Sovereignty and the Early Modern Foundations of the British Empire in India. Oxford: Oxford University Press. Walker, C.E. 1931. The History of the Joint Stock Company. Accounting Review 6 (2): 97–105. Wilkins, Mira. 1996. Thinking Big, Thinking Small, But Thinking Internationally: Some Ruminations on the History of Business and Business History in the Twentieth Century. Business and Economic History 25 (2): 119–130.

CHAPTER 2

The Bubble Act and the First Corporate Economy Robin Pearson

2.1

Introduction

While the early United States, with its liberal policies towards business incorporation and its lack of exclusive monopoly privileges, has been justifiably labelled the ‘corporation nation’, Britain might reasonably be described as possessing the world’s first ‘corporate economy’ (Wright 2014). It has been estimated that between the passing of the Bubble Act in 1720 and the introduction of company registration with the Joint Stock Companies Act of 1844, over 1500 stock companies, both incorporated and unincorporated, were launched in Britain and Ireland (Freeman et al. 2012, 16). In 1740 about £18 m was tied up in the capital of stock companies. By 1840 it was £210 m, a growth much faster than that of the

R. Pearson (B) Business School, University of Hull, Hull, UK e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 H. Paul et al. (eds.), The Bubble Act, Palgrave Studies in the History of Finance, https://doi.org/10.1007/978-3-031-31894-8_2

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British economy as a whole (Harris 2000, 194–196).1 In some sectors, notably transportation, urban utilities, and insurance, stock companies dominated the business landscape. This corporate economy expanded during the period in which the Bubble Act, with its prohibition of unincorporated stock companies with transferable shares, was statute law. By the early nineteenth century, far from the joint-stock form of organisation ‘retreating’ under the burden of legal restrictions as scholars have often claimed, there were hundreds of stock companies and thousands of shareholders throughout the country (Mirowski 1981; Patterson and Reiffen 1990; Wilson 1995, 44–45; Mirowski 1985, 271–276; Wilson and Thomson 2006, 11). This chapter examines why and how stock companies were able to thrive in industrialising Britain, notwithstanding the restrictions imposed by the Bubble Act.

2.2

Business Incorporation Under the Bubble Act

The story of the South Sea Bubble and its related legislation has been told many times and there is no need to repeat it here (Scott 1912, 1: 388–438; Carswell 1960; Neal 1990, 62–117; Dickson 1967, 90–198). The crash that followed the speculative boom and the ‘Bubble Act’ of June 1720 marked the end of the freewheeling market for new joint-stock ventures that had thrived during the previous three decades. Only a small number of companies survived the crisis. Those that did included the two new marine insurance corporations authorised by the Bubble Act, the Royal Exchange Assurance and the London Assurance. Given the hotly contested debates about monopoly corporations, and more generally about the social and moral impact of gambling in stocks, it is perhaps surprising that regulators had not moved against stock companies sooner. In the end, the Bubble Act came about, not as the result of a moral panic about stock companies or speculation in shares, but because a cabal of South Sea Company directors were able to influence (and bribe) the legislature into protecting the price bubble that they had taken such 1 National income grew at an annual average (not compounded) of 6 per cent between 1688 (England and Wales only) and 1841 (Great Britain). Stock capital rose at an average of 11 per cent p.a. between 1740 and 1840. National income figures are from Mitchell (1962, 366).

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pains to inflate, and because the act promised politicians an easy way to pay off the royal debt (Scott 1912, 1: 411; Harris 2000, 60–78; Carswell 1960; Bogatyreva 2016). Shortly after the Bubble Act was passed, the cases of 27 stock companies were passed to Sergeant-at-Law Thomas Pengelly for consideration. In his written opinions Pengelly identified the key feature of an organisation that would lead it to fall foul of the new legislation, namely the creation of a large stock of freely transferable shares (DuBois 1938, 4– 7). Outstanding questions, however, such as the definitions of ‘large’, ‘public nuisance’, and ‘presuming to act as a corporate body’, were left for juries to interpret. Writs of scire facias were then issued against four of the companies—the York Buildings, English and Welsh Copper and Royal Lustring companies—for abuse of their charters and for attempting to issue transferable shares. The companies fought back. The York Buildings Company claimed that the sale of half its stock to new investors was intended to raise funds to buy forfeited Jacobite lands in Scotland, an object that was provided for in its charter. This writ was subsequently withdrawn, and the company proceeded to raise additional capital. No prosecution was brought against the other three companies, but their plans to raise capital had to be scrapped. After this initial skirmish, only one further prosecution was brought under the Bubble Act in the following decade, when a speculator, Francis Caywood, was fined and imprisoned for floating a project for trading in the North Sea. Tight monetary conditions and economic depression, together with the difficulties faced by promoters in attracting investors to equity capital, resulted in relatively few new joint-stock projects being launched during the second quarter of the century (DuBois 1938, 7– 11). Moreover, the Crown law officers became increasingly reluctant to approve petitions for incorporation. There were a few successful bids for charters—for example, the Equivalent Company in 1724 and the British Linen Company in 1746—but in general the flow of petitions to the Crown slowed to a trickle. A more guarded approach to the granting of charters was accompanied by further regulation of stock dealing. A wave of complaints about stock-jobbing, followed by the financial crash of 1733, produced Barnard’s Act, which prohibited dealings in options and futures and required brokers to keep a record of their transactions (1734, 7 Geo. 2, c. 8; 1737, 10 Geo. 2, c. 8; ‘Caveat against Bubbling’ 1739). In 1741, the Bubble Act was extended to the American colonies, after it was observed that there was no way under the common law of

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prosecuting several Massachusetts joint-stock banks that were operating without a charter (14 Geo. 2, c. 37; DuBois 1938, 25; Hurst 1970, 8). The Bubble Act was also cited in other early Georgian legislation aimed at restricting business practices that were regarded as gambling or particularly susceptible to fraud, such as the reinsurance of marine policies (1746, 19 Geo. 2, c. 37). Despite the legal obstacles, there remained good reasons for seeking incorporation. A charter granted a body of investors perpetual succession, the right to use a common seal; to raise a stock of transferrable shares that were sometimes tax-free2 ; to borrow and lend money; to purchase land; to levy tolls, mortgage tolls, and grant annuities; to sue and be sued in the corporate name, without all partners having to be named as parties individually, thus allowing debts to be more easily recovered through the courts; and to choose their own governors, directors, and officers and make their own by-laws—rights that had sometimes been interfered with under the Stuart kings. These elements underpinning corporate legal identity were the principal benefits sought by petitioners.3 On occasion, monopoly trading privileges were also desired, but this had ceased to be important for most petitioners. Most of the new inland waterway schemes applying for incorporation were in any case natural monopolies. Historians have generally accepted that limited liability was seldom a major motivation for seeking corporate status, although it was often assumed that incorporation implied a limitation of personal liability. The eighteenth-century legal opinion was not clear that this was the case without a clause expressly to that effect being included in a charter (DuBois 1938, 94–96). Many charters offered shareholders unlimited proportionate liability, where any debts beyond the assets of a bankrupt company were to be divided in proportion to the shareholdings of each investor. There was also the promise held out by the Bankrupts Act (1662, 13 & 14 Car. 2, c. 24), namely that members of specified corporations—the act only named the East India, Guinea, and Royal Fishing

2 For example, the capital raised by the London Assurance and Royal Exchange Assurance in 1720 was tax exempt, and credit contracts signed under the companies’ seals were also free of stamp and paper duty (1720, 6 Geo. 2, c. 18, clauses 8 and 10). 3 The assumption was widespread that a charter granted a company a legal personality separate from its individual members. This was not, however, universally the case. In 1737, it was denied that a corporation was a person at law in a marine insurance suit involving the Royal Exchange Assurance (DuBois 1938, 137–38).

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Companies—would be exempt from the bankruptcy laws in respect to their shares, a de facto limitation of liability. This was cited as a reason for seeking incorporation in several cases, such as the British Plate Glass Company in 1773 and the Northumberland Fishing Society in 1789. Offsetting this, however, was the widespread assumption that shareholders had an obligation to meet calls on existing capital—unlimited where no upper limit on calls was specified (DuBois 1938, 99–104). In terms of the constitutional development of companies, the longterm impact of the Bubble Act was to expand the number and scope of restrictive clauses inserted into charters, incorporating acts, and deeds of settlement, and to make company constitutions more specific. Acts of incorporation commonly included clauses that stated the company would not operate contrary to the Bubble Act and would not pursue objects other than those listed in their act; that specified the maximum capital that could be issued; prohibited the transfer of shares for a period after incorporation; banned interlocking directorates in other companies in the same industry; and restricted the number of shares one individual could hold. An act of 1767, the only general legislation covering the governance of business corporations passed in England between 1720 and 1800, banned the practice of splitting stocks for the purpose of increasing voting power at shareholders’ meetings; although this was primarily aimed at the East India Company (1767, 7 Geo. 3, c. 48). The growing tendency to spell out all rights, obligations, and restrictions made charters a relatively inflexible mode of company organisation, difficult to modify (DuBois 1938, 109–113). It was, however, the difficulties of obtaining a royal charter that made it an increasingly unattractive proposition for company promoters. Moreover, as jurisdiction over patent questions was transferred from the Privy Council to the law courts, and as judges increasingly emphasised the detailed specification of patents as the source of their legitimacy, the attractiveness of this route to incorporation also diminished (Oldham 2004, 198–199). Parliament, rather than the Crown, was increasingly turned to by promoters seeking powers of eminent domain and to levy tolls in navigation and other infrastructural projects such as bridges, turnpike roads, and drainage schemes. At least a dozen river improvement schemes were launched in England between 1720 and 1750. Some river projects were established as commissions with authority from a parliamentary act to

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contract out the construction and operation to a stock company of undertakers. Others were companies established by articles of association directly under the authority of an act. The river navigation acts provided a model for the canals that followed. Some 160 canal and river navigation companies had been authorised by 1814, most of them launched after 1760 (Ward 1974, 164). Navigation schemes required considerable sums of money to be laid out in advance of any revenue from tolls, sums that were largely beyond the resources of individuals or small partnerships. The cost and duration of improvements were also unpredictable, and many of the larger canal schemes often had to return to Parliament for authority to raise further sums to complete their routes.4 Parliamentary authorisation was also needed for the road, drainage, bridge, dock, and harbour improvements. These formed part of the great improvement movement of the eighteenth century, which included building acts, investment in street lighting and paving, commercial exchanges, civic halls and other public buildings, and leisure facilities, such as hotels, racecourses, assembly rooms, coffee houses, subscription reading rooms, and libraries (Borsay 1989). Many of the non-profit schemes resembled stock companies in terms of their forms of governance, such as elected management committees and general meetings of subscribers. Some formed curious hybrids between public and private enterprises, particularly drainage and river navigation schemes. One example is the River Don Navigation, which commenced in 1725 as a public undertaking managed by the Cutlers’ Company of Sheffield, became an unincorporated co-partnery with transferable shares in 1730 and was finally transformed into a joint-stock corporation by an act of 1732 (1725, 12 Geo. 1, c. 38; 1732, 6 Geo. 2, c. 9; Willan 1965, 24–32). The eighteenth century, therefore, witnessed great flexibility and experimentation in British corporate enterprise and a wide range of organisational forms and financial structures. The Bubble Act was not the only influence on these developments nor even the major one, as the following section shows.

4 See, for example, the several acts that permitted the Rochdale Canal Company (1794) to raise additional capital: 1800, 39 & 40 Geo. 3, c. 36; 1804, 44 Geo. 3, c. 9; and 1806, 46 Geo. 3, c. 20.

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2.3 Unincorporated Companies and the Power of Association Over 40 per cent of all stock companies launched in this period were unincorporated, and therefore, were technically in breach of the Bubble Act while it was in force (Freeman et al. 2012, 15).5 Various factors induced businessmen to proceed with the risk of investing in unincorporated enterprises with transferable shares. First, as noted above, the Bubble Act remained largely dormant during the eighteenth century. Second, the hostility of the state to joint-stock companies diminished markedly from the 1750s. In 1757, the promoters of the Equitable Life Assurance Society, the first life insurance company to be formed since the Bubble Act, petitioned for a royal charter. The application was rejected by the attorney general, but he suggested that if the promoters were so sure of the success of their venture, they ought to adopt ‘the easy method of making the experiment by entering into a voluntary partnership of which there are several now subsisting in the business of insuring’ (Raynes 1948, 130–31). The promoters took this advice and launched the Equitable in 1762 as a mutual office. It soon became Britain’s largest life insurer. The legal debate surrounding the incorporation of Warmley Copper Company in 1768 indicated that the Crown law officers largely accepted the unincorporated company as a viable form of business enterprise (DuBois 1938, 76). In 1783, the Phoenix Fire Office, recently founded by a large group of London sugar refiners as an unincorporated joint stock, received the same advice from the attorney general when they applied for a charter, namely that the public would be better served by the voluntary association of respectable individuals, rather than by incorporated societies. Ten years later, the private deed of settlement drawn up by the founders of the Phoenix, which served as their constitution in lieu of the desired charter, was upheld in Chancery in a case that concerned the directors’ right to redistribute shares forfeited by bankrupt shareholders (Trebilcock 1985, 72). Unincorporated fire insurance companies also received explicit official recognition with the introduction in 1782 of a percentage stamp duty on the value of their policies. The stamp duty legislation required the companies to collect the tax directly from policyholders and granted the companies the right to receive a poundage allowance from the Revenue 5 In the sample compiled by Freeman et al. (2007), 224 of the 514 stock companies founded between 1720 and 1844 were unincorporated.

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for their trouble. With this in mind, an annual license was provided for all offices against a bond (Pearson 2004, 141–143). A fine was levied for unlicensed offices. The licensed but unincorporated fire insurance companies were referred to as ‘bodies politick or corporate’ in the statute, and their status as corporate entities distinct from their individual membership was acknowledged by stating that. where such Business of insuring is carried on by such Companies not incorporate, or by a greater Number of Partners than four, the Licence […] shall be granted to such two or more of any such Company or Partners, as for the whole Company or Partnership, as shall be named to the said Commissioners under Authority from such Company or Partnership; and in every such Case, the Licence shall continue in Force until the End of one Year from the Day of granting the same, notwithstanding the Deaths of all the Persons to whom such Licence shall be granted, for the Benefit of such Company or Partnership. (1782, 22 Geo. 3, c. 48, clause 10)

Other developments also helped to relax the environment within which unincorporated stock companies operated. The declining efficacy of the usury statutes, and the championing of equity and greater freedom of contract by Mansfield and other chief justices, was of some benefit to trading partnerships paying dividends on capital hazarded by investors for a genuine, that is to say risky, adventure (Oldham 2004, 165–76). The law of trust provided elements of perpetuity and joint holding that also proved useful. By vesting their assets in a number of named trustees through a deed of settlement, unincorporated companies aimed to limit the liability of individual shareholders to their shares in the company (Daunton 1995, 239). It was by no means a perfect device. Trusts were not recognised at common law and litigation in Chancery could be expensive. The liability and obligations of trustees to shareholders were not well defined (Sanders 1791, 152; Ashby v Blackwell and the Million Bank Co. [1765], 2 Eden 299, 28 ER 913). Moreover, the legality of any attempt to limit the liability of individual shareholders for the debts of an unincorporated company was always in doubt after the Bubble Act nor did trust law covers the question of transferable shares. Despite these handicaps, hundreds of unincorporated joint-stock partnerships formed successfully under the English law of trust and equity, raising capital and even inserting into their constitutions clauses that purported

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to protect the liability of their investors. In the sample of 224 unincorporated companies collected by Freeman et al. (2012), 209 utilised the trust device. The Statute of Frauds (1677, 29 Car. 2, c. 3) required that all trusts be evidenced in writing, but it did not specify a form (Sanders 1791, 235). Indeed, it is possible that the organisational flexibility of the trust, and the lack of a standard declaratory form, contributed to the great variety of constitutional arrangements found among unincorporated companies in this period. Finally, the expansion of associational culture and commercial networks also helps explain the popularity of the unincorporated stock company in eighteenth-century Britain. This culture diffused throughout polite society, most notably among the urban middling classes, but also among county elites who would join urban associations to exercise patronage, or where political or economic interests converged. To associate in order to promote an improving or reforming project—recreational, educational, cultural, philanthropic, economic, or political—became a general instinct. Being in a company promoted a collective sense of civic responsibility and also provided a source of individual status, power, and social capital for those who joined and followed the rules (Morris 2004). For many, the club, private company, or voluntary association became a model in miniature for the moral society at large, where individuals of politeness and property could meet on a broadly equal footing, where the exchange of ideas and information would be free, and where norms of behaviour could be monitored by mutual observation and iterative exchange. As David Hume put it, among the virtuous ‘middle station of life’ commerce between friends was tempered ‘by obligations given and received’ (Hume 1996, 7; Clark 2000). Associating for a collective investment commonly occurred among urban or regional networks of capitalists and underpinned the foundation of most stock companies (Pearson 1991; Pearson and Richardson 2001). For much of the eighteenth century, urban centres in Britain remained unsegregated ‘walking cities’ of the type where those seeking to accumulate social capital could regularly bump into fellow networkers or social superiors of influence and power on the street.6 Networking generated ‘institutional arrangements’ that included shared value systems 6 Even in the metropolis, it was possible in the 1760s for James Boswell and his companions to walk ‘from one end of London to the other’, to dine at Dolly’s chop house and be in Drury Lane Theatre by nightfall (Boswell 1982, 164–66).

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as well as formal rules. These could facilitate contract enforcement and reduce the risk of opportunism or malfeasance in commercial transactions (Casson and Rose 1997). ‘Institutional arrangements’ included the regulations embodied in the constitutions and by-laws of stock companies. These regulations supported the reciprocal trust relations between investors (Macauley 1963). They included the check on personal liquidity provided by the paid-up subscription and the powers given to proprietors to inspect company constitutions and amend them, to inspect accounts, and to elect and remove directors and managers. As the pace of economic development and urban growth began to quicken towards the end of the eighteenth century, the opportunities for networking via commercial and other associations expanded greatly. This was often manifested as collective diversification out of core trading or manufacturing activities by local groups of businessmen organising themselves into joint-stock partnerships. As well as canal, dock, bridge, and harbour construction, the number of stock companies in shipping, insurance, and some branches of manufacturing also grew. In a few sectors, new technologies were a factor driving this development, for instance, with the rise of the gas industry after 1800, the expansion of steam shipping on coastal and Irish sea routes from the 1810s, and the building of the first railways from the 1820s. Many joint-stock ventures were expressly promoted as a public utility for their communities. One example is the Salop Fire Office, a small unincorporated stock company with a capital of £1500, founded by 30 individuals in Shrewsbury in 1780. The founders were local gentry, clergy, merchants, and professional men. They designed a company badge and fire mark based on the Shrewsbury town arms, printed a copper engraving of Shrewsbury on all the company’s insurance policies, incorporated the town arms in their company’s seal, and held the general meetings of proprietors in the town hall. All these measures were designed to enhance the public status of the company in the eyes of the propertied classes of the town and region, whose custom they sought (Pearson 2004, 237). Stock companies thus belonged to the panoply of economic and noneconomic associations formed by local or regional elites. In Newcastle upon Tyne, the 20 coal magnates, landowners, and bankers who founded the town’s first fire insurance office in 1783, an unincorporated stock company, were also members of Newcastle Common Council, purchased and operated the town’s water works in 1797, and established the town’s first gas works in 1817 (Pearson 2004, 255–257). In Glasgow, a

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few dozen West India merchants, sharing business partnerships, trading connections, property and industrial investments, and membership of the burgh council, led the city’s mercantile oligarchy (Devine 1978). In Liverpool, Manchester, and Leeds between 1750 and 1830, groups of merchant–manufacturers, bankers, shipowners, and slave traders collectively invested in and managed property, insurance, gas, water, canal, and railway companies; directed local government and chambers of commerce; shared common philanthropic and cultural activities; and, to an extent, also intermarried (Pearson 1991; Pearson and Richardson 2001). Such clusters of collective investment and diversification, with stock companies at their core, were engines of British economic growth that proved far more powerful than the countervailing forces of restriction and legal uncertainty brought about by the Bubble Act.

2.4

Revival and Repeal of the Bubble Act

The British economy continued to expand slowly, at a rate of less than two per cent a year, during the late eighteenth and early nineteenth centuries (Crafts and Harley 1992). Individual industries, however, notably textiles and iron, experienced much higher growth rates and considerable structural change. Growth in manufacturing was primarily the result of the activities of single-person and family firms and small partnerships. There were hundreds of such firms for every stock company in Britain. The small partnership and the stock company, however, did not exist in separate spheres. As noted above, in many urban centres merchants and manufacturers diversified their assets by investing profits from their core family and partnership businesses into joint-stock ventures for the improvement of the local economic infrastructure. Where projects had claim to a natural monopoly or a public utility, such as canals and docks, promoters usually found few legal obstacles to parliamentary incorporation. For these kinds of ventures, incorporation provided an amenable, if imperfect, legal environment. In the canal mania of 1788–96, for instance, nearly £10 m was authorised by Parliament for canal and river navigations. In London alone, £5.4 m in capital was authorised for dock construction between 1799 and 1815 (Deane and Cole 1962, 236; Daunton 1995, Fig. 11.2) There were at least seven new bridge and tunnel companies established in the London metropolitan area between 1799 and 1825, and nine bridge companies chartered outside London between 1787 and 1824. By 1821, some 24 water companies had

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been incorporated by Parliament. Where unincorporated stock companies could claim that they were also of public utility, they were generally left alone or tacitly supported by the government and the judiciary. This was true, as we have seen, in fire and life insurance. By 1800, there were 30 companies, most of them joint stock, insuring about £206 m against fire in England, plus six companies, including three mutual offices, insuring about £12 m on lives (Pearson 2004, Tables 1.1 and 1.2; Supple 1970, 111–112). Shipping and ferry companies also became more numerous from 1814, especially with the rise of steam packet services on the North Sea coastal and Irish sea routes. Most were established by private deed of settlement in England, or contract of co-partnery in Scotland. Shipping companies, however, also fell under admiralty law, which recognised the corporate identity of a ship and facilitated the settlement of disputes between part-owners. Moreover, unincorporated shipping companies were acknowledged by the Registry Act of 1823 (4 Geo. 4, c. 41), which gave statutory recognition to the traditional ‘jointadventure’ system of ship ownership and fixed the maximum number of shares per ship at 64 and the maximum number of registered owners at 32 (Freeman et al. 2007). Where neither public utility nor natural monopoly arguments could be convincingly made, notably in manufacturing and trade, or where concerns arose about speculators, joint-stock companies proved less acceptable. The long-standing toleration by the judiciary was quickly abandoned with the huge upswing in new promotions between 1807 and 1810. In 1807 alone, some 42 new stock ventures were launched, mostly in London, including brewery, wine, distillery, vinegar, flour, coal, gas, insurance, banking, finance, copper, textile, and clothing companies, plus a paper manufactory, a dairy, and a company for making and retailing medicines (Morning Chronicle, 20 Nov. 1807). This was the largest surge of company formations since the South Sea Bubble. Under Lord Mansfield (1754–88), the Lord Chief Justice, the judiciary had adopted a fairly relaxed view of such promotions, but his successors on the King’s Bench, Lords Kenyon (1788–1802), and Ellenborough (1802–18), were more conservative (Oldham 2004, 174). Moreover, criticisms in the press mounted. The South Sea speculation of 1720 and the collapse of the Ayr Bank in 1777 were recalled, and the relevant clauses of the Bubble Act were reprinted as warnings to promoters of unincorporated companies

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with transferable shares (Morning Chronicle, 12 Nov. 1807; The Satirist, or Monthly Meteor 5, 1 July 1809, 29–35). It was argued that unincorporated joint-stocks served only private interests; that their attempts to limit the liability of shareholders flew in the face of the law; that suits to recover debts from them could not be made in a corporate name; and that the interests of their directors and shareholders were invariably misaligned, leading to ‘negligence or extravagance’ in the boardroom. There were also the inevitable satires, such as the speculation about the possible profitable connections between the new wine and vinegar companies, and tongue-in-cheek suggestions for a ‘Grand Junction Company’ to unite all stock promotions under one roof (Morning Chronicle, 9, 16, and 20 Nov. 1807 and 7 Jan. 1808). Two promoters of multiple projects were singled out for attack. William Brown, who, it was claimed, had risen from being a ‘drudge writer in an obscure attorney’s office’, established the Golden Lane Brewery Company in 1804. This suffered continual harassment from the Excise, and from powerful rival brewers who attempted to condemn it as a nuisance under the Bubble Act and twice blocked bills permitting it to sue and be sued in its corporate name (Philopatris 1807, 14; Day 1808a, 32; Harris 2000, 180–81). The other serial promoter was Ralph Dodd, who launched several water, paper, distillery, and bridge companies in London, Birmingham, and Colchester during 1807–8. Late in 1807, a private complaint was made by a corn distilling firm in West Ham about Dodd’s prospectus for a ‘London Distillery Company’ with transferable shares. The attorney general swiftly moved for a rule to show why a criminal information should not be filed against Dodd. The case was argued before Ellenborough in the Court of King’s Bench in May 1808, the first action brought under the general prohibition clauses of the Bubble Act since 1722. The plaintiff claimed that the act was intended to prohibit schemes with transferable shares that lacked parliamentary authorisation and that it classified all stock projects as ‘public nuisances […] without any reference to the end that was meant to be attained by them’ (By Authority. Joint Stock Companies 1808). Dodd’s venture had the appearance of a corporate body offering limited liability, and therefore it misled investors. Dodd’s lawyers countered that the purpose of the act was only to prevent the promotion of projects deemed to be public nuisances and that his companies could not be accused of this. Moreover, a charge of fraud or injury to the public was never presented by the complainant.

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The case attracted considerable publicity and Dodd’s defenders and detractors locked horns in a brief media war (Day 1808b; Caledonian Mercury, 30 Nov. 1807; Morning Chronicle, 30 Nov. 1807; Aberdeen Journal, 2 Dec. 1807). The court refused to grant the prosecution, but Ellenborough ruled that Dodd’s distillery company did fall under the provisions of the Bubble Act and declared that Dodd and others might yet be indicted in the future (By Authority. Joint Stock Companies 1808, 154). The Dodd case marked the beginning of a period of great uncertainty for promoters of unincorporated stock companies There were seven further prosecutions under the Bubble Act between 1808 and 1812, though Ellenborough seems to have moderated his stance. He passed over the question of the illegality of the unincorporated Globe Insurance Company in a case about a disputed bond heard in the King’s Bench in 1810. In the following year, Ellenborough agreed that the Birmingham Flour and Bread Company was not a nuisance and did not fall under the Bubble Act, thereby conceding the argument that had been put by Dodd’s lawyers and others, namely that the act was no general prohibition of unincorporated stock companies (Harris 2000, 236–241). Nevertheless, incorporation continued to be difficult to obtain. Every one of the new insurance companies of the period that petitioned for an act failed. The early gas companies also met resistance. In 1809 an application for an act of incorporation by the new Gas Light and Coke Company was narrowly defeated. Opponents claimed that the company was a speculation, and that, if granted corporate privileges and limited liability, it would prevent other firms from entering this new field of business (Everard 1949, 21–25; The Satirist, or Monthly Meteor 6, 1 April 1810, 364–365; Van Voorst 1809). A second attempt to obtain an incorporating act succeeded in the following year, providing the company with the power of eminent domain that it needed to purchase or access land and streets, in order to lay mains pipes and build gasworks in London. Parliament, however, was careful not to give the company any monopoly powers. Subsequently, a charter was also granted, and the Gas Light and Coke Company commenced operations in 1812. Within a few years, other towns were imitating London. A few, such as Manchester, established

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municipally owned gas works. The great majority relied on private unincorporated stock companies, though many of these became incorporated within their first few years of business.7 Gas was a new industry. While it initially ran up against the vested interests of oil and tallow manufacturers and dealers, it did not face the opposition of entrenched corporate monopolies. In other sectors, however, notably overseas trade, marine insurance, and banking, applications for incorporation became associated with a challenge to wellestablished chartered rights. Private merchants campaigned vociferously for the East India Company’s monopoly of trade to India to be removed, and they eventually prevailed in 1813. The monopoly in marine insurance established by the Bubble Act also came under attack. The Globe Insurance Company commenced the assault with a failed application for a charter in 1799 and continued in 1806 with a further petition for a charter to underwrite fire, life, and marine insurance. This drew objections from the Royal Exchange Assurance and then was killed off at the committee stage (Supple 1970, 191–199; Raynes 1948, 190–199). The Globe’s founder, Sir Frederick Morton Eden, responded with a pamphlet arguing that additional corporations were needed to satisfy the soaring demand for marine insurance in wartime and that the existing monopolies had restricted competition and kept up prices (Eden 1806). In 1810, the Globe applied a third time for an act of incorporation. At the same time, another new marine insurance company, projected by the Phoenix Fire Office with the support of many of the major mercantile houses in the City, petitioned for a charter. The Royal Exchange Assurance and London Assurance corporations counter-petitioned, and a lengthy debate ensued, which culminated in a parliamentary investigation into marine insurance. The select committee came out in favour of abolishing the existing chartered privileges, not because they exploited those privileges, but rather because they had singularly failed to. The two corporations together accounted for less than four per cent of British marine insurance, the rest being in the hands of private underwriters organised at Lloyd’s and elsewhere. The corporations and Lloyd’s joined forces to resist change. As often in such disputes, the defenders and opponents of chartered rights both tried to wrap themselves in the cloak of enlightened 7 Of 283 gas companies established between 1816 and 1844, 137 obtained an act of incorporation. Calculated from ‘Gas Companies: Abstract of returns from every gas company in the United Kingdom’, 1847, HC Papers 734, XLIV.359.

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free trade and anti-monopoly (Considerations on the Dangers 1811, 1). A bill to repeal the privileges of the two insurance corporations was dropped after its first reading in the House of Commons. A second attempt early in 1811 was narrowly defeated, and two years later an approach to the Privy Council with the same object also failed. Finally in May 1824, a campaign by the newly founded Alliance British and Foreign Fire and Life Insurance Company, a creation of wealthy City interests led by Nathan Rothschild and Moses Montefiore, secured an act to repeal the marine insurance clauses in the Bubble Act. Once more Lloyd’s opposed repeal, but the prevailing ‘liberal-tory’ political economy was in favour of reform and deregulation. Following the end of the monopoly, the Rothschild group launched their own marine insurance venture, although this was not followed by the anticipated flood of other new stock companies into the market. The competitive advantages accrued over a century by Lloyd’s prevailed, and the two corporations, which had long followed a conservative strategy in marine insurance, were little affected by the repeal of their privileges (Supple 1970, 201; Kingston 2007; Aldous and Condorelli 2020). Rothschild’s insurance companies were part of a huge wave of company promotions. By the end of 1825, over 600 schemes had been launched, including many joint-stock ventures for mining in Latin America. Widespread speculation in scrip paper—advance allotments of shares before they were issued—was condemned by the Lord Chancellor, Lord Eldon (Taylor 2006, 108). The boom also attracted familiar attacks on speculators and joint-stock companies, while promoters desperately defended their schemes (List of Joint Stock Companies 1825; The Scotsmen, 29 Dec. 1824; Taylor 1825; Rawson 1825). Many new projects in 1824–1825 sought parliamentary incorporation because of the hostile attitude towards stock companies taken by the ultra-tory Eldon (Smith 2004). In Ellison v. Bignold (1821), Eldon had declared that associations with transferable shares were illegal. In two further cases early in 1825, the Equitable Loan Company was ruled illegal under the Bubble Act for having a ‘mischievous’ effect and transferable shares, and the legality of the Real del Monte Mining Company was questioned for presuming to act as a corporate body through unincorporated. In the latter judgement, Kinder v. Taylor, heard in Chancery, Eldon criticised the common-law courts, and implicitly his predecessor Ellenborough, for not taking full account of the Bubble Act, and for not

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defining what constituted ‘acting as a corporate body’ in terms of the act (Harris 2000, 241–245; Taylor 2006, 106–121). Eldon’s reasoning was that the Bubble Act had only declared illegal by statute what was already illegal under common law before 1720. He and other conservatives believed that it was the royal prerogative to grant incorporation, and that acting as a corporate body while breaching this privilege was subject to sanction at common law. This was a conscious attempt to return to the system of royal chartering and judge-made law, and to revive the powers of the monarchy and judiciary as counter-weights to the reformers in Parliament (Harris 2000, 245–248). Opposing Eldon was a group of Whigs, Liberals, and Liberal-Tories, including a growing number of MPs with seats on company boards, who argued that jointstock companies were beneficial for economic development and that there was no rationale for the Bubble Act if it merely reflected the state of common law before 1720. All judgements that had held unincorporated companies illegal had been based on that act (George 1825). The common law was an anachronism as regards modern business, and legislation was necessary in order to create a relevant legal framework for the stock company. The government of Lord Liverpool largely favoured non-interference in economic matters. Laissez faire, however, was sorely tested by the wave of new companies, by the uncertainty for investors created by decisions in the courts, and by the pressure placed on parliamentary time by the growing volume of petitions for incorporation. On the day that Eldon delivered his ruling in Kinder v. Taylor (25 March 1825), a bill to define the law relating to joint-stock companies was introduced by Peter Moore, one of the most active company promoters in the House of Commons. Moore’s bill was soon buried in Parliament, but Copley then presented his own bill to repeal the relevant part of the Bubble Act and to empower the King to grant charters without limited liability. Inevitably, as the Lord Chancellor’s representative in the House of Commons, some of Copley’s arguments reflected Eldon’s thinking. The new bill would help block attempts at parliamentary regulation of stock companies and encourage petitions for royal charters, which could later be more easily revoked. Copley also argued, however, that the Bubble Act was a dead letter. By this stage, Eldon had resigned himself to repeal in the belief that common law sanctions would keep the lid on new unincorporated promotions (Harris 2000, 262–266). The act repealing the remaining clauses of the Bubble Act was passed and received royal assent in July 1825 (6 Geo. 4, c. 91), at the height of the company boom.

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2.5

Aftermath: From Repeal to Registration

Eldon’s view that to act as a corporation while not being a corporation was an offence at common law, became operative in the instant the Bubble Act was repealed. After repeal the lawyer John George concluded that unincorporated stock companies simply remained large partnerships in the eyes of the law. This left them with several major disabilities, including the need for all shareholders, as partners, to be cited as plaintiffs in legal actions, the difficulty of suing to protect company property and to pursue debtors, and the unlimited liability of shareholders (George 1825). The collapse of the company bubble in 1825–26 dented the confidence of joint-stock advocates. Proposals for general incorporation waned. Although Eldon retired in 1827, his conservative approach was maintained by other ultra-Tories in the judiciary and parliament (Harris 2000, 245–246). There were also Liberals in the judiciary who provided supportive judgements on stock companies. In 1833, for example, Lord Brougham, the Lord Chancellor, refused to declare an unincorporated mining company either illegal or a mere partnership, even though it claimed transferable stock and limited liability (Walburn v. Ingilby, 1833, 1 My & K 61). The number of legal cases involving stock companies greatly increased. These mostly concerned the liability of directors, managers, and shareholders for contracts, for calls on unpaid shares, and after assignment or conveyance. This body of case law helped to clarify the legal position of stakeholders in joint-stock companies, although it did not resolve the larger issue of the legal identity of unincorporated companies. Even after repeal, therefore, great uncertainty remained about the status of unincorporated companies. It remained far more difficult to obtain an act of incorporation in England than it did in the United States. English courts were left to struggle with common law interpretations of the problem. There was no urgency or consistency about government attitudes towards stock companies between 1825 and 1841, and many of the existing approaches continued. Petitions for incorporation were referred to the Board of Trade, under the system established by the repeal act of 1825, but few were approved (Taylor 2006, 125). The Trading Companies Act of 1834 (4 & 5 Will. 4, c. 94) permitted a form of partial incorporation by letters patent, but such letters were seldom granted (Harris 2000, 272–73). The Committee of Privy Council for Trade (1837, HC 337, XXXIX.287) reiterated the government’s view

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that corporate privileges should not be conferred ‘indiscriminately’ under the 1834 act. The Trading Companies Act, however, did help advance the concept of registration as a path to legal recognition for companies without incorporation. It required companies to return biannual lists of the names and addresses of their subscribers to the clerk of the patents. An amendment act of 1837 (1 Vict., c. 73) required details of all share transfers (Taylor 2006, 126–129). By the 1840s, there were plenty of precedents for the statutory registration of organisations, including shipping companies, friendly societies, savings banks, joint-stock banks, and building societies. Thus, the idea was well developed by the time the Select Committee on Joint-Stock Companies was appointed in 1841. The committee was a response to the failure of incorporation by letters patent, and to a new bubble—some 300 companies were promoted in England between 1834 and 1837. This new boom and bust, together with the failure of the government to develop a coherent legislative framework for stock companies, renewed concerns about the rights and security of investors. Worries about speculative or fraudulent promotions exacerbated anxieties about the mismanagement of companies and the transparency and accountability of decision-making by directors. The select committee reported in 1844. The report formed the basis of two acts: the first, for the registration and regulation of joint-stock companies; the second, to facilitate the winding up of such companies (1844, 7 & 8 Vict., cc. 110, 111). The main act introduced compulsory registration for every partnership with transferable shares and all new companies of more than 25 partners, excluding banks and railways.8 A template was provided upon which companies could model their constitutions. Deeds of settlement had to state the purpose of the enterprise, structure of share capital, names of subscribers, amount of their shares, and names of directors and auditors. Registration was complete once shareholders had signed the deed and officers had been appointed. A registered company could sue and be sued under its corporate name, make contracts, hold land, borrow money, make by-laws, and freely transfer shares. New stock

8 Because they needed powers of eminent domain, railway companies continued to rely on specific acts of incorporation, but became subject to the oversight of a railway board introduced by Gladstone’s Railway Act of 1844. Joint-stock banks had been formed by simple registration since 1826. The Bank Acts of 1844 excluded them from general registration and introduced stricter regulation (7 & 8 Vict., cc. 32, 113).

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companies were declared illegal without registration, thus distinguishing them for the first time from ordinary partnerships. For the first time in 500 years, the discretionary rights of the state over the distribution of corporate privileges had been removed. Disclosure and effective shareholder monitoring had been made the litmus test of a respectable corporate sector. The liberal state, in combination with the press, was to function as the guardians, but not the regulators, of private companies. The search for cheap and efficient government helps explain the new approach to corporate business taken by successive administrations from the 1820s. The reforms in company law were a product of the increasing pressure on parliamentary time from the waves of petitions for incorporations, and a response to the series of bubbles and frauds that occurred in mining, banking, insurance, and the railways. As ever-larger amounts of capital were poured into joint stocks, there was a shift from an older moralising response to business ethics, in which state proscription formed the principal safeguard of standards, towards a technocratic response whereby professional managers, regulated by their own organisations and assisted by the new framework for company law, supervised the implementation of ethical practices (Alborn 1995). This transition was assisted by Victorian judicial attitudes which increasingly favoured the self-regulation of entrepreneurial activities. The Companies Acts marked the final break from the era of the Bubble Act by bringing new joint-stock enterprises into the public arena and legitimising them. The restrictions of the act, as we have seen, failed to stunt the development of Britain’s corporate economy to any significant degree. The removal of those restrictions, together with technological change, a quickening of economic growth, and a growing demand for equity capital, pushed the state into developing a legal environment that was more suitable for the modern business corporation.

References A Caveat Against Bubbling, Written in the Year 1732. 1739. In Essays and Letters on Various Subjects, 115–23. London: John Brotherton. A List of Joint Stock Companies, the Proposals for Which are Now, or have been Lately, Before the Public. 1825. London: Sherwood Jones & Co. Alborn, Timothy L. 1995. The Moral of the Failed Bank: Professional Plots in the Victorian Money Market. Victorian Studies 38 (2): 199–226.

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Aldous, Michael, and Stefano Condorelli. 2020. An Incomplete Revolution: Corporate Governance Challenges of the London Assurance Company and the Limitations of the Joint-Stock Form, 1720–1725. Enterprise & Society 21 (1): 239–270. Ashby v. Blackwell and the Million Bank Co. 1765. 2 Eden 299. 28 Eng. Rep. 913. Bogatyreva, Anastasia. 2016. England 1660–1720: Corporate or Private? In Marine Insurance: Origins and Institutions, 1300–1850, ed. A.B. Leonard, 179–204. Basingstoke: Palgrave Macmillan. Borsay, Peter. 1989. The English Urban Renaissance: Culture and Society in the Provincial Town, 1660–1770. Oxford: Oxford University Press. Boswell, James. 1982. Boswell’s London Journal 1762–63, ed. F. A. Pottle. London. By Authority. Joint Stock Companies with Transferrable Shares. Report of the Arguments, upon the Application to the Court of King’s Bench, for leave to file an Information against Mr Ralph Dodd, upon the Statute of 6 Geo. I. cap. 18. 1808. London: J. M. Richardson. Carswell, John. 1960. The South Sea Bubble. London: Cresset Press. Casson, Mark, and M.B. Rose. 1997. Institutions and the Evolution of Modern Business: Introduction. Business History 39 (4): 1–8. Clark, Peter. 2000. British Clubs and Societies, 1580–1800: The Origins of an Associational World. Oxford: Oxford University Press. Committee of Privy Council For Trade. 1837. Letters Patent. Copy of the Minute of the Lords of the Committee of Privy Council for Trade, dated 4 Nov. 1834, HC Papers 337, XXXIX.287. Considerations on the Dangers of Altering the Marine Insurance Laws of Great Britain. 1811. London: W. Flint. Crafts, N.F.R., and C.K. Harley. 1992. Output Growth and the Industrial Revolution: A Restatement of the Crafts-Harley View. Economic History Review 45 (4): 703–730. Daunton, M.J. 1995. Progress and Poverty: An Economic and Social History of Britain, 1700–1850. Oxford: Oxford University Press. Day, Henry. 1808a. A Defence of Joint Stock Companies; Being an Attempt to Shew Their Legality, Expediency, and Public Benefit. London: Longman, Hurst, Rees and Orme. ———. 1808b. Critical Examination of Such of the Clauses of the Act of 6th George I as Relate to Unlawful and Unwarrantable Projects. London: Longman, Hurst, Rees and Orme. Deane, Phyllis, and W.A. Cole. 1962. British Economic Growth, 1688–1959. Cambridge: Cambridge University Press. Devine, T.M. 1978. An Eighteenth-Century Business Elite: Glasgow-West India Merchants, c.1750–1815. Scottish Historical Review 57: 40–67.

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Dickson, P.G.M. 1967. The Financial Revolution in England: A Study in the Development of Public Credit, 1688–1756. London: Macmillan. DuBois, Armand B. 1938. The English Business Company after the Bubble Act, 1720–1800. New York. Eden, Frederick M. 1806. On the Policy and Expediency of Granting Insurance Charters. London. Everard, Stirling. 1949. The History of the Gas Light and Coke Company, 1812– 1949. London: Ernest Benn. Freeman, Mark, Robin Pearson, and James Taylor. 2007. Technological Change and the Governance of Joint-Stock Enterprise in the Early Nineteenth Century: The Case of Coastal Shipping. Business History 49 (5): 573–594. ———. 2012. Shareholder Democracies? Corporate Governance in Britain and Ireland before 1850. Chicago: University of Chicago Press. George, John. 1825. A View of the Existing Law, Affecting Unincorporated Joint Stock Companies. London: S. Sweet. Harris, Ron. 2000. Industrializing English Law: Entrepreneurship and Business Organization, 1720–1844. Cambridge: Cambridge University Press. Hume, David. 1996. Selected Essays. Oxford: Oxford University Press. Hurst, James Willard. 1970. The Legitimacy of the Business Corporation in the Law of the United States, 1780–1970. Charlottesville: University of Virginia Press. Kingston, Christopher. 2007. Marine Insurance in Britain and America, 1720– 1844: A Comparative Institutional Analysis. Journal of Economic History 67 (2): 379–409. Macaulay, Stewart. 1963. Non-Contractual Relations in Business: A Preliminary Study. American Sociological Review 28 (1): 55–67. Mirowski, Philip. 1981. The Rise (and Retreat) of a Market: English Joint Stock Shares in the Eighteenth Century. Journal of Economic History 41 (3): 559– 577. ———. 1985. The Birth of the Business Cycle. New York: Garland. Mitchell, Brian. 1962. Abstract of British Historical Statistics. Cambridge: Cambridge University Press. Morris, R.J. 2004. A Year in the Public Life of the British Bourgeoisie. In Cities of Ideas: Civil Society and Urban Governance in Britain, 1800–2000, ed. Robert Colls and Richard Rodger, 121–143. Aldershot: Ashgate. Neal, Larry. 1990. The Rise of Financial Capitalism: International Capital Markets in the Age of Reason. Cambridge: Cambridge University Press. Oldham, James. 2004. English Common Law in the Age of Mansfield. Chapel Hill and London: University of North Carolina Press. Patterson, Margaret, and David Reiffen. 1990. The Effect of the Bubble Act on the Market for Joint Stock Shares. Journal of Economic History 50 (1): 163–171.

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Pearson, Robin. 1991. Collective Diversification: Manchester Cotton Merchants and the Insurance Business in the Early Nineteenth Century. Business History Review 65 (2): 379–414. ———. 2004. Insuring the Industrial Revolution: Fire Insurance in Great Britain 1700–1850. Aldershot: Ashgate. Pearson, Robin, and David Richardson. 2001. Business Networking in the Industrial Revolution. Economic History Review 54 (4): 657–679. Philopatris [pseud.]. 1807. Observations on Public Institutions, Monopolies, Joint Stock Companies, and Deeds of Trust, Shewing the Advantages the Public derive from Competition in Trade. London: J. M. Richardson. Rawson, Sir William. 1825. The Present Operations and Future Prospects of the Mexican Mine Associations Analysed. London: J. Hatchard & Son. Raynes, Harold E. 1948. A History of British Insurance. London: Sir Isaac Pitman. Sanders, Francis Williams. 1791. An Essay on the Nature and Laws of Uses and Trusts. London: E & R. Brooke. Scott, William Robert. 1912. The Constitution and Finance of English, Scottish and Irish Joint-Stock Companies to 1720. 3 vols. Cambridge: Cambridge University Press. Smith, E. A. 2004. Scott, John, first Earl of Eldon (1751–1838). Oxford Dictionary of National Biography. (23 September). https://doi.org/10.1093/ref: odnb/24897 Supple, Barry. 1970. The Royal Exchange Assurance: A History of British Insurance, 1720–1970. Cambridge: Cambridge University Press. Taylor, James C. 2006. Creating Capitalism: Joint-Stock Enterprise in British Politics and Culture, 1800–1870. Woodbridge: Boydell Press. Taylor, John. 1825. Statements Respecting the Profits of Mining in England Considered in Relation to the Prospects of Mining in Mexico. London: Longman. Trebilcock, Clive. 1985. Phoenix Assurance and the Development of British Insurance. Vol. 1, 1782–1870. Cambridge: Cambridge University Press. Van Voorst, John. 1809. An Address to the Proprietors of the Intended Gas Light and Coke Company; to which Is Annexed, an Epitome of the Evidence Taken before the Committee of the House of Commons, etc. London: J. M. Richardson. Ward, J.R. 1974. The Finance of Canal Building in Eighteenth-Century England. Oxford: Oxford University Press. Willan, T.S. 1965. The Early History of the Don Navigation. Manchester: Manchester University Press. Wilson, John F. 1995. British Business History, 1720–1994. Manchester: Manchester University Press.

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Wilson, John F., and Andrew Thomson. 2006. The Making of Modern Management: British Management in Historical Perspective. Oxford: Oxford University Press. Wright, Robert E. 2014. Corporation Nation. Philadelphia: University of Pennsylvania Press.

CHAPTER 3

‘Mr Morice Is Said to Appear at the Head’: The Bubble Act and an Aborted Joint-Stock Slave-Trading Company Matthew David Mitchell

3.1

Introduction

More than 200 joint-stock start-ups offered their shares to Britain’s speculating public in the South Sea Bubble year of 1720 (Anderson 1787, 103–12). The promoters of most of these projects advertised their shares in the newspapers and sold them to all comers in the coffeehouses of London. Humphry Morice did not proceed in this public manner. Instead, Morice—the City of London’s largest-volume trafficker of enslaved human beings to Britain’s plantation colonies in America— sought to obtain £600,000 worth of investment in his business through his extensive networks of mercantile, gentry, and aristocratic contacts. Morice’s private fundraising effort produced an extraordinary cache of

M. D. Mitchell (B) Department of History, The University of the South, Sewanee, TN, USA e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 H. Paul et al. (eds.), The Bubble Act, Palgrave Studies in the History of Finance, https://doi.org/10.1007/978-3-031-31894-8_3

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53 messages from people interested in investing substantial sums with him. Some came from luminaries as high-ranking as the soon-to-be Prime Minister Robert Walpole and his brother Horace. The cache reveals what share prices and newspaper advertisements cannot: the mindset and motivations of individual investors; the ways in which they evaluated a projector’s reputation; and the ways they in turn sought to present themselves to the projector as desirable investors. However, like all the projectors of the Bubble year, Morice had to reckon with the impact of the Bubble Act. Faced with this apparent prohibition on new joint-stock companies like the one he was trying to establish, Morice asked five prominent lawyers for advice on how he could design his scheme to comply with the new law. Although their written legal opinions provided Morice with a number of innovative options, some of which would be employed by future promoters to circumvent the Bubble Act, Morice nonetheless elected to let his own project die a quiet death. But in leaving behind a very different set of archival traces than did the more publicly promoted projects of 1720, Morice’s abortive joint stock offers us unique insights into the way business was done in his day.

3.2 The Death and (Brief) Rebirth of Joint-Stock Companies in the African Trade Beginning in 1618, the Stuart monarchs of England vested the realm’s interest in trade with Africa in a succession of joint-stock companies. The fourth and last in the series was the Royal African Company (RAC), incorporated under a charter from Charles II in 1672. The new company enjoyed the patronage of King Charles’s brother James, Duke of York (the future King James II), along with an initial capital subscription of £110,100 from a body of investors that included both working merchants and a significant number of landed gentlemen and titled peers. In keeping with the commonplace notion that the whole point of a joint-stock company was to conduct a new and risky trade in a unified manner, the RAC’s charter gave them an absolute monopoly on English commerce to West Africa, and the ability to use physical force against competitors who ventured there in violation of this exclusive privilege, whom the RAC termed ‘interlopers’ or ‘separate traders’ (Mitchell 2020, 11–13). By the 1680s, the separate traders to Africa and their supporters in the English plantations in America began a campaign to discredit the RAC,

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arguing that numerous independently operating merchants, rather than a single unified corporation, would provide a larger and surer supply of enslaved labourers to the colonies. Their cause received a boost from the downfall of the RAC’s royal patron, James II, in the Revolution of 1688, and in 1698 the separate traders finally succeeded in lobbying Parliament to do away with the RAC’s monopoly. The passage that year of the ‘TenPercent Act’ put all English subjects at liberty to invest in independent trading ventures to Africa, though they had to pay a duty of 10 per cent of the value of their cargoes to the RAC to defray the costs of the fortified trading posts it operated on the West African coast, ostensibly for the protection of all English traders in the region (Pettigrew 2013, 37–39). Over the next 34 years, nearly a thousand individual British investors tried their luck as transatlantic human traffickers, but only a small proportion of these had the necessary capital, risk tolerance, and commercial skill to persist in the trade (Mitchell 2020, 75–88). Foremost among these was Humphry Morice, who outfitted his first Africa voyage in 1704 and by his death in 1731 would run up a total of at least 109 voyages transporting over 30,000 persons to America against their will.1 More than most of his competitors, Morice realised that European buyers of slaves from African merchants were also sellers of European, Asian, and American manufactures to African buyers. The real key to defeating his competitors was to know what goods African coastal merchants wanted to receive in exchange for the enslaved people they were offering and to bring them those goods. This would allow his ships to exchange their outbound cargoes for captives in less time than his competitors could. The fewer months a given slave ship spent on the African coast trying to accumulate a full cargo, the lower the eventual financial loss due to slave mortality. This was because enslaved people purchased early in the voyage languished in the hold, and the longer they spent there, the more likely they were to die of disease (Ruderman 2016, 14; Fuglestad 2018, 15–16). It was difficult and expensive to obtain timely intelligence on the rapidly shifting patterns of African consumer demand patterns, and the aspiring transatlantic human trafficker had to design his system of trade 1 A list of 103 of these voyages appears in Mitchell (2020, 227–99). Evidence for the additional voyages is in James Phipps, Cape Coast Castle, to Humphry Morice, 23 Oct. 1722, in The Humphrey Morice Papers from the Bank of England [hereafter Morice Papers ] 2000, reel 2, vol. 3; and David Eltis, personal communication, 11 Sep. 2020.

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with this goal in mind. The RAC’s approach to the problem centred on its chain of coastal West African trading posts. There, its staff of salaried residents did business with their African hosts on a daily basis and sent a constant flow of information up the chain of command to the African House in London, where the RAC’s Committee of Goods used it to select cargoes for their outbound ships. But this information came at a heavy cost: £20,000 a year for the staffing and upkeep of the trading posts. To undercut the RAC, Humphry Morice’s challenge was to devise a way of developing market information less expensively, but no less effectively (Mitchell 2020, 18–19). Morice’s solution was to keep multiple ships in constant motion at the various phases of the African Atlantic trade circuit so that there would always be a ship on its way back to him in London, carrying its captain’s observations on the course of commerce which would inform his cargo purchases for the next voyage. Morice further shortened the transatlantic information cycle by sending out ships in groups with instructions to trade cooperatively. After a few months of trading on the West African coast, a pair of Morice ships would meet at a pre-planned rendezvous to trade with each other. One ship would come away with the remaining outbound cargo from both ships to continue trading on the coast. The other took on board all the enslaved people purchased by both ships in order to proceed immediately across the Atlantic. Morice also instructed his captains to look out for opportunities to buy commodities other than enslaved African bodies, especially gold either from Africa itself or brought by Brazilian ships, which themselves made good outlets for any captives that Morice’s captains might have purchased. In the most advantageous case, a Morice ship might actually be able to exchange its entire outbound cargo for gold and other commodities, thus forgoing the Middle Passage and returning directly to England with Morice’s profits—along with the market information fresh from Africa that would allow Morice to make the next voyage profitable (Mitchell 2020, 148–63). A contemporary named Morice as the prime exponent of this strategy of maintaining continual Traffick and Correspondence on the Coast as may furnish the Owner from time to time with quick Intelligence, to be done only by great Merchants, who can keep imployed a number of Ships, that like a Thread unites them in a knowledge of their Demands, and a readier Supply for them, as well as dispatch for their Master’s Interest, by putting the Purchases of two or three Ships into one. (Atkins 1735, 158–59)

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The Morice multiple-ship system was a diabolically ingenious way of obtaining information on African consumer demand more cheaply than the RAC could. Accordingly, it took a heavy toll on the RAC’s business, and heavier still after the Ten-Percent Act’s expiration in 1712. This left Britain’s trade to Africa free and open while depriving the company of the duties from separate traders. In 1717 and 1718—years when slave ships operating out of ports in Great Britain transported an estimated 18,114 and 22,539 enslaved Africans across the Atlantic, respectively— not a single slaving voyage was made by a RAC ship.2 Then in February 1720, the annual meeting of the RAC’s general court announced an ‘engraftment’ of newly issued shares upon its existing capital, raising the company’s nominal value from £500,000 to £2 million. James Brydges, first Duke of Chandos and an inveterate speculator and projector in his own right, always claimed that he knew nothing of the RAC’s big splash in the financial markets until its official announcement. Perhaps not, but in the event, it was Chandos and a group of his aristocratic friends and his acquaintances that bought up much of the new issue of shares, putting managerial control of the company in Chandos’s hands. And Chandos had big plans for the newly recapitalised RAC, under which he would send secret bio-prospecting expeditions to West Africa aimed at discovering new botanical resources that would be the foundation for a trade between England and Africa (Mitchell 2013, 544–49). Although Chandos hoped to focus on this potential ‘out-and-home trade’, believing that the RAC’s business ‘is not to be carried on (I mean that branch of it which is the buying up of Negroes) with any Advantage’, his buyout occasioned a temporary revival in its slave trade, with more than 2500 enslaved Africans transported on RAC ships in 1721.3 Like the directors of the Royal African Company, Humphry Morice also found himself anxious to tap fresh sources of capital during that notorious year of 1720. For while it was less expensive to operate than the RAC’s trading posts were, Morice’s multi-ship system for shortening

2 Slave Voyages (2021), s. v. ‘Trans-Atlantic’/‘Database’, with ‘Flag’ = ‘Great Britain’, and ‘Year Range’ = ‘between 1717 and 1718’, accessed 11 March 2022, https://www. slavevoyages.org. 3 Duke of Chandos to James Phipps, 21 July 1721, Stowe Papers, MSS 57, vol. 19, p. 125, Huntington Library, San Marino, CA; Slave Voyages 2021, s. v. ‘Trans-Atlantic’/ ‘Database’, with ‘Vessel owner’ = ‘Royal African Company’, accessed 11 March 2022, https://www.slavevoyages.org.

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the cycle of goods, information, and capital turnover still was not cheap. Later in the decade, Morice’s account with the Royal Exchange Assurance—one of the two joint-stock marine insurers established under the Bubble Act—would indicate that between February 1725 and November 1727, he invested just short of £100,000 in 17 slave-trading voyages.4 So it was in June 1720, just as the share price of the South Sea Company was reaching its peak at something like £1050 (Dale 2004, 117), that Humphry Morice began to receive a series of messages from his own circle of acquaintances—many of them very highly placed in the social and political order—seeking shares in his projected joint-stock venture.

3.3

Accrediting Investors

The first such message, dated 17 June 1720 at Houghton in Norfolk, came directly from the top: Robert Walpole. The soon-to-be-leader of the Whigs, then serving as paymaster of His Majesty’s Forces in the ministry of Earl Stanhope and the Earl of Sunderland, counted Humphry Morice as both a political ally and a friend (Cruickshanks 1970b).5 ‘Since I saw you’, Walpole began, implying that Morice had already told him about the scheme face-to-face, ‘I have been desired by two Gentlemen to recommend them to you to be admitted into yr. undertaking for carrying on the African Trade for two thousand Pounds each. They are James Nelthorpe & Kingsmill Eyre Esq’. Not only did Walpole use his name and influence with Morice on behalf of these associates of his—Eyre would design the gardens at Walpole’s grand new Houghton Hall, while Nelthorpe like Walpole represented a Norfolk constituency in Parliament—but he also made himself responsible to pay Morice ‘the proportion of their subscription that is now to be paid’.6 Another early inquirer into Morice’s project, Joseph Andrews, also had a connection to Robert Walpole: Andrews worked for him at the Pay Office. Perhaps because he was Walpole’s employee rather than a friend 4 ‘Royall Exchange Insurance Companys acc:tt with Humphry Morice’, Nov. 1727,

6A49/1, Bank of England Archive, London. 5 Robert Walpole to Humphry Morice, 7 Aug. 1717, 16A2/2/19, Bank of England Archive, London, in which Walpole invited Morice to accompany him on a shopping trip for a new horse! 6 Robert Walpole, Houghton, to Humphry Morice, 17 June 1720, 16A2/2/22, Bank of England Archive, London; Matthews (1970), Eburne (2003, 200–202).

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and social equal, Andrews did not receive a mention in Walpole’s letter of recommendation to Morice. Nor did Andrews know Morice personally, therefore choosing to make his approach indirectly by writing a letter dated 21 June to an unnamed associate of Morice. In doing so, Andrews did not hesitate to drop his illustrious employer’s name, lamenting his ‘particular misfortune at this juncture that Mr Walpole is in Norfolk who I assure myself would have been so good to have spoke or writt to Mr Morris on this head’. Andrews also took care to cite Morice’s reputation for uncommon commercial expertise as a crucial factor in his decision to subscribe for ‘2 or 3 shares’ of £1000 each. Simply because ‘Mr Morice is said to appear at the head of’ the new undertaking, the success of any investment Andrews made in it would be all but assured, ‘the Character of that Gent being likely to give a Great Credit to Such an Affair’ (Andrews to Morice, 21 June 1720, Morice Papers, reel 4, vol. 7). Where Robert Walpole knew Morice socially, and Joseph Andrews was connected to Morice via networks of government officials, it was Thomas Williamson’s mercantile activities that put him in touch with Morice. Williamson’s letter to Morice was dated ‘June the 20th 1720’ from ‘ffreemans Court, Cornhill’—in the same City of London ward as the Royal Exchange, that great clearing house of both marketable goods and commercial information (Gauci 2001, 27). Asking Morice ‘to sett me down One thousand pounds In Your New African Stock’, Williamson also added that ‘Mr. Atkyns, Mr. Windham, Mr Salter, will Recommend me to You’ (Morice Papers, reel 4, vol. 7). Williamson chose his referees well, for Atkyns and Windham were partners in a London mercantile firm with an existing relationship to Morice, having in December 1717 supplied him with goods worth nearly £4500 for the outbound cargo of his slave ship the Whydah Galley (Atkyns, Windham, and Dod to Morice, 10 Dec. 1717, Morice Papers, reel 2, vol. 3). So, while Thomas Williamson might not have known Morice personally, he apparently did regular business with people who did know him, and could make him aware of developments like Morice’s new joint-stock company (Fig. 3.1). The messages from Thomas Williamson on 20 June and from Joseph Andrews on 21 June preceded a deluge, with eight inquiries dated 22 June, ten dated 23 June, and another eighteen during the final seven days of June. A lull during the first three days of July gave way to a further flurry of nine inquiries between 4 and 8 July. At least one among this tranche of potential investors worried that perhaps he had let his chance slip. ‘The porter by whom I sent you my letter’, one John Hill wrote

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12 10 8 6 4

0

17-Jun 18-Jun 19-Jun 20-Jun 21-Jun 22-Jun 23-Jun 24-Jun 25-Jun 26-Jun 27-Jun 28-Jun 29-Jun 30-Jun 01-Jul 02-Jul 03-Jul 04-Jul 05-Jul 06-Jul 07-Jul 08-Jul 09-Jul 10-Jul 11-Jul 12-Jul 13-Jul

2

Fig. 3.1 Dates of inquiries into Morice’s project

Morice on 5 July, ‘assures me he deliverd it to yo.r servant on this day... I am sorry so small a mistake shd exclude me from that share I might have had’. Despite Hill’s fretting over his perceived tardiness, three more prospects addressed themselves to Morice on 11–12 July and a final one on 20 July. Of the 53 inquiries, 32 (60.4 per cent) mentioned a particular sum of money, and these pledges totalled £54,700. The most frequently offered amount was £1000, a sum generally taken as being equal to one share; although pledges ranged from the £15,000 offered by Joseph Watts of Golden Square in London to the £200 mentioned by Henry Knollys of Southampton.7 Thirteen of the fifty-three inquiries (24.5 per cent) mentioned Humphry Morice’s record over nearly two decades of activity as one of the City of London’s foremost international merchants—and the foremost in the City’s African trade—as the reason why they chose to entrust their capital to him among all the many options they had in the summer

7 Fifty-one of the fifty-three letters appear in Morice Papers, reel 4, vol. 7. The letters from the Earl of Cardigan and from Robert Walpole have not been microfilmed; both can be found in the Bank of England Archive, 16A2/2/22.

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of 1720. ‘I understand there is to be an alteration in the Affrican business & that you are to be the Principle Manager’, Peter Percivall wrote on 23 June from Tom’s Coffee House in Covent Garden, implicitly rating Morice’s business acumen as superior to that of the trade’s previous principal manager, the RAC. On behalf of himself and three friends, Percivall continued, ‘I therefore beg if there are any subscriptions, that you will be so kind as to put us in yr List for a Thousand pound’ (Morice Papers, reel 4, vol. 7). Arthur Lee of St. Lawrence Pountney Lane similarly flattered Morice that ‘yr known experience and success in Commerce, cannot Fail of giving a very great reputation to such an undertaking’ in his inquiry of 28 June 1720 (Morice Papers, reel 4, vol. 7). Writing from Southampton on 5 July, Henry Knollys told Morice’s cousin Joseph Moyle that ‘The Report of a New African Stock Being a foot & your freind Mr: Morris Concern’d in it makes me Beleive that it may be of some Profitt Being assur’d of his Judgement in Such an Affair’. Joseph Herne wrote Morice directly on 8 July that he was ‘Inform’d there is a Scheme going on for Managing the Trade to Africa, wch I am the more desirous to be Concern’d in because I am told it is very much under yr Direction’ (Morice Papers, reel 4, vol. 7). As for John Gibbons, also writing on 8 July, he stated that he ‘never had any Opinion Of that Trade til now’, but wanted to invest in Morice’s new project ‘because I suppose it will be Cheifley under your direction’ (Morice Papers, reel 4, vol. 7). Then as of now, past performance was no guarantee of future returns, but it did indicate a particular projector’s skill in producing such returns. Though Humphry Morice’s reputation for profitable transatlantic commerce was his chief recommendation to potential investors, this was just one side of the equation. The other side was the various means by which investors sought to recommend themselves to Morice. One way of doing this, in an environment where subscribers to a given project could make an up-front payment of as little as one per cent of their promised investment, was to declare oneself able to meet future calls for payment of additional capital, although only five of Morice’s investors (9.4 per cent) did so. For example, Jonathan Fogg of the Navy Office applied to invest £1000 of his own and £500 belonging to his brother Thomas, ‘payment for which shall be answer’d at Demand’ (Fogg to Morice, 24 June 1720, Morice Papers, reel 4, vol. 7). Peter Percivall similarly promised that his proposed £1000 investment ‘shall be ready when called for’ (Percivall to Morice, 23 June 1720, Morice Papers, reel 4, vol. 7). And Sir Francis

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Molyneux asked Morice ‘please to give me information when & how I shall pay in’ his pledged £1000. Although only a handful of Morice’s prospective investors asked him to credit them with the ability to meet future capital calls, those that did were clearly thinking of their shares in the project as an inherently valuable investment, not as something to be offloaded immediately to a ‘greater fool’. A more frequent method of accrediting oneself, employed by 13 of the 53 inquirers (24.5 per cent), involved an appeal to one or more referees who themselves enjoyed either close associations with Morice or significant reputations of their own. As we have seen, Thomas Williamson’s recommenders were of the former sort who had done business in the past with Morice, while the latter factor applied to Joseph Andrews’s chosen referee, Robert Walpole. Indeed, Andrews benefited from a letter to Morice from Walpole’s brother Horace, who ‘beg[ged] leave to recommend Mr Jos: Andrews of my brother Walpoles office as a particular friend of mine’ (Horace Walpole to Morice, 6 July 1720, Morice Papers, reel 4, vol. 7). J. Banks of Boswell Court in the Bloomsbury section of London also brought Walpole’s name into the matter, along with that of another luminary of Whig politics, the former Secretary of State Charles, Viscount Townshend (J. Banks to Morice, 24 June 1720, Morice Papers, reel 4, vol. 7). Francis Wyatt of Charterhouse Yard, in seeking to invest the grand sum of £5000, instead noted his connection with William Wood, whose business with Humphry Morice dated back at least to 1703, soon after Morice entered upon active trade (Wyatt to Morice, 27 June 1720, Morice Papers, reel 4, vol. 7).8 Some prospective investors indeed chose to address themselves to William Wood rather than directly to Morice. The Earl of Orkney, for instance, asked Wood to ‘speak to Mr Morice to get my lord inchiquin into the affair he has in hand one or two thousand pounds’ (Earl of Orkney to Morice, 22 June 1720, Morice Papers, reel 4, vol. 7). Richard West likewise entreated Wood to ‘speak to either Mr. Morris or Mr. Harris that I may bee admitted to such a share in their undertaking as you shall think fitt’ (West to Morice, 23 June 1720, Morice Papers, reel 4, vol. 7). Like William Wood, Richard Harris was a long-time friend and business associate of Morice’s and also a large-scale slave trader in his 8 For Morice’s early dealings with the Wood brothers, William and Thomas, see Morice to Thomas Wood, 3, 21, and 31 Oct. 1704, 17 Feb. 1705, and 13 March 1706, in ‘Letter Book of Humphrey Morice, 1703–1706’, Morice Papers, reel 4, M7/35.

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own right before he joined Morice in this new endeavour (for Harris, see Pettigrew 2013, 78–80; and Rawley 2003). A latecomer to the scheme, Randall Redmayne, leveraged his connection with Harris to plead his case. Redmayne’s letter dated 20 July from Lloyd’s Coffee House—already the favoured haunt for shipowners looking to insure and be insured by their fellow shipowners on a mutual basis—closed with the postscript: ‘I have made bold likewise to write another Letter to Mr Richd. Harris’ (Morice Papers, reel 7, vol. 4; Palmer 2007). Working merchants had been most numerous among the backers of most (but not all) joint-stock enterprises since their earliest days in the late 1500s, and unsurprisingly they were most numerous among Morice’s backers as well. Nonetheless, members of the landed gentry and nobility also made desirable investors, particularly for the social cachet they could lend to an enterprise (Rabb 1967, 26–32). Twelve of the fifty-three inquiries (22.6 per cent) into Morice’s project came from people that bore either noble titles or the lesser title of ‘esquire’—although the latter could potentially belong to a very successful merchant. Indeed, not only did Morice himself insist upon his right to be styled ‘esquire’, but his recognised expertise in the gentlemanly pastime of hunting put him into close contact with grandees like the Earl of Cardigan, who preceded Morice in the office of Master of the King’s Buckhounds.9 Cardigan naturally heard about Morice’s project early on, and although he had previously invested in the RAC, he ‘sold out on purpose that I might be admitted into this new project, it seeming to me to be upon a much better foundation’ thanks to Morice’s leadership.10 Meanwhile, the Countess of Cardigan was not content to let her husband stake the family’s only claim in a scheme which she judged ‘in all probability will be of very considerable advantage to the subscribers’. On 11 July, nearly two weeks after Lord Cardigan’s message of 30 June, Lady Cardigan ‘[took] the liberty to desire Mr Morris’s assistance to gett me admitted in that number’ (Morice Papers, reel 4, vol. 7). Another aristocratic lady who knew of Morice and his scheme via the fellowship of 9 ‘Papers relating to the appointment of Humphry Morice as Master of the King’s Buckhounds’, Morice Papers, reel 3, vol. 6. For Morice’s insistence on being styled ‘esquire’, see Mitchell (2020, 173). For the social significance of hunting during this period, see Brundage (2017, 786–817). 10 Earl of Cardigan to Morice, 30 June 1720, 16A2/2/22, Bank of England Archive, London.

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hunters was the Countess of Pembroke, whose letter to Morice reminded him ‘of the favour I asked of you at Richmond’—a royal hunting park in those days—‘to be put into your subscription’ (Countess of Pembroke to Morice, 12 July 1720, Morice Papers, reel 4, vol. 7).11 The Count of Nassau, who was cousin to William III (Knight of the Garter, and future Stadthouder of the Dutch Republic), wrote to Morice to ‘desire the favour as a brother sportsman that you will be pleas’d to set me down in your list for as many as youll be pleas’d to lett me have’ (Geyl 1925). Nassau began his letter by assuring Morice that ‘I am very sorrow of your indisposition’, making him one of the five prospective investors in the total of fifty-three (9.4 per cent) to include a sympathetic reference to Morice’s gout. The painful ailment was going through something of a ‘golden age’ in the eighteenth-century English-speaking world; men who aspired to social prominence affected to suffer from it even if they did not actually, though Morice’s gout was quite real and would beset him chronically throughout his life.12 ‘I am Heartely sorry to hear you are indisposed’, Godfry Corré began his letter of 24 June 1720 offering £2000 to Morice’s project, ‘but hope in God you’l soon Recover yr Health’ (Morice Papers, reel 4, vol. 7). In Corré’s case this could well have been an attempt to elicit a masculine-coded camaraderie among fellow sufferers, but two of the five investors to mention gout were women. One of them, Sarah Cornish, visited Morice’s residence on the morning of 23 June in hopes of investing £2000 on her own behalf and another £2000 belonging to ‘my sister Jones’, and wrote to him later that day that she ‘was sorry to here you had been so much out of order’ (Morice Papers, reel 4, vol. 7). Six women’s inquiries appear among Morice’s papers, including those of Elizabeth Bridges, Morice’s near neighbour in Nicholas Lane; the aforementioned Sarah Cornish; and the Countesses of Cardigan and Pembroke (Bridges to Morice, 24 June 1720, Morice Papers, reel 4, vol. 7). Their interest in Morice’s project testifies to the incentives facing

11 Barbara Slingsby was the second wife of Thomas Herbert, 8th Earl of Pembroke; her stepdaughter Lady Catherine Herbert (d. 1716) had been married to Sir Nicholas Morice, Humphry’s cousin. See Bucholz (2004), and Cruickshanks and Handley (2002). 12 Indeed, the London newspapers would name gout as the cause of Humphry Morice’s death in November 1731, though the rumours that ‘Tis supposed he took poyson’ were more likely true (Mitchell 2020, p. 205n). For the ‘golden age’ of gout, see Finger (2006, 280).

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female investors, since the rule of coverture that made so much of their wealth into the property of their husbands did not apply to their holdings of shares (Froide 2016, 2, 27, 94–99). Elizabeth de Grey of Merton Hall in Norfolk took full advantage of this loophole. As an heiress of the Windhams of Felbrigg Hall, also in Norfolk, she had brought the significant jointure of £4500 into her marriage to Thomas de Grey (Hayton 2002). And although her husband, like Morice a Whig member of Parliament, had already ‘an assurance of being put down a £1000 in your Scheme’, Elizabeth de Grey noted modestly that she had ‘a little monye of my own’ and hoped to buy a £500 half-share from Morice. She employed a male relative as her agent, designating ‘my Brother Jo’s[eph] Windham’ to ‘pay the monye & transact this affair for me’ rather than her husband (Elizabeth de Grey to Morice, 12 July 1720, Morice Papers, reel 4, vol. 7; Froide 2016, 153–55). Elizabeth Snelgrave of Mile End in London had learned from her father of the ‘Gentelmen who have agreed to carry on a Trade to Africa together in Copartnership’, with Morice as ‘[one] of the head’. Unlike Elizabeth de Grey, though, Elizabeth Snelgrave had dealt directly with Morice in the past, ‘often expearencing your goodness’, which made her comfortable enough to ‘intrude this farr […] and beg your favor in this petishon’. She had family wealth under her control, in her case ‘that small mater my dear Husband has Left at Home’, and she hoped to ‘improve’ it by investing in Morice, being ‘not willing to slip so good an opertunety’ (Snelgrave to Morice, 5 July 1720, Morice Papers, reel 4, vol. 7). Elizabeth Snelgrave’s ‘dear Husband’ happened to be William Snelgrave, a long-time employee of Morice’s, and absent from England in Morice’s service since the previous autumn as captain of his slave ship the Henry.13 Here, then, was a female investor who probably knew both Morice and the business of the African trade better than most of the men who sought shares in his project. Yet knowledge of the African trade was not necessarily among the qualifications Morice desired in his investors. Indeed, he must have been positively delighted with investors who combined ignorance of the business at hand with trust in his knowledge of it. His goal was to raise capital, not to take on partners with opinions of their own on how to manage it once it was raised. Already models of corporate structure did 13 Slave Voyages (2021), s. v. ‘Trans-Atlantic’/‘Database’, with ‘Voyage ID’ = no. 76397, accessed 11 March 2022, https://www.slavevoyages.org; Mitchell (2020, 247).

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exist that would offer the kind of insider–outsider dynamic that Morice wanted, most notably the Dutch East India Company (VOC). That enterprise, as Ron Harris (2019, 279, 289–90) has noted, had two levels of shareholder: the bewindhebbers, who ‘met regularly to discuss managerial issues’; and the participanten, recruited into the VOC via the ‘social networks [and] prior business reputation’ of the bewindhebbers, but with ‘no access to information and no voting rights’ within the company. Such a structure would have suited Morice better than that of Britain’s own East India Company, which offered lesser shareholders much more scope for active participation (Harris 2019, 304–6). But whatever organisational form Morice chose for his recapitalised slave-trading enterprise would have to meet the new requirements imposed by Parliament in the Bubble Act.

3.4

Contending with the Bubble Act

Since Humphry Morice was himself a member of the House of Commons, he was almost certainly aware early on of the growing sentiment against speculative projects (H.C. Journals 1803, XIX, p. 344). As a working merchant, he also had a stake in what would become the second great aim of the Bubble Act: the chartering of two new joint stocks to offer marine insurance policies. Previously he had been a devotee of the old system of marine insurance, whereby ‘a Number of OfficeKeepers at the Exchange at London […] made it their constant Business to procure Persons of good Substance to Insure and Underwrite Policies’. He had co-signed a petition arguing that this system made ‘the Praemiums given in London […] much lower than in any other Part of Europe’, and had given testimony before the Board of Trade against the attempt of the Mines Royal Company to enter—and inevitably distort— this thriving market in insuring ships and cargoes (Special Report 1720, 21). Yet at the same time, Morice contracted with the Mines Royal on an experimental basis to insure several of his slave-trading voyages for 1719. To his surprise, as he related in a memorandum of 17 November 1719 to Attorney General Nicholas Lechmere, he found that ‘when Private Gentlemen have refused to insure any thing for mee […] this Company, have readily insured for mee on such Adventures to my Satisfaction at moderate Terms’. The experience had changed Morice’s mind about the proper way to organise marine insurance; he now considered

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‘this Insurance Company very usefull & Beneficiall to Trade and Navigation’, and therefore ‘they deserve the protection & encouragement of the Governem:t’ (Morice Papers, reel 4, vol. 8). However, the government was not minded to protect or encourage new joint-stock companies more generally. On 27 April 1720, John Hungerford brought in his committee’s report on ‘the extravagant and unwarrantable Practice of raising Money by voluntary Subscriptions’, and received the House of Commons’ command to prepare a bill restraining such projects, together with a committee that also included Robert Walpole (H.C. Journals 1803, XIX, p. 351). A week later, on 4 May, a separate committee was convened to prepare a bill authorising the King to charter two corporations ‘to assure Ships and Merchandise’, and the following week on 12 May, these two committees were ordered to ‘meet, and prepare, and bring in, One Bill, for the Purposes aforesaid’ (H.C. Journals 1803, XIX, pp. 355–56, 361). The resulting ‘Act for better securing certain Powers and Privileges intended to be granted by his Majesty, by Two Charters, for Assurance of Ships and Merchandises at Sea; and for lending Money upon Bottomry; and for restraining several extravagant and unwarrantable Practices therein mentioned’ passed the Commons on 31 May, and then hurriedly received the approval of the Lords on 10 June and the Royal Assent on 11 June (6 Geo. 1, c. 18; see H.C. Journals 1803, XIX, pp. 368, 373; Harris 1994, 613). Title 19 of the new law named several practices that ‘after the said four and twentieth Day of June One thousand seven hundred and twenty shall be deemed to be a publick Nuisance’, among them the making and taking of any Subscriptions […] the receiving or paying of any Money upon such Subscriptions […] and more particularly the presuming or pretending to act as a Corporate Body, or to raise a transferrable Stock or Stocks, or to make Transfers or Assignments of any Share or Shares therein without such legal Authority.

On the other hand, Title 25 exempted ‘the carrying on of any home or foreign Trade in Partnership, in such Manner as hath been hitherto usually, and may be legally done’ (Raithby 1811, 334–35). This was Morice’s opportunity: with the pace of inquiries into Morice’s scheme for financing his slave-trading operations reaching a peak just as the new law went into effect on 24 June, was there a way of reframing his project

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as a partnership of the sort approved by both custom and law, rather than as a ‘Corporate Body’ and therefore ‘a publick Nuisance’? With access to capital of as much as £600,000 riding on the answer to this question, Morice sought out the highest-powered legal advice he could get. He sent questionnaires to a number of jurists, receiving back five responses, of which one was unsigned and undated. The other four came from some of the legal establishment’s most distinguished figures. Thomas Reeve, called to the bench of Middle Temple just that year, had already made a thriving practice of pleading in King’s Bench (Baker 2004).14 Thomas Bootle had significant experience consulting with a corporation of a different sort than Morice’s, having helped defend Liverpool’s town charter during his stint as town attorney there (Cruickshanks 1970a). Thomas Lutwyche wore the silken gown of a King’s Counsel, in addition to his service as a Tory MP (Rigg and Brown 2004). Most impressive of all was Sir Thomas Pengelly: Whig MP, Serjeant-at-Law in the Inner Temple, and ‘the leading common lawyer of his generation’. Being in particular ‘an acknowledged expert in the law of corporations’, Pengelly would eventually consult with upwards of 27 projectors like Morice with a sudden interest in compliance with the Bubble Act (Lemmings 2004; DuBois 1971, 3–4). Beginning in its preamble, the questionnaire Morice sent to the five lawyers showed his awareness of the obstacle that the Bubble Act might pose to his fundraising effort, and his attempt to present his project as an (allowable) partnership rather than as a (disallowed) corporate body. The preamble set out the hypothetical case that ‘A B C &c. enter into Partnership to carry on a Foreign Trade’ to an unnamed location; having done this, they then found that ‘the same being very extensive will necessarily require a sum to the amount of £600,000’. As a remedy, the original partners ‘proposed to let in others to the number of [blank] as Adventurers’. The legal fiction Morice hoped to create, then, was that this was a pre-existing partnership among a few parties, who had since discovered a need for massive additional capital. They hoped to address this by taking on an undefined but presumably very large number of additional partners, ‘either by subscription […] or without Subscription by only delivering out a Ticket or Bill of Sale’—potentially an important distinction, given the Bubble Act’s heavy emphasis on subscriptions as a particular grievance 14 For a useful discussion of the professional hierarchy of the common lawyers, see O’Day (2000, 138–46).

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(‘Opinions of five counsel on a proposal for forming a company to carry on a foreign trade 1720’ [hereafter ‘Opinions’], in Morice Papers, reel 4, vol. 8). To illustrate what these two alternatives might look like, Morice attached three sample documents. The first was a subscription agreement, which stipulated that the terms on which new adventurers that entered the partnership would ‘be established & Declared by Deed indented to be Executed between [blank] on the one part, & for themselves & all others who shall become engaged and adventurers in the said Partnership & Trade on the other part’ [emphasis in original]. The subscribers agreed that they had paid in at least £200 of every share of £1000 they had claimed, and that further payments of capital or distributions of dividends would be ‘subject to such Regulations […] as shall be declared in the said Indenture, and shall be further agreed on & Directed by a Majority’ of the subscribers ‘or by Such persons as shall be nominated & Authorised by a Majority of us or our assignes’. The second is recognizable as a bearer share certificate, stating that ‘This Entitles the Bearer to one Share of Six hundred Shares’. The third was a registered share certificate, declaring that ‘A.B. hath Credit in Books of the Partnershipp for carrying on a Trade to [blank] under the Trust of C,D,E for the sume of Two hundred Pounds by him paid to the Cashire of the said Partnership towards his Proportion of one six hundredth Part Adventure therein’. Both the bearer certificate and the registered certificate, Morice suggested, stood as available alternatives to an official subscription agreement (‘Opinions’ 1720). Having set out the case for the consideration of his correspondents, Morice now posed his two questions: 1. Q. If such Partnership & Trade in the method proposed may be lawfully carried on, and the Shares therein may be assign’d notwithstanding the late Act […] In which Act there’s an Express saving of Partnershipps for carrying on of Foreign Trade. 2. Q. In which of the methods proposed is it safest to proceed and If it be necessary to alter the form of that which shall be thought most proper, be pleased to alter it accordingly. (‘Opinions’ 1720) On 21 July, the day after receiving the last of the 53 queries from prospective investors that appear in his papers, Morice got replies from

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both Thomas Reeve and Thomas Pengelly, neither of them encouraging. Pengelly’s note was the terser of the two and conceded at its beginning the argument that the Bubble Act did not outlaw ‘the carrying on any Trade in a Copartnership’, or even ‘upon a joint stock’, so long as it was done ‘according to the ordinary methods of dealing’. But Pengelly went on to place Morice’s proposal definitely outside the ‘ordinary methods of dealing’: the Forming Publick Undertakings to be carried on by Large societies of Members, under great Subscriptions, whereof small proportions are paid down, and thereupon pretending to assigne & Transferr their Shares, and to act in the nature of a Corporate Body, according to the Scheme now proposed in the present Case, is Expressly prohibited by the late Statute. (‘Opinions’ 1720)

This was consistent with the advice that Pengelly had begun to dispense to projectors as early as 15 June, a mere four days after the Bubble Act’s passage. Parliament’s intention as he understood it was to suppress was the creation of large joint stocks whose shares could be easily transferred from person to person, and evidently some of the projects brought to him did not meet that description; out of a group of 23 projects on which he consulted, he approved eight of them (DuBois 1971, 4, 43n12, 45n17). Alas for Morice, each of his three proposed methods for organising his project involved a large number of transferable shares, which, for Pengelly, put them ‘within the Description of the Offenses Intended to be suppress’d, and I can not advise any other method, wherein it will be safe to proceed’ (‘Opinions’ 1720). Thomas Reeve arrived at a similar verdict, but hedged somewhat more than Pengelly, cautioning Morice that ‘The penalties of the late act being so very great I cannot advise the proceeding in an undertaking of this kind wthout better consideracion’. Reeve warned that if Morice’s investors ‘are designed to be bound by rules & orders to be made by a select number of Managers, this is setting up a method of acting as a body Corporate’ and was therefore illegal. On the other hand, Reeve noted that ‘Partnerships for the carrying on of any home or Forreign Trade are allowed’, and appealed to time-honoured practice as the ultimate guide for whether Morice’s scheme was to be considered a partnership or a corporation:

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Whether any Trade hath been usually carryed on in the method proposed, a partnership wthout being a Corporation, is a matter of fact that I am not acquainted wth. But if it hath been a method usually practiced, I do not see but that it may be pursued in this case wthout subjecting the persons concerned to the penalty of the Act.

Reeve, however, doubted whether it was usual practice to divide a partnership into ‘such a number of shares, & partners who are designed to be enabled to assign over their shares from time to time that shall purchase the same’. Unlike Pengelly, Reeve did at least offer Morice a theoretical path around this prohibition on transferable shares by ‘the executing of a New Deed of Partnership upon the taking in of every new Partner’, but he rightly branded this ‘impracticable’ (‘Opinions’ 1720). Though Thomas Reeve rejected Morice’s dodge involving a preexisting set of partners who just happened to discover a need for more investment capital and to meet that need by taking in large numbers of additional ‘partners’, Thomas Bootle proved far friendlier to that interpretation of the Bubble Act. In fact, Bootle’s opinion, dated eight days later on 29 July, accepted and endorsed just about every element of Morice’s legal reasoning. In response to Morice’s claim that the Bubble Act contained ‘an Express saving of Partnerships for carrying on of foreign trade’, Bootle wrote: By that saving Proviso (as I apprehend it) all Partnerships wtsoever for carying on of any Home or foreign Trade are excepted so that with respect to such Partnerships the Law stands as it did before the making of the Act and as there was not then any Law to prohibit the carying on of Trade in the manner propos’d I don’t see how this act can be extended to restrain it.

Bootle went so far as to suggest that if the Bubble Act were interpreted so as to outlaw a plan like Morice’s, the inevitable implication would be that ‘No Trade whatsoever at the remotest distance of time (this being a perpetual Law) can be cary’d on in partnership in any other method than what had been usd’ before the making of the Act’, and would thus ‘cramp & prejudice Trade and prevent all Improvem[en]ts in that way’ (‘Opinions’ 1720). For Thomas Bootle, the wisest possible interpretation of the Bubble Act was one that would avoid the stifling of business innovation that would result from the stricter construction advanced by Thomas Pengelly and Thomas Reeve.

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Morice, of course, would have been less interested in these general speculations than in how he could fortify his own specific project against legal challenge. Here Bootle reinforced Morice’s hunch that it was the subscription, or the lack thereof, that made the difference between a legal and an illegal scheme under the Bubble Act. Bootle therefore advised that ‘it will be safest to proceed according to the method No. 2’—that is, the use of bearer certificates—‘as alter’d without taking any subscription whatsoever’. His alteration to the form of the certificate proposed by Morice was that the bearer would not be entitled to ‘one share of six hundred shares […] of the Trade […] Entered into & now carrying on in partnershipp by A.B.C. &c’. Bootle’s version of the certificate would instead entitle the bearer to a share ‘of the Produce & profit of the Free & Separate Trade […] Enter’d into, & now carrying on in partnershipp by A, B, C [note the omission of &c.]’. By separating the ‘Produce & profit’ of the trade from the trade itself, just as the harvest from a plot of land could be separated from the land itself, Bootle argued that ‘the Partnership will be confin’d to three only […] & continue in the original Partners’, even as shares in the produce and profit of the partnership might circulate among many hands. His insertion of the loaded words ‘Free & Separate’, by tapping into the tradition of ‘separate traders’ as opponents of the Royal African Company’s previous monopoly on the African trade, further emphasised that Morice’s project would not act as a corporate body. By taking these steps—‘provided the Trade in itself be beneficial to the Publick’, Bootle added due to his concern with the law’s wider consequences—Morice could ensure that his project ‘cannot be said to be an unlawfull undertaking leading to the comon Grievance of the Subject in Trade because ‘twill be the contrary. Nor raising mony be Subscriptions or making transferrs of Shares upon any such Subscription, No Subscription being taken’ (‘Opinions’ 1720). The author of the unsigned and undated opinion saw a still wider path to Morice’s compliance with the Bubble Act than even Thomas Bootle did. This jurist agreed with Bootle that Morice’s second hypothetical option, bearer certificates, ‘may be prop[e]r enough’ for allowing in adventurers beyond the originally indentured partners, and ‘may be more fitting than No. 3’, the registered certificates. But unlike Bootle, this opinion also saw no problem with Morice’s proposal ‘to gayn subscriptions to signify the adventur[e]rs cons[en]t to imbark and engage’. As far as this unknown jurist was concerned, the Bubble Act required only

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that ‘no monopoly or ingrossing, always inconvenient to the publick, be introduced’ by Morice’s project (‘Opinions’ 1720). The final jurist to weigh in on Morice’s plan was Thomas Lutwyche, who on 8 August delivered an opinion that was ambiguous, but on balance more approving than otherwise. Noting that the Bubble Act exempted trades carried on ‘in partnership in such manner as hath been done before that time’, Lutwyche opined that ‘I think there is no objection can be made to this undertaking unless it be to the great number of shares that there must of necessity be to raise 600,000l’. If indeed this amount of money was necessary to operate this trade, and if the projectors did indeed apply everything they raised to that trade, then Lutwyche did not see it as punishable under the Bubble Act. He also agreed with the unsigned counsellor that it would be allowable to bring in most of the adventurers using a subscription, warning only that the indenture between the principal partners ought to be executed before taking up the subscription (‘Opinions’ 1720).

3.5

Conclusion

Humphry Morice and his five legal counsellors were dealing with a brandnew act written in problematically ‘general and ambiguous’ language, as Serjeant Pengelly complained (DuBois 1971, 4). Over the next several decades, the Bubble Act forced would-be projectors to turn to lawyers for their opinions about how to avoid incurring its criminal and civil penalties, just as Morice had done in calling upon the four Thomases and their unnamed colleague. Some of the pathways suggested by Thomas Bootle and Thomas Lutwyche in particular would over time become customary methods of business organisation. In his Treatise of the Law of Partnership, William Watson (1794, 73–74) of Lincoln’s Inn deemed it ‘not unusual for gentlemen of large and independent fortunes’ to invest heavily as ‘dormant partners’ in unincorporated companies run by skilled merchants with whom they engage, in a general partnership of all their stock and effects, yet not suffering their names to appear in the copartnership firm; but at the same time receiving a proportionate share of the profits arising out of their joint trade, bearing equally their risk of loss.

Shares in the profits of such unincorporated companies could not be transferred as freely as Morice had wanted his to be, but Thomas Bootle’s

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suggestion of a distinction between named partners and unnamed investors is here, and the deed of settlement by which such companies were usually organised tallies with Thomas Lutwyche’s recommendation to sort out the contract paperwork among the named partners before bringing in the dormant partners (Turner 2017, 11–12; DuBois 1971, 217–18). In the short run, however, mentions of the subscription project disappear from Humphry Morice’s papers after August 1720, even as the prices of South Sea Company shares embarked on their precipitous decline from their peak earlier in the summer. Morice had entertained high hopes of obtaining £600,000 to finance his continuing Atlantic commercial endeavours, and 53 of his friends and acquaintances had harboured similar expectations of profiting from his expertise in the African trade. Notably, none of them expressed any moral reservations about the nature of that trade; indeed, not a single one of their inquiries with Morice even mentioned the fact that their money would be funding the forced transport of enslaved Africans to the British plantations in America, or that their profits would come from the success of that operation. Very few, if any, of them could have been unaware of the fact; did they prefer not to think of it, or were they so supremely untroubled that it occasioned no mention? Either way, if would-be subscribers had ‘never had any Opinion of that Trade til now’, their reassessment was because ‘Mr Morice is said to appear at the head […] & the Character of that Gen’t being likely to give a Great Credit to such an affair’ (Joseph Andrews to Morice, 21 June 1721, Morice Papers, reel 4, vol. 7).

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Bucholz, R.O. 2004. Herbert, Thomas, Eighth Earl of Pembroke and Fifth Earl of Montgomery. In Oxford Dictionary of National Biography, September 23. https://doi.org/10.1093/ref:odnb/13050. Cruickshanks, Eveline. 1970a. ‘Bootle, Thomas (1685–1753), of Lathom Hall, nr. Liverpool, Lancs’. In The History of Parliament: The House of Commons, 1715–1754, ed. Romney Sedgwick. Martlesham: Boydell and Brewer. https://www.historyofparliamentonline.org/volume/ 1715-1754/member/bootle-thomas-1685-1753. Accessed 24 Feb 2022. ———. 1970b. ‘Morice, Humphry (c.1671–1731), of the Grove, Chiswick, Mdx.’ In The History of Parliament: The House of Commons, 1715–1754, ed. Romney Sedgwick. Martlesham: Boydell and Brewer. https://www.historyof parliamentonline.org/volume/1715-1754/member/morice-humphry-16711731. Accessed 24 Feb 2022. Cruickshanks, Eveline, and Stuart Handley. 2002. Morice, Sir Nicholas, 2nd Bt. (1681–1726), of Werrington, Devon. In The History of Parliament: the House of Commons 1690–1715, ed. Hayton et al. https://www.historyofpar liamentonline.org/volume/1690-1715/member/morice-sir-nicholas-16811726. Accessed 24 Feb 2022. Dale, Richard. 2004. The First Crash: Lessons from the South Sea Bubble. Princeton, NJ: Princeton University Press. DuBois, Armand Budington. 1971. The English Business Company After the Bubble Act. New York: Octagon Books. Eburne, Andrew. 2003. Charles Bridgeman and the Gardens of the Robinocracy. Garden History 31 (2): 193–208. Finger, Stanley. 2006. Doctor Franklin’s Medicine. Philadelphia: University of Pennsylvania Press. Froide, Amy M. 2016. Silent Partners: Women as Public Investors during Britain’s Financial Revolution, 1690–1750. Oxford: Oxford University Press. Fuglestad, Finn. 2018. Slave Traders by Invitation: West Africa’s Slave Coast in the Precolonial Era. New York: Oxford University Press. Gauci, Perry. 2001. The Politics of Trade: The Overseas Merchant in State and Society, 1660–1720. Oxford: Oxford University Press. Geyl, P. 1925. William IV of Orange and His English Marriage. Transactions of the Royal Historical Society 8: 14–37. Harris, Ron. 1994. The Bubble Act: Its Passage and Its Effects on Business Organization. Journal of Economic History 54 (3): 610–27. ———. 2019. Going the Distance: Eurasian Trade and the Rise of the Business Corporation, 1400–1700. Princeton, NJ: Princeton University Press. Hayton, D.W. 2002. De Grey, Thomas (1680–1765), of Merton, Norf. In The History of Parliament: the House of Commons 1690–1715, ed. David Hayton, Evaline Cruickshanks, and Stuart Handley. Martlesham:

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Boydell and Brewer. https://www.historyofparliamentonline.org/volume/ 1690-1715/member/de-grey-thomas-1680-1765. Accessed 24 Feb 2022. Journals of the House of Commons [H.C. Journals ]. 1803. Reprint of vol. XIX, from 11 Nov. 1718 to 7 March 1721. London: HMSO. Lemmings, David. 2004. Pengelly, Sir Thomas (1675–1730), Judge. In Oxford Dictionary of National Biography, September 23. https://doi.org/10.1093/ ref:odnb/21837. Matthews, Shirley. 1970. ‘Nelthorpe, James (c.1675–1734), of Lynford Hall, Norf.’ In The History of Parliament: The House of Commons, 1715–1754, ed. Romney Sedgwick. Martlesham: Boydell and Brewer. https://www.historyof parliamentonline.org/volume/1715-1754/member/nelthorpe-james-16751734. Accessed 24 Feb 2022. Mitchell, Matthew David. 2013. “Legitimate Commerce” in the Eighteenth Century: The Royal African Company of England under the Duke of Chandos, 1720–26. Enterprise & Society 14 (3): 544–78. ———. 2020. The Prince of Slavers: Humphry Morice and the Transformation of Britain’s Transatlantic Slave Trade. London: Palgrave Macmillan. [Morice Papers ] The Humphrey Morice Papers from the Bank of England. 2000. Part 1 of Slave Trade Journals and Papers. 4 reels. Marlborough: Adam Matthew Publications. O’Day, Rosemary. 2000. The Professions in Early Modern England, 1450–1800: Servants of the Commonweal. Harlow: Longmans. ‘Opinions of Five Counsel on a Proposal for Forming a Company to Carry on a Foreign Trade 1720’ [‘Opinions’]. 1720. In Morice Papers 2000, reel 4, vol. 8. Palmer, Sarah. 2007. ‘Lloyd, Edward (c.1648–1713)’. In Oxford Dictionary of National Biography, October 4. https://doi.org/10.1093/ref:odnb/16829. Pettigrew, William A. 2013. Freedom’s Debt: The Royal African Company and the Politics of the Atlantic Slave Trade, 1672–1752. Chapel Hill: University of North Carolina Press. Rabb, Theodore K. 1967. Enterprise and Empire: Merchant and Gentry Investment in the Expansion of England, 1575–1630. Cambridge, MA: Harvard University Press. Raithby, John, ed. 1811. The Statutes at Large, of England and of Great-Britain: From Magna Carta to the Union of the Kingdoms of Great Britain and Ireland. Vol. 8: From 3 George, A.D. 1716–To 13 George, A.D. 1726. London: George Eyre and Andrew Strahan. Rawley, James A. 2003. Richard Harris: Slave Trader Spokesman. In London: Metropolis of the Slave Trade, ed. James A. Rawley, 57–81. Columbia: University of Missouri Press.

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Rigg, J.M., and Robert Brown. 2004. Lutwyche, Thomas (bap. 1674, d. 1734), Lawyer. In Oxford Dictionary of National Biography, September 23. https:// doi.org/10.1093/ref:odnb/17230. Ruderman, Anne Elizabeth. 2016. Supplying the Slave Trade: How Europeans Met African Demand for European Manufactured Products, Commodities and Re-exports, 1670–1790. PhD dissertation, Yale University. Slave Voyages Consortium. 2021. The Trans-Atlantic Slave Trade Database, ver. 2.2.13. http://www.slavevoyages.org. Accessed 11 Mar 2022. Special Report, from the Committee Appointed to Inquire into, and Examine the several Subscriptions for Fisheries, Insurances, Annuities for Lives, and all other Projects carryed on by Subscription, in and about the Cities of London and Westminster; and to Inquire into all Undertakings for purchasing Joint-Stocks, or Obsolete Charters [Special Report ]. 1720. London: Printed for Jacob Tonson, Timothy Goodwin, Bernard Lintot, and William Taylor. Turner, John D. 2017. The Development of English Company Law before 1900. Belfast: Queen’s University Centre for Economic History Working Paper Series, no. 2017-01. https://www.quceh.org.uk/working-papers-2017.html. Accessed 19 Sept 2022. Watson, William. 1794. A Treatise of the Law of Partnership. London: A. Strahan and W. Woodfall.

CHAPTER 4

‘That Ever-Memorable Year of Epidemical Infatuation’: Incorporation, the Jamaica Mines Company, and the Bubble Act of 1720 Aaron Graham

4.1

Introduction

The Bubble Act of June 1720 banned the formation of joint-stock companies not authorised by a royal or parliamentary charter. Enacted at the instigation of the South Sea Company during ‘that ever-memorable year of epidemical infatuation’, the act’s purpose was to channel capital from London’s financial markets into the company’s stock and to prevent these funds from being siphoned off by competing ventures. The following month, a small but equally significant legal change was made; the Privy

A. Graham (B) Early Modern British Economic History, University College London, London, UK e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 H. Paul et al. (eds.), The Bubble Act, Palgrave Studies in the History of Finance, https://doi.org/10.1007/978-3-031-31894-8_4

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Council decided that a clause would be inserted in all future patents ‘for preventing the illegal use made of such patents to raise subscriptions contrary to the late Act of Parliament’, by allowing them only to be divided among five people (MacLeod 1988, 55; Dutton 1984, 152). The clause was therefore another part of the South Sea Company’s strategy, and, like the Bubble Act, it proved equally durable; Christine MacLeod (1986) has found that the law officers were ‘intractable’ in enforcing obedience to this clause, thereby closing off an avenue which had been used since the 1690s to provide a corporate framework for entrepreneurship. Yet the significance of the Bubble Act is hard to judge, as recent scholarship has argued that it actually had little impact on the wider British economy because few ventures wanted or needed to make use of the power of incorporation or else found ways to work around the act until it was repealed in 1825. This chapter analyses whether the ‘bubble clause’ of 1720 was similarly irrelevant, by examining one of the last corporations set up under a patent, the Jamaica Mines Company, or the Royal Mines Company of Jamaica. Formed in June 1720 at the height of the Bubble to mine gold, silver, and other minerals in Jamaica, it ignominiously collapsed within a year. This was largely because of, rather than despite, the powers and privileges granted by the patent. The company’s experience suggests that the corporate form remained of limited use for most commercial ventures and that the ‘bubble clause’, like the Bubble Act, therefore had relatively little impact on wider corporate developments.

4.2

Context

An important strand in the scholarly literature on business and commerce argues strongly for the key role played by the modern joint stock, limited liability company in economic development (Abbott 1936; DuBois 1938; Hunt 1936; Scott 1951). Its corporate structure provided a useful framework for mobilising and assembling capital and for managing various technical skills and competencies. The relaxation of the restrictions on incorporation in the United States after 1783, for example—and the repeal of the Bubble Act, extended to British America by parliamentary statute in 1740—led to an acceleration in incorporation between 1790 and 1860 which has been connected by Robert Wright (2014) and others with the rapid economic development occurring in this period

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(Sylla and Wright 2013; Davis 1917; Hurst 1970).1 Other work has suggested the need for caution—for recognising the differences between the act of incorporation and actual operation, and the wider importance of the economy and society in exploiting these corporate powers (Hannah 2014). My own studies of incorporation in the British Caribbean and Australasia, for instance, suggest that as late as 1860 incorporation was limited to a few key sectors with heavy capital requirements and that many entrepreneurs preferred to work through partnerships, trusts, or other commercial forms (Graham 2019a, b). With reference to Britain, Ron Harris (2000) has argued that legal form followed function during much of the eighteenth century, insofar as entrepreneurs requiring incorporation either obtained exemptions to the Bubble Act or found alternative forms. The effect of the act up to its repeal in 1825 was thus largely to dictate the form that incorporation took, rather than to prevent it in the first place, suggesting that the economic impact of the Bubble Act was relatively slight. Examining the operation of the ‘bubble clause’ added to patents after 1720 reinforces Harris’ argument by identifying a similar dynamic within a patent company. A patent was a royal grant giving the holder an exclusive set of proprietorial legal rights to an office, to specific legal and jurisdictional powers, to a piece of intellectual property, or to land or specific privileges attached to it. In the case of the Jamaica Mines Company, the patent established the Crown’s rights under the royal prerogative to all the precious metals recovered. As recently as the 1690s, there had been a brief boom in patents of invention, mainly fuelled—as Christine Macleod (1986) showed—not by a sudden surge in inventing, but by a mania for projecting during one of the first stock market booms of the English ‘financial revolution’, with companies being founded on the back of the legal rights created by the patents.2 The brief boom ended in 1693 as several leading schemes ignominiously collapsed, tarring their promoters with the same brush as many other ‘projectors’ in this period, and as competition for investment appeared in the form of government 1 The importance of the state-chartered corporation in banking and internal improvement was particularly stressed by the Commonwealth School in the 1940s and 1950s and has since enjoyed a revival: Scheiber (1972), Novak (1996, 105–11), Larson (2001), Balogh (2009, 112–50). 2 For the wider boom in the 1690s, see Yamamoto (2018, 229–66), Dickson (1967, 46–57, 486–97), and Murphy (2009, 161–219).

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borrowing. Macleod sees this as an important moment in the development of patents of invention, as they shifted away over the next two decades towards being a legal recognition of intellectual property (1986, 570). The embarrassment of the Jamaica Mines Company may have even been this trigger, not least because the restriction was extended to all patents. When a new patent for the royal mines in Jamaica was issued in 1745, for example—while the Jamaica Mines Company case was still ongoing—new instructions were drawn up for colonial governors, stating that, ‘in order more effectually to guard against any monopoly’, the patent was not to be issued ‘to any one person or any set of persons united in one body, but only of such mine or mines […] as shall be found, gained, dug or opened by the said grantees, their workmen or agents’ (Labaree 1967, 2: 679–87; Ledward 1920–1938, vol. 8: 49, 55, 77, 88, 116, 167–68, 171, 175–78, 185). Even if this was not the case, the company provides a useful case study of a patent company in operation at the very moment the form was banned, making it possible to examine how far the practice of this form of incorporation contributed it its success or failure.3 The Jamaica Mines Company is not entirely unknown, but it has usually been dismissed as a ‘bubble’ got up by its promoters to defraud the subscribers. This is due to a much later legal ruling which stated that the mining projects launched by the patentees ex post facto in April 1721 were ‘for no other purposes but to screen themselves from justice’.4 Edward Long, a Jamaican planter and historian and the grandson of the leading figure Charles Long, was of this opinion (Howard 1925, 1: 70; L[ong] 1852). Some later studies have been less critical, but all have dealt with the company peripherally (Condorelli and Menning 2019, 61, 64; Treadwell 1976, 52–56). This reflects the state of the remaining sources. Although a certain number of records survive and were deposited in the British Library by Long’s descendant—including a list of subscribers and numerous accounts and letters between Long and the general manager of the company, William Wood—recovering the details of the enterprise is challenging. A large number of the letters are partially or wholly undated, making it necessary to extrapolate or estimate the exact chronology and 3 For the benefits that a case study of a single company can offer our understanding of wider financial change, see Rosenhaft (2019), Cummings (1986), and Murphy (2009, 161–92). 4 British Library, London (hereafter BL) Add. MS 36156 ff. 139r–144r.

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key details are unclear, such as the funds invested in South Sea Company stock in 1720. Nevertheless, enough remains to suggest that the Jamaica Mines Company was a serious scheme rather than a fraud, which intended at least initially to use the patent to raise money for a profitable mining venture in Jamaica. The mining itself benefitted little from the corporate structure provided by the patent, however; indeed, the company proved far too effective at raising money, which was the cause, ironically, of most of its problems. Its experience suggests that incorporation, even by patent, was not a silver bullet in commercial terms; that it did not necessarily help to make early modern ventures and projects more successful or effective; and that the absence of an easy and accessible means of incorporation, as Harris (2000) has argued, therefore did not have catastrophic effects for the development of the early modern economy.

4.3

Formation

Finding gold and silver in Jamaica and other islands in the British Caribbean was a long-held ambition of imperial and colonial projectors. Several grants of land and mining rights had been made since 1660, and the investment and speculation that accompanied the South Sea Bubble in 1720, which was reflected in proposals for a range of mining ventures in Britain and further afield, encouraged a small group of investors to bring this forward.5 Comprised in part of planters from Jamaica and merchants trading with the island—those who might therefore be assumed, as some investors later complained, to have direct and first-hand knowledge of gold, silver, and other metals in the island—they seem to have relied on the promises of Henry Barham, an English medical practitioner, and natural philosopher. Barham had trained as a naval surgeon and settled in Jamaica around 1700, returning to Britain about 1716, where he joined the Royal Society and published plans to cultivate the silkworm in Jamaica (Henderson and McConnell 2004). As a correspondent of Sir Hans Sloane, Barham toured the island regularly in search of biological and botanical samples and had written to Sloane as early as 1717 noting the superabundance of ores.6 ‘To give a particular account of every sort 5 For previous proposals in Jamaica, see Shaw and Slingsby (1904–1962, 3: 76, 92, 98 and 18: 211). For other colonial mining projects, see Bodle (2003). 6 Barham to Sloane, 21 Nov. 1717 and 11 Dec. 1717, BL, Sloane MS 4045 f. 68r–71r and 77r–79r.

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would make a large treatise in itself’, he wrote in December 1717, for example, ‘[…] [and] if there were a set of rich and public-spirited men [who] would set heartily about the work and with good resolution to see the depth or bottom of them’, it could be immensely profitable, ‘[…] [especially] if I could direct them where to begin’.7 The Jamaica Mines Company probably directly arose from Barham’s conversations in 1720 with two key individuals. The first was William Wood, ‘merchant, pamphleteer, lobbyist, projector and placeman’, and a leading mercantilist writer, who had been trading with Jamaica since 1700 (Treadwell 1976, 42–63).8 The second individual was Charles Long, a leading planter recently returned from Jamaica, and also son-in-law to its new governor, Sir Nicholas Lawes (Treadwell 1976, 53; Whitson 1929, 142–44). These three men were instrumental in getting the Jamaica Mines Company off (and into) the ground. The first stage was to lobby the Crown for the patent granting them the rights to all metals in Jamaica, a part of the royal prerogative. Long and Wood assembled seven other individuals to hold this patent, on the security of which they would raise cash for exploiting the ores. One, Samuel Long, was his infant son. John Ayscough, John Carver, and Samuel Lowe were leading Jamaican planters, now resident in Britain.9 Richard Thompson was a merchant trading with Jamaica and a partner in the house of Messrs Thompson & Kent (Graham 2016, 92–96; Christie 1995, 45; Sedgwick 1970, 2: 467). This group was very closely connected with the circle around Lord Archibald Hamilton, the ill-fated governor of Jamaica between 1711 and 1716, who had been forced out after being accused of secretly supporting piracy (Zahedieh 2015; Wilson 2021, 45–53). Wood had worked with Hamilton in Jamaica and wrote pamphlets in support of him after his return to Britain (Treadwell 1976, 46–53). Thompson—‘commonly called here Grand Thompson’— had recently returned from Jamaica in 1711 and recommended Hamilton

7 Barham to Sloane, 11 Dec. 1717, BL, Sloane MS 4045 f. 77r–79r. 8 ‘Samuel Marwood’s letter touching his co-partnership with Thomas Wood’, 18

Sep. 1713, Bodleian Library (hereafter Bod. Lib.), Rawlinson MS A.312 ff. 114r–116v. Also involved in the trade was John Mead, a merchant in Cadiz who would go on to serve as Deputy-Paymaster of the Forces in Spain under Charles Fox and James Brydges, first duke of Chandos: Graham (2015, 106, 154–60, 218, 236). 9 Charles Long, John Carver, and Henry Lowe had been patentees during one of the earlier grants of royal mines in 1703: Shaw and Slingsby (1904–1962, 8: 18).

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to Richard Rigby, John Stewart, and William Brodrick, who became his allies there.10 Brodrick had acted as counsel for Wood against his former partner Samuel Marwood, who later aligned himself with Hamilton’s opponents in Jamaica (Treadwell 1976, 44–46).11 At least one of those opponents violently denounced Wood as ‘notorious[ly] prostitute to the commands of that St Germain [i.e. Jacobite] villain [Richard] Rigby’, who was also accused of falsifying a legal ruling in 1713 in favour of Charles Long.12 The evidence therefore suggests that the patent was in fact a framework for incorporating interests already united by personal and private connexions. The remaining two patentees, George Turbill and Thomas Marten, were the secretary and the registrar respectively to the Commissioners for Forfeited Estates. These commissioners, one of whom was Charles Long, had been appointed in 1716 in the wake of the Jacobite revolt to dispose of the estates forfeited by English and Scottish Jacobites (Barlow 1968; Szechi 2006, 240–49). Their inclusion was a result of Long’s official contacts but also, at least in part, an opportunity to incorporate into the company persons with expertise in the land and even the mining business. Having obtained their patent on 4 July, the patentees then divided it up into 1500—later 2000—shares of £75 each and began to market them to investors from the offices of the Forfeited Estates Commission in Essex House in London.13 Indeed, there was a substantial degree of overlap. All of the commissioners and many of the staff were subscribers to the Jamaica Mines Company.14 The accomptant-general of the commissioners, a London merchant named Chambers Slaughter, appears to have held and helped invest the cash received; while the subsequent legal cases

10 Mackenzie to Campbell, 31 Aug. 1711 and 15 Oct. 1711, and Totterdell to Gawne, 18 June 1712, Bod. Lib., Rawlinson MS A.312 ff. 21r–22r, 30r–31r and ff. 82r–86r. 11 ‘The deposition of Roderick Mackenzie’, 12 Dec. 1713, and ‘Samuel Marwood’s letter’, 18 Sep. 1713, Bod. Lib., Rawlinson MS A.312 ff. 96r–99r and f. 114r–116v. 12 Philo-Jamaicus to ‘my Lord’, n.d., Bod. Lib., Rawlinson MS A.312 ff. 169r-v. 13 National Archives, London (hereafter NA), E112/994/1086 nos. 14–17 (Wood)

and 22 (Long); Wood to Long, 17 and 23 Aug. 1720, 3 Sep. 1720, 17 Jan. 1720/1, 24 Feb. 1720/1, BL, Add. MS 22639 ff. 30r, 108r-v, 110r-v, 112r, 124r-v. 14 The commissioners were John Birch (3 shares), Dennis Bond (5), George Gregory (1), Thomas Hales (5), and Charles Long (5). The staff were William Moore (5), Carew Hoare (1), William Marwood (1), John Pargiter Harris (3), Samuel Allen (2), Chambers Slaughter (5), Jonathan Maughan (1), and Thomas Hancock (2).

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revealed that 506 shares had been left in trust with Thomas Shuckforth, the deputy-registrar, ostensibly reserved for investors in Jamaica who might choose to subscribe.15 Some patentees stated that a large bloc of these shares, as many as 200, were set aside as a private investment for George Treby, a former commissioner who had been made Secretary at War earlier that year and had used his influence in government to help Long to get the patent passed.16 Treby himself was not listed as a subscriber, but Wood’s correspondence shows that he consulted Treby on many matters.17 Treby’s participation clearly helped widen the circle of investors. For example, the Duke of Chandos, an enthusiastic speculator with his finger on the pulse of London’s financial markets, wrote to Sir Nicholas Lawes in Jamaica that he had invested in the company because Treby and Long had promoted it ‘and my respect to those gentlemen hath brought me into it’, though he now asked Lawes privately to advise him ‘whether it is a project likely to come to good, and whether in reality there hath been any such mines discovered or reason to believe there can be’.18 Like the sale of forfeited lands in Ireland after 1691 (see Dickson 1967, 394–96; Walsh 2014, 20–42; Bell 2012), the sale of the forfeited estates after 1716 created a feeding frenzy among speculators, the biggest of which was the York Buildings Company, and further study will probably demonstrate that many investors were draw into the Jamaica Mines Company through the Forfeited Estates Commission (Barlow 1968, 137; Cummings 1994). Mostly though, the company simply exploited the market, and by August 1720, the entire £150,000 had been subscribed, and at least £93,300 had been received, in a mixture of cash, bank notes, and other paper.19 Naturally, a number of subscribers later claimed, in their legal 15 NA, E112/994/1086 no. 4 (Shuckforth) and no. 11 (Turbill). 16 NA, E112/994/1086 no. 3 (Treby), no. 7 (Carver), nos. 9–10 (Thompson), no.

11 (Turbill), nos. 12–13 (Ayscough), and no. 18 (Lowe). 17 BL, Add. MS 22639 ff. 32r-v, 40r-v, 42r-v, 67r-v, 78r-v, 80r, 90r, 141r-v. He was also listed as one of the patentees who could be expected to help bail out the company: BL, Add. MS 22639 ff. 55r-v, 156v–157v, 168r, 184r–185r, 218r. 18 Chandos to Lawes, 23 Sep. 1720, Stowe Papers, MS, ST 57 vol. 22, 151–52, Huntington Library, San Marino, CA. For Chandos as an investor, see Yamamoto (2016), which refutes older scholarship depicting him as uninformed speculator: Baker and Baker (1949, 206–20, 337–64), Dickson (1967, 318–19). 19 ‘Account of Charles Long Esq’, [ca. early 1722], BL, Add. MS 22639 ff. 163v–164r, and BL, Add. MS 43498. For the list of unpaid shares, see the deposition of William

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case against the company, that they had been tricked into investing by false promises of profit. ‘The projectors for several months [then] amused the subscribers’, some of the aggrieved proprietors later stated, ‘with pretences that they were actually working the said mines, which soon afterwards came out to be mere amusement’, and offered evidence that it was a fraud from the outset.20 Chandos himself told Lawes that his own investment had been driven by his personal knowledge and connections with Treby and Long, but that ‘the humour of the age hath made people of all degree so fond of Projects […] that for these eight months past nothing could be proposed, though ever so extravagant and whimsical, for the promoting of which a subscription was not greedily entered into’.21 Samuel Long testified that he had visited his father and the rest of the patentees at Essex House in July, and met Lord Onslow—the promoter of yet another Bubble scheme, the Royal Exchange Assurance Company— on the stairs, ‘who gave this defendant £300 and told this defendant he was in haste himself, but should be obliged […] if he would pay in the said £300 for him on account of some shares in the said Jamaica mines, or to that effect’.22 Onslow was duly enrolled for five shares, and his wife and son for another five (BL, Add. MS 43498; for Onslow, see Scott 1951, 3: 399–404; Dickson 1967, 145–47). Equally predictable was the patentees’ claim that they had been entirely forthcoming about all the risks: Charles Long stated that he might ‘sometimes in conversation say that in probability the said undertaking might be attended with advantage […] [but also] oftentimes told several of his friends that the events was uncertain and that he would not have them be concerned in the undertaking unless they could afford to risk their money’.23 Though they probably glossed over both the costs and risks involved, as well as the degree of insider dealing, the company itself began as a genuine venture, demonstrated by their immediate efforts to go into business once the money was raised.

Wood, 7 Jan. 1729, in Bettenson et al. v. Long et al., NA, E134/11Geo2/Hil10. For the difficulties collecting subscriptions, see Wood to Long, 17 and 23 Aug. 1720, 27 Sep. 1720, 28 Jan. 1720/1, BL, Add. MS 22639 ff. 46r, 108r–109v, 110r–111v, 114r-v, 125r. 20 BL, Add. MS 43499 f. 8r. 21 Chandos to Lawes, 23 Sep. 1720, Huntington Library, ST 57 vol. 12, 151–52. 22 NA, E112/994/1806 no. 20 (Long). 23 NA, E112/994/1086 no. 22 (Long).

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The patentees moved rapidly to put their plan into practice, executing a general indenture in September which made Wood into their trustee and gave him sweeping powers and responsibilities, making him in essence their general manager.24 Henry Barham was made ‘Mineral Master General and Superintendent of all the Miners, Mines, Minerals and Battering Works’ in April 1721.25 It was apparently modelled upon a similar position in the Company of Mineral and Battery Works, a defunct mining company which was revived in 1709 and merged with its counterpart the Society of Mines Royal by the chemist and projector Moses Stringer, who had held the post until he died in 1713 (Yamamoto 2015; Scott 1951, 2: 383–405, 413–29). Barham played a similar role in the Jamaica Mines Company, whose patentees empowered him to oversee all of the mining operations in Jamaica ‘in consideration of his already knowing a certain mine in Jamaica which he promises to show to the patentees’ miners’, in return for a salary of £500 per year and five shares.26 His work in Jamaica was subject only to the supervision of the patentees and their five agents in Jamaica. All were leading planters on the island, and some of them, in particular Thomas Bernard, had moved in the same circles as William Wood and the Hamilton faction before 1716.27 At their first meeting in December 1720, the agents agreed to support the miners who had arrived and to begin surveys of potential properties.28 By June 1721 they had fixed on the purchase of 1,000 acres of land in the parish of St. George for 100 pistoles or about £85, facilitated by Lawes, and had set the miners to work on the veins of copper ore discovered there.29 Wood had in the meantime sent out several miners in August 1720 and had arranged with his long-standing contact, the leading slave merchant Humphrey Morice, to provide a regular supply of slaves as labourers for 24 NA, E112/994/1086 no. 1 (Bill of complaint), no. 6 (Marten), no. 7 (Carver),

nos. 12–13 (Ayscough), nos. 14–17 (Wood); BL, Add. MS 43499 ff. 5v, 7v–8v, 10v, 11r. 25 BL, Add. MS 22639 f. 20r. 26 Articles of indenture, [ca. April 1721], BL, Add. MS 22639 ff. 20r–21v. 27 When Charles Long’s place at the council of the island was declared vacant in 1713,

Bernard had been appointed in his stead: Headlam (1926, 245–46), Ledward (1920–38, 2: 478). 28 ‘Resolutions’, 19 Dec. 1720, BL, Add. MS 22639 f. 13r. 29 BL, Add. MS 22639 ff. 13r–15r, 6 May 1721, 23 and 30 June 1721. See also

Barham’s (brief) comment in his ‘Civil History of Jamaica’ (1722), in BL, Add. MS 12422 f. 135v.

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the mines.30 In April 1721, he signed a set of indentures with nearly two dozen Cornish miners, under their captain Ralph Banks, to go out to Jamaica for three years.31 Although Barham complained to Sloane about the delays caused by ‘the indolency and neglect of the attorneys here, who have all the power and money in their hands and do not meet sometimes for three months, which obstructs our proceedings’, by October 1721, at least two mines were in operation, one in St. George and the other at St. Faith’s at the head of the Rio Cobre.32 ‘The country is fuller of mines […] than ever could be imagined or thought of’, he noted, with the greatest problems being the conduct of the miners. ‘Instead of good miners they sent over men of different trade that know nothing of mining and are such a parcel of sottish, lazy, idle fellows as never was seen together’, Barham complained to Sloane subsequently in July 1722, but he had nevertheless been able to examine several further potential sites of copper ore after the initial ones proved unviable.33 A further difficulty was the casual attitude of the attorneys, as well as obstruction from other planters, who sometimes concealed potential mining sites out of fear that their lands would be expropriated, or else insisted on shares in the company.34 Matters had therefore proceeded slowly but surely, and Barham was increasingly confident—though his miners, as will be shown below, were not—that the venture was on the verge of turning a profit. It was sunk instead by instructions from Britain early in 1723 to cease work. ‘The undertaking is laid aside by the patentees’ agents here by orders from England’, Barham reported to Sloane in January, ‘[…] but not for want of mines’, with one promising working having to be abandoned just before it struck ore.35 By July the remaining miners had been paid off and the equipment sold off, 30 Wood to [Long], 17 Aug. 1720, and ‘Letter from the patentees’, BL, Add. MS

22639 ff. 110v–111r, and ff. 8r-v. For Morice, see Mitchell 2020, 102–6, 115, 130–85; Treadwell (1976, 44, 53). 31 ‘List of miners hired by William Wood to go to Jamaica’, [April 1721], BL, Add. MS 22639 f. 178r. 32 Barham to Sloane, 26 Oct. 1721, BL, Sloane MS 4046 ff. 140r–141r. 33 Barham to Sloane, 14 May 1722 and 5 July 1722, BL, Sloane MS 4046 ff. 242–43,

260–61. 34 Barham to Sloane, 26 Oct. 1721 and 14 May 1722, BL, Sloane MS 4046 ff. 140–41, 252–53. 35 Barham to Sloane, 3 Jan. 1722/3, BL, Sloane MS 4046 ff. 325r-v.

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while Barham remained in Jamaica and ‘must now follow my old way’, he told Sloane, ‘of selling medicines to the planters as I used to do’.36 Though still not a profitable concern in 1723, the company was therefore still a going one, making a bona fide effort to turn a profit. It failed due to pressure from Britain, which had arisen in turn from the problems created by the need to employ the vast capital it had raised.

4.4

Failure

Ultimately the problem was that the Jamaica Mines Company was too successful in raising capital. The initial memorandum in July 1720 had envisaged some £25,000 being sent out to Jamaica immediately for investment in land and loans, with up to £35,000 to follow each month, but it was not possible to send the first miners until late that year. By early 1722, Wood had still spent only £6714 of the £93,300 which had been raised.37 Some of the balance was lent to the patentees and their friends, about £10,000 to Richard Thompson and £5000 to George Treby, as well as £5000 to Sir John Eyles, yet another Commissioner of Forfeited Estates (Sedgwick 1970, 2: 21; Dickson 1967, 177n). The rest, about £45,000, was parked by Wood—with the assistance of Chambers Slaughter, and on behalf of Charles Long as Treasurer—in South Sea Company stock at the very height of the market in July and August. The later legal cases accused the patentees of using the money to dabble in speculation, ‘some unhappy South Sea bargains or in other dealings foreign from the purpose’, but Wood’s own letters suggest that it was intended as a temporary convenience until the cash could be sent to Jamaica.38 ‘I always was an enemy to the scheme at first, yet I am very uneasy at its present fall and am writing my thought continually about how to [raise?] [the] stocks’, he told Long towards the end of August, as stock prices began to plummet, but he missed the opportunity to sell out in September and had to accept the wider bailout of the South Sea Company organised by Walpole, which

36 Leach to Wood, 23 July 1723, BL, Add. MS 22639 f. 209r-v; Barham to Sloane, 3 Jan. 1722/3, BL, Sloane MS 4046 ff. 325r-v. 37 ‘Letter from the patentees’, [ca. Oct. 1720], BL, Add. MS 22639 ff. 5r–8r; ‘Memorandum for the patentees’, [ca. July 1720], ff. 16r-v; ‘General account’, (ca. early 1722), ff. 85v; and ‘Patentees of the Mines Royal in Jamaica’ (ca. March 1721/2), ff. 156v–157r. 38 NA, E112/994/1086 nos. 12–13 (Ayscough).

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more than halved the value of stock bought at the top of the market.39 Facing embarrassing but not disastrous losses, Wood scrambled, on behalf of the patentees, to find a productive and viable investment that would re-float the company and enable it to continue its mining venture. He wished to conceal the problem from the proprietors, who might prefer to pull the plug and rescue what money they could. His actions thus resembled those of Sir Humphrey Mackworth, yet another mining projector active during this period, who concealed his losses in his mine adventure in the hope, apparently genuine, of rescuing its aims of piety, profit, and public service, as Koji Yamamoto (2011) has recently shown. Wood’s efforts were thus aimed at addressing the problems created by the most successful aspect of the Jamaica Mines Company. In April 1721, the Court of Directors of the Royal African Company were told by one of their number, Richard Lockwood, that ‘some proposals had been made to him by a gentleman, whose name he is not at liberty to mention, which may tend very much to the service and advantage of the company’.40 This anonymous gentleman was of course William Wood, who had already met with Lockwood several times, and ‘have been three days past employed in turning my head and debating on the affair of a union’, he told Long, ‘and have just finished a new proposal to be given to the proper person to bring it about’.41 Taking advantage of its own excessive liquidity and the Royal African Company’s need for cash at a moment when it was, under the rule of the Duke of Chandos, in the midst of a major reform, Wood proposed to engraft all the Jamaica Mining Company’s shares into the Royal African Company’s stock and rely on the inevitable rise in share prices to recompense the subscribers.42 Taking place around the same time the remaining miners were being sent 39 Wood to Long, [ca. late Aug. 1720], and 3 Sep. 1720, BL, Add. MS 22639 ff. 72rv, 112r-v. For the bailout of the South Sea Company, see Dickson (1967, 76), Sperling (1962, 33–36). For similar problems encountered by another colonial land company which had invested its money in South Sea stock, see Beales (2020). 40 NA, T70/90 ff. 218–19. 41 Wood to Long, [ca. March 1720/1, late March 1721, and April 1721], BL, Add.

MS 22639 ff. 80r, 89r-v, 92r. 42 ‘A proposition for uniting the Royal African Company with the Proprietors of the Mines Royal in Jamaica’, and ‘Wood’s Scheme of a coalition between the African Company and the Royal Mine Company of Jamaica’, [ca. April 1721], BL, Add. MS 22639 ff. 23r– 28r. For the position of the Royal African Company in 1721 under Chandos, see Mitchell (2013), Davies (1999, 90–66, 344–45), and Pettigrew (2013, 165–72).

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out to Jamaica, the proposal was a bona fide effort to keep the company afloat, with Wood arguing that the profits to be expected from mining ‘will more than compensate the [Royal African] Company’ for any shortfall in the shares subscribed.43 For several months he and Lockwood traded proposals, all the while chivvying the proprietors and patentees to pay in their subscriptions. ‘However things may be or great so ever the losses it is necessary to pursue, an accommodation with the [Royal African] Company or some other body [is necessary] to put us all out of daily noise and clamour’, he told Long about June, for example, ‘and if Mr Treby, Col. Thompson and others will act their part, money may be found sufficient’.44 They did not, and within months the negotiations had collapsed; Lockwood reported on 29 August that they had failed, complaining of ‘the gentleman who made the proposal not complying with the terms’.45 At this critical juncture, a group of proprietors demanded a general meeting to call for the repayment of the stock, threatening to derail Wood’s desperate efforts to re-float the company and to find the cash to do so.46 He pressed the patentees to pay what they owed and to use their influence to discourage any rash action by the proprietors—‘every Patentee should think of losing no time in speaking or writing to his friends or acquaintance not to pay in money towards a prosecution’—and with their influence, he persuaded an extraordinary general meeting in December 1721 to defer action and allow him a last throw of the dice.47 Proprietors were assured that a new scheme, which could not yet be made public, was certain to satisfy them.48 This turned out to be a similar

43 ‘Proposition’, BL, Add. MS 22639 f. 24v. 44 Wood to Long, 20 April 1721 and ca. April 1721, BL, Add. MS 22639 ff. 42r-v,

50r, 67r-v, 78r, 80r-v, 90r, 137r-v, 141r-v, and ff. 159r–161r. 45 NA, T70/91 ff. 12–13. Lockwood was one of Chandos’ nominees on the board of the Royal African Company (and also a director of Onslow’s Royal Exchange Assurance Company), but there is no evidence that Chandos was involved in this negotiation, despite his stake in the Jamaica Mines Company: Mitchell (2013, 557), Yamamoto (2016, 336n, 342, 346), Dickson (1967, 117n), Graham (2015, 233–35), Pettigrew (2013, 168–69). 46 Wood to Long, 2 and 17 Nov. 1721, and 12 and 13 Dec. 1721, BL, Add. MS 22639 ff. 59r, 61r, 74r, 146r. 47 BL, Add. MS 22639 ff. 65r. 48 ‘Heads of sundry papers relating to the Mine Affair’, [ca. Dec. 1721], BL, Add. MS

22639 f. 22r.

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scheme to engraft the Jamaica Mines Company into the Mines Royal and the Mineral and Battery companies, which had been used in the Bubble by Onslow’s insurance company, but were now trying to revive their mining activities (Scott 1951, 2: 403–4, 428–29). Wood proposed that the companies would receive all the remaining cash in return for a new issue of their stock, then trading at £50 per share, to be exchanged by the proprietors of the Jamaica Mines Company for their own stock, which was selling in the market for only £15 or £20.49 Though perhaps not a very practical proposal, it was at least plausible, and Wood’s relief was palpable. ‘If the persons prove responsible you will get tolerably well out of an affair that had lately so very ill an aspect’, he told Long after the general meeting, ‘[…] and it gives me much more spirit to pursue all necessary steps for your interest and service in particular, as well as the undertaking in general’.50 Negotiations were formally opened in February 1722, with the main sticking points being the exact terms of the engraftment and the amount of cash that the patentees would contribute to the deal; ‘[they] are ready to hear my proposal’, he later informed Long, ‘but seem to think at the same time the money will not be forthcoming’.51 A deal was vital because there had also been bad news from Jamaica. ‘I have a letter from Banks that nothing is to be expected of gold or silver mines or copper worth working’, Wood told Long in January, believing this over Barham’s assurances, ‘but this to yourself, and let us do all to get rid of the affair’.52 By late April, however, these negotiations had also collapsed because several of the company’s most hostile proprietors broke ranks and launched a lawsuit to recover their money, thus scaring away the Mines Royal Company and Mineral and Battery Works as well as any other

49 BL, Add. MS 22639 ff. 22r, 54r–55v, 63r, 151r, 181r; NA, E112/994/1086 no. 17 (Wood). 50 Wood to Long, 24 Dec. 1721, BL, Add. MS 22639 ff. 63r-v. 51 BL, Add. MS 22639 ff. 94r–95r. 52 Wood to Long, 10 Jan. 1721/2, BL, Add. MS 22639 f. 121r. Ironically, William Wood of Wolverhampton, the ironmaster (and instigator of ‘Wood’s Halfpence’) with whom Wood has often been confused, also worked with the Mines Royal and Mineral and Battery Works later in the 1720s: Treadwell (1976, 42–43, 63n), and Treadwell (1974).

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potential partners.53 The patentees had also refused to commit the money required, which discouraged the other proprietors who might otherwise have backed Wood’s planned engraftment: ‘they think all is lost labour till the part which the Patentees are to perform be settled’, Wood wrote to Long, ‘[…] showing some of the Patentees how much it behoves them […] that they assist you in carrying on and going through this affair’.54 Assailed on both sides, the company in ruins, Wood was forced to send the instructions to Barham in Jamaica noted above to cease all work, and to fall back upon the last resort of buying out all of the remaining shareholders with whatever money he, Long, and the other patentees could find, offering them £20 for shares that had been bought at £75 at the height of the South Sea Bubble.55 ‘It has been my constant thought and endeavour to get you and the rest of the patentees […] with ease and honour out of the Jamaica Affair’, he told Long in April 1722, ‘[…] for the general advantage of the proprietors and honour of the Patentees’, suggesting that, like Mackworth, all his measures were undertaken reluctantly and not for personal profit.56 Several hundred shares had already been bought back by 1727, ‘[and] I hope means may be soon found out for the ending the whole affair’, Wood noted, ‘to the satisfaction of the proprietors unsatisfied and the ease of mind of the Patentees or those who stand in any of their places’.57 Although ultimately a failure, the end of the Jamaica Mines Company was therefore not a catastrophic collapse, but a slow deflation that attempted to liquidate its remaining debts by buying out the shareholders at what was then the fair market price. That the Jamaica Mines Company subsequently became almost a byword for fraud was due to the legal action begun in 1722 by only a dozen proprietors and maintained over two decades. This action eventually concerned only 88 of the 1244 shares originally issued. After numerous delays, it moved from the Court of Exchequer to the House of

53 ‘Petitioners to Charles Long and the Patentees of the Jamaica Mines Company’, 22 Feb. 1721/2, BL, Add. MS 22639 f. 49r-v. 54 Wood to Long, 24 Feb. 1721/2, BL Add. MS 22639 ff. 48r-v. 55 BL, Add. MS 22639 ff. 168r, 216r, 212r-v and ff. 98r-v, Wood to Melmoth, 27

Oct. 1725; BL, Add. MS 36156 ff. 141v–142r; BL, Add. MS 43499 f. 8v. 56 Wood to Long, 5 April 1722, BL, Add. MS 22639 ff. 96r. 57 Wood to [Melmoth?], 9 June 1727, BL, Add. MS 22639 ff. 104r–105v; for Wood’s

career after 1722, see Treadwell (1974, 56–59).

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Lords on appeal in February 1747.58 To make their case, the proprietors exploited prevailing memories of the Bubble as ‘that ever-memorable year of epidemical infatuation’ in which numerous frauds and projects had flourished in order to discredit the remaining patentees and their heirs.59 All of the patentees, they said, had misled the subscribers with wild hopes of riches from Jamaica; ‘there ought to have been a reasonable prospect of success, which could only be had by searching for and discovering such mines before they drew in unwary people to engage in the undertaking’.60 The appointment of Wood by indenture as general manager was ‘a contrivance to deliver themselves from the demands of the subscribers’, and the patentees themselves ‘amused the subscribers with pretences that they were actually working the said mines, which soon afterwards came out to be mere amusement, there being in fact no gold or silver mines in Jamaica or any ground or colour to believe there were such mines’.61 The claim by the patentees in turn that they had embarked on the project in good faith was overshadowed by the evidence which emerged that they had engaged in insider dealing with powerful figures such as Treby. The result was that the judgement for the subscribers was upheld, and the surviving patentees and their heirs were required to repay those investors in full, about £6600, finally drawing a line under the whole affair.62 The effect on Charles Long and subsequent historians was to confirm their prejudices that the Jamaica Mines Company had been a fraud from the outset intended to deceive the investors, or at the very least, that it had been badly managed.

4.5

Conclusion

Putting the surviving records into some sort of order suggests a different, but equally interesting, narrative. The company was a serious and bona fide venture, even if it failed to find the precious metals it had hoped. But it operated in practice, under Wood and Barham as mineral-master

58 The process can be followed in BL, Add. MS 36156 ff. 139r–144r; BL, Add. MS 43499 ff. 5r–12r; Bettenson et al. vs. Long et al., NA, E134/11Geo2/Hil10. 59 BL Add. MS 36156 f. 139r. 60 BL Add. MS 36156 ff. 141v. 61 BL, Add. MS 36156 ff. 142v–143v; BL, Add. MS 43499 ff. 8r-v, 10r. 62 ‘The Appellants’ Case’, [1745–46], BL, Add. MS 43499 ff. 8v–9v.

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general and general manager, respectively, more like a small partnership. The main advantage granted by incorporation was that it enabled the patentees to raise large amounts of money, which then proved to be their downfall. This vast sum was so entirely out of proportion with anything that the company needed for its aims that it proved a poisoned chalice. It led Wood to put a large amount of the money into South Sea stock at the top of the market, in order to find some use for the funds until they could all be spent, with catastrophic results. His frantic efforts to salvage the situation while keeping the truth from the proprietors then poisoned relations and led directly to a destructive lawsuit. This required Wood to cease operations at precisely the moment when, according to Barham, the patentees were just hitting their stride. The ability to build a corporation upon their patent therefore did little for them. They would probably have done better to organise their venture as a small partnership, which was, Harris (2000, 190–93) notes, the usual practice for mining ventures outside Devon and Cornwall in the eighteenth century. In the case of patents, many holders found other ways to exploit their inventions in the eighteenth century, though an attempt to form an unincorporated company to act as the assignees for two patents in the 1820s was struck down as illegal (MacLeod 1986, 567–71; Harris 2000, 145–46, 245–47; Dutton 1984, 150–74). The joint-stock company, which made it possible to raise large amounts of money, was therefore inappropriate for the Jamaica Mines Company, as it was for many other commercial ventures in Britain until the late nineteenth century, where the small partnership remained the norm. This suggests that the impact of the ‘bubble clause’, like the impact of the Bubble Act, has been overstated, and that it did little to deflect the British economy in the eighteenth century from its course.

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CHAPTER 5

Pamphlet Poetry and the South Sea Bubble Claire Wilkinson

5.1

Introduction

The 11 June 1720 edition of Mist’s Weekly Journal, or Saturday’s Post describes the recent proliferation of Bubble companies in Exchange Alley. ‘This week’, the ‘London’ section of the paper reads, ‘there has been a great Stroke in the Alley, a Multitude of new Bubbles, Projects, Subscriptions, &c. have been set on Foot, and every single one has been publickly advertised to exceed all the rest’ (478). The issue was published on the day the Bubble Act was given royal assent, barely two weeks before the South Sea Company opened their third money subscription on 24 June. The article’s author contrasts the South Sea Company’s investment scheme to the newer and smaller ‘Bubbles’, which are seen to exploit investors and endanger the success of the South Sea. There has been extensive debate about the aims behind the Bubble Act, as Ron Harris (1994, 611–12) explains in an article that ultimately argues the act was

C. Wilkinson (B) University of Cambridge, Cambridge, UK e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 H. Paul et al. (eds.), The Bubble Act, Palgrave Studies in the History of Finance, https://doi.org/10.1007/978-3-031-31894-8_5

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‘intended by its formulators to serve the interests of the SSC [South Sea Company]’ (625). Harris’s view is in line with that of the Weekly Journal author, who claims that ‘the Bill for restraining these extravagant and unwarrantable Practices […] must needs be good News to the industrious honest Traders of this Kingdom’ (Weekly Journal, 11 June 1720, 478). The other chapters in this book assess the effects of the Bubble Act in a range of local, national, and international contexts. This chapter will consider how poetry pamphlets published in Britain in 1720 understood the South Sea Company’s investment scheme. There is a particular focus upon writing by authors who have long been excluded from the traditional South Sea literary canon. Taken together, these sources show that pamphleteers took a keen interest in the financial market, as well as in the market for their own printed works. Notably, they contain little mention of the Bubble Act itself. This gap is revealing: it indicates that the act was not of any great moment to a wider public. It provided two new insurance companies but had little effect otherwise on entrepreneurs and poets alike.

5.2

The Bubble Year

The financial bubbles of 1720 inspired a variety of artistic responses. Publishers hurrying to meet a commercial demand for material about financial markets printed satirical poetry, prose, and drama, alongside etchings, playing cards, and other tokens. Het Groote Tafereel der Dwassheid [The Great Mirror of Folly], published in Amsterdam at the end of 1720, was the first major compilation of creative responses to the year’s crises. Het Groote Tafereel ’s two volumes are about the Dutch windhandel, or ‘wind trade’, which collapsed after the Mississippi Bubble in Paris and the South Sea Bubble in London.1 The collection gives a clear sense of how interconnected financial markets in Paris, London, and Amsterdam were. John Law, the Scottish economist exiled from Britain, features in engravings and in playing cards printed in the two volumes.2 1 Het Groote Tafereel and its companion volume (published with the same title pages despite containing different documents) were digitised by the Beinecke Library at Yale in 2008. They can be accessed from: https://collections.library.yale.edu/catalog/2018178. See also Goetzmann et al. (2013). 2 For detailed discussions of Law’s appearance in items featured in Het Groote Tafereel, see Goggin (2020, 149–51), and Leemans (2020, 179–81).

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Law was the architect of the subscription scheme undertaken by the Compagnie des Indes in Paris, which was copied several months later by the South Sea Company in London. In Het Groote Tafereel ’s visual depictions, Law appears at the centre of scenes of speculative madness, despite the fact that he did not play a direct role in the Dutch financial market. The sense of connection between the discrete investment schemes in France, Britain, and the Netherlands developed in these illustrations accords with what economists have found about the movement of money between European markets in 1720: Larry Neal (1990, 62–63) has shown that investments made initially in Paris were moved to London when the Mississippi Bubble started to collapse, and then to Amsterdam after the South Sea Company’s share price began to fall later in the year. South Sea Bubble scholars in all disciplines have long recognised the need to consider literature, visual art, and ephemera alongside accounting records and economic prose tracts when thinking about the crisis. Frans De Bruyn (2020, 1) notes that ‘the volume of publications that it [the windhandel ] generated, […] is considerably greater than the comparable output at the time in Paris and London’. Though the British press did not issue any compilations analogous to Het Groote Tafereel in scope or ambition, many single-page prints from 1720 and 1721 assembled mixed-media responses to the financial crisis. The two prints published as The Bubblers Medley, or a Sketch of the Times Being Europe’s Memorial for the Year 1720 (Bowles 1721a, b) juxtaposed etchings, poems, newspaper articles, and playing cards describing bubbles in London, Paris, and Amsterdam.3 Despite the lively culture of bubble writing in 1720, the vast majority of the poems, plays, and prose narratives that have since come to form the canon of South Sea Bubble literature in English were written afterwards: Daniel Defoe’s A Journal of the Plague Year was 3 The two engravings have the same title and were issued by Thomas Bowles in 1721, but are nevertheless entirely different from one another. They are frequently dated to 1720 in library catalogues; however, this seems unlikely. The second (Bowles 1721b) contains stanzas from Swift’s ‘The Bubble’ (Swift [1721] 1958, 1: 248–59), which was not published until 1721: Swift sent the manuscript to Charles Ford, his publisher, on 15 December 1720, and the poem first appeared in print in early January 1721. The 1721 theory is supported by advertisements in at least four London periodicals, which carried notices for ‘Two Prints, called the Bubblers Medley, or Sketch of the Times’, in issues published between 11 and 30 March 1721. See Weekly Journal, or Saturday’s Post, 11 March 1721, 711; the Weekly Packet, no. 454, 11–18 March 1721; the Daily Post, no. 464, 27 March 1721; and the Post Boy, no. 4943, 28–30 March 1721. Each of these periodical publications uses 1 January as the first day of the new year.

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published in 1722; Eliza Haywood’s Memoirs of a Certain Island Adjacent to the Kingdom of Utopia in 1725; John Gay’s The Beggar’s Opera in 1728; and Alexander Pope’s Epistle to Bathurst in 1733. Even Jonathan Swift’s and John Gay’s seminal Bubble poems, ‘The Bubble’ and ‘A Panegyrical Epistle to Mr Thomas Snow’, both likely written at the end of 1720, did not appear in print until early 1721 (Swift [1721] 1958; Gay [1721] 1974). This selection of writing is more accurately connected by an interest in post-Financial Revolution economic change (particularly the perception of value becoming untethered from land and material things) than by an interest in the South Sea Bubble itself: the 1720 crisis informs the content of these titles, but as one moment in a broader post-1688 trajectory.4 In this chapter, I examine a range of poems published as pamphlets by the British popular press during 1720. Each of these poems addresses the rise and fall of the South Sea Bubble in relation to the subscription scheme pursued by the company’s directors in 1720. Unlike the poems, novels, and plays by Defoe, Haywood, Gay, and Swift, the examples that will be discussed below are no longer frequently read. Their authors—who are often anonymous—therefore occupy a relatively peripheral position within the field of eighteenth-century writing in comparison to the authors of the pieces named above. By analysing a broad range of popular satirical poetry, much of which is doggerel, it is possible to trace the evolving public response to the actions of the South Sea Company and its directors in 1720.

5.3

Describing a Bubble

In Famous First Bubbles, Peter Garber (2000, 4) describes some of the difficulties associated with detecting and describing economic bubbles. ‘Bubble’, he writes, ‘is one of the most beautiful concepts in economics and finance in that it is a fuzzy word filled with import but lacking a solid operational definition’. The phenomenon and the term used to describe it have been the subject of much research, and there is a general, though not universal, agreement that a bubble occurs when asset price movement cannot be explained by recourse to a share’s fundamentals. The 4 There have been many studies on the relationship between literature and finance in the years after 1688. See, for example: Nicholson (1994), Ingrassia (1995, 1998), Sherman (1996), Brantlinger (1996), and Clery (2004).

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question of nomenclature becomes more complicated in the context of eighteenth-century literature because the single word ‘bubble’ has been used to describe three quite different things in the years since 1720. The first of these three terms is ‘bubble’ in the present-day economic context, as described above: a discrepancy between an asset’s price and its fundamental value. The second ‘bubble’, the early eighteenth-century term, is different from this present-day definition and it needs to be considered separately: while many of the specifically named 1720 ‘bubbles’ might well be bubbles according to a present-day definition, this is not what writers contemporary with the South Sea Bubble are describing when they use the term. Finally, while there is evidence for a roughly contemporary use of ‘South Sea Bubble’ (the first recorded instance in writing seems to be from 1721), the phrase as it is encountered today is a sort of concatenation of the two prior categories (Rogers 2014, 14). Eighteenth-century financial bubbles, of the type that fit a twenty-firstcentury definition, can only be identified retrospectively. Nevertheless, the term ‘bubble’ had explicit financial connotations before the 1720 crash began. The South Sea Company’s investment scheme, and others like it, were described as ‘bubbles’ in the popular press before the market turned and the threat of rupture loomed large (Dickson 1993, 102–3). The author of Multum in Parvo; Or, Bubbles in a Nut-Shell, a two-page satirical proposal published in London on 23 February 1720, four months before the Bubble Act prohibited the establishment of unauthorised joint-stock companies, finds the words interchangeable. The investment opportunities described are ‘Subscriptions, or Joint-Stocks, (commonly call’d BUBBLES)’. Multum in Parvo makes the case for a new insurance society—which looks suspiciously like a bubble—to insure investors in other bubbles against possible future losses: These are therefore to Advertise to all whom it may Concern, That there is an Office Erected at the Chimæra and two Unicorns in Griffin-Street behind exchange alley, for taking in a Subscription of Fifty Millions for Insuring all those bubbles, till they are quite out of all Peril and Danger.

The proposal takes aim at several different components of the bubble market. Its imitation of an advertisement criticises the credulity of investors enticed by specious claims made in print (the fictional office can be found under a sign featuring three mythical animals). Thirty-six bubbles are listed as eligible for protection, giving a sense of the volume

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of investment schemes open to the public during the early months of 1720. Finally, the author’s concern for investors’ money makes clear that purchasing shares in a bubble might be a risky enterprise. This connection between financial bubbles and the physical characteristics of a bubble in the material world did not seem to deter investors seeking to increase their wealth. Amy M. Froide (2017) has described the ledgers and papers of Barbara Savile, a widow who invested in stocks and securities from the 1710s onwards. Savile’s papers contain a bundle of records titled, in her hand, ‘South Sea Papers and Old South Sea Papers and accompts and other Money in Funds or Bub[b]les’ (Froide 2017, 130). Savile was an astute investor. She may have differentiated between the South Sea Company’s investment scheme and other ‘Funds or Bub[b]les’ but her grouping of the records together indicates an awareness of the similarities between the projects. The term ‘bubble’ did not prevent her from placing money in these vehicles. Compelling arguments have been made for the rational characteristics of the 1720 bubble. A rational bubble occurs ‘when asset prices continue to rise because investors believe that they will be able to sell the overvalued asset at a higher price in the future’ (Dale et al. 2005, 236–37). Peter Garber (2000, 125) claims that there is an underlying rationality behind all financial bubbles, while Larry Neal (1985, 4–5) argues that the South Sea Bubble was a rational bubble, but only for South Sea stock and not for the other companies involved. Although some of the eighteenth-century bubbles described above may fit the present-day definition of a financial bubble, investors eager to purchase ‘bubble stocks’ at the time had no recourse to the concept that describes the overvaluation and eventual rupture that is intrinsic to our understanding of bubbles today.

5.4

Pamphlets, Doggerel, and Finance

No comprehensive list of writing about the South Sea Company exists. John G. Sperling (1962, 50–92, see esp. 57–67) offers the most thorough catalogue of publications contemporary with the South Sea Bubble in his account of the company from its foundation in 1711 to its dissolution in 1855.5 Sperling lists a total of 174 items published in 1720. 5 Sperling’s bibliography is drawn from the collections of the Kress Library (Harvard), the British Museum [Library] (London), the Goldsmiths’ Library at Senate House

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Of this number, eighteen are poems of some kind, although not all are pamphlets: two are single-sheet verses, three are longer collections of poetry with short South Sea pieces contained within, and three are ballads set to music. The remaining ten are freestanding poems published in pamphlet form. In Myths of Speculation, Silke Stratmann (2000, 45– 73) offers readings of several of these pamphlets in the context of the Bubble’s immediate aftermath; however, very little otherwise has been written about the poems. As yet, there have been no attempts to address them together as a body of related work. Pamphlet poetry makes an ideal subject for a study that seeks to assess the public response to the South Sea Bubble. Firstly, pamphlets are often easier to date than poems collected in large volumes. Some of the pieces discussed here have publication dates printed on their title pages, while others can be placed within a window of a number of days or weeks by studying the publisher’s advertisements or account books. Secondly, the poems discussed below are all politically motivated: most are satirical verse epistles written to politicians or to South Sea Company directors, while others are addressed to the authors or publishers of earlier poems. They cite from, plagiarise, and attack ideas set forward in these preceding works, establishing a lively sense of conversation between pieces. Some are explicitly in dialogue with one another. Finally, with a couple of exceptions, the poems were printed and sold by booksellers operating out of London’s Grub Street. These presses printed the type of popular literature—doggerel—that Swift and Pope abhorred (Hammond 1988, 113). Paul Baines and Pat Rogers (2007, 144) argue that Edmund Curll, the most infamous of these booksellers and the publisher of several of the examples that follow, ‘saw the Bubble, like everything else, as a publishing opportunity’. The volume of South Sea pieces he printed in 1720 substantiates this claim. The pamphlets were prepared quickly and their authors were usually more concerned with attracting sales or future patronage than with offering judicious assessments of the rise and fall of the South Sea Company’s stock price.

(London), and the Seligman Collection (Columbia). Items from the Kress and Goldsmiths collections are now part of the Goldsmiths’ Kress Library of Economic Literature and have been digitised. See also Hanson (1963) for further economic sources, and Foxon (1975) for a catalogue of separately printed poems from the first half of the eighteenth century.

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In what follows, I look at a selection of poems published as pamphlets from either side of the 1720 stock market crash. The first group of pamphlets were published between June and August 1720, the period in which the South Sea Company’s shares reached their highest price and then fell gently, from a peak of around £1000 in late June and early July to £800 in mid-August (Dickson 1993, 139). The second group of pamphlets appeared slightly later, between September and early January 1721, once the more significant fall of the autumn was underway.6 Dividing the pamphlets by date makes possible an assessment of how the fall in stock price was received in the popular press: who, if anybody, did different poets attempt to hold to account? What understanding of the economic climate is communicated by the pamphlets? To what extent do the different poets engage with political interference in the financial market?

5.5

Before the Crash: June to August 1720

The pamphlets considered in this section were published either prior to the beginning of July, during the period in which the South Sea Company’s stock price was still rising, or in the two months afterwards, i.e., once the market had peaked but before the precipitous fall of the early autumn. Their authors are diverse: Allan Ramsay (1720), author of Wealth, or the Woody, is a comparatively well-known Scottish poet who recognised the simultaneous potential and peril of the English financial schemes. Joseph Mitchell (1720), writing in Scots dialect, engages with Ramsay’s premise in The Doleful Swains, which was published by the same London publisher (T. Jauncy), a month after the appearance of Ramsay’s poem. The other three poems studied here are all styled as epistles addressed to directors of the South Sea Company: the author of An Epistle to William Morley, Esq (Anon. 1720b) is unidentified; however, An Epistle (With a Petition in it) to Sir John Blount and A Woman’s Case: In an Epistle to Charles Joye, Esq were written by the Oxford satirist Nicholas Amhurst (1720a, b) and the playwright Susanna Centlivre (1720), respectively. Considering that the poems were all published when the stock price was high, they are particularly cautious about expressing enthusiasm for the South Sea. Several hold apparently contradictory views, with their authors criticising the premise 6 Prices fell from £775 on 1 September to £155 on 15 December (Dickson 1993, 139).

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and execution of the subscription scheme, while openly hoping to benefit from it. Though no mention is made of the Bubble Act, the poets seem to have a keen idea of competition within the financial market. All are specifically interested in the South Sea over any of Exchange Alley’s other bubbles. Allan Ramsay’s Wealth, or the Woody: A Poem on the South-Sea was first published in Edinburgh in June 1720, before being reprinted in London on 4 July.7 The London edition is prefaced with three different poems, two addressed to Ramsay, and one to Anthony Hammond. Each of these prefatory poems responds directly to the original Edinburgh printing of Ramsay’s piece. Steve Newman (2012, 18) has suggested that Ramsay ‘refuses to adopt the polarising and totalising stances typical of other texts on the Bubble’ and claims instead that he offers a moderate vision of economic and social progress, as observed from the peripheries of the Anglo-centric 1707 union between the two countries. Ramsay’s view of the rising share price is nuanced: while he offers a measured critique of the South Sea Company’s activities, he neither explicitly endorses nor condemns the subscription scheme. The poem is a meditation on the role of stock-jobbing (the practice of buying and selling shares with no interest in the underlying assets) in driving up the price of South Sea stock. In the opening lines, Ramsay promises Thalia, the muse of comic and pastoral poetry, a critical assessment of the scene in London. ‘Aided by thee I’ll sail the wond’rous Deep’, he writes, ‘And throw [through] the crouded Alleys cautious creep’ (Ramsay 1720, 12). His scepticism is established early on, when the muse is asked to ‘See frae yon Bank, where South-Sea ebbs and flows, / How Sand-blind Chance Woodies and Wealth bestows’ (Ramsay 1720, 11). The pun on Bank, at once a shifting sandbank and an institution, ties South Sea fortunes to chance rather than to skill. Ramsay subsequently sets out the rational premise for the South Sea Company’s scheme, designed to relieve Britain of its public debt, valued by Ramsay at ‘fifty Millions’ (p. 12), before criticising stock-jobbers for falsely elevating the stock price with their avaricious behaviour. Much of the poem’s balance comes from the constant offsetting of the success of the scheme against the likelihood that its price will prove impossible to maintain. This disjunction between the company’s stock price and its 7 Ramsay wrote extensively on economic and financial matters: Content: A Poem was

published in 1719, The Prospect of Plenty: A Poem on the North-Sea Fishery in 1720, and The Rise and Fall of Stocks, 1720: An Epistle to the Right Hon. My Lord Ramsay, Now in Paris in 1721. His shorter poems on the topic include ‘The Satyr’s Comic Project for Recovering a Young Bankrupt Stock-Jobber: A Song’ and ‘Cupid Thrown into the South Sea’. Steve Newman (2012, 18–33) gives a full account of these poems.

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value alights on the same principle, if not the same language, as the generally acknowledged definition of a bubble today. Ramsay addresses the disparity as he introduces the investment scheme to his muse: ’tis strange to think what Changes may appear Within the narrow Circle of a Year;

How can ae Project, if it be well laid,

Supply the simple Want of trifling Trade!

[...]

But O South-Sea! what mortal Mind can run

Throw a’ the Miracles that thou hast done? (Ramsay 1720, 13–14)

The praise offered here is tongue in cheek: the miracles performed by the project cannot be comprehended by a mortal mind because they are too good to be true. The rhetorical question serves to emphasise the ‘Want’ of the preceding line, which stands simultaneously for a lack of, and a desire for, trade. At the same time, the word gestures towards the public’s eagerness to invest. To paraphrase, a well-designed project cannot compensate for a lack of underlying trade, even if it seems on the surface that the South Sea Company’s scheme has done so. The poem is particularly perspicacious in this way. One of the criticisms most frequently levelled at the South Sea Company is that the rights granted by the Asiento to trade with Spanish-administered Latin America were extremely restricted, thus limiting the potential for future expansion and profitability. More recent studies have shown that this view collapses the complexity of the company’s trading operations: as Helen J. Paul (2011) has demonstrated, the South Sea Company was particularly efficient at transporting and selling

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enslaved people. Despite being its primary trade, the role of slavery in the South Sea Company’s history has received relatively little critical attention in Bubble scholarship and elsewhere. Paul (2011, 109) calculates that the South Sea Company transported at least 19,000 enslaved people across the Atlantic after 1720 and before the 1750s. What Ramsay sees is a disparity between the present height of the company’s investment scheme and the likely profit from its enterprises, making its rise difficult to account for. The broader claim made by Ramsay in Wealth, or the Woody is that the country enjoys success despite, not because of, the basis for the company’s rise. This success is attributed to the actions of unscrupulous stock-jobbers trading in a secondary market for shares, rather than to the ministrations of the firm and its directors: [...] without thought these dawted Petts of Fate Have jobb’d themsells into sae high a State, By pure Instinct sae leal the Mark have hit, Without the use of either Fear or Wit.

(Ramsay 1720, 15–16)

Ramsay deplores stock-jobbing and attributes the ‘high […] State’ of the South Sea to this opportunistic mode of trading. Later in the poem, he looks forward to the winter, ‘When bleak November Winds make Forests bare, / And with splenetick Vapours fill the air’ (Ramsay 1720, 20), and the promise of the summer will have evaporated. Despite his scepticism and his careful assessment of the effects of stock-jobbing on the South Sea Company’s share price, for good measure he asks for ‘some good Patron’ to purchase him some stock: wad some good Patron (whase superior Skill, Can make the South-Sea ebb and flow at will)

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Put in a Stock for me, I own it fair,

In Epick Strain I’d pay him to a Hair (Ramsay 1720, 23)

His sarcastic deferral to the imagined patron who can control the South Sea’s price reinforces the line taken throughout the poem: chance alone dictates the profits an investor might make. The poem’s closing lines take up a concern that is expressed in each of the pieces considered in this chapter. Ramsay turns to the similarities between the stock market and writing poetry. His hypothetical patron may wish to be careful: the offer for payment ‘to a Hair’ is for an exacting treatment in verse, rather than for an exchange of funds. One of the poems published in the London edition of Ramsay’s Wealth, or the Woody is signed ‘J. M.’ The author is ‘a Scots Gentleman’ and the poem, which is ‘attempted in [Ramsay’s] Style’, emphasises the similarities between the two authors.8 ‘J. M.’ is likely Joseph Mitchell, author of the 4 August 1720 The Doleful Swains, a pastoral poem published with a loose facing English interpretation of the original Scots dialect. The poem makes explicit reference to ‘Ramsay’s tuneful Strains’ (Mitchell 1720, 11) and sets itself in dialogue with Ramsay. The Doleful Swains is written as a conversation and it sees three speakers describe items they have lost to an arbiter, who considers the validity of their claims. One of the lost items is a bag of gold, which has been missing since its owner was tricked and surrendered it. It is revealed that the gold has not been stolen, but invested in ‘Bubbles’ on the advice of the purported thief: I thought e’re now I should hae had a Coach, A bonny Place, and Gowd in ilka pouch Sae high the Laird my expectations rais’d?

Of I have thought, before I knew their Tricks, T’ have had fine Lodgings, and a Coach with Six So high my hopes my crafty Landlord rais’d!

8 Ramsay’s pastoral, Patie and Roger: A Pastoral was also published in 1720, at a very similar time. An advertisement for Ramsay’s poem appeared in the Post Boy, no. 4840, 30 July–2 August 1720.

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Saw muckle ware the waefu’ Bubbles prais’d […] Sae sad it is for sic a chiel as me, To rax for Riches—in a rough South-Sea (Scots dialect; Mitchell 1720, 20)

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So much were these unlucky Bubbles prais’d! […] So sad it is for such a simple Swain, To launch into the deep, in quest of Gain (facing English; Mitchell 1720, 21)

‘Bubbles’ here are plural. The Scots version rhymes ‘South-Sea’ with ‘me’, while the parallel English interpretation sacrifices the reference to maintain the ‘Swain’/ ‘Gain’ rhyme. What is lost in the literal translation is gained in an idiomatic sense: the ‘South-Sea’ is interchangeable with ‘the deep’, from where money is unlikely to be salvaged. Mitchell transforms the example of the stock market into a morality tale, taking the opportunity to criticise the folly of investors and the greed of the South Sea investment scheme’s perpetrators. At the end of the poem, the arbiter concludes that A sum of Gold, however great or small, Is rather lost, when buried in a Wall,9

Both Useless to the Owners, and to all:

But, put in Stocks, it falls into the Hand,

Of those that spend it for their native Land

(Mitchell 1720, 31)

The suggestion that money needs to be in motion to be useful anticipates present-day financial advice. The arbiter’s pitch is therefore in 9 I.e., where the speaker claims to have initially left the gold.

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favour of investment in stocks; however, there is tension surrounding the ‘native Land’, which is not necessarily Britain but perhaps England rather than Scotland. Put this way, Mitchell’s take on the South Sea Company is more ambivalent than the argument set forward earlier in the poem suggests. Though the folly is here attributed to the investor, the poem’s conclusion questions the purported benevolence of the South Sea Company’s directors: the reference to James Craggs (‘Craggs is a wise, a gen’rous Soul, I’m sure’) is most likely to Craggs senior (his son, also a James, was a director too). The concluding proclamation—‘No Swain can suffer much, whilst he is Cloath’d with Pow’r’—collapses the distinction between directors and poor investors (Mitchell 1720, 31). The Ramsay and Mitchell poems are similar in giving a two-sided account of the rising price of South Sea stock, with the satirical focus firmly oriented in one direction. The three verse epistles take different approaches. Nicholas Amhurst’s An Epistle (With a Petition in it) to Sir John Blount (Amhurst 1720a) is dated 15 July 1720 on the final page and was published on 1 August by R. Francklin.10 The unattributed An Epistle to William Morley, Esq., (Anon. 1720b) was published in pamphlet form on 6 August, after being adapted from a shorter version printed in Mist’s Weekly Journal, or Saturday’s Post on 30 July (Anon. 1720a). The pamphlet version of the Morley epistle makes reference to Amhurst’s poem, but the version in the Weekly Journal does not. Susanna Centlivre’s A Woman’s Case in an Epistle to Charles Joye was published between June and November 1720, when George I was in Hanover: Centlivre writes about the time ‘Since our Great Monarch left the Nation’ (p. 8). It likely appeared after the fall began in July, because she entertains the hope that the South Sea ‘will rise again’ (p. 9). All three poems attempt to secure a subscription to South Sea stock from the directors they are addressed to. In doing so, they concentrate on the question of the relative standing of poet and patron, an argument which in each case takes precedence over any interest in the South Sea Company and its trading prospects. Blunt and Joye were particularly influential directors: Blunt was instrumental in founding the South Sea Company in 1711 with Harley, and Charles Joye was the firm’s deputy governor. Morley was less of a central figure.

10 ‘Blount’ is more commonly spelt ‘Blunt’. On 2 September 1720, Francklin published a further poem by Amhurst: A Familiar Epistle from Tunbridge-Wells to a Gentleman at Oxford.

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Elected as a director in 1717, he sat on the committee of shipping during 1720 (Case of William Morley 1721). Amhurst (1720a, 6) foregrounds the relationship between literary patronage and success in his address to Blunt, stating ‘Thus P—or [Prior], sorrowful and lean, / A Statesman grew, and S—t [Swift] a Dean’. The Morley poet acknowledges Amhurst’s approach: ‘Friend nick, with blount, has done his Bus’ness’ (Anon. 1720b, 5). The two pieces pursue the same rhetorical strategy: the addressee is lauded with excessive praise, the position of the poet is stated, and finally, a subscription is requested. This praise is overstated: Amhurst’s Blunt has a ‘magick Hand’ (Amhurst 1720a, 5) and his managing of the company’s affairs transfigures nothingness into wealth, just as ‘moses smote the barren Rock’, which becomes ‘An Emblem of the south-sea Stock!’ (p. 10). The Morley poet describes Morley as an alchemist: For you, like Heaven, have often shower’d Thousands of Blessings unimplor’d;

And in out bleak and barren Isle,

Have made ev’n gloomy Nature smile;

Her craggy Womb we shall behold,

Instead of Iron teem with Gold (Anon. 1720b, 8)

Amhurst and the author of the Morley poem thereby establish their scepticism: the grand and transfigurative claims made on the part of the directors are visibly ridiculous, but nevertheless, if they yield rich rewards, both poets hope to profit. Different approaches are taken to the securing of potential riches. For Amhurst, inclusion on Blunt’s list of people eligible to subscribe to the fourth money subscription is adequate. He expects to purchase his own shares:

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Implicitly I would subscribe: Five Hundred, or a Thousand Pound In your next List, would make me sound, Drown all my Sorrows, if I nick it, And make me merry as a Cricket.

(Amhurst 1720a, 13)

The Morley poet expects his subscription to be paid: When I’ve done piping, pay the Piper; For one Subscription in my Name, I’ll bring you due Returns in Fame.

(Anon. 1720b, 13)

Despite the focus on personal gain, an interest in the shape and function of the South Sea Company is present in both poems. Amhurst (1720a, 9) gives a sense of the interconnectedness of European financial markets and describes how ‘Funds of Wealth […] Europe of its Riches drains’. He and the Morley poet both describe Peruvian mines, alluding to their purported wealth while also making reference to the South Sea Company’s colonial practices and South American trading routes. Centlivre’s approach is different in A Woman’s Case. As the title suggests, her gender bears upon the poem’s argument. As a Whig, she disliked the Tory joint-stock projects; however, she tells a tale of being harassed by her husband for her poor earnings from writing: ‘Two Years you take a Play to write, / And I scarce get my Coffee by’t’ (p. 7). It is at his suggestion that she begs a subscription (p. 9), from which she expects

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little. Centlivre is satirising the precedent set by poems like Amhurst’s and An Epistle to William Morely. Centlivre is more cynical than either Amhurst or the Morley poet. Their poems are deeply ambivalent: willing to praise their addresses in return for financial gain, but otherwise little interested in the South Sea Company. Amhurst (1720a, 15) paraphrases this argument towards the end of the epistle to Blunt: ‘I want just Fifty Pounds, my Lord, / Which Sum, if you refuse to give, / I shall eternally believe, / For all, what I have said before, / That you’re a Sneaking Son of a Wh—re’. The Morley poet finishes by stating the same claim and arguing that they will change the tone of their poem if they are not granted a subscription: ‘I wou’d turn (tho’ gainst my Nature) / My Panegyrick to a Satire’ (Anon. 1720b, 14). Centlivre has no need to make such a claim; she does not try to bargain with Joye in her epistle, and simply states that all she has to lose by his refusal is some likely worthless South Sea stock.

5.6 Imagining the South Sea After the Crash: September–December 1720 If pamphlets published during the midsummer peak of the South Sea’s share price are willing to look askance at the likelihood of the company’s continued success, those published in the declining phase between September and December 1720 assess the reasons for the fall in the share price. This section concentrates upon a small selection of the many eligible pamphlets published in the last four months of 1720, finding a sustained desire to profit from a commercial demand for writing about the crisis, alongside a more serious desire to examine both the company’s governance and investors’ enthusiasm for South Sea stock. The pieces studied here assess the national—and sometimes international—political situation in the aftermath of the Bubble’s collapse. While corruption and the false promises of the South Sea directors are subjected to scrutiny, an explicit interest in the crisis’s relationship to the changing economic and social environment is also revealed. The poems considered here continue the interest in conversation established in the earlier pieces. Two of them, A Familiar Epistle to Mr. Mitchell, […] Written in the Fashionable Style of Modern Poetick Beggars (C. C——m 1720) and An Epistle from Dick Francklin, Bookseller; To Nick Amhurst, Poet, up Three-Pair of Stairs, Occasioned by his Epistle to Sir J—n Bl—t (1721), respond to the Morley (Anon. 1720b) and

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Amhurst (1720a) poems discussed above. A further three poems conduct a conversation between themselves: Stanhope’s An Epistle to His Royal Highness the Prince of Wales, Arundell’s The Directors, and Stanhope’s The Governour. The conversations conducted between pamphlets are an important feature of this body of work. A Familiar Epistle to Mr. Mitchell, […] Written in the Fashionable Style of Modern Poetick Beggars (C. C——m 1720), dated 17 September and published on 26 September, responds to Joseph Mitchell’s The Doleful Swains and the prefatory poems published with it. The author, named on the title page as ‘A Money’d Man’ and on the final page as ‘C. C——m’, is resolute in their criticism of the South Sea Company’s scheme and of hack poets for endorsing the similarities between poetry and investment. The complicity of these poets, C. C——m argues, has contributed to the crisis: poetry will be debased until its proper function—to criticise, not adulate—is restored. C. C— —m makes clear that the relationship between poetry and investment is not exclusively metaphorical, given the ability of poets to use language to elevate the prospects of ill-conceived investment projects. Mitchell is invited to visit Exchange Alley, where he might ‘Some Project or another find, / Where Words may do, and Words are Wind’ (C.C——m 1720, 8). Projects in Exchange Alley are thus blown up with air, but with air directed towards them by the disingenuous ‘Poetick Beggars ’ of the title. Amhurst’s poem received a direct response too: an epistle published by James Roberts, in early 1721,11 is by an anonymous poet posing as Amhurst’s publisher Francklin. The poem criticises the earlier piece’s sycophantic ministering to Blunt. An Epistle from Dick Francklin, Bookseller; To Nick Amhurst, Poet, up Three-Pair of Stairs, Occasioned by his Epistle to Sir J—n Bl—t (1721) asks wider questions about the function of epistolary satire: if Francklin, who has borrowed money to print Amhurst’s poem, is left with a commodity that can no longer be sold, what is the point of paying for a hired pen to produce poems? The Francklin epistle follows Amhurst’s original very closely and addresses its claims sequentially. ‘Francklin’ longs for ‘those Golden Days, / Before you dealt in venal Praise; / When with a just Satirick Pen, / You lash’d the Faults of guilty Men’ (Epistle from Dick Francklin 1721, 6). Here, Blunt’s ability to create wealth from the air instead becomes a confidence trick, just as 11 An advertisement for the pamphlet appeared in the Daily Post, no. 403, 14 Jan. 1721.

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Amhurst’s words—never mind their satirical intent—communicate a false promise. The replies to Mitchell and to Amhurst focus upon the function of poetry in the South Sea Company’s share price collapse. A series of epistles published by Edmund Curll in quick succession in October and November 1720 offer new ways of imagining the structural economic consequences of the financial crisis. Like Francis Tolson’s April 1720 poem, A Poem on His Majesty’s Passing the South-Sea Bill, the three pieces focus on George I, who held the position of governor of the South Sea Company but nevertheless had departed from Britain for an extended stay in Hanover on 11 June 1720. The series of epistles were published as pamphlets in several editions in 1720 and were later issued, together with Thomas Foxton’s Jesina: Or, Delusive Gold (1721), as a collection titled South-Sea Pills to Purge Court Melancholy (1721).12 The first poem in what would become a series, An Epistle to His Royal Highness the Prince of Wales, was published on 31 October. The epistle is attributed to the pseudonymous Mr [H.] Stanhope (1720a), also the author of the 26 November The Governour (Stanhope 1720b).13 Between these dates, on 11 November, Curll published an epistle in reply to the first Stanhope poem, titled The Directors. This poem is attributed to the similarly pseudonymous Mr. Arundell (1720) and contains, at the end, a note to Curll and a short epistle criticising the publication of Allan Ramsay’s Scots poetry in England, both by John Cowper. The first Stanhope piece (1720a) praises the Prince of Wales and his governance of the country in his father’s absence. In the poem’s opening, hack poets are criticised for contributing to the crisis by selling cheap verse for inflated prices. This process is made similar to the South Sea Company’s project: the free exchange of paper jeopardises established wealth such that ill-deserving owners of South Sea stock are able to invert the social order and ‘besiege a Duke’s estate’ (Stanhope 1720a, 4). Later in the poem, the fortunes of the company are likened to the Thames’ tides, which trickle away and leave investors with nothing (p. 8). Stanhope’s vision is of a city cheated by charlatans (poetic and financial alike) and his hope is that the King will return to preside over the country and restore its wealth. It is more appropriate to compare Stanhope to Ramsay and 12 The collection contains the third edition of Stanhope’s An Epistle, the second edition of Arundell’s The Directors, and the first editions of Stanhope’s The Governour and Foxton’s Jesina, each with a separate title page and pagination. 13 Foxon (1975) notes that H. Stanhope is likely a pseudonym for William Bond.

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Centlivre than to Mitchell, Amhurst, or the Morley poet because Stanhope maintains an interest in the consequences of the crisis that extends beyond the personal. It is this fear of social inversion that Arundell (1720) develops in The Directors. At a first glance, Arundell’s poem seems to promote a radical vision of a future in which capital has overwritten all prior forms of social relation. The poem makes the directors’ case by arguing that ‘The richest Briton most is Britain’s friend’ (p. 7): Blame not such Men that rise—they get their Due, Nor mourn some Lords that fall—they get theirs too

(p. 20)

This logic suggests that the country will be well served by an upheaval that elevates the diligent and skilled and causes the fall of less-deserving society figures. It is, however, a less radical premise than it first appears: Arundell’s vision is more accurately a parody in imitation of the untethered economy that Stanhope fears in An Epistle. He is at once definitive in his condemnation of Stanhope’s hyperbole, as well as keen to reassert the argument that he begins by dismissing. Like the earlier piece, and the later The Governor, the majority of which is dedicated to a discussion of the ongoing Great Northern War (1700–1721) between Russia and the Swedish Empire, Arundell’s poem ends by suggesting that the King’s arrival in Britain will put an end to the financial crisis. The politics of epistolary address allow the author and publisher to perform a public loyalty to the Hanoverian royal family, in spite of the pamphlets containing explicit criticism of a scheme from which the monarchy benefitted: the King had been the governor of the South Sea Company since its inception in 1711. The firm made a great show of his acquisition of £100,000 worth of stock when the first of the four money subscriptions opened on 14 April 1720 (Carswell 2001, 257; Dickson 1993, 125). Stanhope and Arundell believed that the crisis would have longreaching consequences. Neither author saw the South Sea Company’s problems as an aberration within the British financial market; both understood it as a phenomenon arising from a matrix of local and international events. John Law is the ‘State-Physician’ of Arundell’s The Directors (1720, 11), and the Compagnie des Indes ’s scheme in France provides a

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point of comparison for the scheme developed by the South Sea Company’s directors: Arundell claims that ‘What Mississippi was, is South-Sea Art’ (p. 26). The Mississippi Bubble becomes an unheeded warning, in stark difference to poems that predate the crisis: in Tolson’s A Poem on His Majesty’s Passing the South-Sea Bill, the situation in France is held up as an example of what would not happen in Britain.

5.7

Conclusion

Though none of the pamphlets deal with the legislation that we have come to know as the Bubble Act, all exhibit a keen awareness of competition in Exchange Alley, as well as a firm sense that the ‘South-Sea’ was distinguishable from other projects and joint-stock companies seeking investment at the same time. Describing the legislation, an article in the Daily Post from 22 June 1720 gives a sense of how widespread knowledge of the act was: ‘The Act call’d by most Persons the Act against Bubbles, i.e., for putting down Projects that were a publick Nusance’. It is highly likely that the authors of pamphlets that are so economically involved would have known of, and understood, the act. Its absence in the poetry from after its passage is therefore conspicuous, suggesting that the pamphlets’ authors thought it was not disproportionately significant among the factors that contributed to the crash. Of course, writers contemporary with the South Sea Bubble have no particular claim to an accurate understanding of the crisis, but it is worth observing that something later scholarship has shown to have had a substantial bearing on the company and its fortunes is absent from these popular pamphlet poems. This chapter began by suggesting that an analysis of poems published in the popular press during 1720 might give new insights into how the South Sea Bubble was understood by its contemporaries. Some of the value of this writing lies in its immediacy: much of the literary work that has thus far been considered by literary critics in relation to the Bubble was written at a removal from the Bubble year. The authors of the ten poetry pamphlets studied in detail here had no benefit of hindsight. Even the authors of the pre-crash pamphlets, who sometimes struggled with competing desires to criticise the foundations of the South Sea Company’s investment scheme and to profit from it, offer more subtle assessments of the situation than this mercenary premise might suggest. A few of the poems offer nuanced and sustained assessments of the state of the financial market: the commercial vision that Ramsay pronounces, and

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that Stanhope and Arundell glimpse, is observed as a consequence of the attention paid to the subscription scheme and the national and international politics that surround it. For these authors, the spectre of hysteria does not account for the crash, but manipulation of investors and of markets, by poets and statesmen alike, goes some way towards creating an environment in which the crisis could occur.

References Amhurst, Nicholas. 1720a. An Epistle (With a Petition in it) to Sir John Blount, Bart. One of the Directors of the South-Sea Company. London: Printed for R. Francklin, at the Sun in Fleet-Street. ———. 1720b. A Familiar Epistle from Tunbridge-Wells to a Gentleman at Oxford. London: Printed for R. Francklin, at the Sun in Fleet-Street. An Epistle from Dick Francklin, Bookseller; To Nick Amhurst, Poet, up Three-Pair of Stairs. Occasion’d by his Epistle to Sir J—n Bl—t. 1721. London: Printed for J. Roberts, in Warwick-Lane; and Sold by J. Graves, in St. James’s-Street; and J. Woodman, under Will’s Coffee-House, Covent Garden. Anon. 1720a. ‘A promissory Epistle to William Morley, Esq; one of the Directors of the South-Sea Company’. Weekly Journal, or Saturday’s Post 87, 30 July: 517–18. ———. 1720b. An Epistle to William Morley Esq; One of the Directors of the South-Sea Company. London: Printed for J. Roberts near the Oxford Arms in Warwick-lane. Arundell, Mr. [pseud.]. 1720. The Directors, A Poem: Addressed to Mr. Stanhope. Occasioned by His Epistle to his Royal Highness the Prince of Wales. London: Printed for E. Curll, over against Catherine-Street in the Strand. Baines, Paul, and Pat Rogers. 2007. Edmund Curll, Bookseller. Oxford: Clarendon Press. Bowles, Thomas. 1721a. The Bubblers Medley, or A Sketch of the Times; being Europe’s Memorial for the Year 1720 [no. 1]. London: Printed for Tho. Bowles, print & map seller next ye Chapter House in St. Paul’s Ch. Yard. British Museum, 1880, 1113.3953. Accessed 13 Oct 2022. https://www.bri tishmuseum.org/collection/object/P_1880-1113-3953. ———. 1721b. The Bubblers Medley, or A Sketch of the Times; being Europe’s Memorial for the Year 1720 [no. 2]. London: Printed for Tho. Bowles, print & map seller next ye Chapter House in St. Paul’s Ch. Yard. British Museum, G, 12.134. Accessed 13 Oct 2022. https://www.britishmuseum. org/collection/object/P_G-12-134. Brantlinger, Patrick. 1996. Fictions of State: Culture and Credit in Britain, 1694– 1994. Ithaca, NY: Cornell University Press.

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[C. C——m]. 1720. A Familiar Epistle to Mr. Mitchell, Containing a Seasonable Satire, Written in the Fashionable Style of Modern Poetick Beggars, By a Money’d Man. London: Printed for T. Jauncy, at the Angel without Temple-Bar. Carswell, John. 2001. The South Sea Bubble, 2nd ed. Stroud: Sutton. Centlivre, Susanna. 1720. A Woman’s Case: In an Epistle to Charles Joye, Esq; Deputy-Governor of the South-Sea. London: Printed for E. Curll in Pater-Noster-Row. Clery, E.J. 2004. The Feminization Debate in Eighteenth-Century England: Literature, Commerce and Luxury. Basingstoke: Palgrave Macmillan. Dale, Richard S., Johnnie E. V. Johnson, and Leilei Tang. 2005. Financial Markets Can Go Mad: Evidence of Irrational Behaviour during the South Sea Bubble. Economic History Review 58 (2): 233–271. De Bruyn, Frans. 2020. Introduction. In Goggin and De Bruyn 2020, 1–14. Dickson, P.G.M. 1993. The Financial Revolution in England: A Study in the Development of Public Credit, 1688–1756, 1967. Aldershot: Gregg Revivals. First published by Macmillan, London. Foxon, D.F. 1975. English Verse, 1701–1750. 2 vols. Cambridge: Cambridge University Press. Foxton, Mr. [Thomas]. 1721. Jesina: Or, Delusive Gold. A Pastoral, Lamenting the Misfortunes of a young Lady of Quality Ruined by South-Sea Stock. London: E. Curll, at the Dial and Bible, over-against Catherine-Street, in the Strand. Froide, Amy M. 2017. Silent Partners: Women as Public Investors during Britain’s Financial Revolution, 1690–1750. Oxford: Oxford University Press. Garber, Peter M. 2000. Famous First Bubbles: The Fundamentals of Early Manias. Cambridge, MA: MIT Press. Gay, John. (1721) 1974. ‘A Panegyrical Epistle to Mr. Thomas Snow’. In John Gay: Poetry and Prose, ed. Vinton A. Dearing, vol. 1, 280–82. Oxford: Clarendon Press. Goetzmann, William N., K. Catherine Labio, Geert Rouwenhorst, and Timothy G. Young, eds. 2013. The Great Mirror of Folly: Finance, Culture, and the Crash of 1720. New Haven: Yale University Press. Goggin, Joyce. 2020. Culture and Finance: Langendijk’s Wind Traders. In Goggin and De Bruyn 2020: 149–168. Goggin, Joyce, and Frans De Bruyn, eds. 2020. Comedy and Crisis: Pieter Langendijk, the Dutch, and the Speculative Bubbles of 1720. Liverpool: Liverpool University Press. Hammond, Brean S. 1988. Scriblerian Self-Fashioning. Yearbook of English Studies 18: 108–124. Hanson, L.W. 1963. Contemporary Printed Sources for British and Irish Economic History, 1701–1750. Cambridge: Cambridge University Press. Harris, Ron. 1994. The Bubble Act: Its Passage and Its Effects on Business Organization. Journal of Economic History 54: 610–627.

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Ingrassia, Catherine. 1995. The Pleasure of Business and the Business of Pleasure: Gender, Credit, and the South Sea Bubble. Studies in Eighteenth-Century Culture 24: 191–210. ———. 1998. Authorship, Commerce and Gender in Early Eighteenth-Century England: A Culture of Paper Credit. Cambridge: Cambridge University Press. Leemans, Inger. 2020. “New Plays resemble Bubbles, we must own”: Staging the Stock Market, 1719–20. In Goggin and De Bruyn 2020: 179–202. Mitchell, Joseph. 1720. The Doleful Swains: A Pastoral Poem. London: Printed for T. Jauncy at the Angel without Temple-Bar. Multum in Parvo; Or, Bubbles in a Nut-shell. 1720. London: Printed for W. Boreham at the Angel in Pater-Noster-Row. Neal, Larry. 1985. The First Rational Bubbles: A New Look at the Mississippi and South Sea Schemes. BEBR Faculty Working Paper, no. 1188. Urbana: College of Commerce and Business Administration, University of Illinois at Urbana-Champaign. http://hdl.handle.net/2142/28982. ———. 1990. The Rise of Financial Capitalism: International Capital Markets in the Age of Reason. Cambridge: Cambridge University Press. Newman, Steve. 2012. Second-Sighted Scott: Allan Ramsay and the South Sea Bubble. Scottish Literary Review 4 (1): 15–33. Nicholson, Colin. 1994. Writing and the Rise of Finance: Capital Satires of the Early Eighteenth Century. Cambridge: Cambridge University Press. Paul, Helen J. 2011. The South Sea Bubble: An Economic History of Its Origins and Consequences. London: Routledge. Ramsay, Allan. 1720. Wealth, or the Woody. A Poem on the South-Sea. London: Printed for T. Jauncy at the Angel without Temple-Bar. Rogers, Pat. 2014. Credit these accounts: Have we really burst the Bubble Myths? TLS, 11 April, 14–15. Sherman, Sandra. 1996. Finance and Fictionality in the Early Eighteenth Century: Accounting for Defoe. Cambridge: Cambridge University Press. South-Sea Pills to Purge Court Melancholy. 1721. London: Edmund Curll. Sperling, John G. 1962. The South Sea Company: An Historical Essay and Bibliographical Finding List. Boston: Baker Library, Harvard Graduate School of Business Administration. Stanhope, Mr [H]. [pseud.]. 1720a. An Epistle to His Royal Highness the Prince of Wales; Occasion’d by the State of the Nation. Presented on his Birth-Day. London: Printed for E. Curll, over-against Catherine-Street, in the Strand. ———. 1720b. The Governour, A Poem on the Present Posture of Affairs: Presented to the King. London: Printed for E. Curll, at the Dial and Bible, over-against Catherine-Street, in the Strand. Stratmann, Silke. 2000. Myths of Speculation: The South Sea Bubble and 18thCentury English Literature. Munich: Fink.

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Swift, Jonathan. (1721) 1958. ‘The Bubble’. In The Poems of Jonathan Swift, ed. Harold Williams, 2nd ed., vol. 1, 248–59. Oxford: Clarendon Press. The Case of William Morley, Merchant, one of the late directors of the South Sea Company. 1721. N.p. Tolson, Francis. 1720. A Poem on His Majesty’s Passing the South-Sea Bill. London: Sold by John Morphew, near Stationer’s-Hall.

CHAPTER 6

Decoding the Bubble: Popular Magic, Financial Deception, and Eliza Haywood’s Memoirs of a Certain Island Adjacent to Utopia Alison Daniell

‘If Defoe’s characters are always looking for bankers, Haywood’s seek lawyers’, Paula Backscheider (2000, 24) once famously announced. Whilst it is undoubtedly true that Eliza Haywood (c. 1693–1756) was interested in the law and its impact on women’s lives, new research is revealing that Haywood also had much to say about contemporary political and economic issues, including the early stock market. Scholarship carried out during the last decade suggests that a number of Haywood’s novels, particularly those written during the turbulent years of the 1720s, directly address issues such as speculative finance, the activities of joint-stock

A. Daniell (B) University of Southampton, Southampton, UK e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 H. Paul et al. (eds.), The Bubble Act, Palgrave Studies in the History of Finance, https://doi.org/10.1007/978-3-031-31894-8_6

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companies and Britain’s expanding global trade network (Buckley 2014; O’Brien 2016; Diamond 2017; Vanek 2020; Clery 2016; Bullard 2009; King 2016; Bullard and Carnell 2017).1 This chapter focuses on one of Haywood’s most overt political works, Memoirs of a Certain Island Adjacent to Utopia (1724; all citations refer to 2nd ed., Haywood 1726). This text, fashioned as a ‘secret history’ narrative, is an extended allegorical account of the South Sea Bubble and seeks to show that the Bubble had a destabilising effect upon English society. Much of this disruption manifests as dysfunctional sexual relationships, and Haywood uses the tropes of amatory fiction to explore these. Rather than focus on the amatory and secret history aspects of the text, though, I will offer a revised reading of the framing narrative: the machinations of the evil wizard Lucitario and his magic well. Here I will argue that one of the factors that shaped Haywood’s analysis of the Bubble and its instigators was the change in the understanding of magic which occurred at the end of the seventeenth/beginning of the eighteenth centuries and which would eventually lead to the new Witchcraft Act, which was eventually passed in 1736. Historically, interpretations of Lucitario have placed him within a literary tradition of powerful supernatural beings stretching back to medieval literature. However, this reading does not take into account the profound realignment of beliefs relating to the supernatural that was ongoing at the time Haywood was writing. If these new understandings of witchcraft and wizardry are applied to the text, they paint Lucitario as nothing more than a base confidence trickster, using fraud and deception to dupe the ignorant and unwary into parting with their money. This is a far cry from the powerful wizards of literary tradition but an entirely fitting depiction given public anger towards those involved in the Bubble, including James Craggs senior, a potential real-life candidate for Lucitario.2 In order to fully contextualise this new reading, I will begin by surveying some of the existing secondary scholarship on Memoirs of a Certain Island—and Haywood’s literary interrogation of

1 Older studies include: Ingrassia 1995 (although this focuses on cultural reactions to speculative finance more generally); and see Ingrassia 1998. Nicholson (1994) also focuses on writers other than Haywood, but provides a useful early account of literature’s interaction with the Bubble. 2 Craggs, a former MP and Postmaster General, was implicated in corrupt practices surrounding the Bubble. He died in March 1721, and there is speculation that he may have committed suicide.

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speculative finance and government economic policy more generally— before moving on to discuss the new thinking surrounding witchcraft and the supernatural that was evolving at this time. One of the developments in recent Haywood studies has been a reexamination of some of her amatory fictions in order to unearth more nuanced readings, including those that relate to legal, economic, and political issues. Sometimes these texts focus on how such matters specifically impacted on women (see Nixon 2014; Hobgood 2004), but others have wider-ranging remits. So, for example, Jennifer Buckley (2014, 79) analyses Cleomelia (1727) in order to ascertain Haywood’s view of Whig government policy relating to the East India Company and global trade, arguing that Haywood uses ‘the associations between female sexuality and speculative investment that had emerged […] after the South Sea Bubble’ in order to explore these issues. Similarly, Morgan Vanek (2020, 77) contrasts Steele’s The Conscious Lovers (1722) and Haywood’s Fantomina (1725) (which both feature incognita) in order ‘to examine new ideas about what constituted an honourable approach to risk after the South Sea Bubble’. Emma Clery (2016) too makes the link between the amatory desire depicted in Haywood’s novels and the acquisitive desire which fuels consumer culture and an interest in luxury. Clery argues that Haywood’s novel Love in Excess (1719–1720), which was written at the same time that the Bubble was inflating, ‘provides an oblique commentary [on the same] with its narrative of limitless desire and disastrous consequences’ (52–53). She, like Vanek, also views Fantomina as ‘perhaps the most clearly allegorical of the post-Bubble narratives’ (Clery 2016, 53–54). Catherine Ingrassia (1998, 89–103) analysed The City Jilt (1726) and The Mercenary Lover (1726). She also argues that Haywood is using the language of passion to mediate an exploration of economic issues, as well as suggesting that the heroines in these fictions stand as proxies for property or capital. Such interpretations of Haywood’s fictions, where female sexual desire is linked to concerns surrounding financial and economic issues, chime with the conclusions of scholars who have examined the imagery that surrounded the Bubble (and speculative investment) more generally. Ingrassia (1995, 192), for example, points to the development of a discourse which ‘placed women symbolically and materially at the centre of the crisis as [a warning] […] of speculative investment’s feminizing influence on culture as a whole’. More specifically, she observes how:

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The verbal and visual representations of the South Sea Bubble portray participants as either ‘feminized’ men, or as subversively empowered and sexually and financially rapacious women, all guided by fickle female goddesses who symbolically control the new economic model.

The analyses offered by Buckley (2014), Vanek (2020), and Clery (2016) (which locate Haywood’s economic critiques within texts with a sexually manipulative female protagonist) fit snugly into this wider picture. Helen Paul (2011, 90–91), citing the linguistic research of De Goede on the ways in which financial crises are articulated, expands upon this and argues that negative discourses surrounding the South Sea Bubble were generally gendered as feminine. Further, Paul notes a specific disapproval of women’s involvement in the stock market. She evidences this with a huge range of images and artifacts, including playing cards depicting women using funds generated by investments on the stock market to achieve ‘control over marriage prospects and sexual partners’ (93). Needless to say, neither of these activities were perceived as desirable in a patriarchal society which sought to control and limit both women’s financial and marital options. Paul also links this criticism of perceived female autonomy to ideas of luxury, excess, and superficiality (93). Given the overwhelmingly misogynistic tone that infused the discourses surrounding the collapse of the Bubble, one might be forgiven for imagining that women—rather than men—were to blame for the crash. This was of course not the case and Clery (2004, 56) sums up the general mood thus: ‘What is beyond doubt is that women featured out of all proportion to their real activity when it came to the backlash against the [South Sea] scheme’. Whilst there is an abundance of evidence that women were involved as investors (and even brokers) in the early stock market, they were considerably outnumbered in both roles by men (see Froide 2017, 75–81). Indeed, men were not merely financial intermediaries, they created and controlled the joint-stock companies. They also made up the legislature responsible for regulating these organisations—and were, of course, responsible for mitigating the disastrous consequences of the Bubble. In comparison, the part played by women was minimal. The fact, therefore, that authors, artists, polemicists, and pamphleteers—including Haywood—should seek to frame their criticism of a male-run system in terms of negative femininities is significant. However, as with much in Haywood’s writing, this is not straightforward and her choice of agentic female protagonists might

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be interpreted as disrupting the overt anti-woman messaging found elsewhere. Was Haywood merely reflecting existing misogynistic discourses, or was she using her characters to make a wider point that women are autonomous beings, capable of making their own decisions and shaping their own destinies? This, however, is a discussion that lies outside the scope of this chapter. As well as examining her exploration of issues such as speculative finance, scholarship has also begun to uncover Haywood’s political allegiances. Fascinatingly, it seems these were by no means clear-cut. Kathryn King (2016) has decoded Memoirs of a Certain Island, and argues that the political views it reveals are somewhat unexpected. Memoirs was written in two volumes. The first, which dealt with the Bubble and its effect upon elite society, was published in September 1724. Volume two, which focused on those further down the social scale, was published a year later: the events of the Bubble still fresh in people’s minds. Whilst the novel draws on Haywood’s skill as a seasoned creator of amatory fiction it was also written as a ‘secret history’, a narrative form which purported to lay bare the secret and scandalous goings on of the ruling classes. In the words of Rebecca Bullard (2017, 1), the genre ‘peers into secret spaces and allows its readers to see their rulers […] in a metaphorical and literal state of undress’. She states that secret histories dated back to antiquity where they were known as anekdota, literally ‘unpublished [things]’ and were viewed by early modern writers as a ‘potent weapon against […] popery and arbitrary government’ (3–4). Haywood was not the first female author to see the potential of the secret history as a medium through which to express her political views. Bullard (2017, 4) argues that the secret history as a genre traditionally privileged ‘the perspectives of marginalized and conventionally unreliable groups and individuals, including women’. The form had been exploited famously by Delrivier Manley’s Secret Memoirs and Manners of Several Persons of Quality, of both Sexes, From The New Atalantis (1709) and Aphra Behn’s Love Letters Between a Nobleman and His Sister (published between 1684 and 1687), and critics have acknowledged the extent to which Haywood was indebted to both her predecessors. King (2016, 44) argues that whilst Haywood’s Memoirs of a Certain Island was ‘far from being a slavish imitation’ of Manley’s opus, there were similarities in that ‘[b]oth are loosely structured collections of frame tales tending toward revelations of sexual misconduct’. There were also, however, clear differences. Whilst Manley was a ‘dogged tory operative’ who denied the

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political content of her work, Haywood was ‘a political outsider with no discernible backing from any side and did what she needed to do to ingratiate herself with the government’ (King 2016, 44–45). Further, King asserts that Memoirs of a Certain Island was not intended as ‘chiefly a “Tory” attack on Walpole’ (36). In contrast to some other scholars (e.g., Gerrard 1994, 176), King (2016, 40) identifies Lucitario not as Walpole but as James Craggs senior.3 Instead, she argues that Walpole is ‘Cleomenes’—a character identified in the key to Memoirs as ‘Mr W – e’ and described in the text as a ‘greatly noble Patriot, who’s only Care […] is how to serve his Country’ (37). If King is correct, this is an important clue in documenting Haywood’s evolving political allegiances. In Haywood’s later secret history, The Adventures of Eovaai, Princess of Ijaveo (1736), she does indeed cast Walpole as a wicked magician, Ochihatu, pitted against the hero Alhahuza, a character intended to be recognised as Bolingbroke (King 2016, 77–78). At the time Memoirs was published, however, both the political situation and Haywood’s loyalties were very different. King’s rationale for Haywood’s positive depiction of Walpole in Memoirs is in part linked to pragmatism and in part to the political realities of the day. Pragmatic because, like many authors of the time, Haywood was in need of patronage from those in powerful positions and thus may have been keen to court Walpolian approval—or at least not alienate herself from it (King 2016, 37–38; see also Bullard 2009, 168). Further, when considering the chronology of events, King urges her readers to remember that at the time Memoirs of a Certain Island was being written and published, Walpole’s reputation had not yet crystalised into that of arch-villain. Neither was he an ally of the Tory-conceived South Sea Company (36). [H]e had yet to acquire the aura of archetypal iniquity that is ascribed to him in much literary criticism […] [he] had been suspicious of the South Sea venture, though he did invest (and lose) money in it, and was not personally involved in the fraud and corruption […] [There was] no organized opposition to Walpole to speak of when Memoirs of a Certain Island was written but this does not mean he lacked critics.’ (King 2016, 40–41)

3 King (2016, 40) cites as supporting evidence the London key to the characters in the book which identifies the wizard as ‘C–––gs’.

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Instead, she argues that Haywood chose to attack Craggs and John Trenchard, as well as damning the practice of speculative finance more generally.4 There are those who disagree with King’s analysis. Christine Gerrard (1994, 176) identifies Walpole as Lucitario and argues for Memoirs of a Certain Island as the first extended incarnation of a ‘common trope’ in the eighteenth century which depicted Walpole as a wizard or magician. John Richetti (1969, 155), by contrast, argues for Memoirs of a Certain Island to be read as an entirely apolitical text, concerned only with sexual scandal (cf. King 2016, 36). Ros Ballaster (1998, 156) too argues that it was not until Eovaai ‘that Haywood produced the sort of specifically [politically] motivated scandal fiction that Manley had excelled in’. However, the existence of a key to identify the major players as well as the thinly veiled framing narrative of the well speaks against these analyses. I suggest that on balance there is a case to be made that Memoirs of a Certain Island was both written—and intended to be understood—as a political text. This is so even if the ‘politics’ which it espouses are not confined to simple party lines or as polished and unequivocal as some of Haywood’s later work. Like her other texts discussed above, Haywood is here deftly repurposing her brand identity as an author of amatory fiction to explore topics of national importance. As women’s writing, particularly that which focuses on love or relationships, has traditionally been accorded a lower literary status than that produced by men, it is perhaps not surprising that her intentions in this area have either been misunderstood or misrepresented. Thus, Memoirs of a Certain Island can be read as an example of Haywood using her expertise as an experienced practitioner of amatory fiction to explore the key issues of her time. However, just because amatory fiction provided the fuel in Haywood’s narrative engine does not mean it was the only discourse she utilised in order to make her points. The book’s framing narrative is a fairy-tale fantasy in which an evil wizard tricks the gullible citizens of an island into handing their wealth over to him and his acolytes. This has been understood by critics as being both an allegory for the new financial world of invisible gains and paper fortunes and part of a much older literary tradition, encompassing genres such as 4 Trenchard was a political writer who, along with Thomas Gordon, was responsible for Cato’s Letters —a series of essays condemning corruption, tyranny, and immorality in British politics.

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Arthurian legend and texts such as Spenser’s Faerie Queene. For example, King (2016, 39) believes Haywood was using ‘metaphors of necromancy’ to. characterize the irrational basis of the lust for acquisition created by the seeming ‘magic’ of credit, speculation, paper wealth and other mechanisms of financial revolution, mechanisms both feared and reviled as chicanery by […] critics of the new economic order who often represent credit and speculation as dangerous alchemy.

Both King (2016, 39) and Gerrard (1994, 175–176) argue that Haywood is aligning herself with a long tradition of wizards and sorcery in literature, Gerrard noting a particular flourish of this type of imagery at the court of Queen Anne. Further, as has already been mentioned, the figure of the evil wizard seems to have had a particular association with Walpole, and he was frequently depicted as such later in his career, including by Haywood herself in Eovaai. However, to date, no one has sought to analyse the figure of Lucitario in terms of contemporary beliefs in witchcraft and the supernatural. Whilst I would not disagree with critics such as King and Gerrard who see Haywood deliberately aligning the character with an existing literary trope, I would suggest there is another—as yet unrecognised—layer to the metaphor of wizardry. This, I would suggest, removes from the character of Lucitario the trappings of preternatural power and instead casts him as nothing more than a failed conman. England in the late seventeenth and early eighteenth centuries witnessed a sea change in attitudes towards magic, witches, and other such issues. Moving from an almost universal acceptance of supernatural forces, capable of affecting outcomes in the material world, beliefs began to shift dramatically towards the end of the seventeenth century. Rather than being manifestations of powerful malevolent forces, witchcraft and magic came instead to be linked with mundane trickery and deception, particularly that relating to money and property. In 1736, the new Witchcraft Act (9 Geo. 2, c. 5) repealed the draconian legislation dating from 1604 and stated that: no Prosecution, Suit or Proceeding, shall be commenced or carried on against any Person or persons for Witchcraft, Sorcery, Inchantment, or Conjuration, or for charging another with any such offence, in any Court whatsoever in Great Britain.

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However, to protect ‘ignorant Persons’ from being ‘deluded or defrauded’, it continued: That if any person […] pretends to exercise or use any kind of Witchcraft, Sorcery, Inchantment, or Conjuration, or undertake to tell Fortunes, or pretend from his or her skill or knowledge in any occult or crafty science, to discover where or in what manner any Goods or Chattels supposed to have been stolen or lost, may be found, every Person […] being convicted […] shall […] suffer imprisonment for the space of one whole year […] and once in every quarter […] stand openly on the pillory. (9 Geo. 2, c. 5, §4)

The meaning of this legislation was unequivocal: witchcraft qua magic ceased to be a matter for the criminal law. However, to protect those citizens who were foolish enough to allow themselves to be taken in, punishment would still be meted out to anyone pretending to have such powers. Although Memoirs was published in 1724, thirteen years before this statute would be enacted, the ideas, debates, and societal changes which produced the new law were already much in evidence. It is important to note that this was, firstly, a gradual change rather than an overnight revolution, and secondly, it was not driven by one section or class of society more than any other. Whilst it is easy to assume that an educated, sophisticated elite was behind the shift, this does not appear to be the case. It is also necessary to point out that a switch to universal scepticism did not occur in Haywood’s lifetime—Indeed, this is still not the case almost three hundred years later. Instead, a world view emerged in which magic simultaneously did and did not exist. As OwenDavies (2015, 522) puts it: Neither the Reformation nor the Enlightenment heralded an irreversible and pervasive shift towards a rational western world. The rational and irrational […] continued to coexist through the eighteenth century and beyond in elite, middling and popular cultures.

Davies identifies Samuel Johnson, William Blackstone, and Joseph Addison as noted intellectual figures who harboured this cognitive dissonance. Interestingly, those who held conservative political opinions (including Johnson and Blackstone) also appeared to tend towards correspondingly conservative religious views, including those relating to magic.

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Indeed, Davies (1999, 8) has suggested that for some of this ilk ‘the denial of witchcraft was associated with noxious, free-thinking, sceptical Whiggery’. Just as beliefs in magic remained fluid, the reasons for the shift away from such beliefs cannot be attributed to any one cause. A considerable body of research has attempted to pinpoint the main factors responsible for the switch, but there remains a high level of disagreement amongst scholars (Bostridge 1997; Davies and De Blécourt 2004; Davies 2008, 2015; Thomas 2003; Hunter 2020; Waters 2019). Malcolm Gaskill (2008), for example, presents a compelling case that the decline in witchcraft prosecutions was primarily linked to changes in the rules relating to evidence in criminal trials and the respective roles of the judge and jury. However, he argues that this was part of a wider development in empirical understanding that transformed the way in which evidence was assessed and understood so that ‘[b]y 1700 moral certainty, whether for the assize judge, natural philosopher or Anglican divine, relied on data’ (Gaskill 2008, 67). Intriguingly, it appears that the development of science as an intellectual discipline did not play as key a role in this process as might be supposed. Influential scientists such as Robert Boyle retained their beliefs in the supernatural, and in order to reduce possible antagonism, the Royal Society ignored topics concerned with magic and the occult ‘due to the differences of opinions among its members’ (Hunter 2020, 172, see also 168–172 for more details). Moving beyond empirical matters, some scholars—such as Ian Bostridge (1997) and Peter Elmer (2016)—have sought to link the change in beliefs to allegiances in party politics. Bostridge, for example, argues that it was a by-product of the Rage of the Party in the second decade of the eighteenth century. Intriguingly for the purposes of this chapter, he paraphrases Daniel Defoe (writing in the 1720s) as saying that ‘witches, properly speaking, were no longer needed because diabolism (factional rule incarnate) reigned at the very seat of power’ in the form of Walpole and the Whigs (Bostridge 1997, 138). However, this analysis has been criticised by other scholars, including Michael Hunter (2020, 176), who regards Bostridge’s argument as ‘tenuous’ and instead suggests that it was ‘freethinkers and Deists [who pioneered] the scepticism which orthodox thinkers […] were belatedly to adopt’. Although the reasons that led to this shift in beliefs were many and various, the fact remains that at the time Haywood was writing Memoirs

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of a Certain Island the intellectual landscape surrounding understandings of magic and witchcraft was in a state of flux. This did not merely reflect a decline in belief in the occult but also involved a re-assessment of the areas of life where those who purported to be practitioners of magic were a risk to the public. Tellingly, one of these was in relation to private property, particularly the concern that those who claimed to have magic powers would trick and dupe honest citizens for financial gain. Indeed, this is the overt aim of the 1736 legislation: it debunked magic as a supernatural force but retained the right of the state to punish those who exploited the beliefs of the credulous for financial gain. This may well fit into more general concerns at the time surrounding the ownership of property. Owen Davies (1999, 6) theorises that, by the early part of the eighteenth century, the rich and powerful elites had stopped worrying about being overthrown by popular political uprisings and had instead become concerned with securing ‘their […] property from the depredations of the poverty-stricken masses around them’. Overlaying these discourses on Memoirs of a Certain Island makes for an interesting and illuminating reading of the text. Haywood depicts the South Sea Company as an enchanted well, which the evil magician Lucitario has, with the permission of the monarch, introduced to the island. Lucitario controls the well through his operatives who he disguises as priests (and who are intended to represent stockjobbers). He convinces the islanders to worship the well, making it appear ‘like liquid gold’, and claims it will make those who idolise it rich (Haywood 1726, 8). Believing Lucitario’s claims the islanders are overtaken by greed and bring whatever they can get their hands on to throw into the well. However, it is all a trick. The contents of the well have merely been made to look like gold—in reality it remains ‘common water’—and the votive offerings of those hoping to become wealthy instead serve to enrich Lucitario and his acolytes, as well as those ‘whose Adherence to the Necromancer raised them to a Condition far above what they could have hoped’ (7). Applying the new early eighteenth-century understandings of witchcraft to Haywood’s allegorical structure complicates the historical literary tradition of the powerful wizard. In many ways, the figure of Lucitario can be seen to align with the figure of the ‘cunning man’, many of whom were known as ‘wizards’ or ‘conjurors’ and included such impressive-sounding individuals as the Wizard of South Petherton and the Wizard of the North

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(Davies 1999, 215).5 The cunning folk were the targets of both the preand post-1736 Witchcraft Act legislation and were not well regarded by society. The majority of cunning folk were male, and usually artisans, tradesmen or farmers by profession. Many continued to practice their more mundane secondary occupations while offering their magical services. This not only gave them a second income but also provided a respectable public façade for what was essentially an illegal occupation. (Davies 1999, 215)

Additionally, the historical record shows that although fewer in number than women, men were not immune from accusations of witchcraft. However, there is evidence that the crime was associated with traditionally ‘feminine’ traits such as weakmindedness, inferior rational abilities, and a susceptibility to temptation. Therefore, it has been suggested that men accused of witchcraft may have been perceived as un-masculine in some way (Rowlands 2013, 456–459). This has intriguing implications for the figure of Lucitario within the text. If it is the case—as Ingrassia, Paul, and others have argued—that Haywood and her contemporaries sought to explore issues surrounding speculative finance in terms of negative femininities, then Lucitario’s incarnation as a practitioner of magic may have tied in neatly with the very gendered manner in which such issues were depicted elsewhere: Lucitario being intended by Haywood to be read as a (potentially un-masculine) figure. This not only provides an illuminating commentary on how Haywood viewed the Bubble—a deliberate and fraudulent mass deception calculated to enrich its authors—but also serves to ridicule the power of Lucitario. He is not a Merlin or Prospero, but a grubby upstart (possibly Craggs’ own lowly origins are referenced here), playing on the greed of the island’s citizens. A close analysis of the text appears to support these hypotheses. At the beginning, we are introduced to the chaos caused by the well through the eyes of a young traveller newly arrived on the island. Cupid, the Roman god of love, greets the traveller and explains that he has been deposed by an imposter who looks like him but who is.

5 Although against this Davies (1999) states that cunning folk only infrequently referred to themselves in this way, choosing instead the less provocative title of ‘doctor’.

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Ushered in by wild Desires, Impatiences, Perplexities, and whose ghastly Train are filled with Shame, Disgrace, Remorse and late Repentence and Despiar […] Ruin comes on apace. (Haywood 1726, 5)

Instead of Astrea and Reason, who were until recently the guiding forces in the kingdom, the figures of Pecunia and Fortune preside at the enchanted well and hold sway over the islanders. As has already been mentioned, the well itself is not what it seems to be: its appearance as ‘liquid gold’ is nothing more than an illusion. Instead, its contents are plain, ordinary water—it is just that the islanders do not see this. Blinded by their own avarice, they bring their treasures as votive offerings, believing that their devotion to the well will make them rich. Some have sacrificed all they own; some even more than that. However, even though the islanders must take their share of the blame for their greed, Haywood is clear that the true culprits are those in charge of the well—together with the individuals they need to keep on side: all suffered the same fatal Disappointment, – except […] those who were privy to the juggle, or whose Interest with Lucitario kept him from permitting they should be imposed upon.

The use of the word ‘juggle’ is also significant here. The word is synonymous with fraudulent trickery. This is not full-blown supernatural activity: it is sleight-of-hand, smoke-and-mirrors deception dressed up to look like magic. The true state of affairs becomes clear at the end of the narrative, when the island’s Genius is restored to power and sets matters right: Swift the commissioned Genius reach’d, with his Fraud-disclosing wand, the shrine of Fortune – then that of Pecunia – Down fell the wooden Deities, with all their Trophies…on the heads which form’d them […]. (Haywood 1726, 284–285)

In a trice, the enchantment disappears and the well is shown for what it is: ‘naked Mud, and long-drenched reedy Ooze’ (285). So, is there any suggestion at all within the text that Lucitario might have supernatural powers? Whilst he is unequivocally perpetrating a fraud on the islanders—aided and abetted by their willingness to believe in the power of the well—is he able to use actual ‘magic’ to make the well objectively appear as liquid gold, or is it purely the islanders’ greed that fools them into seeing something which is not there? The extracts above would suggest that the former is at least a possibility. Further,

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at the start of the tale, Cupid (when recounting the history of the well to the young traveller) states that the ‘Spring’ is ‘in reality never any other than common water (such as you see it now)’ and is merely ‘made [to] appear to the eye like liquid Gold’ (Haywood 1726, 7–8). However, the text remains inconclusive, suggesting a showman’s trick as much as any real magic power on the part of the wizard. This ambiguity suggests that the text of Memoirs itself reflects the cognitive dissonance surrounding magic described by Davies (1999). On the one hand, Lucitario is arguably permitted a modicum of supernatural power (through his ‘Pernicious Art’), not to change material reality, but to control how that reality is perceived. On the other, the possibility remains that this is an ‘Emperor’s New Clothes’ situation, and the root of the illusion lies in minds of those who see what they wish to see and all Lucitario brings to the situation is suggestion and encouragement. The text works on either reading, and the apportionment of blame remains the same: Lucitario and his acolytes are the instigators, but the islanders themselves—in their frenzy to become wealthy—empower the con artists, unconsciously colluding with their deceptions and, ultimately, allowing themselves to be mercilessly exploited. As well as exposing the lies and corruption which Haywood believes lay at the heart of the Bubble, the text also focuses on the anti-social behaviours that grow from the greed inherent in financial speculation. Memoirs suggests that, alongside the avarice encouraged by the well, the islanders’ selfish frenzy adversely affects the way they conduct themselves in their personal relationships. We are told that the rules of honourable and affective love (as governed by Cupid) have given way to a world turned upside down, where folk seek to indulge themselves as they please: marriages are made solely to gain money and rank, women are seduced and then abandoned, adultery abounds, and divorce is rife. Indeed, the Genius of the Island asserts that the people’s ‘gratification’ of ‘Avarice the worst of Vices’ has led them into ‘a thousand others’, namely, ‘Hypocrisy, Deceit, Perjury, Murder, Treason, Lust’, and also— significantly—‘Witchcraft’ (Haywood 1726, 288). These behaviours are so deeply ingrained in them that, when the citizens finally see the well for what it is, many fail to be ‘touch’d with remorse at the Offence they had been guilty of’, thinking only of themselves (286). Fortunately, the Genius’ speech has ‘the power of shocking hearts’, and at last the power of Cupid (and with it, the rightful order of things) is once more restored in the capital:

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sordid Interest, and the love of Gold, no more shall triumph o’er their Charms – Beauty and Virtue shall henceforward be the great Attractives, Marriage shall now join Hearts as well as Hands, and shall cease to be the bawd of Fortune. (286)

The islanders align themselves once more with the virtues that nurture good society and eschew the privileging of self-interest over the common good: the unbridled desires set loose by finance and investments once again under proper control. Haywood, therefore, uses the metaphor of magic qua confidence trick to express her dislike of the model of speculative finance as embodied by the South Sea Bubble. Within the text of Memoirs, she depicts such speculation as a scam and shows the selfish frenzy surrounding it as encouraging greed and avarice. These vices in turn lead to self-centred anti-social behaviours in other areas of life, eventually destabilising healthy human love and marriage—the cornerstones of societal order. As well as the layer of meaning added by contemporary understandings of witchcraft as a deception, the text’s magical imagery also obliquely conjures up the same feminised discourses that informed a great deal of contemporary views on bubbles and speculative finance, transforming Craggs into a socially-inferior, possibly even feminised, con man. Craggs was also conveniently dead by the time Haywood came to write the text. This may have been one of the reasons why he was singled out to play the arch-villain in the narrative. Similar levels of vitriol are also directed at John Trenchard: he too was deceased by the time it was produced.6 Turning our attentions to the overarching theme of this volume, what—if anything—can Memoirs of a Certain Island tell us about the Bubble Act? It has to be said that Haywood was not seeking to comment directly upon this piece of legislation in the text. Her focus was the Bubble itself and speculative finance more generally. However, in terms of the act and how it should be understood by economic historians, it is still instructive to see where she casts her blame. Ron Harris (1994, 612) divides the existing theories as to why the Bubble Act was brought into being into three groups. The first argues that there was general

6 King (2016, 41–42) notes that Trenchard was ‘one of Walpole’s most outspoken critics’ who called for governmental accountability in the scandal. She argues that this may be further evidence that Haywood was using the book to seek some form of patronage for herself.

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‘hostility to speculation’, which resulted in a wish to suppress the market and curb the activities of joint-stock companies. The second suggests that the act represented a move by the legislature to generate money. This was done by requiring all companies to have charters—which were only to be gained through Parliament. Finally—Harris’s own hypothesis—is that the South Sea Company required the act as a protective measure to reduce competition and protect its own bubble. If these three hypotheses are applied to Memoirs of a Certain Island, Haywood appears to be endorsing theory number one. She uses the text to articulate hostility towards speculation and those who seek to promote it, blaming them not just for creating financial chaos but for destabilising the cornerstones of civilised, well-regulated society. However, it is also arguable that Haywood, because she set her sights against the South Sea Company’s bubble, would have been doubly against an act which, in Harris’s hypothesis, sought to suppress other bubbles merely to inflate its own. Indeed, one suspects from the sentiments expressed in Memoirs that she would have been in favour of suppressing all bubbles, wheresoever they originated. In conclusion, the past couple of decades have seen a reappraisal of Haywood’s reputation as a political and economic commentator. It is clear that she had much to say about speculative finance, the national economy, and the roles of various political actors. It is also true that Memoirs of a Certain Island does not represent her most sophisticated attempt at a secret history (she would achieve that a few years later with Eovaai); however, for a complex, vivid, and near-contemporaneous commentary on the South Sea Bubble, it is a hugely valuable text. Haywood’s dislike of speculative finance and the destabilising effect it had, not just on the economy of the United Kingdom but also on its national values and morality, is striking. The choice of who she indicts for this crime is revealing too. She steers clear of some who would later become identified as the leading villains of their age, seeking instead to chastise the citizenry for their rush to greed, as well as those who provided the opportunity for them to indulge it. In particular, a re-reading of the figure of Lucitario—with reference to the shifting cultural understanding of witchcraft and the supernatural—provides a wholly new and unflattering gloss on Craggs’ character, transforming him from a figure of power and magic to a petty criminal seeking to defraud the ignorant. The fact that Craggs himself was from humble rather than aristocratic origins may even have aided and abetted her use of this imagery. However, despite Haywood’s

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best literary efforts and the outrage of public opinion, speculative finance did not grind to a halt with the South Sea Bubble, and one wonders what Haywood would have to say about the revolving door that still exists between politics and the City today.

References Backscheider, Paula R. 2000. ‘The Story of Eliza Haywood’s Novels: Caveats and Questions’. In The Passionate Fictions of Eliza Haywood: Essays on Her Life and Work, ed. Kirsten T. Saxton and Rebecca P. Bocchicchio, 19–47. Lexington: University Press of Kentucky, 2000. Accessed 7 Mar 2022. http://www.jstor. org/stable/j.ctt130j57m.6. Ballaster, Ros. 1998. Seductive Forms: Women’s Amatory Fiction 1684 to 1740. Oxford: Clarendon Press. Bostridge, Ian. 1997. Witchcraft and Its Transformation c. 1650–1750. Oxford: Clarendon Press. Buckley, Jenifer. 2014. “Bankrupt in All But My Good Wishes”: Speculative Economics in Cleomelia; or the Generous Mistress. Journal for Early Modern Cultural Studies 14 (4): 79–100. Bullard, Rebecca, and Rachel Carnell, eds. 2017. The Secret History in Literature 1660–1820. Cambridge: Cambridge University Press. Bullard, Rebecca. 2009. The Politics of Disclosure 1674–1725: Secret History Narratives. Abingdon: Routledge. Bullard, Rebecca. 2017. ‘Introduction: Reconsidering Secret History’. In Bullard and Carnell, 1–16. Clery, E.J. 2004. The Feminization Debate in Eighteenth-Century England: Literature, Commerce and Luxury. Basingstoke: Palgrave Macmillan. Clery, E.J. 2016. Fee Market Feminism? The Political Economy of Women’s Writing. In Women’s Writing 1660–1830: Feminisms and Futures, ed. Jennie Batchelor and Gillian Dow, 43–60. London: Palgrave Macmillan. Davies, Owen, and Willem De Blécourt, eds. 2004. Beyond the Witch Trials: Witchcraft and Magic in Enlightenment Europe. Manchester: Manchester University Press. Davies, Owen. 1999. Witchcraft, Magic and Culture 1736–1951. Manchester: Manchester University Press. Davies, Owen. 2008. ‘Decriminalising the Witch: The Origin of and Response to the 1736 Witchcraft Act’. In Witchcraft and the Act of 1604, ed. John Newton and Jo Bath, 207–32. Leiden: Brill. Davies, Owen. 2015. ‘Magic in Common and Legal Perspectives’. In The Cambridge History of Magic and Witchcraft in the West from Antiquity to the Present, ed. David J Collins, 521–46. Cambridge: Cambridge University Press.

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Diamond, David Mark. 2017. Eros and Exchange Alley: Speculative Desire in Eliza Haywood’s Memoirs of a Certain Island. Eighteenth-Century Fiction 30 (1): 45–64. Elmer, Peter. 2016. Witchcraft, Witch-Hunting and Politics in Early Modern England. Oxford: Oxford University Press. Froide, Amy. 2017. Silent Partners: Women as Public Investors During Britain’s Financial Revolution, 1690–1750. Oxford: Oxford University Press. Gaskill, Malcolm. 2008. Witchcraft and Evidence in Early Modern England. Past & Present 198 (1): 33–70. Gerrard, Christine. 1994. The Patriot Opposition to Walpole: Politics, Poetry, and National Myth, 1725–1742. Oxford: Clarendon Press. Harris, Ron. 1994. The Bubble Act: Its Passage and Its Effects on Business Organisation. Journal of Economic History 54 (3): 610–627. Haywood, Eliza. 1726. Memoirs of a Certain Island Adjacent to the Kingdom of Utopia. Vol. 1, 2nd edn. London: Printed by the Booksellers of London and Westminster. Hobgood, Jennifer. 2004. “I will sign, but it shall be in Flames”: Eliza Haywood’s Critique of Contract. Journal for Early Modern Cultural Studies 4 (1): 72–101. Hunter, Michael. 2020. The Decline of Magic: Britain in the Enlightenment. New Haven and London: Yale University Press. Ingrassia, Catherine. 1995. The Pleasure of Business and the Business of Pleasure: Gender, Credit, and the South Sea Bubble. Studies in Eighteenth-Century Culture 24: 191–210. Ingrassia, Catherine. 1998. Authorship, Commerce and Gender in Early Eighteenth-Century England: A culture of Paper Credit. Cambridge: Cambridge University Press. King, Katheryn R. 2016. A Political Biography of Eliza Haywood. Abingdon: Routledge. Nicholson, Colin. 1994. Writing and the Rise of Finance: Capital Satires of the Early Eighteenth Century. Cambridge: Cambridge University Press. Nixon, Cheryl. 2014. Regulating the Unstable Family: Eliza Haywood’s Fiction and the Development of Family Law. Journal for Early Modern Cultural Studies 14 (4): 49–78. O’Brien, John. 2016. Literature Incorporated: The Cultural Unconscious of the Business Corporation 1650–1850. Chicago and London: University of Chicago Press. Paul, Helen. 2011. The South Sea bubble: An Economic History of Its Origins and Consequences. London: Routledge. Richetti, John J. 1969. Popular Fiction Before Richardson: Narrative Patterns: 1700–1739. Oxford: Clarendon Press.

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Rowlands, Alison. 2013. Witchcraft and Gender in Early Modern Europe. In The Oxford Handbook of Witchcraft in Early Modern Europe and Colonial America, ed. Brian P. Levack, 449–467. Oxford: Oxford University Press. Thomas, Keith. 2003. Religion and the Decline of Magic: Studies in Popular Beliefs in Sixteenth and Seventeenth-Century England. London: Penguin. Vanek, Morgan. 2020. The “Secret Lady” of the South Sea Bubble: Honor, Uncertainty, and the Incognita Plot. Eighteenth-Century Studies 54 (1): 77– 99. Waters, Thomas. 2019. Cursed Britain: A History of Witchcraft and Black Magic in Modern Times. New Haven and London: Yale University Press.

CHAPTER 7

Consequences Unintended: The Bubble Act and American Independence Robert E. Wright

7.1

Introduction

Monetary conditions in the colonies during the French and Indian War fomented a real estate bubble that collapsed in 1764. British policymakers thwarted colonial efforts to slow deflation and higher interest rate growth by limiting colonists’ ability to print new fiat currency. They also slowed the withdrawal of previously printed fiat currency from circulation and undermined colonists’ ability to attract hard money (i.e., gold and silver coins, a.k.a. specie) from abroad. Deflationary policies caused widespread distress, including a spike in bankruptcies, foreclosures, and imprisonment. This led directly to colonial resistance to the Stamp Act, which initiated the chain of events known as the Imperial Crisis (i.e., the New York Quartering Act, Boston Massacre, Boston Tea Party, etc.). Continued restrictions on colonial trade and fiat money issuance

R. E. Wright (B) American Institute for Economic Research, Great Barrington, MA, USA e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 H. Paul et al. (eds.), The Bubble Act, Palgrave Studies in the History of Finance, https://doi.org/10.1007/978-3-031-31894-8_7

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maintained the economic crisis for years after the Stamp Act agitation, exacerbating the deepening Imperial Crisis and leading to nonimportation movements and other forms of self-help designed to minimise imports and hence the export of specie in payment. The Bubble Act prevented the colonists from forming the fractional reserve private commercial banks that they wanted to create to increase the money supply, revive the economy, and stop the escalation of violence. The same men who wished to form fractional reserve banks in the colonial period went on to do so successfully during the American Revolution and throughout America’s Early National period. This strongly suggests that they were in earnest and thwarted by British law, specifically the Bubble Act, rather than being inherently unable or unwilling. To appreciate the validity and veracity of these claims, readers must know something of colonial American monetary and financial arrangements. The sections below aim to provide that crucial context.

7.2

Bubble Trouble

By the mid-eighteenth century, the money supplies of Britain’s mainland North American colonies were composed primarily of foreign, full-bodied gold and silver coins (specie); fiat paper monies (bills of credit), and book accounts (deposits/credits with individuals or business firms); American Indian monies (e.g., wampum); country pay (rated agricultural commodities); warehouse receipts (tobacco) and other fully asset-backed government-issued paper bills (Maryland); and privately issued coins, paper bills, and shop notes supplemented to an extent that varied over time and colony (Michener 2011; Zarlenga 2002, 361–66). Given the disparate media of exchange in local circulation, the key functional aspect of the mid-century colonial monetary system was that colonists reckoned economic value in terms of local units of account anchored to gold and silver by widely accepted, privately promulgated coin ratings. In New York, for example, the Mexican or Spanish dollar (peso or piece of eight) was rated at 8 shillings ‘New York currency’. In other words, a New York pound (£NY1) was the equivalent of 2.50 silver dollars of full weight. As in the Mother Country, there were 12 pence in each shilling and 20 shillings in each colonial pound; 20 divided by 8 is 2.5. Pennsylvanians, by contrast, rated that same Mexican silver coin at 7 shillings 6 pence, so £PA1 was worth 2.67 dollars (20/7.5). Figure 7.1, from a 1758 almanac, illustrates a typical colonial coin rating

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table. Note especially the ratings of the ‘Spanish Dollar’. Ratings could and did change, but by mid-century most, especially the dollar rating, remained the same from year to year. So many pounds of some colony’s ‘money’ or ‘currency’ therefore referenced that colony’s unit of account, i.e., its coin ratings, not its bills of credit. We know that because merchants regularly referenced ‘Virginia money’ decades before Virginia issued paper money and because they often stated that they had enclosed, say, 15 shillings ‘Pennsylvania currency’ in the form of two pesos. Account books, like Fig. 7.2, show that ratings were applied in actual commercial transactions. Such points would be trivial but for the fact that economists have grown accustomed to conflating the medium of exchange with the unit of account—i.e., Federal Reserve Notes with the US dollar—as a measure of purchasing power, and hence have caused considerable confusion in the colonial monetary literature (Michener and Wright 2005, 2006). Early Americans well understood the difference between the unit of account and media of exchange. Colonial shopkeepers did not post prices in part because they price discriminated based on the payment tendered. In other words, questions about the price of a good were inevitably met

Fig. 7.1 Coin rating table for Pennsylvania and New York, 1758 (Source The New-York Pocket Almanac, for the Year 1759. By Poor Tom, Philomath. New York: Printed and Sold by Hugh Gaine, at the Bible & Crown in HanoverSquare. [1758])

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Fig. 7.2 New York’s Spanish pistole rating used in James Alexander’s Account Book (Source Alexander Account Books, vol. 2, entry of 10 November 1741, MS Group 70, Alexander, James and William Papers, 1711–1909, New Jersey Historical Society, Newark)

with the question ‘how do you pay?’ Credit prices were naturally higher than prices for the immediate payment of coins, which were accepted at the local rating if of full weight. Paper money prices varied over time and place. In the middle colonies, bills were typically as valuable as coin. In other words, a Pennsylvania bill of credit stamped 15 shillings would ‘fetch’ as much in a Philadelphia shop as 2 silver dollars would (Michener 2011). In New England and the Carolinas by contrast, a locally issued bill of credit would buy only a fraction of what a coin of the same nominal denomination, or a sterling-denominated asset, could command. Where bills of credit were a private tender for domestic debts denominated in the local unit of account, however, depreciated bills could be used to expropriate creditors and hence became a serious policy issue between debtors and their colonial creditors (Ernst 1973, 38). Few in Britain directly felt the bite of colonial private tender laws because they tended to contract in sterling. Each colony’s coin ratings implied par of exchange in silver and gold with sterling to which market exchange rates, measured by the price of bills of exchange (international checks), remained tethered so long as the ratings held (Two Letters to Mr. Wood 1740, 61). Due to high transportation, insurance, and other transaction costs, the tethers, measured as market prices for bills of exchange, were long by later standards, but specie ship points, at which it became profitable to import or export specie, clearly existed. Fluctuations, especially large, sustained increases in nominal exchange rates, however, indirectly hurt British creditors by making it more difficult for their colonial debtors to buy sufficient coins or bills of exchange to repay their sterling debts (Michener 1987, 2011).

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With one exception (Maryland), the value of a colony’s paper money vis-à-vis specie or sterling was not so much a function of the assets putatively backing it as of the quantity issued (Michener 2015). Colonies issued two types of bills of credit: tax anticipation and economic development script. The latter they issued in fixed amounts at below market interest rates on the security of mortgages on real property and redeemed for taxes and for repayments of mortgage interest and principal. The former they issued to finance wars and redeemed for taxes. Both types of paper money circulated, almost invariably promiscuously, in the colony of issue, and usually in adjacent colonies as well, but not overseas. They therefore served to displace an equivalent value of specie from domestic circulation (Davis 1900, 2: 177). Colonies under less military stress—i.e., the middle ones from New York to Virginia—were able to keep bills of credit issues small enough to avoid displacing all specie from domestic circulation. The Carolinas and New England colonies were not so lucky and eventually issued enough bills to lose their gold/silver anchors. Rampant depreciation of their paper monies vis-à- vis specie and sterling resulted and gravely affected creditors whenever their bills of credit were a full private tender (Smith 1984). Figure 7.3 shows the par of exchange in the British colonies in 1740 for both the specie and paper standard colonies (Two Letters to Mr. Wood 1740, 61). New Jersey is missing because its monetary arrangements were complexly and completely intermingled with those of New York and especially Pennsylvania (Kemmerer 1956; Michener 2020). Some of the complexity in Maryland is noted and the common currency area of New England acknowledged. Peace eventually allowed North and South Carolina to stabilise the value of their paper monies. In New England, Imperial currency reform was necessary to prevent Rhode Island from serving as a ‘money pump’ for the region, which was a common currency area for all intents and purposes (Ernst 1973, 36; Davis 1900, 2: 169–70). In 1749, Massachusetts and British policymakers initiated a series of monetary reforms that culminated in the Currency Act of 1751. The reforms reanchored the local unit of account at 6 shillings per silver dollar (i.e., £MA1 = $3.33, and other coins in proportion) and the par of exchange at £MA133 per £100 sterling. It did so by redeeming in specie outstanding private tender Massachusetts bills of credit, outlawing the issuance of new bills of credit with private tender status, and blocking the circulation of Rhode Island and other colonies’ bills in the province. Ingenious reforms

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Fig. 7.3 Colonial exchange rates/par of exchange, 1740 (Source Two Letters to Mr. Wood, on the Coin and Currency in the Leeward Islands 1740, 61)

also re-anchored Connecticut’s unit of account and par of exchange in 1756 (Brock 1975, 236–73, 318–24). Even long recalcitrant Rhode Island reformed in 1764, also with the aid of a British grant of hard money (325–34). The middle colonies needed no such reforms because their bills of credit never permanently supplanted all specie and typically remained convertible with it at the published coin ratings. Appearing in the New Jersey Gazette on 30 January 1786, a pseudonymous author ‘Eugenio’ recounted the colonial situation clearly: Instant realization or immediate exchange of paper into coin at value was formerly practicable every moment. It is true that the government did not raise a sum of coin and deposit the same in the treasury to exchange the bills on demand, but the faith of the government, the opinion of the people, and the security of the fund formerly by well- timed and steady policy, went so hand in hand and so concurred to support each other, that the people voluntarily and without the least compulsion threw all their gold and silver, not locking up a shilling, into circulation concurrently with the bills; whereby the whole coin of the government became forthwith upon an emission of paper, a bank of deposit at every man’s door for the instant realization or immediate exchange of his bill into gold or silver. If any one for a particular purpose needed the precious metals, his bill procured them at the next door, without a moment’s delay or a penny’s diminution.

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By the outbreak of the French and Indian War, therefore, the money supply of most colonies was largely exogenously determined, a point that contemporaries understood as the functioning of David Hume’s automatic price-specie-flow mechanism. When specie flowed into an economy, the local price level rose, thus discouraging exports and encouraging imports, which eventually led to the shipment of specie abroad and a decrease in the local price level until exports became cheap and imports dear. In the age of slow sailing ships, no electronic forms of communication, and numerous exogenous shocks, however, Humean adjustments often took years. Moreover, the price of nontraded goods, especially wages and real estate, could increase or decrease markedly, and for extended periods, without directly affecting specie flows. That is precisely what happened in Britain’s mainland North American colonies during the French and Indian War (1754–1763), when the quantity of specie and bills of credit both increased dramatically (Brock 1975, 244–527). The former came from successful privateering expeditions, British military expenditures in the colonies, and illicit trade in the West Indies. The latter stemmed from colonial issues of the tax anticipation script needed to finance the war. Flush with cash, lenders lowered interest rates, which induced colonists to bid up the price of land to twice and thrice its pre-war level. By 1760, all the signs of speculative bubbles in the import and real estate industries were clear, even to contemporaries, and prices continued high through 1763 (Koffler 1760). In 1763, Benjamin Franklin reported that the ‘Rent of old Houses, and Value of Lands, […] are trebled in the last Six Years’.1 In a letter to the ‘Lords of Trade’ dated 10 May 1763, Governor William Franklin noted that in New Jersey ‘all the Necessaries of Life in this Country are encreas’d in Price near Three fold to what they were Seven Years ago’ (Ricord and Nelson 1885, 384). Similarly, a pamphlet urged New Jersey to increase public salaries because ‘Your Lands are surprisingly advanced in Value’, and ‘every Article in eating, drinking, wearing, and using, is not far from being twice as dear as formerly, and the Salaries the same’ (Address to the Freeholders of New-Jersey 1763, 8, 13–14).

1 Franklin to Richard Jackson, 8 March 1763, National Archives, Founders Online, accessed 30 Sep. 2022, https://founders.archives.gov/documents/Franklin/01-10-020115.

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7.3

Money for Me, Not Thee

As the war wound down, however, so too did the supply of bills of credit, which in the middle colonies dropped from about £2.50 sterling per capita in 1760 to £1.05 in 1763. Specie also fled abroad, to the point that coin ratings were threatened in several colonies, including New York, where some merchants began to ask for more than 8 shillings New York currency per dollar (and other coins in proportion). As late as 1763, New York merchant John Watts warned friends not to invest in North America without safeguarding the principal against ‘the depretiation of our Paper Currencys’, which he described as ‘an Evil likely to happen’ (Watts 1928, 163, 176). In response to such fears, political pressure built to prevent the colonies from issuing new bills of credit or even from slowing the scheduled redemption of previously issued ones. The result was the Currency Act of 1764 (Ernst 1973). In and of itself, the act was little more than the extension of Currency Act of 1751 to all the mainland British colonies. It took effect, however, when the British were imposing new taxes and harsh restrictions on colonists’ trade with the West Indies, part of a larger British effort to extract economic rents from their colonial empire to reduce the burden of Britain’s ever waxing national debt (Ernst 1973, 18–20; Egnal 2010). Colonists beseeched British policymakers to reopen their trade with the West Indies, the traditional source of specie for the North American colonists. In the short run, the colonists were able to run large balance of payments deficits with the mother country because British merchants extended sterling credits to colonial importers. In the long run, purchases on credit had to be paid, which the colonists were able to do not so much by selling goods to British merchants as by running balance of payment surpluses with the West Indies and using the proceeds to repay their British creditors with bills of exchange (international checks drawn on their West Indian debtors) or specie (Kennedy 1750). Instead of allowing a return to the status quo antebellum, British policymakers tightened their grip, even forcing farmers using the Hudson and Delaware rivers to ship produce to domestic markets like Manhattan and Philadelphia to clear customs (Anon. 1768). The British Navy ensured close compliance. ‘The floating Custom Houses Not only Destress us in Our Trade’, a New York merchant complained, ‘but go so far as Even to Empress Our Markit men and fisherman’ (Beekman 1956, 1: 469).

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‘The commercial regulations which are practiced in this place’, a New Yorker complained in a letter published in the London Chronicle on 29 September 1764, ‘appear so utterly irreconcileable to sound politicks, that one would be apt to think the destruction of our trade, both foreign and domestick, was their ultimate point of view’. Another noted that ‘our ports and harbors are so closely guarded by the policy and vigilance of the present ministry [Grenville], that I have long been convinced, it is impossible for us to trade, to advantage, with any of our Fellow-Creatures’ (Windmill 1765). A particularly galling instance of overbearing enforcement occurred in the summer of 1765, when New York and Philadelphia merchants hoped to initiate trade between the new British possession of Pensacola, Florida, and the Spanish colonies. But when a Spanish vessel bearing $500,000 in coin arrived to trade, the captain of a British man-of-war threatened to seize the vessel if a single dollar were landed and drove the Spaniard off. Colonial merchants were ‘mortified with the loss of selling their Goods, and render’d unable to make remittances for them’. The captain’s actions were lawfully justifiable under the Navigation Acts. Such strict enforcement was counterproductive economically, however, a point the colonists well understood. ‘All those dollars would in six Months time have been in England as Remittances’, a merchant objected, ‘and what injury could that have been to the Nation?’2 The cash-starved colonists remembered that incident for years, while Boston merchants desperately sought new, riskier markets in Russia and elsewhere (Saul 1969). The American Revenue or Sugar Act of 1764 also impeded recovery. It reduced the de jure duty on foreign molasses from 6 to 3 pence (£0.0125) sterling per gallon, a levy most colonial merchants considered prohibitively high if rigorously collected because for decades they had bribed collectors for well less than 1 pence per gallon. Other provisions of the act were even more disruptive. Lumber and iron bound for Europe had to be transhipped through Britain. New duties placed on the import of Madeira wine threatened to undermine the profitable provisioning trade. The Sugar Act, in other words, threatened the very sinews of colonial commerce (Harrington 1935, 319). Unable to trade for fresh supplies of specie, the colonists suddenly found themselves largely devoid of both coin and credit by early 1764, 2 John Scott to Lord Dartmouth, 19 Feb. 1766, American papers of the second earl of Dartmouth, D(W) 1778/II/167, Staffordshire Record Office, Staffordshire, UK.

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when merchant Gerald Beekman reported ‘all the money seems to be vanished out of our City and C[o]untry’. Despite having more than £12,000 due to him on bond, he confessed to being unable to raise even £500 at any rate of interest (Beekman 1956, 1: 461). Too little cash remained to conduct business. ‘Commerce is so stagnated here’, James Watts (1928, 254) reported, ‘that little or nothing sells’. ‘Trade in this part of the world is come to so wretched a pass’, wrote another New Yorker, ‘that you would imagine the plague had been here, the grass growing in most trading streets; and the best traders so far from wanting assistance of a clerk, rather want employment for themselves’ (qtd. in Harrington 1935, 323). By 1764, economic conditions in other colonies were similarly depressed, but with exports hindered, the Humean specie-flow mechanism was severely handicapped (Sachs 1957). The dearth of money continued for years. One writer in 1765 noted that every conversation soon turned to the fact that ‘There is no money: which is instantly repeated by each party, with every token of astonishment’ (Windmill 1765). In the three middle colonies, bills of credit balances per capita between late 1765 and late 1766 decreased from £0.93 to £0.85 sterling. Specie could be found but remained difficult to come by. In October 1766, printer James Parker wrote Benjamin Franklin that ‘Money is really scarcer than ever I knew it here’.3 That same month David Vanhorne explained to a Rhode Island correspondent that obtaining more silver, gold, or Connecticut bills of credit for him had been impossible because ‘it is so Exceedingly difficult to get money in even from the best people’.4 By 1767 specie was ‘well known not to be a third or fourth part’ of what it had been when the colonies were in their most flourishing circumstances during the French and Indian War (Mitchell 1767, 311). ‘It is indeed amazing’, Benjamin Franklin ruminated, ‘that we had a Quantity [of money] sufficient before the War began, and that the War added immensely to that Quantity by the Sums spent among us by the Crown and the Paper struck […] and now in so few Years all the Money spent 3 Parker to Benjamin Franklin, 11 Oct. 1766, in The Papers of Benjamin Franklin, vol. 13, accessed 30 Sep. 2022, https://franklinpapers.org/framedVolumes.jsp?vol=13&page= 454b. 4 Vanhorne to Nicholas Browne and Co., 3 Oct. 1766, Brown Papers, John Carter Brown Library, Providence, RI.

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by the Crown is gone away, and has carried with it all the Gold and Silver we had before, leaving us bare and empty, and at the same time more in debt to England than ever we were!’.5

7.4

Off to Gaol

Combined with the usual post-war economic lull, the Sugar Act, the new severe restrictions on traditional colonial trading patterns, and the Currency Act caused a debt-deflation spiral that doomed thousands of colonists to bankruptcy, foreclosure, prison, and even death. During the war, many colonists borrowed at cheap rates to purchase real estate. Most of the mortgages, however, came due annually or biennially. While prices continued to rise and interest rates remained low, such mortgages were easily refinanced. After the war, however, as the money supply dwindled, interest rates soared, and real estate values plummeted, most could not be refinanced. In 1765, the editor of The New York Gazette or Weekly Post-Boy claimed that ‘there is such a general scarcity of Cash that nothing we have will Command it & Real Estates of Every kind are falling at least one half in Value. Debtors that were a year or two ago responsible for £1000 can not now Raise a fourth part of the sum […] Men of the best Estates amongst us can Scarce Raise money enough to defray the Necessary Expences of their familys’ (qtd. in Kemmerer 1956, 137). Another New Yorker writing in November of that year claimed that ‘Landed Estates are fallen 25 to 60 per Cent. and are sinking daily’.6 With money in short supply, interest rates soared well above nonbinding colonial usury caps to the neighbourhood of 18 per cent per annum. Mortgages could not be rolled over under such conditions. Defaulting borrowers were then sued and their land seized and sold at half or a third of the sum owed. In August 1765, Watts reported that business in New York was ‘very languid, the weak must go to the Wall, frequent Bankruptcys & growing more frequent’ (as qtd. in Egnal 2010, 133). Later that same year, William Donaldson described the situation in New York in yet starker terms. ‘The face of money’, he wrote, ‘is 5 Franklin to Joseph Galloway, 1 Dec. 1767, The Papers of Benjamin Franklin, vol. 14, accessed 30 Sep. 2022, https://franklinpapers.org/framedVolumes.jsp?vol=14&page= 329b. 6 Copy of a letter from a ‘Gentleman in New York’, 6 Nov. 1765, WWH H150, Sheffield Archives, UK.

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hardly to be seen in this Country, every man is suing his Neighbour which produces daily Bankrupts & the most pitiable scenes of distress; a Farm in this Neighbourhood was sold a few weeks agoe by the sheriff for £350 which the owner refused £1200 for 18 [months] agoe, which is the alteration of times here, owing chiefly to the scarcety of money & distress on Commerce’ (qtd. in De Bert 1912, 441). In 1768, Alexander Mackraby (1887, 282) encouraged friends in England to purchase lands in America: ‘[There is] no time so proper as the present. They are to be had at a lower rate now than could have been at any period for years past, owing to the extreme scarcity of money’. Unsurprisingly, the number of advertisements for sheriff sales, like that illustrated in Fig. 7.4, spiked throughout the colonies following the French and Indian War and stayed high for the rest of the decade. Alas, most such sales did not produce enough to cover all that was owed. Unable to repay their debts in full, borrowers went bankrupt and were thrown into debtors’ prisons, dismal, overcrowded cages where many took ill and died (Mann 2002). ‘I know of sundry Estates that has been taken by Execution’, a New York merchant reported late in 1766, ‘and sold for not more than one third of their value owing to the scarcity of money’ (Beekman 1956, 708). In a 1768 pamphlet published in London, Stephen Sayre (1768, 10) recounted an instance in New

Fig. 7.4 Typical colonial sheriff sale advertisement, 1768 (Source New York Gazette or Weekly Post Boy, no. 1350, 14 November 1768)

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Jersey ‘of one merchant sueing seventy shopkeepers for debt; the seventy had lands, and their lands were sold at public auction for no more than the sum owing, by which means seventy families were deprived of their substance’. Private correspondence was replete with similar tales of monetary woe. Peter Schuck of Hardwick, New Jersey, tried to get in his debts by suing 25 of his debtors, but in only 4 cases did he succeed in getting any money at all. ‘The rest I must get it by Execution’, he glumly recounted. That outcome was so ‘very hard’ that he refused to file any more suits. ‘Such a time as never was known among people fore ther[e] is never a week but ther[e] are Some vendues of the Sheriffs and Constables So that I am Discouraged to Sue any more unless it is them which I think I am in Danger of loosing any money’.7 Such melancholy scenes outraged many colonists, who rightly understood that debtors’ prisons were designed to induce debtors to repay assets they had pilfered, not to execute people who had not expected British authorities to implement a series of policies that greatly decreased the money supply and real estate prices. The most compelling piece of evidence for that interpretation is an anonymous letter most likely penned in March 1768. The document, which was miscatalogued and hence unknown to scholars (even those who understood the monetary problems of the 1760s like Zarlenga 2002, 375–77) until unearthed by the author, is so important that it is published in its entirety for the first time in the appendix to this chapter. For the convenience of readers, though, the most important claim in the letter is repeated, with emphasis added, here: ‘I must observe that it is not the Stamp Act or New Duty Act alone that had put the Colonies so much out of humour tho the principal Clamour has been on that Head but their distressed Situation had prepared them so generally to lay hold of these Occasions, and how they came to be so I must trace back to commencement of the late War’ (Anon. 1768). The rest of the letter then lays out the gist of the narrative related above. The Stamp Act troubles, combined with the continued dearth of cash, helped to precipitate a massive but rarely discussed tenant rebellion in New York’s Hudson River Valley in 1766, as well as later anti-Imperial agitations (Mark 1940, 149–55). The dire economic situation also led to numerous efforts at self-help, from nonimportation agreements to attempts at manufacturing and banking. 7 Schuck to Stephen Collins, 4 May 1765, Stephen Collins Papers, vol. 4, Library of Congress, Washington, D.C.

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7.5

Homespun Nonimportation

Continued restrictions on colonial trade and fiat money issuance maintained the economic crisis for years after the Stamp Act agitation in 1765, exacerbating the deepening Imperial Crisis and leading to several nonimportation agreements in the late 1760s and early 1770s (Morgan and Morgan 1995). While often portrayed as attempts to punish the British economically to bring political pressure against the Townshend duties and other hated Imperial policies, the main goal of nonimportation pacts was to reduce the flow of specie (gold and silver coins) from the colonies by limiting imports. The idea was to keep the little money left in the colonies, in the colonies. By the second half of the 1760s, coins fled the colonies so quickly that a lengthy melancholy ode to one, a gold Johannes, found its way into print: The debtor presenting the Piece in his fingers, and fixing his eyes upon the Effigies, spoke in this manger: calling of it by the common short name, my good friend Jo. We are come to the unhappy parting hour. Lately I received you into my house as a Traveller, and almost a Stranger; you was welcome and have been a pleasant guest; I delighted in your countenance, and your very looks seem’d to bespeak me and say; I will do you some good Jobb before I leave you. […] I hoped you might have remained an inhabitant of the Country, that I might have receiv’d some visits from you, but now I expect you will have a quick dispatch to Boston, or New-York; immediately take ship and I shall see you no more. […] Farewell, my friend Jo. […] may you free a poor man from Debt and the Gaol. (‘A Speech, made at the delivery of a Gold Piece, call’d a Johannes, to a Merchant for Debt’, Connecticut Gazette, 23 Jan. 1768)

It took years for the colonists to attempt nonimportation because they believed that British authorities would ease either trade restrictions or the Currency Act of 1764. Even some British observers could not believe that ‘Mr. Grenville robbed them of their Gold and Silver, and Lord Hillsborough blew away their Paper’ (Old Mentor, London Public Advertiser, 9 Jan. 1770). Moreover, colonial merchants knew that voluntary nonimportation agreements would break down as the incentives to cheat grew as the domestic prices for imported goods increased and presciently predicted their own behaviour (Smith 1940; Shields 2016). Nonimportation also crimped consumption unless colonists could produce the foregone imports themselves. As Samuel Miles (1787, 360)

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later explained, the colonists had once been happy to contribute to the empire because ‘the wealth […] sent away to pay for our importations […] returned back to us through other channels’. When they found those channels blocked, however, they set out to produce their own goods. To induce more domestic manufacturing, the Free Masons of New Haven, Connecticut in March 1765 offered premiums on hemp, flax, and linen yarn (Jones [1765, 1836). Similarly, Nicholas Ray (1766, 3) pledged the profits of his treatise The Importance of the Colonies of North America to the ‘person who shall Manufacture within the Province of MassachusetsBay the finest and largest Quantity of Woollen Broad Cloth between the 23d. Dec. 1765 and 1st July following’. The American Society, Held at Philadelphia, for Promoting and Propagating Useful Knowledge, emerged in 1766. It later splintered, with part of it joining the American Philosophical Society and another part the United Company of Philadelphia for Promoting Manufactures (Moon 1995). A Society for Encouraging Manufactures formed in Charleston in 1771, and three years later the Virginia Society for the Promotion of Useful Knowledge formed and awarded a medal for a new threshing machine (Hindle 1976). Perhaps the most studied of the late colonial self-help societies was formed by a group of New York merchants, lawyers, and landowners in late 1764 and eventually styled as the Society for the Promotion of Arts, Agriculture, and Œconomy in the Province of New York in North America (Haley 1976). ‘The only way of keeping Silver and Gold among us’, one of its spokesmen explained, ‘is by consuming less of Foreign Commodities than what our own Commodities amount to’ (Society 1767, 6). To that end, it tried to change funerary practices that necessitated importing goods from abroad, offered prizes and premiums for the production of domestically manufactured goods, and opened a special market for homespun goods, which included shoes, gloves, mittens, stockings, shovels, scythes, paper hangings, various liquors, and woolen cloth (Hindle 1976, 90–91). Its market continued into the nineteenth century, but it paid its last premiums in 1767 and the society itself imploded from within in 1770 (Gronim 2007, 103–4). It was hardly the only failed attempt to fix what the Mother Country had wrought.

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7.6

Hopes Dashed by the Bubble Act

British authorities extended the Bubble Act to its New England colonies in 1741 in response to two private banks attempting to organise in Massachusetts. One group of landowners wanted to issue bills backed by land, much as did government loan offices that issued economic development script. The wealthy merchants leading the other group wanted to issue bills convertible into fixed amounts of silver after 15 years. Despite some overlap in membership, backers of the two groups pledged not to accept the bills of the other in payment, portending future economic and financial troubles (Billias 1959). Moreover, British policymakers chagrined at the depreciation of bills of credit in the Carolinas had already stepped in to try to force the Massachusetts government to redeem its bills of credit. The surfeit of these bills had drained Massachusetts of much of its specie and driven exchange rates up and the value of bills of credit vis-à-vis specie down (Brock 1975, 181–98). Faced with the issuance of yet more paper money and unhappy at the prospect of competition, the Massachusetts government refused to charter either private bank. The Silver Bank formed and issued bills anyway, and by the end of 1740 the Land Bank had done likewise. Governor Belcher opposed both banks at first but was most vocal in opposition to the Land Bank, the bills of which he claimed would ‘bring much confusion into their trade and business’. British merchants and landowners doing business throughout the British Empire, including the West Indies, also wanted to put ‘a Stop […] to the least Variation in the Coin, and to the Option of the Debtor to pay in such Currency as he thinks most advantagious [sic] to himself’, a reference to private tender laws (Two Letters to Mr. Wood 1740, 5). Nevertheless, the Land Bank spurred to action other groups interested in forming additional private land banks in the more rural parts of the colony, even while demand for the bills of the original Land Bank sank to a low ebb (Billias 1959). At that point, prodded by Silver Bank proponents, British policymakers felt obligated to intervene. Given that the Board of Trade had made it clear in 1735 and 1736 that private persons in the colonies could lawfully issue paper money, the extension of the Bubble Act to the colonies, and specifically to land banks, proved the easiest way to do so, especially given that pamphleteers in Massachusetts were calling for just that policy (Newell 2015, 228; Davis 1900, 2: 164–65). As colonial agent Francis Wilks reported in March 1741, ‘it is the determined

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resolution of the Parliament to dissolve all companies in America who have put forth any notes or bills in public, and to prevent any other from doing it hereafter’ (qtd. in Davis 1900, 2: 152). According to John Adams, Parliament’s destruction of the Land Bank ‘raised a greater ferment in the province than the stamp-act did’ and that claim clearly was not hyperbolic (Davis 1900, 2: 256).8 Supporters of the Land Bank were shocked at the measure, which seemed unduly harsh given the large number of public and private Land Bank bill holders. It also seemed arbitrary given that the Land Bank was organised as a mutual and not as a joint-stock company, or any other business entity with transferable interests, the main putative target of both the original Bubble Act and the extension act (Davis 1900, 2: 163). Many Land Bank supporters vowed defiance, and a few threatened outright violence. Belcher fled the province as Land Bank supporters rode a wave a public indignation into the Massachusetts Assembly. His successor, William Shirley, adroitly managed to reduce tensions by allowing the directors to wind up the Land Bank’s affairs in an orderly fashion, but the Bubble Act remained in force in the colonies and, perhaps most importantly of all, innovators learned that British policymakers could and would trounce projects of which they disapproved (Davis 1900, 2: 153–55, 190–209; Billias 1959). The Bubble Act was extended to all of Britain’s North American colonies, or at least the mainland ones it controlled in 1741, especially when it came to banks (Demers 1977, 345; Ernst 1973, 35, 40).9 The extension did not render the formation of large organisations impossible, but it did make it much riskier, even for non-profit organisations, to operate if they did not obtain a formal charter. Like the Land Bankers, subscribers or members of disapproved organisations were liable to be sued for treble damages, fined, and/or punished under Britain’s Public Nuisance Act and the Statute of Provision and Premunire (Davis 1900, 2: 162). The law’s severe penalties and unclear meaning (Harris 1994, 614, 623) had a chilling effect that was long lasting (North et al. 2009,

8 Adams to the inhabitants of the colony of Massachusetts-Bay, 13 Feb. 1775, National Archives, Founders Online, accessed 30 Sep. 2022, https://founders.archives.gov/doc uments/Adams/06-02-02-0072-0005. 9 See Richard Jackson to Benjamin Franklin, 17 Mar. 1754, National Archives, Founders Online, accessed 30 Sep. 2022, https://founders.archives.gov/documents/Franklin/0105-02-0070.

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205, 216, 218; Barnes and Oldham 2017, 4). Even British food cooperatives in the late eighteenth and early nineteenth century feared its wrath (Bamfield 1998). The law itself was neither complete nor constant (Freeman, Pearson, and Taylor 2012, 21–24). As late as 1884 (yes, 1884), in Phillips v. Blatchford (137 Mass. 510), it was argued that the 1741 extension made unincorporated partnerships with transferable shares illegal in Massachusetts! Formal incorporation provided innovators with legal cover, but charters in the colonial period were never easily acquired. As Hall (1996, 28) reported, ‘efforts by such associations to obtain charters of incorporation were rejected by colonial legislatures’, and the number of for-profit corporations remained de minimis throughout the colonial period (Wright 2018, 485–87). As Kyd (1793, 1: 41) noted, ‘it has long been an established maxim that the King’s consent is absolutely necessary […] to the existence of all corporations’, and British monarchs, MPs, and their administrative minions were all stingy with the privilege unless they stood to gain (Watzlaff 1971, 20–21; Patterson and Reiffen 1990, 164–65; Chaffee 2019, 804–5). Nevertheless, because colonists understood ‘the great advantages that arise to the poor and indigent from charitable societies’ (‘Several Gentlemen’, Georgia Gazette, 22 Nov. 1764), non-profit institutions formed, and some even managed to incorporate. Colonial Philadelphia was the most important centre of non-profit activity, with some 60 voluntary associations formed (Roney 2014, x). Residents of South Carolina’s major seaport, Charleston, also formed some charities and, in 1773, the Charleston Museum (Ewan 1976, 208–9). Most colonial non-profits remained unincorporated, however, with their assets held in trusts, a legal form developed in part to substitute for incorporation (Morley 2016; Chaffee 2019, 806–811). One major problem with that arrangement, as some orphans in Georgia discovered to their dismay, was that corrupt trustees could subvert the founders’ intent and channel or even usurp assets for their own purposes (‘To all the Humane and Charitable’, Georgia Gazette, 5 Apr. 1769). Due to the vagaries of trusts, the Society of the New York Hospital sought and received a corporate charter in 1771, but the institution did not really begin to develop until 1791 (Sigerist 1936, 573). A lunatic hospital in Williamsburg, Virginia, later known as the Eastern State Hospital, received a royal charter in 1773 (Ransom 1943, 534). Not until after the Revolution freed America’s social entrepreneurs from Imperial

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restraints like the Bubble Act, however, did medical non-profits begin to proliferate rapidly (‘Progress of Science’, The Christian’s, Scholar’s, and Farmer’s Magazine, Dec. 1789 to Jan. 1790, 656). The dearth of non-profit corporations more generally in the colonial period was due more to Imperial restrictions than disinterest in non-profit pursuits, a fact made clear by the rapid growth in non-profit organisations after the Revolution (Heale 1976, 23; Wright 2023). As the Constitution was being ratified by the newly independent states, a ‘well-meaning plain citizen’ from Philadelphia, writing in the American Museum, noted ‘the present to be a time for establishing many and various societies’ (‘Thoughts’ 1788, 23). Others also noted their rapid increase (see Campbell 1787, 173). ‘It is the privilege of the present age to witness the mighty doings of philanthropy’, one editor noted in 1824, ‘the means which these institutions have had at command have been immense’ (FreeSchool Society 1824, 27). It was not coincidental that one of the earliest charities to form in New York (on 26 January 1787) was the Society for the Relief of Distressed Debtors, which consisted of 24 men who supplied food, fuel, and clothes to non-members who found themselves imprisoned and indebted (Cogswell 1788, 121). While colonial non-profit organisations, especially incorporated ones, made loans from their endowments, they did not issue monetary liabilities and hence could not increase the money supply (Roney 2014, 104–30). In 1766–1767, Philadelphia merchants Thomas Willing and Robert Morris floated a proposal to create a joint-stock, fractional reserve commercial bank, i.e., an institution that could stretch the limited quantity of gold and silver in the colonies by issuing notes and deposits convertible into coin on demand. Because its monetary liabilities would be secured by assets and would be convertible into specie on demand, many people would have preferred to hold its notes or deposits rather than bulky coins, allowing the bankers to issue some multiple of its specie reserve without the need for a private tender provision. With more money in circulation, real interest rates would decrease, raising real estate prices and slowing or stopping the foreclosures and imprisonments. There was some local opposition to the project, but what killed it was the Bubble Act extension (Cochran 1979; Wright 2001, 60–61), which was also the main culprit in the abortion of various private bank schemes floated in Virginia and New York in 1767–1768 (London Gazetteer and New Daily Advertiser, 12 May 1767; Virginia Gazette, Oct. 1767; New York Journal, 4 Feb. 1768; Stevens 1867, 12–15).

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The fact that the same men prevented from forming a fractional reserve bank in the colonial period went on to do so successfully during the American Revolution and throughout America’s Early National period strongly suggests that they were in earnest and thwarted by British law, specifically the Bubble Act, rather than inherent inability or local resistance (Wright 2001). As noted, some merchants in Philadelphia petitioned against the Willing-Morris bank, but likely would have relented if allowed to subscribe to its capital, a lesson that Willing and Morris did not forget when creating the Bank of North America during the American Revolution. Almost the entire mercantile community invested in one or more joint-stock commercial banks during the nation’s first few decades, when the total number of banks in operation blossomed into the dozens, then scores, then hundreds (Bodenhorn 2000, 2002).

7.7

Conclusion

Imposition of the Bubble Act on Britain’s North American colonies helped to foment the American Revolution because it closed off an avenue, taken after Independence, that the colonists could have used to wrest some monetary policy control from Imperial bureaucrats. Specifically, it stymied the growth and development of banks that could have issued viable forms of private money, like notes and deposits backed by real estate and/or convertible into specie. Instead, colonial money supplies, and hence the state of colonial macroeconomies, remained subject to British trade and currency policies, which became much more restrictive after the French and Indian War. Those restrictions led to a major economic recession, numerous bankruptcies, and widespread economic distress that first manifested itself in resistance to the Stamp Act. Subsequent attempts to form joint-stock commercial banks, blocked by the Bubble Act, led to additional distress, both economic and emotional. ‘Nothing ought to be more fixed and invariable than Money’ (Two Letters to Mr. Wood 1740, 5), but the putative Mother Country seemed not to care about the prosperity of the colonists. As John Adams put it, once

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the colonists found Britain ‘a cruel beldam, willing like lady Macbeth, to “dash their brains out,” it is no wonder if their filial affections ceased, and were changed into indignation and horror’.10

Appendix: Full Transcript of Anon. 1768 Note: The document has been transcribed as is, without indicating errors in the original. Undecipherable words are indicated by a question mark in square [] editorial brackets. Bold Arabic numerals in said brackets, like this [x], refer to the page number of the original, which the author discovered interleaved with an unrelated later source. [1] In our conversation you acquainted me I had the Favour of yours acquainting me of the contradictory or passionate Account you had of our Situation, desiring me to give you a candid State of our Greivances, and the Measures necessary to restore that happy flourishing and tranquil State the Colonies formerly enjoyed, so beneficial and glorious to G. Britain. I wish my Abilities for this Task more equal to my Inclination to satisfy you and do justice to the Subject especially within the narrow Limits of a Letter, but I shall freely give you what Observations I have made as breifly as I can, with this Remark that I am best acquainted with the State of the middle Colonies New York, Jersy and Pensilvania. I must observe that it is not the Stamp Act or New Duty Act alone that had put the Colonies so much out of humour tho the principal Clamour has been on that Head but their distressed Situation had prepared them so generally to lay hold of these Occasions, and how they came to be so I must trace back to commencement of the late War. There was then little paper Money in the Colonies, but all Ranks lived frugally within what they got and there transactions and Dealings did not exceed the Currency among them, there Trade to England was small and they made Remittances by their West India Trade [2] for the Country People in general were contented with their own Produce and Manufactures, the Price of Land was so low that they could soon pay for it out of what they raised, being then newer yeilding more plentifully. but mark the great Change a short Time produced. The Kings Service and the common cause occasioned the King’s Ministers to make Requisitions to the several Colonies 10 Adams to H. Niles, 13 Feb. 1818, Founding.com, Claremont Institute, 2016– 2021, accessed 30 Sep. 2022, https://founding.com/founders-library/american-politicalfigures/john-adams/letter-to-h-niles/.

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for a vigorous Exertion of their Abilities which they most loyally and effectually complied with, so that in New York Government every fifth Man who could bear Arms were Voluntiers or impressed for the Service for three Successive years, and several Instances were known on Long Island of £28 Sterg being given for a Man to go in another’s Place. Pensilvania also made great Assistance in Men and Carriages and tho Jersey gave a smaller Proportion, as having less benifit and less Ability, yet they were good Men and well fitted. The other Colonies were not deficient in their Quotas so that the whole Number in the year 1758 amounted to 23.000 men and were but little short the two years following, but Wo! to Grenvillian Measures, no more must we again hope to see them in such Humour and can generous spirited Englishmen who so much prize Liberty be surprized that their Sons should value it. These extraordinary Levies, laid the Colonies under a Necessity of issuing Notes or Paper Bills of Credit payable in future [3] Periods by Taxes, for to raise the Sum wanted within the year, or by Loan as in England, was equally impossible, but being secured by the Legislature to be sunk by future Taxes they never depreciated, but on the contrary when the largest Sum was current Viz in the year 1760 Exchange was 25 P cent lower than at present, or it took £25 less of our Paper to buy a Bill of £100 Sterg on London than at present. But I would not insinuate that the Quantity of this Medium occasions the lowness of Exchange for we never took such large Quantities of English Goods as when Exchange was lowest, occasioned by our great Trade with the French and Spanish West Indies, who depended on us for all their Supplies in Manufactures, and paying in Sugar Indigo and Specie, was remitted to England instead of Bills, and from thence again sent abroad instead of Specie to Germany. Thus not withstanding the vast Importation of British Manufactures, our Trade supplied us with ample Remittances, and these Remittances were a further Benifit to England in the Way of Trade. It is true this advantageous Business received a violent check by a most injudicious and ill advised circular Letter to the Governours on the Continent, and by orders to the Kings Ships to seize all Vessels [4] employed in this Trade, but tho the men of war rigorously performed this Order, they did not fail to carry on the Trade themselves. This was equally a Loss to G. Britain and her Colonies, reduced many Merchants to a low State and gave the first Cause of Discontent. Yet some that first embarked in it acquired very rapid Fortunes and displayed their Wealth in every Manner of Expence. This money being plenty, both in Specie and Bills of Credit and Labour high, and Land high, the Price

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of every thing encreased People were not afraid of entering into deep Engagements equivalent to our Circulation, which being since called in by Taxes or remitted for Goods occasioned a sudden Stagnation, and by calling upon and suing one another brought many to ruin. ~~ Many Strangers principally belonging to the Army, being introduced among us, brought in Luxury and Extravagance like a Torrent, naturally hospitable and Ostentatious, they rivaled each other in Dress, Equipages and Entertainments, and Money being plenty in the Hands of all Ranks, those of inferior Fortunes imitated those of better, which being obliged now to retrench is another cause of Discontent. Thus the contagious Example of the Army and the Humour of entertaining them has been of more [5] prejudice to the Colonies than any pecuniary Advantages they have received, but a greater Detriment is the Defenceless State they will soon be brought in, for it was formerly an Honour to be in the Militia, but now a ridicule is thrown on that Order, and of this Humour is encouraged in some future emergency we may be as easy Prey to any Invader, and as easily overrun as G. Britain was in 1745 and if called upon to assist in Expeditions to the W. Indies, our men will be equally awkward and averse to such Enterprises. It is not a Regiment or two in a Colony that could be of equal Defence as 20,000 Militia well armed and trained, and fighting pro Aris et focis.11 Thus from a standing Army kept up in the Colonies there results many Inconveniences. They are expensive to G. Britain which puts them upon unpopular methods of taxing the Colonies. Their extravagant idle or dissolute manners are contagious, and G. Britain and her colonies are both weakened by it. The Men of War are also expensive especially when so many are kept up. They are of no Manner of Use, but often cramp Trade by stoping and detaining Merchants ships and pressing their Men. ~~ Military or naval Forces in trading Towns, were ever reckoned disadvantageous to trade and Industry. [6] Another capital Greivance and Inconvenience to these middle Colonies is being restrained from issuing Notes or Bills of Credit, which is no other than a Bank held by the public who are engaged for the Credit of it and reap the Emoluments of it; to recount our Distress for want of this Medium were Endless or by what unaccountable Policy G. Britain acts in the Restriction. Whereas I think it is obvious it would facilitate the Recovery of Debts owing to Britain, and would check the Progress of our Manufactories, which from want of 11 A Latin phrase meaning ‘for God and country’ or, more literally, ‘for our altars and hearths’.

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money we are under a necessity of pursuing. The only Argument worth noting against such Bills is that by greatly increasing as in some future Emergency might happen, their Value might depreciate as was formerly the case in New England, but at once to obviate this Objection let them be issued without making them a legal Tender, as was attempted by a late Act in N. Jersey, and by this method present Creditors can never suffer. It has been often advanced that the only sure method to prevent the colonies running into Manufactories would be to let them have plenty of Land upon easy Terms but this I conceive to be a Fallacy and is really a Detriment to both Countries, were the People in the Colonies more concenter’d, they would improve the Country, their Manners, and Dress more, have more a [7] Face of Affluence, would contribute more towards all Taxes, and consume more of British Manufactures. I speak from experience and Observation, nothing limits these middle Colonies more than the present Humour of retreating to the Wilderness. They acquire Land but give up every other Convenience, contract savage and brutal Dispositions, are too far Distant to carry their Produce to market, in exchange for European manufactures, are obliged to attempt making Clothes for themselves which they can only provide in the Scantiest Manner. indeed their children go almost naked. in Summer they find little Inconvenience and in Winter they are confined to the fire Side. I may therefore confidently aver, that one compact Town or even well settled Township takes off ten Times the Quantity of English Goods, as the same number of these back Settlers. It must be owned that we daily advance in Manufactories, but some of these should give no umbrage to Britain as we really have not Staple Articles or Trade sufficient to supply all our wants, and these Articles should rather be encouraged among us which least interfere with the Parent Country. At present there are few of the Farmers but what make sufficient for their own Families both of Woollen and Linnen many of them keep Looms in their Houses, and make two or three Hundred Yards of different Cloths a year. I am well acquainted with one Family who makes 500 Yards at least yearly, and I am told that two others exceed 1000, all in Jersey. They likewise make great Progress in the Iron Manufactory, and tho their Edge Tools come higher, they are far superior to those imported. We have plenty of Hides for Upper Shoe Upper Leather and Saddler Leather, but the cattle killed in the Country are of an inferior Quality, so that we are short of Hides for Sole Leather, and some are imported from Carolina. Shoemakers we have in plenty, as well as Saddlers and

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chaisemakers. Many other Articles are made among us, but why should this give any Jealousy to Britain. don’t we already take more than we are allowed, or can find, means to pay for? For it must not be forgot that our Trade to the Spanish and French West Indies was laid under the severest Restrictions, and the Spanish Ships were even prevented laying out their Money in our Ports. O wise Grenville! To this miserable and discontented Situation were we reduced about the year 1765 and in November the ever odious and memorable Stamp Act was to take Place, which we look’d upon as equally inexpedient and illegal and which never could have been carried into Execution. The [8] Repeal gave great Satisfaction to the Colon[?] but the Act imposing new Duties for the Purpose of a Revenue and establishing a Board of Revenue again equally alarms us. As to the matter of right I refer to the Arguments in the Farmers Letters, which we deduced from sound Whig Principles, and shall only give the Heads of our Objections against the Impropriety and bad Policy of this Law. (1) the Object is very inconsiderable, (2) the Country is poor and reduced and already sends all the Specie they can earn to Britain. (3) It disgusts a numerous Body of Subjects which gave Wealth and Strength to Britain whose Affections were better than a Standing Army. (4) It is injudiciously squander’d away in Offices and Places, to insolent Officers, who riot in Pomp amidst our Distress. We are unfortunate that our Situation is not sufficiently known or properly represented to the Ministers at Home; it is true we have agents there but few of them are acquainted with or Circumstances, and when called upon seldom speak the Sentiments of their Constituents, and often insinuate rather what is agreeable than real. As to the Informations given or requests made by the London merchants, we are convinced by Experience that [10] they are guided only by their own Interests tho we are bound to acknowledge their Assistance in the repeal of the Stamp Act. But tho we object to unconstitutional Taxes we have always willingly submitted to those levied by our own Assemblies and it is well known how cheerfully in fact we mortgaged both our real and personal Estates during the late War, and to this Day a heavy annual Tax continues on our Lands, live Stocks, personal Estates, Servants, Negroes, Batchelors12 & Mills, Forges &c. ~~ All these Taxes are raised, managed and applied at a most triffling Expence. how different is the practice in Britain? And how 12 A footnote in the original reads: ‘This year 1760 the Tax on Batchelors tho’ only Servts or [?] labourers’.

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must they begrudge to pay Rates they can so ill spare, to see great Part of it immediately squandered away. I have often wondered why the Parliament should treat us so differently from Ireland. To what Priviledges are they entittled to which we have not an equal Right; the Conquest and Settlement of Ireland has been attended with great Expence, yet their Quitrents, Taxes and Duties are applied raised by themselves, and [11] applied to support their civil Establishment and a Body of Troops for their domestick security, it is true some Pensions have been granted on the Redundancy of their Revenues but in this the Parliament never interfered, nor have I ever heard that they have contributed towards the general Expences of the British Empire of which they are no inconsiderable Part either in Time of War or Peace. ~~ On the other Hand, the Colonies in general are composed of Emigrates from England who little dream’d they forfeited their Liberties while they extended the British Dominions; they put England to no expence in their Settlement, but have amazeingly enriched that Kindgom by their Trade, such Colonies as pay Quitrents, and the Duties, are not applied for the support of Government, and we are annually taxed for this Purpose. as for a military Establishment we had no Occasion for our internal Security, and a well regulated Militia set foreign Enemies at Defiance. Lastly the Assistance we have given in every War these 80 Years past, particularly in the last are too well known to be insisted on, and besides the [12]13 numerous Land Forces there was fitted out from New York in one Year from New York alone 45 Privateers which cruized against the King’s Enemies, and contributed more to suppressing their Trade than all the Men of War. I must not omitt mentioning the Colony of New York’s Loan of £80,000 for the Pay of the Army and contingencies, which was of very essential Service, and most readily granted on Genl. Amherst’s Requisition. The Management of Indian Affairs has lately been recommended to the Care of the Colonies, formerly indeed they cheerfully supported this charge till about the year 1749 that it was first taken out of their Hands, with what Affection they were attached to us till that Time is well known. The extravagant Expence they have cost Britain since is incredible, what inconsiderable Numbers we could rely on in 1756 and 1757, let the Officers who served with them these Campaigns declare. Indeed the greatest

13 The bottom of this page appears to say ‘was 30/ Procl. Nearly 20/ Sterg ’.

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part of our supposed Allies were in Arms against us. It is true they assisted in 59 and 60, but in 63 the Seneca’s were [13] laid an Ambuscade near Niagara and cut off above 90 Men at once. And now when brought into this expensive Management, and accustomed to be rewarded for every outrage and Hostility they are returned to our Legislatures. The Confusion and Perplexity in the Acts relating to Trade are also well worthy of Consideration, but it would be going into too large a Feild and beg to refer you to merchants Petition on that Subject. We are told it gave offence, but no Part of it appears to me in that Light and I certainly know it was of all things farthest from their Intentions; this is a matter of great Importance to Britain, for every Extention of our Trade, is clear gain to them. This Petition made no claim of right, only set forth the Difficulties and Inconveniences they laboured under, and they were told it was the method pointed out by a great man in the Ministry, C. T.

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Smith, Glenn Curtis. 1940. An Era of Non-Importation Associations, 1768– 1773. William and Mary Quarterly 20 (1): 84–98. Society for the Promotion of Arts, Agriculture, and Œconomy in the Province of New York in North America. 1767. The Commercial Conduct of the Province of New York Considered. New York. Stevens, John Austin. 1867. Colonial Records of the New York Chamber of Commerce, 1768–1784. New York: John F. Trow and Co. Thoughts on the Establishment of an Œconomical Association.1788. American Museum 4 (2): 125–26. Two Letters to Mr. Wood, on the Coin and Currency in the Leeward Islands. 1740. London: J. Millan. Watts, John. 1928. Letter Book of John Watts, Merchant and Councillor of New York, January 1, 1762–December 22, 1765, edited by Dorothy C. Barck. Collections of the New York Historical Society. John Watts DePeyster Publication Fund Series, 61. New York: Printed for the Society. Watzlaff, R.H. 1971. The Bubble Act of 1720. Abacus 7 (1): 8–28. Windmill, Alexander. 1765. ‘To the Printers’. Connecticut Courant, 20 May; and reprinted in Boston Evening Post, 29 July. Wright, Robert E. 2001. Origins of Commercial Banking in America, 1750–1800. Lanham, MD: Rowman and Littlefield. ———. 2018. For- and Non-Profit Special Corporations in America, 1608–1860. In Research Handbook on the History of Corporate and Company Law, edited by Harwell Wells, 480–509. Northampton, MA: Edward Elgar. ———. 2023. Liberty Lost: Rise and Demise of Voluntary Association in America since 1700. Great Barrington, MA: American Institute for Economic Research. Zarlenga, Stephen. 2002. The Lost Science of Money. Valatie, NY: American Monetary Institute.

CHAPTER 8

Capitalism by Generalists: The Governance of the Ayr Bank and the Emergence of Professionalism in Mid-Eighteenth-Century Scottish Banking Paul Kosmetatos

8.1

Banking History in Scotland

The grand narrative of Scottish banking history in the eighteenth and nineteenth centuries is one of steady progress and disproportionate influence, punctuated by a few cautionary tales of hubris and retribution. Arising more or less organically in a country of modest mercantile traditions and scarce liquid capital, by the middle of the eighteenthcentury Scotland had developed a unique mix of traditional chartered banks together with the homegrown ‘co-partnership’ corporate form to

P. Kosmetatos (B) School of History, Classics and Archaeology, University of Edinburgh, Edinburgh, UK e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 H. Paul et al. (eds.), The Bubble Act, Palgrave Studies in the History of Finance, https://doi.org/10.1007/978-3-031-31894-8_8

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provide the financial services necessary for a rapidly growing economy. Its success was due in no small part to the peculiar Scottish legal framework governing finance. This allowed its bankers to operate in an advantageous grey area in which the Bubble Act applied as much as anywhere else in Britain, but the even more restrictive Bank of England monopoly did not. It meant that Scotland possessed three chartered banks, and in consequence, that neither the conservative Bank of Scotland (established in any case before the Act of Union and well before 1720), nor the Royal Bank, nor the much smaller British Linen Bank could ever hope to dominate their unchartered peers in the way that the Bank of England did south of the border. These peers moreover could themselves grow in size and business scope without the restrictions faced by their English counterparts and could even dominate banking in their own localities independent of (and occasionally in direct opposition to) the Edinburgh chartered banking establishment. This uniquely multipolar structure was not developed without resistance (Checkland 1975, 59– 62, 109–10, 118–22; Munn 1981, 12–14), and even in its heyday in the 1760s was far from the libertarian paragon proposed by the ‘Free Banking’ literature (White 1984), but its arrangements remain no less remarkable for all that. Though the provincial banking co-partnership did not long survive the transformative post-1826 period that saw the eighteenth-century British regulatory framework (including the Bubble Act itself) swept away, Scotland’s banking arrangements proved fundamentally sound in their essentials. Indeed, in the nineteenth century the Scottish system of relatively few, large, extensively branched banks became the focus of attention and, arguably, emulation (Somers 1873; Davis and Gallman 2001; Neal 2009). Even the occasional disaster, such as those of 1772, 1857, or 1878, contributed to this progressivist narrative by underlining the system’s inherent qualities of prudence and perspicacity that were forsaken in these uncharacteristic departures (Campbell 1955; Acheson and Turner 2008). The earliest of these mishaps, the collapse of the Ayr Bank (Douglas, Heron, & Company) during the 1772 credit crisis, has been traditionally seen as a symptom of euphoric excess at the end of a long growth period (Hamilton 1956; Wilson 1941), an attitude that dates back to Adam Smith’s use of the bank as a cautionary example in his brief discussion on banking in the Wealth of Nations . More recent historiography has begun to move away from viewing the affair merely as an aberration, and to re-evaluate it as an important watershed in its

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own right (Goodspeed 2016; Kosmetatos 2018). The Ayr Bank project was the culmination of a period of precocious innovation and multipolar expansion through the rise of the provincial banking co-partnership; while its demise saw a refocusing of the energies of the financial system with the old Edinburgh chartered banks at its fore, and with the rapid expansion of their branch network as its main growth mechanism (Saville 1996). By the end of the 1770s, and despite the painful fallout from what contemporaries called with some hyperbole ‘the most violent and fatal storm since the South Sea blast’ (Morning Chronicle, 29 June 1772), Scotland still possessed arguably the most innovative banking system in Europe. This chapter aims to look beyond the strictly financial aspects of the Ayr Bank debacle and the transformation of Scottish banking from a relative backwater to hotbed of innovation, and to focus on the practitioners who were behind these developments. It is especially concerned with those ‘projectors’ (as Adam Smith famously called them) involved in the new co-partnerships, that particularly Scottish innovation that took advantage of the blind spots of the eighteenth-century regulatory framework. More specifically, the chapter re-examines the accusations levelled at the Ayr Bank’s supposedly faulty governance and the inappropriate backgrounds of the people who were involved with it and concludes that its arrangements were not fundamentally different from those of its more resilient peers. The chapter is particularly interested in the emergence of banking practitioners who came from an original career in the law, and argues that although this was far from a novel pathway to banking in this period, by the 1780s a type of practitioner was beginning to emerge in Scotland that was different from the traditional owner-manager of private banking houses, or the partner-director of the chartered banks. Although not necessarily ‘professional’ when it came to the practice of banking, some of these lawyer-executives combined a formally professional background in law with important political connections, and at the very least, a familiarity with political economy. The Ayr Bank’s factor and manager after the 1772 credit crisis, George Home WS (1734–1820), is a particularly instructive example and will serve as a central case study.

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8.2

The Ayr Bank

For the first half century following the chartering of the Bank of Scotland in 1695, the development of Scottish banking proceeded slowly and conservatively. Despite the addition of two more chartered banks,1 a number of unchartered private partnerships in the English style, and fledgling credit connections with the London money markets, the system remained small, overwhelmingly based in Edinburgh, and focused on a few business lines (Checkland 1975, 76–84). The situation changed rapidly after the final defeat of Jacobitism when the Scottish economy began to expand and to integrate more closely with the rest of Britain and the Empire (Hamilton 1963). For the three decades that followed the’Forty-Five, Scottish bankers sought ways to finance the improvement of landed estates, the expansion of the linen industry, and the spectacular growth of the American tobacco trade with Glasgow. Due to the chronic shortage of liquid capital in a country with very limited mercantile traditions, Scottish banking put a disproportionate emphasis on what would today be called ‘financial engineering’ to compensate. Innovations extended not only to the field of financial products provided to customers2 but also to the structure of the banking firms themselves. As Scotland lay outside the restrictions of the Bank of England Monopoly Act (1708), its unchartered provincial banking partnerships were not bound by the infamous ‘rule of six’ that restricted English firms to a maximum of six partners. It was this rule, as much as the more famous Bubble Act of 1720, that restricted the equity, and by extension the growth prospects, of English private banks in this period. Starting in the 1760s, a number of these ‘co-partnerships’ were established in the hitherto underbanked Scottish provinces (Munn 1981, 10–36). Although their lack of a charter meant that these firms still operated under unlimited liability and had only a partially defined status in the event of a bankruptcy (Campbell 1967), they nonetheless succeeded in bringing together tens 1 The Royal Bank of Scotland was chartered in 1727. The British Linen Company was chartered in 1746, but it only started banking operations in the 1750s and remained comparatively small throughout the eighteenth century. 2 Above all the ‘cash account’, a facility akin to a modern line of credit secured on personal rather than mortgage credit. This had the advantage of calculating the payment of interest only on actual amounts drawn rather than on the whole, and also of being secured by the pledge of two additional ‘cautioners’ in addition to that of the borrower, hence diversifying the bank’s risk exposure.

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and even hundreds of shareholders and amassing a level of equity capital that their southern counterparts could never match. The Ayr Bank was the biggest and most ambitious of these Scottish co-partnerships, but its career was cut short a little over two years after its foundation during the international credit crisis of 1772–1773. The Ayr Bank was a big deal for its time, launched with much fanfare and with explicitly expansive business aims (Scots Magazine 34 [June 1772]: 304–5). Its resources, both in terms of financial capital and political backing, greatly exceeded those of its country peers and were at least comparable to those of the Edinburgh chartered banks. The bank counted among its backers several major landowners, including the Dukes of Queensberry and Buccleuch, as well as the quintessential political fixer of the period in Henry Dundas. Although its ambitious business plan has been since roundly criticised (Kindleberger 2000, 44), it was in truth neither frivolous nor fraudulent. The firm was indeed a pioneer in experimenting with branch banking, the very organisation that was shortly afterwards adopted by the chartered banks and has proved to be the standard structure for commercial banks ever since.3 Despite all these resources, however, the bank found itself overextended when the 1772 credit crisis struck. It was not that its lending was especially foolhardy, despite later accusations to that effect, but rather that the interbank borrowing that financed these assets was overly dependent on the smooth functioning of the London money markets. When these froze due to the credit crisis, the bank faced imminent bankruptcy. A series of attempted bailouts, some of them poorly thought out and ruinously expensive, ushered in a protracted winding-up process that led to value destruction exceeding that of the traditional figure associated with the Darien disaster (Kosmetatos 2014). The aftermath of the collapse inevitably led to recriminations. In his famous Wealth of Nations passage dealing with the bank, Adam Smith was careful never to accuse its projectors of anything more than monetary fallacy. For him, this was a simple case of ‘over-trading by some bold

3 As with the case of cash accounts, branch banking has the advantage of diversi-

fying credit risk, in this case geographically. The Bank of Scotland experimented with branch banking from 1696 to 1699 and from 1731 to 1733, before making this innovation permanent starting in the 1770s. The Ayr Bank launched with three full and equal branches, in Ayr (head office), Dumfries, and Edinburgh, as well as a number of agencies throughout the Lowlands (Saville 1996, 109–10; Kosmetatos 2018, 277–78).

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projectors’ and a salutary lesson in the perils of excessive paper money issuance.4 The bank’s partners themselves had no such compunctions, and quickly fell to accusing each other at best of thoughtlessness and at worst of corruption. For the committee of inquiry put in charge to oversee the unwinding of the company after 1773, the guilt lay with the previous directors whose actions had crossed into the culpable territory. The report that this committee produced in 1778, known as the Precipitation of Messrs Douglas, Heron and Co, was as much a piece of pamphlet literature as an impartial account of the debacle, but this does not mean that all the complaints it makes are unfounded, even if they are occasionally overblown. But the committee’s main object above all else was to deflect the firm’s substantial liquidation costs away from the biggest backers of the project, who under unlimited liability could have been selectively targeted by creditors for the whole of these costs. The legal actions it brought accordingly focused on ensuring that this burden fell equally upon all shareholders, rather than prosecuting the supposedly criminally liable managers that had led the company up to 1772.5 An alternative contemporary narrative identified the incompetence and unsuitable background and training of those operating the bank during its brief life. Modern commentary has echoed these sentiments, pointing to ‘a combination of fraud and inexperienced management’ (Dwyer and Murdoch 1982, 232) and going as far as to describe the whole episode as an ‘awful object lesson […] of the disregard for the [Smithian] principle of specialisation or expertise’, and to dismiss the whole project as ‘Capitalism by generalists’ (Brady 1973, 27). Even less dismissive commentary has admitted to weaknesses in the bank’s governance, inasmuch as it displayed a lack of credit coordination between its three branches and an indifference to (or incomprehension of) the degree of self-lending and banknote over-issuance that was taking place (Kosmetatos 2014).6 This narrative of 4 Smith (1776) 1976, bk. 2, ch. 2, p. 57. This first expression of the Law of Reflux and the Real Bills Doctrine is seen as the first shot in the Banking vs Currency School war that would follow a few decades after (Glasner 1992). 5 Douglas, Heron and Co against Alexander Hale, in Decisions of the Court of Session, 1778–81, XXXIV, 24 July 1778, pp. 57–59; Documents relating to Douglas, Heron & Co., AA DC/410/46/3, Ayrshire Archives, Ayr. 6 ‘Case for Messrs Douglas, Heron & Company’ (1774), Buccleuch Papers, NAS GD224/178/9, National Records of Scotland, Edinburgh. This document’s context makes it likely that it was authored by George Home, the bank’s factor at the time. Self-lending is the practice by which the assets of the bank (loans) are serviced by the

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inexperience rather than dishonesty was neatly summarised in a contemporary letter to the London Morning Chronicle which sought to exculpate the Ayr directors of reckless risk-taking and corrupt practice by pointing out that It is not […] wonderful that some errors were committed in the original planning and conducting [of] their operations, having only among them two or three young people, of merit indeed, but little experience in commercial affairs. The direction was composed almost totally of young gentlemen of the law, many of them of genius and spirit, but not conversant in matters of trade.7 (‘Considerations on the Present State of Credit’, Morning Chronicle, 25 June 1772, emphasis added)

This skills deficit was even admitted by some of the former directors themselves, who afterwards pleaded lack of experience and formal training for the job they had been chosen to perform: [The Company] was originally composed of a great variety of persons, of different ranks and professions, few of whom had any experience in a business of that sort […] Few [of the chosen Directors] had experience in [banking], to enable them to judge of the extent of credit that in prudence ought to have been given to the country upon so small a capital as that which was advanced at the commencement of the business […] Raw and inexperienced in a business of this kind, […] they did not then foresee what from experience they afterwards discovered, that the sudden reflux of the Company’s notes would soon overbalance the powers of their capital and lay them under the necessity of contracting large debts to their London correspondents. (Wright and Ferguson 1778, 3; emphasis added)

Of course, such protestations made sense at a time when the former directors were accused of culpable and even criminal negligence, so they should not necessarily be taken at face value. Even so, this was evidently a line of defence that the accused former directors thought would be credible in its general premises.

same people providing the basis of its liabilities (shareholders equity). Although not illegal at the time, this was nonetheless recognised as unethical and potentially dangerous. 7 Such attitudes went beyond the press: the author of the 1774 manuscript ‘Case for Messrs Douglas, Heron and Company’ submitted to the committee of inquiry also claimed that the bank’s credit oversight was fundamentally faulty.

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According to this second narrative, therefore, banking practitioners could only properly rise from the ranks of established merchants. The Morning Chronicle letter quoted above also contrasted the backgrounds of the twenty-six directors and governors of the Bank of England, who were ‘all of them men of character, of fortune, and some of them men of knowledge in trade’ (‘Considerations’, 25 June 1772). For the pamphleteer of Reflections on the Late Alarming Bankruptcies in Scotland (sometimes identified with James Boswell) successful and creditworthy bankers required specifically a fair character, a close attention to business and […] fortunes of their own, which not only give security but are interwoven and blended with the credit and various purposes of their customers and friends. Such are real bankers; and although we have none exactly such in Scotland, yet we have among us several merchants who answer the same purposes, in a somewhat different form, and I shall hold them as real bankers on whom we can depend. ([Boswell] 1772, 3–4; emphasis added)

On the whole therefore, detractors of the project have favoured extensive and systematic corruption as the main reason for its failure, while contemporary defenders and modern revisionists have promoted managerial incompetence and loss of nerve after the outbreak of the 1772 crisis as a more likely explanation. In this latter narrative it is not so much ‘generalists’ who are seen as unsuitable for banking, but specifically lawyers, who possessed none of the training, business experience, or the credit and social networks necessary for a successful banking career. Similarly, the suggested demographic from which banking practitioners should have been drawn instead is identified above all with merchants, the people whose success par excellence depended on sound credit and an intimate knowledge of commercial principles. It should be stressed, however, that this narrative was far from universally adopted or supported at the time of the bank’s demise, with the appropriateness of merchants entering banking equally questioned in other parts of public discourse. Parts of the London press specifically identified ‘Bankers AVOWEDLY concerned in trade’ as having an improper attitude to risk that naturally led them to the sort of speculations that had led to the 1772 debacle (Public Advertiser, 25 Jan. 1773). The Precipitation (1778, 21) itself accused the outgoing merchant directors of the Ayr branch of Douglas, Heron & Co. as being too ‘deeply connected with and concurrent in several trading companies’

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in the west of Scotland and favouring their own kind with excessive and imprudent credits. Such commentary tended to view the non-landowning classes as a whole (and not just professionals) as inherently unsuitable for the business of banking. The bankers castigated in the press as ‘desperate adventurers in commerce’ were often identified with those lacking the necessary real (that is, landed) personal property to serve as a deterrent for entering into foolhardy projects, since under unlimited liability this would be both too valuable to lose and harder to keep away from the reach of creditors (London Chronicle, 16–18 July 1772). Since however much of this commentary had a political (especially Wilkite) bent, it could often display contradictory attitudes. With no hint of irony, the same newssheets who admonished non-landowning bankers also excoriated prominent Scottish expatriate financiers as jumped-up parvenus for daring to purchase landed estates and aspiring to marry into the nobility (Bingley’s London Journal, 11–18 July 1772). Even the normally very cautious Smith ([1776] 1976, bk. 2, ch. 2, p. 90) pointed to ‘beggarly bankers’ and to ‘mean people’ of small personal (real) property as the class of people whose ‘clamour and distress’ at the prudence of the traditional banking establishment had led them to seek dangerous alternatives, of which the Ayr Bank had been the ultimate expression.

8.3

The Bankers

In practice, there was nothing particularly outrageous about any of the aforementioned occupational backgrounds serving as precursors to banking, and this included ‘young gentlemen of the law’ as much as anyone else. In broad terms, an aspiring banker in this period had to fulfil either, or preferably both, of two prerequisites: (a) either have liquid capital available for lending even in the short term; (b) have good, and preferably extensive, credit connections in place to allow for commission-earning activity—especially the clearing of payments across long distances, long time intervals, or different currencies. The first of these demographics included the original goldsmith-bankers who leveraged the bullion holdings in their strongrooms, receivers-general charged by Parliament to collect the revenue, and quartermasters-general likewise contracted to supply British and allied troops during the many Continental wars of the period (Neal 2015, 113–15). The common characteristic of all these groups was the leveraging of the transiting funds

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to develop a lending business on the side. Legal professionals like solicitors and scriveners did exactly this with the capital temporarily entrusted to them when settling real estate transactions (Pressnell 1956, 46–54). By the 1790s, more than one out of ten English banks numbered at least one attorney among their partners, though not necessarily in ‘executive’ positions (Mathias 1984). In Scotland, Writers to the Signet, which along with the Faculty of Advocates formed the highest rung of the legal profession in Scotland, were especially involved in conveyancing, and it is thus not surprising to see a number of them use this path to enter the business of lending money out (Finlay 2015a, 95). Lawyers were also naturally involved in bankruptcy (‘sequestration’ in Scottish legal parlance) proceedings and could occasionally extend this oversight to the running of day-to-day business operations. The Ayr Bank’s factor for two decades, George Home, is a good example of this trajectory. Though not quite a ‘young gentleman of the law’ (he was 37 at the time of the 1772 crash), Home belonged to the Society of Writers to His Majesty’s Signet (‘Writers to the Signet’). An ordinary shareholder to the Ayr Bank while it was a going concern and with no involvement in the management of the firm to that point, he came up with the plan to set up the committee of inquiry that took over in the wake of the 1772 crash, and was in turn appointed by it as factor and manager in 1773. In this capacity, he designed and oversaw the extensive asset-liability management schedule that was necessary if the bank was to be unwound without going bankrupt, which remained the topmost concern of its wealthiest backers. This structure had as its centrepiece £500,000 of transferrable bonds which in turn required the passage of an act of Parliament. Though not directly involved with this political effort, Home was nonetheless intimately involved in the correspondence of those partners who were—above all the Dukes of Buccleuch and Queensberry, Henry Dundas, Ilay Campbell and Alexander Wedderburn. The bond issue succeeded in paying off (albeit belatedly) all the bank’s creditors in full, in turn deflecting the ruinous consequences of a corporate bankruptcy from the landed (and often titled) partners who were behind the committee. Home was also almost certainly behind the creation of the Precipitation

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report,8 designing it above all as a justification to the bank’s recalcitrant partners for the periodic ‘contributions’ pressed upon them to fund his bond scheme. The Precipitation report was produced at a pivotal time when the bond issue was encountering problems with creditors (especially the Bank of Scotland) and when a number of crucial legal disputes were making their way through the courts. The report goes to great lengths not only to demonstrate what it sees as culpable actions by the pre-1773 managers but also to identify their alternative rescue plan of issuing redeemable annuities as ruinous and corrupt. Home’s voluminous correspondence with Dundas, Buccleuch and others also demonstrates how he combined the conventional duties of a factor in leading litigation to collect monies owed to the bank by debtors and shareholders, with explicitly financial tasks such as promoting the bonds with investors and organising the retirement of the Ayr Bank’s £220,000 of paper banknotes in 1774 (Kosmetatos 2014).9 After the bond issue was finally paid off in 1793 and he stepped away from direct management, Home continued to advise on the bank’s legacy affairs all the way to his death at the age of 86, half a century after he was first involved with the firm.10 In the meantime, he continued to advance his legal career, rising to Principal Clerk of the Court of Session, before a series of fortuitous inheritances turned him into one of the biggest landowners in Berwickshire.11 The second, credit-based, route to banking was more usually associated with merchants, who could leverage the family, national, foreign and religious connections they often leaned on as part of their normal operations. Their frequent use of long-distance, time-delayed, or foreign currency payments, especially via bills of exchange transactions, allowed them to earn commissions by enabling third-party settlements. This ‘renting out’ of established credit lines was a cornerstone of so-called acceptance finance through which eighteenth-century money markets operated

8 The report (Precipitation 1778) has no formal author other than the ‘Committee of Inquiry appointed by the proprietors’. Home was the factor this committee had appointed in 1773. 9 Both the older chartered Edinburgh banks and Coutts Bank in London were among these investors. The banknotes were accepted as payment by the two Edinburgh banks at an estimated discount of 10%. 10 Home-Robertson Papers, NAS GD267/20/18, National Records of Scotland, Edinburgh. 11 Curator’s notes, Home-Robertson Papers, NAS GD267.

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(Schnabel and Shin 2004; Kosmetatos 2018, 105–7). Sir William Forbes of Pitsligo described the formative experience of setting up such networks of bills of exchange for the Edinburgh firm of Coutts & Trotter: Their [original] business was dealing in corn, buying and selling goods on commission, and the negotiation of bills of exchange on London, Holland, France, Italy, Spain, and Portugal. The negotiation of bills of exchange formed at that period a considerable part of the business of Edinburgh; for there were then no country banks, and consequently the bills for the exports and imports of Perth, Dundee, Montrose, Aberdeen, and other trading towns in Scotland, with Holland, France and other countries, were negotiated at Edinburgh. (Forbes 1860, 3)

Such mercantile connections often remained personal or family based. National and religious communities also utilised the social links that kept them together to project banking credit to the wider community: the stereotypical and much-abused Jewish bankers were joined by Quakers and eventually Scots emigrants who after the’Forty-Five became increasingly involved in London finance.12 The Morning Chronicle letter pointed to the lack of such connections with other Scottish merchant houses as another reason for the Ayr Bank’s demise: It is remarkable, that this banking company was almost totally unconnected with every Scotch house in London […] [and also] deprived of the assistance and advice of any capital house in Edinburgh […] As this company intended to carry on business on a large scale, it had been prudent to begin with securing the aid and assistance of such capital houses in [London] as were equal to their greatness of their operations, and to have taken due pains to have explained the plan and extent of their transactions: this would have prevented many mistakes. (‘Considerations on the Present State of Credit’, Morning Chronicle, 25 June 1772)

The problem, however, was that this conventional mercantile route was deemed difficult to follow in Scotland—a poor country with limited commercial traditions, which, for Adam Smith at least, implied low conventional creditworthiness: 12 For instance, Thomas Dimsdale of the important London firm Dimsdale, Archer and Byde, one of the Ayr Bank’s London correspondents, was a member of the Religious Society of Friends, see Kebbel and Rusnock (2004).

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Of all the nations in Europe, the Dutch, the most commercial, are the most faithfull to their word. The English are more so than the Scotch, but much inferior to the Dutch, and the remote parts of [Scotland] far less so than the commercial parts of it. This is not at all to be imputed to national character […] [but] to self interest. A dealer is afraid of losing his character and is scrupulous in observing every engagement. When a person makes perhaps 20 contracts in a day, he cannot gain so much by endeavouring to impose on his neighbours, as the very appearance of a cheat would make him lose. (Smith 1982, report dated 1766, p. 327)

Sir James Steuart (1770, 2: 350–63) also acknowledged this mercantile credit deficit, but urged Scots to make a virtue of it. For Steuart, mercantile credit was in any event precarious, being more appropriate for banking operations that only slowly repay capital while servicing interest obligations.13 Such operations might be useful, indeed necessary, for a developed economy or for state finance, but they were also deemed inherently risky for a country with only rudimentary credit linkages in place. Steuart rather suggested what he called private credit, above all else that secured on land, as the optimal route for a country like Scotland to rapidly build up its banking system. In this analysis, Steuart not only followed a long tradition of land bank proposals, dating back at least to John Law’s proposals at the turn of the eighteenth century, but also, as we have already seen, reflected common views on the inherent soundness of landowners when it came to assuming financial risks. Although no Scottish provincial bank ever became a true land bank in the Steuart sense, several counted a significant number of landowners among their shareholders, who under unlimited liability could provide a capital base of some magnitude. The Ayr Bank was remarkable not just for its size and the stature of its backers but also for the fact that it mobilised both the landed and the money interests of Scotland while adding a significant number of professionals to their ranks. In this, however, it was far from an exceptional case. Even the most commercially oriented Scottish banks numbered at least some landowners and professionals among their shareholders, though the proportion varied according to each bank’s location and business outlook. Figure 8.1 shows the occupational distribution of Scottish provincial bank partners in this period. Though the Ayr Bank 13 This is reminiscent of Hyman Minsky’s (1992) ‘speculative finance units’ in modern finance theory. These are operations who can only service interest through ongoing receipts, but need to ‘roll over’ debt capital at maturity by reborrowing it.

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stands out as an endeavour primarily backed by landowners and professionals, exactly as contemporary discourse (and Steuart’s advice) would have it, the rather more successful and long-lived Aberdeen Banking Company also included a high proportion of these two demographics among its original partners. Moving beyond shareholders and on to the directors and officers of these firms, who were, respectively, the people charged with forming policy and running day-to-day operations, the picture closely correlates to this pattern (see Table 8.1). All ten original directors of the Dundee Bank self-identified as ‘merchants’, which was consistent for a firm where two-thirds of its partners also identified as such. Two clerks (a cashier and an accountant) were also employed, neither of whom was a partner in the scheme. On the other hand, of the 16 directors running the Aberdeen Bank in its first three years, half were landowning gentlemen, while the other half were split equally between merchants and professionals. This close correspondence between shareholder and executive demographics was true for the Ayr Bank as well: of its 27 directors, 13 were landowners Occupational self-identification of Scottish provincial bank partners, 1750-1787 (% of total for each bank) 100

GA

GM PBC D

Axis Title

80

PG

60

Ayr 40

Ab Ab

Ayr

GA

Ab PG

D

PG

0

Ayr

Ab

20 GM

D

PBC

Landowners & Farmers

GA

Merchants & Manufacturers

PG

GM

Professions

PBC

GA

Ayr

GM D PBC

Other/Unspecified

GA: Glasgow Arms (1750); Ab: Aberdeen (1767); PG: Perth General (1767); Ayr: Ayr (1769); GM: Glasgow Merchant (1771); D: Dunde e (1777); PBC: Perth Banking Company (1787)

Fig. 8.1 Occupational Self-identification of Scottish Provincial Bank Partners, 1750–1787 (% of total for each bank). ‘Professions’ includes all medical, legal and clerical/educational self-identifications. ‘Merchants & Manufacturers’ includes retail as well as wholesale trades (Sources For Ayr: Kosmetatos [2014, 168]; for Dundee: Boase [1867, xviii–xix]; and for all others: Munn [1981, 152–55])

8

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representing 49 per cent of landowning shareholders, while 6 merchant and 8 professional directors came from the ranks of the remaining two quarters of the shareholding total who identified as such. All eight professionals were lawyers, either members of the Faculty of Advocates or Writers to the Signet. So far, the picture is consistent and reasonable in the principles it demonstrates: all three banks elected executives from among their number, and although some clerks were employed for everyday tasks, strategic decisions were taken by courts of directors entirely made up of shareholders. This ensured accountability and an alignment of interests and risk outlook between executives and their capitalist backers. It is especially notable that the proportions of the various occupations professed by the directors very closely correlated to those of their corresponding shareholders. Even the much-maligned Ayr Bank closely conformed to the standard practice of its peers—who unlike it, all survived the 1772 crisis unscathed. The similarity with the Aberdeen Bank is especially striking. Both banks had a hybrid capital structure and business plan, encompassing both landed and mercantile credit in the manner that Steuart suggested. Both accordingly included merchants and landowners in the respective boards, along with a number of prestigious professionals. In the Aberdeen Bank’s case, this included the provost of King’s College and the local collector of the customs (Banking Company in Aberdeen 1767). Table 8.1 Distribution of Scottish provincial bank directors and officers upon, or close to, the founding of their co-partnerships, 1763–1770 Directors Landowners Totals Dundee (1763) Aberdeen (1767–1770) Ayr (1769)–totals Ayr Bank branch breakdown Ayr Edinburgh Dumfries

Officers Merchants

Professionals

Employee

Partner

0 8 13

10 4 6

0 4 8

2 0 No information 6 3

7 0 6

2 2 2

0 7 1

2 3 1

1 0 2

Sources For Ayr: Scots Magazine 31 (Dec. 1769): 669; for Dundee: Boase (1867), xviii–xix; and for Aberdeen: Aberdeen Bank, minutes of the Court of Directors, GB 1830, ABC 2/2/1, Lloyds Group Archives, Edinburgh

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When we look at the Ayr Bank’s governance in more detail, an even more benign picture emerges. If anything, the firm adopted in earnest the principle of specialisation in its management. Its unique branch structure allowed it to align closely to both local shareholder interests and the specific business plan for each branch. In the main Ayr and Dumfries branches, which had been instituted with the express purpose of supporting land improvement drives and the growing international trade of the West of Scotland, the directors were overwhelmingly landowners and merchants—in other words, the providers of the capital and the intended recipients of the bank’s credit. The line may have been blurred as the Precipitation alleged, and alignment of interests crossed over to self-lending by merchants who were also partners (or indeed officers) of the bank. But at the time, self-lending was not yet the absolute red line of banking practice it was to become in later centuries, even if it was already causing some comment, as the Precipitation’s argument shows. There have been no accusations of similar practices levelled against the Dundee or Aberdeen bank directors, but there was also nothing in the structure of the firms that would have prevented them from doing so. If the Precipitation’s accusations are to be believed, the fault in the Ayr case rested with the individuals rather than the structure, or at least it was a fault that other firms could have also perpetrated easily. It was indeed only in the Edinburgh branch that the ‘young gentlemen of the law’ dominated, and only there were daily operations performed by employed clerks rather than partners. This was not unreasonable, considering that the Edinburgh branch had a different primary function from the other two (Precipitation 1778, 24–27). Lending was a secondary aspect of this branch’s business, notwithstanding later apocryphal narratives that much of the Ayr Bank’s credit went towards building the New Town of Edinburgh (Hamilton 1963, 317). Instead, the Edinburgh operation was centred on what would be called today interbank finance: arranging and maintaining the bank’s credit links with the money markets in London through the drawing and remitting of bills of exchange and participating in the pioneering Note Exchange System together with the three chartered Edinburgh banks (Munn 1981). For this sensitive and highly developed financial market, where the dereliction of payments could summarily lead to bankruptcy (as it almost did in 1772), it is not unexpected to see lawyers ensuring that these legally enforceable contracts were properly settled.

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Learning to Be a Banker

The fact that bank directors were proportionally drawn from demographics that were the same as those of their shareholder-partners may have given them some legitimacy as agents vis-à-vis their principals, but it did not necessarily qualify them for the job they were asked to do. As we have seen, parts of contemporary discourse pointed to the lack of sufficient experience and an unsuitable skillset for dealing with the specific challenges of banking as the reasons behind the Ayr Bank debacle. So, how atypical were the Ayr directors when it came to training and experience? It is unfortunately not possible to supply systematic demographics for the education and prior experience of Scottish bankers in this period in the manner we did for occupational self-identification. Generally speaking, though, the process by which they acquired their skillset was as irregular and varied as their backgrounds. The partners of newly founded firms brought in what skills they already had developed in their other occupations and hoped that these would be equal to their new task. Longer established houses could offer a conventional apprenticeship route for new entrants, who could thus learn the business while ‘on the job’. Some of the better-known bankers from this period came from this path. The aforementioned Forbes started out as an apprentice for Coutts & Trotter (Forbes 1860, 9–11). The notorious Alexander Fordyce, the ‘spark that set off the mine’ of the 1772 crisis, was originally a hosier in Aberdeen before moving on as a clerk for the London firm of Boldero, Carter & Co. and eventually striking off on his own (40). Occasionally, this practical experience could be gained abroad, especially so in the Netherlands which remained the financial centre of Europe. John Coutts, under whom Forbes served his apprenticeship, received his mercantile education in Holland, [and thus] he had all the accuracy and all the strictness of a Dutchman; and to his lessons it is that I owe any knowledge I possess of the principles of business, as well as an attachment to form, which I shall probably carry with me to the grave. (Forbes 1860, 10)

Coutts followed an established tradition of Scots operating in the United Provinces, both as merchants and as students in the Republic’s various universities. Indeed, the business of financing the studies of Scottish expatriates formed yet another pathway to the establishment

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of banking connections between the Scots and the Dutch (Mijers 2012, 49–53). Any future bankers enrolling in these or equivalent universities, however, received educations that were as a rule unconnected with their intended careers. With nothing approaching an academic education in finance in place, and with the discipline of political economy still in its formative years, it was left to individuals to make what they would of their formal educations. Sir George Colebrooke, an English banker with substantial interests in Scottish and Irish finance and Chairman of the East India Company during the 1772 crisis, later described the Dutch education that prepared him for taking over his father’s banking business in London solely in terms of the classical curriculum of a gentleman: I was sent to Leyden at the age of eighteen, under a very conscientious tutor, but, who […] was neither a profound nor an elegant scholar […]. Both at school and at the University I contracted a great love for books, and had I had proper assistants considering the time I devoted to study, I might have made some progress in literature. (Colebrooke 1898, 1899, 1: 2)

Colebrooke admitted that he never even learnt Dutch during his time in the Netherlands, which was not altogether unusual (Mijers 2012, 55), and continued to resent the intrusion of business into his pleasant life of classical study: My inclination for books was so strong at the age of twenty, when I left Leyden, and even to the death of my father in 1752, as to render a valuable branch of the business to which he had destined me, although attended with no trouble or fatigue, perfectly disagreeable to me. I seldom went to the banking office without a Greek book in my pocket. (Colebrooke 1898, 1899, 1: 5)

Colebrooke was not atypical for a scion of an established banking family in diverging (initially at least) from the commercial interest that had made his family’s fortunes. Forbes described how the eldest son of the founder of the Coutts Bank was a man of elegant and agreeable manners, but more inclined to the study of books than to application to business. He continued, however, to take a part in the management of the London establishment for a few

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years […] [though] the active charge of the counting-house chiefly rested with the youngest brother Thomas. (Forbes 1860, 9–10)

Nevertheless, like the ‘gentlemanly capitalists’ of the following century (Daunton 1989) with their ‘bucolic aspirations of the country gentleman’ (Landes 1969, 336), neither Coutts nor Colebrooke would have found their classical education inappropriate. The ideals of virtue, worldliness, improvement and sociability it was meant to instil made their students ‘elegant’, ‘agreeable’ and, in the most famous expression of the ideal in this age, ‘polite’. Although fundamentally ‘allied with the spirit of the amateur’, these qualities were prized far above mere expertise, which by itself was ‘sterile, unpersuasive, and ineffective’ (Klein 2002, 876). Lawyers by comparison served long apprenticeships as part of their formal training (Finlay 2007), often supplemented by a few years of university instruction, occasionally in the Netherlands (Finlay 2015b). Like their gentleman counterparts, they also prized the same classical ideals of probity, manners and virtue, although in their case these were a formal part of the ‘liberal profession’ they belonged to, rather than an expression of amateurism (Finlay 2006). George Home is once again a notable example of this sort. While he was a factor for the Ayr Bank during the most testing time for the crucial bond scheme that backed its orderly unwinding, Home found the time to write in defence of the classical curriculum for the influential Edinburgh periodical The Mirror (1779–1780). The ‘Mirror Club’ literati included Lord Advocate Henry Dundas and several other lawyers, and they have been described with some justification ‘less as a group of professionals than as the artistic and administrative representatives of Scottish landowners’ (Dwyer and Murdoch 1982, 221–22). Home’s few contributions to the journal have attracted very limited attention, especially compared to those of the main motivating force and de facto leader of the group, Henry Mackenzie (Drescher 1971; Dwyer 1987). He was nevertheless a founding member of the circle since its earlier incarnation as ‘The Feast of Tabernacles’ and was deemed important enough to be chosen as the author of the inaugural essay of the journal. (See Table 8.2.) In the context of Home’s career as a legal and banking practitioner, and (as we will see below) part-time theoretician, his Mirror essays provide some important insight as to the values by which he shaped his business conduct. In most respects his argument is what would be expected from an author of a very conservative publication that expressed the views of

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Table 8.2 George Home’s contributions to the Mirror (1779) No.

Title

1

Introductory. The reception which a work of this sort is likely to meet with. Some account of the author and his intentions On education. A classical contrasted with a fashionable education Danger, incident to men of fine feelings, of quarrelling with the world Letter from Lorenzo. He goes in search of a wife. Characters. Bad effects of neglected education in men of fortune Danger of too much intimacy with the great. A spirit of independence the best guardian of virtue. Story of Antonio

15 39 67 70–71

Source McKenzie et al. (1825)

the landowning class in Scotland. Home was especially keen to stress the contrast between classical and ‘fashionable’ educations, a subject dear to the other Mirror contributors as well, and was effusive in his championing of the advantages of being a ‘generalist’: I have ever considered the acquisition of the dead languages as a most important branch in the education of a gentleman. […] [T]he slowness with which he acquires them prevents his memory from being loaded with facts faster than his growing reason can compete and distinguish, [and] he becomes acquainted by degrees with the virtuous characters of ancient times; he admires their justice, temperance, fortitude and public spirit, and burns with a desire to imitate them.

For Home, this process taught ‘forbearance and fortitude of spirit’ while ‘reasoning faculties expand [and] judgment strengthens’. He especially singled out professionals as possessing the correct attitude obtained through classical learning: A man thus educated enters upon the theatre of the world with many and great advantages. Accustomed to reflection, acquainted with human nature, […] he can trace actions to their source, and be enabled, in the affairs of life, to avail himself of the wisdom and experience of past ages. […] [A]lthough […] a certain degree of pedantry is inseparable from the learning of the divine, the physician, or the lawyer, which a late commerce with the world is unable to wear off, yet learning is, in no respect, inconsistent […] with what, in modern phrase, is called knowledge of the world.

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(‘On Education: A Classical Contrasted with a Fashionable Education’, Mirror, no. 15, 16 March 1779, in McKenzie et al. [1825, 25–26])

A further, and concrete, advantage of aspiring to the polite ideal through classical learning was admittance into patronage networks with like-minded and similarly educated elites. Patronage could (and often did) result in practices that had more to do with advancing personal economic and political interest rather than ‘the self-image of nobility and virtue’ affected by legal professionals like Home (Finlay 2006). But it also enabled a select elegant few to enter into an ostensibly equal discourse with the powerful, and even on occasion to influence them. Home, like the rest of the Mirror Club literati, was a longstanding associate of the lynchpin of Scottish political life in this era, Henry Dundas. Dundas was first Solicitor General and then Lord Advocate for Scotland while the Ayr Bank saga was unfolding, and well on his way to becoming the ‘uncrowned king of the Scottish electors and their hangers on’ (Ferguson 1978, 236–37). Though merely an ordinary shareholder of the Ayr Bank at the time of the 1772–1773 credit crisis, Home was intimate enough with the rising Dundas as to freely offer his advice about what should be done with the stricken firm and be confident that these recommendations would be passed on to the powers behind the bank.14 Home put forth a detailed plan for the bank’s liquidation that reads partly as self-recommendation for the job of factor, and partly as a detailed management theory on the orderly wind-up of a large, systemically important financial institution. The specific financial aspects of Home’s proposal have been discussed elsewhere (Kosmetatos 2014, 179). What is particularly interesting here is his suggestion that the people to be trusted with the critical task of unwinding the bank (and it was a critical task for Scotland, considering the bank’s immense liabilities) should be ‘men of business who are to be paid for their trouble’, rather than high-minded idealists, or even shareholders to the bank. Home’s suggested arrangements of a writer (i.e., a lawyer like himself), operating under the direction of a committee of oversight, were exactly those which were afterwards put in place, with himself as factor and manager. There is little doubt that he was more than nudging Dundas to consider him for the job, and that 14 George Home to Henry Dundas, 15 March 1773, NAS GD224/178/2/2. This letter belongs to the Duke of Buccleuch papers in the National Records of Scotland, so it must have been forwarded by Dundas to Buccleuch.

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Home’s theories were at least partly influenced by considerations for his own reward. We have another letter from this time to Home’s uncle, Patrick Home of Billie,15 where he confides that the position as a factor was potentially lucrative, especially if remunerated with a salary rather than a percentage of the profits.16 Leaving aside Home’s personal aspirations, however, his argument was consistent with his championing of the merits of professionals and the interests of the ‘landed interest’ of his Mirror essays half a decade later. The structure he proposed for the Ayr Bank achieved exactly that: the committee of inquiry, staffed with the greatest representatives of the ‘landed interest’ among the partners, including Dundas, both dukes and the future Lord Advocate Ilay Campbell, would draw the broad strategic principles for the unwinding of the firm—above all ensuring the protection of their estates from dangerous creditor claims under unlimited liability; while the day-to-day operations would be run by qualified professionals, who could be trusted because of their very status as such. Already by the middle of the eighteenth century, the classical professions (law, medicine and divinity) were well established and possessed most of the characteristics that sociologists have since described for them: (a) an independent practice; (b) membership of formal qualifying and disciplinary associations (for the case of Scotland, these were the Faculty of Advocates and the Society of Writers to His Majesty’s Signet); (c) specialised knowledge (in this case of the legal issues surround bankruptcy and the settling of collateral, which were of particular interest to the landowning members of the committee); and (d) a self-conscious professional identity (Duman 1980, 615). Banking, on the other hand, with its comparatively low social barriers to entry, varied and changeable business lines and decentralised organisation (central banking would only come three-quarters of a century later), could hardly claim these advantages. The confidence by which Home promoted his plan for unwinding the Ayr Bank underlines an important nuance on the nature of patronage as he comprehended it: that although it could never be a relationship

15 Later the MP for Berwick and also a member of Dundas’ circle (Henry 1986). 16 George Home to Patrick Home, 22 March 1773, Home-Robertson Papers, NAS

GD267/12/18.

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of equals, it should be reciprocal and imbued with a spirit of independence on the part of someone associated with the rich and powerful. His last contribution for the Mirror is a cautionary tale in two parts about a professional (a student of medicine rather than law in this case) who, despite all the advantages of ‘a handsome fortune’, ‘liberal education’, ‘genius’, ‘liveliness and pliancy of disposition’, ‘mild and spirited manners’ and not least ‘the study of polite literature […] and science’, falls on hard times and is reduced to the status of mere ‘humble attendant’ because of his naïve expectation of preferment through his noble patrons. ‘My young friends’, he was wont to say, ‘carry with you into the world a spirit of independence, and a proper respect for yourselves. These are the guardians of virtue. No man can trust to others for his support, or forfeit his own good opinion with impunity. […] Society is supported by a reciprocation of good offices; and, though virtue and humanity will give, justice cannot demand a favour without a recompense’. (‘Sequel of the Story of Antonio’, Mirror, no. 71, 11 Jan. 1780, in McKenzie et al. [1825, 124])

Home’s own ambitions extended beyond merely being the professional instrument of the ‘landed interest’ on the specific matter of the Ayr Bank’s winding-up, and to considerations of the future of the banking sector in Scotland as a whole. In September 1777, he produced a memorandum for Dundas proposing a general restructuring of the industry.17 The ‘Observations by Geo. Home on Bank & Circulation’ is presented as an expansion of arguments made previously by a ‘Mr M’,18 and most of the suggestions contained in it were afterwards enacted.19 Whether or not Home arrived at these conclusions by himself or as a member

17 ‘Observations by Geo. Home on bank and circulation’, Sep. 1777, Melville Papers, MEL/1, pp. 1–2, Lloyds Group Archives, Edinburgh. 18 That document, if it ever existed, has not survived. The identity of ‘Mr M’ is likewise in unknown. It may be tempting to match the initial with some other member of the Mirror Club (Henry McKenzie perhaps?), but this is entirely speculative. 19 Saville (1996, 240–42) asserts that ‘the group around George Home was not primarily concerned to elaborate a theoretical system. Its audience was a practical lawyer [Dundas] and his entourage who wielded immense power and functioned as the organiser of patronage, complicated networks of relationships and the staffing of institutions as diverse as the Court of Session and the East India Company’.

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of a group,20 the document remains remarkable, especially when seen in the context of the reorientation of the Scottish banking system around the two older Edinburgh chartered banks in the wake of the Ayr Bank collapse, and the then recently published works of political economy by Steuart (1770) and Smith ([1776, 1976). When the ‘Observations’ were written, in 1777, the Bank of Scotland—with Dundas as its governor since March 1775—had already set forth plans to double its capital to £200,000 and had opened six branches as far afield as Ayr and Inverness (Saville 1996, 166–67); and of course, the Wealth of Nations had appeared the previous year. The ‘Observations’ recommended that the Royal Bank of Scotland also increase its capital base by £200,000, with the express purpose of supporting the paper money circulation of the country that had contracted by as much as a quarter after the Ayr Bank notes had been withdrawn from circulation in 1774 (Kosmetatos 2018, 276). Perhaps chastened from his experience with the Ayr Bank, Home definitely turned away from Steuart’s ‘private credit’ approach in general, and from provincial banking in particular, and towards a centralised system based on the two chartered Edinburgh banks. His main argument in favour of this shift was one of transparency: because of their chartered status, the public banks had to be more forthright when it came to their capital situation compared to the generally secretive (and perhaps untidy, going by the Ayr Bank experience) affairs of their private counterparts: The Capital of the two Edinburgh Banks established by public authority, was well known, and their constitution such that no sudden danger was to be apprehended from their management. But that the case was very different with the Provincial Banks. The Public was and must necessarily continue in the dark as to the extent of their Capitals, and the propriety of their management.

There was moreover a difference in the transparency of the managerial practices of the private versus the public banks. Home contrasted the dishonest practices of the Ayr Bank directors (at least as he saw them, according to his Precipitation analysis the following year), which had

20 Saville (1996, 240–42) suggests the latter, in fact calling it the ‘M Group’ which would be an interesting coincidence with the ‘Mirror Club’. It should be stressed, however, that there is no evidence to support either of these conjectures.

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festered in the darkness of the secretive affairs of a private company, with the scrutiny that the management of the public banks had to endure: The Managers of the [public banks] are tied down by fixed and determined Rules, they act under the Eye of jealous proprietors, they are accountable for their Conduct not only to them but also in some measure to the public. They have it not in their power to conceal their transactions, and lye under no temptation to engage in hazardous enterprises from a prospect of extraordinary profit. The Case is the Reverse in every respect with the private Banks. They are under no Control. They have no Object in view but their own particular Interests, and the public are entirely unacquainted with the nature and content of their transactions and the real situation of their affairs. (‘Observations’)

With the convulsions of 1772 only five years in the past, Home stressed the point that private banks, even if well capitalised and widely supported by the landed interest like the Ayr Bank had been, had been found wanting in the face of a broad systemic crisis originating in London. [The private banks] were for many and obvious reasons more liable to be deeply effected by any sudden check given to Credit, and the place they occupied in the Circle being left vacant, a proportional check would be given to the Industry of the Country, the consequences of which would be severely felt by all Banks in a diminution of their revenue, and might even for a time effect the peace and good order of the Society, by the number of People that would be thrown out of employment, rendered desperate by their wants if they remained at home, or obliged to leave their Country in search of subsistence. (‘Observations’)

For the likes of Home and his influential political interlocutors, ‘Free Banking’ was thus never an intended policy in Scotland, and the anarchic development of its financial system between 1750 and 1770 had been an unfortunate deviation from what should have been a prudent practice. Home was also unconcerned with the actual level of paper money circulation that would be supported by his proposed centralised bipolar system and made no mention of the possibility of over-issuance and reflux of banknotes that only recently published monetary analysis in the Wealth of Nations made so much of. In this he seems to have leaned more towards the ‘Banking School’ side of the future dispute, and towards the position of Henry Thornton regarding the security of a paper money system,

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despite the urgings of those ‘speculative men of the first eminence [who] have indeed endeavoured to demonstrate that the substituting of paper for Gold and Silver will in the end ruin our Trade and manufactures, by heightening the price of provisions and labour’. The ‘Observations’ were produced at a time when Dundas, the Bank of Scotland and the landowners he was representing moved to remove Sir Lawrence Dundas of Kerse from the governorship of the Royal Bank and replaced him with none other than the Duke of Buccleuch. A successful merchant who had enriched himself through wartime contracts, Sir Lawrence has been described as an embodiment of everything that the Mirror Club disdained, and specifically, the ‘monied interest’. The Mirror Club did not stoop to direct attacks on him; this was left for the usual medium of letters to the press and pamphlets. But the Mirror Club’s excoriating criticism of the ‘fashionable’ newly rich, with their ‘luxury, dissipation, corruption, and extravagance’, and their preference for residing in London rather than among their countrymen, provided a high-phrased accompaniment to the attacks on the ‘pensioners, stockjobbers and drones’ of the popular press (Dwyer and Murdoch 1982, 225–43). It is also notable that the Precipitation report, published by the committee of inquiry in general but almost certainly written by Home specifically, came out at exactly the same time.21 Its main thrust was to accuse the previous directors of being corruptly involved with the ‘monied interest’ of the booming West of Scotland to the detriment of their fellow shareholders, almost half of whom were the landowners that the Dundas and the Mirror Club championed.

8.5

Conclusion

It is easy to put neat labels on these debates as a straight-up confrontation between ‘landed’ and ‘monied’ interests, between classically educated generalists and apprenticed specialists, or between professionals and merchants. It would also be simplistic and, in the end, inaccurate. There were lawyers on both sides of the Ayr dispute, just as there were winners and losers among the landowners who had so enthusiastically backed the 21 The ‘Observations’ are dated September 1777; the Precipitation text is dated 30 August 1777, although it was officially published after it was approved by the Ayr partners in the following year. Sir Lawrence Dundas was also removed from the Royal Bank in 1777.

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scheme at its launch. For every big landowner who welcomed the ruling of the Court of Session in 1779 to distribute the bank’s losses equally among shareholders, there were smaller ones who saw their estates swallowed up by the relentless demands for collateral to back the transferrable bonds that financed the bank’s final bailout. The same George Home who championed the ‘landed interest’ in his essays for the Mirror also produced a series of unyielding demands for remortgagings and forced sales of estates when wearing his liquidator’s hat (Kosmetatos 2018, 279n). Nor did his recommendations in favour of the old banking establishment in the ‘Observations’ necessarily endear him to the directors of the chartered banks. Only three years afterwards, in 1780, Home entered into an increasingly heated correspondence with the directors of the Bank of Scotland over the transferrable bonds issued by the Ayr Bank. Eventually, his long-winded elegant arguments were given the brusque brush off by the secretary of the Old Bank as ‘not of fair and sound reasoning’ and ‘highly indiscreet’, and he was shut out of further discussions on the subject.22 All the same, of the two broad prerequisites for entering banking set forth earlier in this chapter, capital and credit, a lawyer like George Home possessed ample quantities of the latter, even if this credit was social and political rather than financial in nature. The generalist Edinburgh lawyer who wrote moralistic essays in literary journals while conducting the affairs of a major financial institution may appear to modern readers (and especially modern practitioners) as a particularly ‘unprofessional’ demographic to draw upon for leading a major capitalist endeavour. But in the context of Enlightenment Scotland, he was not such a shoddy proposition. Scottish banking had to develop using the limited resources on hand, and these went beyond Steuart’s landed ‘private credit’. Political connections were as important: the Ayr Bank was set up rapidly due to the connections between big landowners like the Duke of Buccleuch and powerful politicians like Henry Dundas. It was then successfully, if painfully, unwound largely through the connections between Dundas and Westminster, where the necessary bailout legislation was passed despite significant opposition (Kosmetatos 2014, 179–80). Georgian Edinburgh was a small place where such influential people rubbed shoulders with each other at least as easily as they could in London 22 Thomas Steuart to George Home, 25 May 1780, Bank of Scotland Secretary’s Letterbook, NRAS945 1/30/4, Lloyds Group Archives, Edinburgh.

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or Amsterdam and shared social and intellectual pursuits in close proximity to one another. The worlds of the pioneering political economists like Hume, Smith and Steuart, and the polite and well-connected generalist practitioner like Home were not that far apart. When it came to the specific matter of banking development, not only did the ideas of political economists evidently percolate down to the level of the well-connected few formulating policies, as 1777 Home’s discussion with Dundas shows, but polite discourse also enabled what Robert Somers (1873, 91) would call in the next century the ‘philosophy teaching by example’ process by which Scottish banking was created almost ex nihilo: The Scotch Banks had to throw themselves, at their origin, on the lessons of experience. They had to pursue their course under the light of such science as existed, but with the certainty of evolving knowledge and rule at every step in their career.

It was in a succession of clubs like the Mirror Club that ‘the social and intellectual elite of Edinburgh famously adapted the pleasures of polite conversation for the pursuit of public improvement, [and where] politeness was grafted on to schemes of human economic and political development to convey the cultural modernity of commercial polities’ (Klein 2002, 875). The classically educated, polite Enlightenment lawyer was well placed to play this game. It was not necessarily that his character was built up in the manner described by Home in the Mirror—more that his politically influential interlocutors also spoke the same language he did. In this context, ‘capitalism by generalists’ was not necessarily doomed from the start, as Frank Brady (1973) would have it. It may indeed have been an especially appropriate background for the experimental, unchartered provincial co-partnerships specifically, and for this stage of the development of Scottish banking more generally.

References Acheson, Graeme G., and John D. Turner. 2008. The Death Blow to Unlimited Liability in Victorian Britain: The City of Glasgow Failure. Explorations in Economic History 45 (3): 235–53. Banking Company in Aberdeen. 1767. The Contract of the Banking Company in Aberdeen. Aberdeen: J. Chalmers. Boase, Charles William. 1867. A Century of Banking in Dundee; Being the Annual Balance Sheets of the Dundee Banking Company, from 1764 to 1864.

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Containing the Balance Sheets of Other Banks of the District, and Memoranda Concerning Scotch and English Banking during the Period. Edinburgh: R. Grand. Boswell, James. 1772. Reflections on the Late Alarming Bankruptcies in Scotland. Addressed to All Ranks: But Particularly to the Different Classes of Men from Whom Payments May Soon be Demanded. With Advice to Such, How to Conduct Themselves at this Crisis. Edinburgh: s.n. Brady, Frank. 1973. So Fast to Ruin: The Personal Element in the Collapse of Douglas, Heron and Company. Ayrshire Archaeological and Natural History Society Collections 11 (2): 25–44. Campbell, R.H. 1955. Edinburgh Bankers and the Western Bank of Scotland. Scottish Journal of Political Economy 2 (1): 134–48. ———. 1967. The Law and the Joint-Stock Company in Scotland. In Studies in Scottish Business History, ed. Peter L. Payne, 137–51. London: Cass. Checkland, S.G. 1975. Scottish Banking: A History, 1695–1973. Glasgow and London: Collins. Colebrooke, Sir George. 1898–1899. Retrospection: Or Reminiscences Addressed to My Son Henry Thomas Colebrooke. 2 vols. London: Privately printed by Bradbury, Agnew & Bco LD. Daunton, Martin J. 1989. “Gentlemanly Capitalism” and British Industry 1820– 1914. Past & Present 122: 119–58. Davis, Lance E., and Robert E. Gallman. 2001. Evolving Financial Markets and International Capital Flows: Britain, the Americas, and Australia, 1865–1914. Cambridge: Cambridge University Press. Drescher, Horst W. 1971. Themen und Formen des periodischen Essays im späten 18. Jahrhundert: Untersuchungen zu den schottischen Wochenschriften The Mirror und The Lounger. Frankfurt am Main: Athenäum. Duman, Daniel. 1980. Pathway to Professionalism: The English Bar in the Eighteenth and Nineteenth Centuries. Journal of Social History 13 (4): 615–28. Dwyer, John. 1987. Virtuous Discourse: Sensibility and Community in Late Eighteenth-Century Scotland. Edinburgh: John Donald. Dwyer, John, and Alexander Murdoch. 1982. ‘Paradigms and Politics: Manners, Morals and the Rise of Henry Dundas, 1770–1784’. In New Perspectives on the Politics and Culture of Early Modern Scotland, edited by John Dwyer, Roger A. Mason, and Alexander Murdoch, 210–48. Edinburgh: John Donald. Finlay, John. 2006. Advocacy, Patronage and Character at the EighteenthCentury Scots Bar. Tijdschrift Voor Rechtsgeschiedenis 74 (1–2): 95–119. ———. 2007. The Lower Branch of the Legal Profession in Early Modern Scotland. The Edinburgh Law Review 11 (1): 31–61. ———. 2015a. Legal Practice in Eighteenth-Century Scotland. Leiden: Brill.

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———. 2015b. Legal Education, 1650–1850. In The Edinburgh History of Education in Scotland, ed. Robert Anderson, Mark Freeman, and Lindsay Paterson, 114–32. Edinburgh: Edinburgh University Press. Ferguson, William. 1978. Scotland: 1689 to the Present. Edinburgh: Oliver and Boyd. Forbes, Sir William. 1860. Memoirs of a Banking-House, 2nd ed. London and Edinburgh: William and Robert Chambers. Glasner, David. 1992. The Real-Bills Doctrine in the Light of the Law of Reflux. History of Political Economy 24 (4): 867–94. Goodspeed, Tyler Beck. 2016. Legislating Instability: Adam Smith, Free Banking, and the Financial Crisis of 1772. Cambridge, MA: Harvard University Press. Hamilton, Henry. 1956. The Failure of the Ayr Bank, 1772. Economic History Review 8 (3): 405–17. ———. 1963. An Economic History of Scotland in the Eighteenth Century. Oxford: Oxford University Press. Henry, D. G. 1986. ‘HOME, Patrick (1728–1808), of Billie and Wedderburn, Berwick’. In The History of Parliament: The House of Commons 1790–1820, edited by R. G. Thorne. London: Published for the History of Parliament Trust by Secker and Warburg. Accessed 15 March 2022. https://www.historyofparliamentonline.org/volume/17901820/member/home-patrick-1728-1808. Kebbel, T. E., and Andrea Rusnock. 2004. ‘Dimsdale, Thomas (1712–1800), Physician’. In Oxford Dictionary of National Biography (23 September). https://doi.org/10.1093/ref:odnb/7675. Kindleberger, Charles P. 2000. Manias, Panics, and Crashes: A History of Financial Crises, 4th ed. New York: Wiley. Klein, Lawrence E. 2002. Politeness and the Interpretation of the British Eighteenth Century. Historical Journal 45 (4): 869–98. Kosmetatos, Paul. 2014. The Winding-Up of the Ayr Bank, 1772–1827. Financial History Review 21 (2): 165–90. ———. 2018. The 1772–73 British Credit Crisis. Cham: Palgrave Macmillan. Landes, David S. 1969. The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present. Cambridge: Cambridge University Press. Mathias, Peter. 1984. ‘The Lawyer as Businessman in Eighteenth-Century England’. In Enterprise and History: Essays in Honour of Charles Wilson, edited by D. C. Coleman and Peter Mathias, 151–68. Cambridge: Cambridge University Press. McKenzie, Henry, et al. 1825. The Mirror & The Lounger (Collected). London: Jones & Co. Mijers, Esther. 2012. ‘News from the Republick of Letters’: Scottish Students, Charles Mackie, and the United Provinces, 1650–1750. Leiden: Brill.

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Minsky, Hyman P. 1992. ‘The Financial Instability Hypothesis’. Working Paper no. 75, Jerome Levy Economics Institute of Bard College, Annandale-onHudson, NY. Accessed 15 March 2022. https://www.levyinstitute.org/pub lications/the-financial-instability-hypothesis. Munn, Charles W. 1981.The Scottish Provincial Banking Companies, 1747–1864. Edinburgh: John Donald. Neal, Larry. 2009. Natural Experiments in Financial Reform in the Nineteenth Century: The Davis and Gallman Analysis. In The Origins and Development of Financial Markets and Institutions, ed. Larry Neal and Jeremy Atak, 241–61. Cambridge: Cambridge University Press. ———. 2015. A Concise History of International Finance. Cambridge: Cambridge University Press. The Precipitation and Fall of Mess. Douglas, Heron, and Company, Late Bankers in Air with the Causes of their Distress and Ruin, Investigated and Considered, by a Committee of Inquiry Appointed by the Proprietors. 1778. Edinburgh. Pressnell, L.S. 1956. Country Banking in the Industrial Revolution. Oxford: Oxford University Press. Saville, Richard. 1996. Bank of Scotland: A History, 1695–1995. Edinburgh: Edinburgh University. Schnabel, Isabel, and Hyun Song Shin. 2004. Liquidity and Contagion: The Crisis of 1763. Journal of the European Economic Association 2 (6): 929–68. Smith, Adam. (1776) 1976. An Inquiry into the Nature and Causes of the Wealth of Nations. Oxford: Oxford University Press. ———. 1982. Lectures on Jurisprudence. In Vol. 5 of The Glasgow Edition of the Works and Correspondence of Adam Smith, edited by R. L. Meek, D. D. Raphael, and P. G. Stein. Indianapolis, IN: Liberty Fund. Somers, Robert. 1873. The Scotch Banks and System of Issue with Notes, Remarks and Appendix. Edinburgh: Adam and Charles Black. Steuart, Sir James. 1770. An Inquiry into the Principles of Political Oeconomy. 3 vols. Dublin: James Williams and Richard Moncrieffe. White, Lawrence H. 1984. Free Banking in Britain: Theory, Experience, and Debate, 1800–1845. Cambridge: Cambridge University Press. Wilson, Charles. 1941. Anglo-Dutch Commerce and Finance in the Eighteenth Century. Cambridge: Cambridge University Press. Wright, A., and A. Ferguson. 1778. A Letter to the Proprietors of the Bank of Mess. Douglas, Heron, and Company, Upon the Subject of the Report from their Committee of Inquiry. Edinburgh.

CHAPTER 9

Royal Charters, Royal Power, and the Business of Empire Helen Paul

9.1

Introduction

For all the debates around the Bubble Act, there has been little interest in royal charters themselves and particularly in the issue of royal power. The act underlined the fact that charters were one way to set up a business entity, although not the only one. For those who saw the act as restrictive, the charters were an unnecessary encumbrance. For those who thought the act irrelevant, the chartering process was simply one mechanism by which organisations were created. Although individual charters may be the subject of scholarly discussion, the role of royal charters as a class is not. This chapter will bring them back into focus. They are not merely relics of a bygone age. They continued to have practical importance after the repeal of the Bubble Act and do so into the present day.

H. Paul (B) Economics and Economic History, University of Southampton, Southampton, UK e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 H. Paul et al. (eds.), The Bubble Act, Palgrave Studies in the History of Finance, https://doi.org/10.1007/978-3-031-31894-8_9

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The chartering system shored up existing power structures, including that of the royal family itself. Post-repeal, royal charters were used to give real powers to companies engaged in colonial ventures. This included some of the most brutal agents of colonisation in British imperial history. We are often assured that the monarchy is politically neutral, but is this really the case? The royal family benefited more than anyone else from the imperial project. They accrued new sources of wealth, new titles, and new powers. Royal charters are presented to us today as a mechanism to promote good works, via charities and the like. However, the workings of this mechanism are opaque and not subject to much public scrutiny. Scholars writing about the Bubble Act briefly pass over the requirement for a royal charter to move on to more interesting matters such as limited liability. Ron Harris (1994, 1997), the doyen of the Bubble Act, barely mentions royal charters in either of his two important articles. If anyone thinks of charters at all, it is usually with reference to a charitable institution or university, or to confer city status upon a town. They have apparently become divorced from one of their primary functions: to allow a joint-stock company to carry out a mixture of public and private roles and to guarantee it some measure of co-operation from the state itself. Often, the Bubble Act is presented as part of a spurious Whig history of the development of the corporate form. In this version, a more ‘modern’ corporate structure emerges, shorn of its need for royal charters. The charters themselves are simply forgotten about. There is the unspoken assumption that they are obsolete and part of an older, inferior world which has now been superseded. This assumption should be challenged. Charters continued to perform their traditional roles, especially during the time of empire. Today, they reflect a power structure which is all the more difficult to challenge because it is partially hidden.

9.2

Evolution of the Joint-Stock Company Form

The Bubble Act explicitly focused attention upon the role of the royal charter. Clearly, there are a variety of ways to set up businesses, charities, and large-scale capital projects without one. However, royal charters themselves seem to have a totemic importance. They were used for a range of purposes, and not merely to create joint-stock companies with shareholders. They were one way to set up a charitable foundation. For instance, in 1739 George II granted a royal charter to ‘incorporate a great Number of Noble Lords and Gentlemen of Distinction’ to be governors

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of an orphanage. The charter appointed the Duke of Bedford as president, and the charter was to be read out at the first meeting of the governors (Ipswich Journal 17 Nov 1739, 2). Charters also circulated as printed copies, presumably for future reference.1 They created detailed sets of rules which were tailored to the particular organisation concerned. However, they were more than that. They evidently had a ceremonial role as well. Harris (1994) demolished the argument that the Bubble Act restricted economic development in England. Indeed, contemporary newspapers were in favour of repeal of the act because it was ineffective. In 1825, the Durham County Advertiser (11 June, 4) told its readers that the Bubble Act had been deemed to be ‘perfectly unintelligible’ by legal experts. Bell ’s Weekly Messenger (5 June 1825, 178) thought the act was the ‘most mischievous and foolish of all statutes’. In the early twentieth century, financial journalists were using the Bubble Act as a by-word for poor legislation. In 1919, the publication Truth (10 Sep 1919, 455) stated that from ‘the time of the Bubble Act of 1719 [sic] the wisdom of the Legislature has never shone in company law’. By the early twenty-first century, all this had seemingly been forgotten, and Harris’ work had little effect on popular writers. The Financial Times, despite its reputation as a specialised financial newspaper, has published at least two recent articles which completely mispresent the Bubble Act. An article provocatively titled ‘Stupid White Men or the true revolutionaries of our age’ recycles the old myth. It states that ‘for a century [the act] made it extremely difficult to set up joint-stock firms in Britain, something keenly felt by the pioneers of the industrial revolution’ (Financial Times, 22 Feb 2003). A similar view was expressed in an article from 2008 entitled ‘Crashes, bangs & wallops’. The author stated that the act ‘banned the issue of all stocks that were not authorised by royal charter and as such made it difficult to start a legitimate business in Britain for more than a century until its eventual repeal’ (Financial Times 19 July 2008).

1 Indeed, they still do. The National Citizen Service Royal Charter is available via its

website in PDF format and copies of previous drafts can be ordered. ‘National Citizen Service Royal Charter’, 26 April 2017, Gov.uk, last updated 3 Oct. 2017, https://www. gov.uk/government/publications/the-government-has-published-an-updated-national-cit izen-service-trust-draft-royal-charter-to-accompany-the-national-citizen-service-ncs-bill-inits#full-publication-update-history.

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Attempts to outline the ‘rise of the corporation’ can so easily become Whig histories. A Whig history is a ‘march of progress’, whereby society (or whatever it is that is being studied) moves by stages from a benighted past to a glorious present (Butterfield 1931). Whig history is often connected to metaphors of evolution which fundamentally misrepresent evolution itself. At each stage, useless features are discarded in order to create a better species in the future. Evolutionary biologists counsel that, with regard to most species, there is no linear progression but a more complicated mixing of different subspecies and adaptation to circumstances (see, e.g., Gould 2002). In a similar way, the various types of corporate forms co-existed, and a more complicated history ensued. There was no Darwinian survival of the fittest; rather, different types of organisations appeared alongside each other. Seemingly irrelevant concepts, such as royal charters, continued to be used and were not merely decorative features. The early joint-stock companies had a range of attributes, some of which have received more attention than others. The newspaper debate appears to have been about these individual aspects, rather than about the Bubble Act itself. Of particular interest is limited liability. Miller (1994) discusses a series of editorials in the Times against it. Limited liability is now usually viewed as a positive by financial journalists but often viewed negatively by literary critics. For example, Schelstraete and Buelens (2013, 297) consider Charles Dickens to have been an observer of the ‘rise of the joint-stock business model after the repeal of the Bubble Act’ and link his writings to the repeal. For Schelstraete and Buelens, limited liability and an increased pool of shareholders merely create an ‘ethical paralysis resulting from the disappearance of demonstrable agency and subsequent responsibility in the act of incorporation’ (292). Both the positive and the negative approaches ignore the role of royal charters. The charters simply fall by the wayside, whether the path ahead leads to prosperity or ruin (depending on the author’s preferences).

9.3

Royal Charters and Royal Neutrality

Royal charters were granted by the monarch to establish a set of rights for an institution or other entity. Each charter is different. They are still issued today, and the process is overseen by the Privy Council Office (PCO). According to the PCO website, ‘Royal Charters, granted by the sovereign

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on the advice of the Privy Council, have a history dating back to the thirteenth century’.2 This statement maintains the commonly stated principle that the sovereign is politically neutral. Hence, he or she is merely rubberstamping a decision made by others. The Privy Council itself is defined by the PCO as ‘simply the mechanism through which interdepartmental agreement is reached on those items of Government business which, for historical or other reasons, fall to Ministers as Privy Councillors rather than as Departmental Ministers’.3 This definition is a masterpiece of uninformative jargon. The word ‘simply’ is followed by an explanation which is anything but simple, even to British citizens (or rather, subjects of His Majesty). Members of the Privy Council are appointed for life, but ‘only Ministers of the current Government participate in its day-to-day business and they are accountable to Parliament for all matters conducted through the Privy Council’.4 The Privy Council has counsellors who are, by virtue of being politicians, elected by a democratic process. For others, the post is a sinecure. They include some senior members of the royal family, senior judges, two archbishops of the Church of England (the established church in England), the Speaker of the House of Commons, leaders of opposition parties, leading Commonwealth ‘spokesmen’ (sic), and judges. In total, this means the council has around 700 members, but only three are required to attend meetings to make a quorum. The arrangement passes largely without scrutiny. As there is no written constitution in Britain, there is an opacity about constitutional matters and the workings of the Crown in particular. It is often unclear where the line between royal power and the democratic system lies. The theoretical position that the monarch is politically neutral cannot be true. For a start, every person elected to the House of Commons must swear an oath of allegiance to the monarch in order to take their seat. This amounts to a block on anyone who is openly in favour of a republic, or else it requires republicans to dissemble. (Notably, Sinn Féin MPs abstain.) By convention, the royal family and its members 2 Privy Council Office (PCO), s.v. ‘Royal Charters’, n.d., accessed 25 Aug. 2022, https://privycouncil.independent.gov.uk/royal-charters/. 3 PCO, s.v. ‘Privy Council’, n.d., accessed 25 Aug. 2022, https://privycouncil.indepe ndent.gov.uk/privy-council/. 4 PCO, ‘How do you become a Privy Counsellor?’ FAQs, n.d. Accessed 25 Aug 2022, https://privycouncil.independent.gov.uk/privy-council-office/faqs/.

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are not discussed in Parliament. (In 2021, the Speaker of the House of Commons rebuked Sir Keir Starmer, leader of the Opposition, for stating that the Queen was sitting alone at her husband’s funeral.)5 By contrast, the monarch and the Prince of Wales are allowed to scrutinise certain draft bills before they are presented to Parliament. They both have the power of veto. In theory, they are only supposed to act under advice of ministers. In reality, there are clear cases of legislation being altered to suit royal interests. In 2009, a court order forced the government to release information about the veto. Queen Elizabeth II had vetoed the Military Actions Against Iraq Bill amongst other measures. The bill proposed to transfer the power to authorise military strikes against Iraq from the monarch to Parliament.6 King Charles III, when he was Prince of Wales, also managed to force changes to legislation, usually relating to land ownership.7 Royal assent is (supposedly) a formality which allows bills to pass into law, after they have been debated by Parliament. The two types of consent (King’s consent and Prince’s consent) must be obtained during the drafting stage of legislation, i.e., before the bill is presented to Parliament (Select Committee on Political and Constitutional Reform 2014, HC 784).8 They are less well-known to the public than royal assent (which is different). The Guardian newspaper’s investigations have only recently brought these issues to a wider public.9

5 Lindsay Hoyle, the Speaker, stated that ‘we normally would not, and quite rightly, mention the royal family. We do not get into discussions on the royal family’. Martin Kettle, ‘Why is parliament still banning itself from talking about the monarchy?’ Guardian, 25 Jan 2002. https://www.theguardian.com/commentisfree/2022/jan/25/parliamentmonarchy-keir-starmer-queen. 6 ‘Secret Papers Show Extent of Senior Royals’ Veto Over Bills’, Guardian, 14 Jan

2013. https://www.theguardian.com/uk/2013/jan/14/secret-papers-royals-veto-bills. 7 ‘Revealed: How Prince Charles Pressured Ministers to Change Law to Benefit His Estate’, Guardian, 28 June 2022. https://www.theguardian.com/uk-news/2022/jun/ 28/prince-charles-pressured-ministers-change-law-queen-consent. 8 King’s consent was obviously known as Queen’s Consent during the reign of Elizabeth

II. 9 See, for instance, ‘Revealed: Queen Lobbied for Change in Law to Hide Her Private

Wealth’, Guardian, 7 Feb 2021. https://www.theguardian.com/uk-news/2021/feb/07/ revealed-queen-lobbied-for-change-in-law-to-hide-her-private-wealth; or Dan Hicks, ‘If the Queen has nothing to hide, she should tell us what artefacts she owns’, Guardian, 31 March 2021. https://www.theguardian.com/commentisfree/2021/mar/31/queen-artefa cts-royal-family-looted-law-cultural-heritage.

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In 2014, the House of Commons published a report of the Select Committee on Political and Constitutional Reform on the ‘impact of the Queen’s and Prince’s Consent on the legislative process’ (HC 784). The report stated that ‘until recently, there were few details in the public domain about how Consent operated’ (para. 30). One expert, Professor Robert Blackburn, argued that consent formed ‘part of the public theatre surrounding the monarchy today, enjoyed by many. It is part of the wide-ranging conventional courtesies owed to the Queen and the Prince of Wales’ (Blackburn, (QPC 10), para. 11, qtd. in HC 784, para. 38). The Guardian’s investigations have uncovered several instances when royal power moves beyond mere conventional courtesies. A leading legal expert, Rodney Brazier (2007, 86), wondered why the monarchy ‘remained beyond the legislative zeal of Parliament to the extent that it has’. He noted that even the Labour Party, the main left-wing political party in England (if not Britain more broadly), has focused on the reform of the House of Lords rather than on the monarchy (87).10

9.4

The Royal Charters

As royal power is not politically neutral after all, then what is the real significance of the word ‘royal’ in royal charter? Clearly, royal charters underpinned the establishment of the Royal African Company and the South Sea Company, both involved in enslavement (Paul 2010, 59–65). Royal charters are part of the history of the Financial Revolution period and gained their greatest publicity due to the Bubble Act.11 It might be supposed that the repeal of that act swept away any need for charters. However, they continued to be used to found companies and other institutions which bolstered the power of the Crown or, indirectly, maintained existing power structures such as the class system. Royal charters are not the meaningless Ruritanian trappings that they might appear to be. They have simply not been the subject of much scrutiny as attention has been focused elsewhere. Brazier (2007) has noted that reformers’ efforts were directed at the House of Lords. In the Bubble literature, scholars

10 The Labour Party has lost ground in Scotland to the Scottish National Party. It faces Plaid Cymru in Wales. Labour does not currently contest seats in Northern Ireland. 11 For an overview of the Financial Revolution, see Roseveare 1992.

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preferred to discuss topics such as limited liability or the ideal corporate form. Royal charters were hidden in plain sight. It is understandable that people who have grown up in a republic may find the royal charter an unlikely part of a modern business organisation. The Crown, and its servants, are keen to highlight the charters’ role in promoting the public good, rather than private gain. The PCO outlines its preferred version of history: Before the 19th century, the grant of a Charter was the principal method of creating separate legal personalities. […] When legislation was introduced in the 19th century facilitating the incorporation of commercial enterprises, and with the advent of charities legislation, the occasion for incorporation by grant of a Charter became much reduced, and the grant of a Charter came to be seen more as a special token of Royal favour or as a mark of distinction.12

The PCO stresses the importance of charitable bodies or universities and only mentions joint-stock companies once. There is no discussion of what these companies were for; although they included the Royal African, South Sea, and East India Companies. All three were slaving companies, and the East India Company (EIC) essentially annexed large tranches of India. The royal family was often direct beneficiary of the companies’ largesse. For example, successive monarchs held the sinecure post of governor of the South Sea Company.13 Many of the successful early private companies were also quasi-public. The Bank of England, the EIC, the South Sea Company, and the Royal African Company (RAC) all had shareholders.14 Yet, the companies also had close ties to the state and performed a range of services for it. In return, they gained monopoly rights and various sorts of assistance. The trading companies could obtain protection documents to save their men from the press gang. Their ships gained convoy protection provided by the Royal Navy. The companies were armed with the help of the Board 12 PCO, s.v. ‘Royal Charters’. 13 See, for example, Letter from the South Sea Company asking His Majesty to honour

them with his Royal Patronage […], 20 Jan. 1763, Secretary of State: Papers Domestic, George III, Letters and Papers, fol. 1, SP 37 2/1, The National Archives, Kew, https:// discovery.nationalarchives.gov.uk/details/r/C17742004. 14 The Bank of England was founded as a private bank, rather than a central bank. Roseveare 1992, 35.

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of Ordnance. They carried on debt management roles for the state and were, in some places, its representatives (Paul 2010, 24–42). Certainly, the RAC represented English (later British) interests in West Africa even after it lost its monopoly rights over the British transatlantic slave trade. (For a history of the company, see Davies 1957). The EIC and its private army took control of territory which would ultimately become British India under the control of the British government.15 In 1876, Queen Victoria took the title of Empress of India.16 At the Queen Mother’s funeral in 2002, her full title included ‘Lady of the Imperial Order of the Crown of India’ despite the fact that India had gained independence in 1947.17 Around 1000 royal charters have been issued to date. According to the PCO (n.d., p. 1), the earliest one was granted to the Weavers Company in 1155. The most recent was granted in 2021 to the Institution of Railway Operators (PCO, n.d., 64). The earliest charters have been the subject of much more academic scrutiny, as they were granted by monarchs who exercised real power openly (see, e.g., Galbraith 1937). Then the monarchy evolved into a constitutional monarchy, and the monarch became, theoretically, a politically neutral figurehead. Royal charters could be viewed as part of Blackburn’s ‘public theatre, enjoyed by many’. In reality, they are cogs within the machinery of power. They were used as part of the imperial project of colonisation. They are still used to bolster the importance of organisations that foster the current power structure. Notable examples include public schools, i.e., expensive private boarding schools. These institutions are deemed to be charities and receive special tax exemptions. Critics argue that they perpetuate a system of inequality and privilege.18 Several boarding schools were granted charters in the years after the repeal of the Bubble Act. They include Marlborough College (charter granted in 1845), which is the alma mater of Catherine, Princess of Wales; Wellington College (charter granted in 1853), and Haileybury College 15 Stern (2011) refers to the EIC’s power as the ‘company state’. 16 On Queen Victoria’s personal involvement in the discussion of Indian titles, see

Taylor 2018, 167–190. 17 Westminster Abbey, ‘Funeral of Her Majesty Queen Elizabeth, the Queen Mother’, 9 April 2002, PDF doc., p. 14, accessed 30 Aug. 2022, https://www.westminster-abbey. org/media/5468/queen-mother-funeral-2002.pdf. 18 For an overview of public schools, see Edwards and Power 2020.

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(charter granted in 1864). In 1942, Haileybury became ‘Haileybury and Imperial Service College’ and, for official purposes, it still is.19 It was set up on the same site as the East India College, which had been founded to train administrators for the EIC.20 Like the EIC itself, Haileybury was a chartered organisation that mixed private interest with ‘public service’, i.e., service in maintaining and expanding the British Empire, particularly in India. The empire in turn enriched the material wealth and standing of the British royal family. The monarch who awarded the charter, on the advice of the Privy Council, of course, was Queen Victoria, Empress of India. The connection between her personal power and titles, and the school’s objectives, is clear. Aside from boarding schools, there are other registered charities which hold royal charters. Historians have long recognised that charities are not always set up for wholly altruistic reasons (see, e.g., Thompson 389– 390). Charitable giving is often a mechanism to shore up an existing imbalance of power. Donations benefit the donor in numerous ways (see Cannadine 2018). Frequently, the donor can shape the policies of the institutions. Edward Colston, who made his money from the RAC and enslavement, attached a great number of conditions to his gifts of money. Institutions had to bear his name, for instance.21 In more recent times, charitable donations can be used to avoid paying larger taxes or to whitewash reputations. The Prince’s Trust helps to legitimise the vast amount of power held by the previous and current Prince of Wales, including the fact that the Duchy of Cornwall pays no capital gains tax.22 Incidentally, the Prince’s Trust holds a royal charter granted to it in 1999 (PCO, n.d., 58). The charity set up by the Queen’s late husband, the Duke of Edinburgh’s Award, received a charter in 2005 (p. 59). 19 ‘Haileybury and Imperial Service College’, URN: 117607, Gov.uk, last modified 16 Aug. 2022, accessed 30 Aug. 2022, https://www.get-information-schools.service.gov. uk/Establishments/Establishment/Details/117607. Haileybury merged with the Imperial Service College. 20 See Moore (1964) for a discussion of the college (also known as Haileybury) and its role the Indian civil service. 21 For an overview of Colston’s career and charities, see Morgan 1999. 22 King Charles has also been investigated by the Sunday Times newspaper in a series

of cash for honour scandals. See Caroline Davies, ‘Prince Charles: Calls for Investigations into “Cash in Bags” Controversy’, Guardian, 26 June 2022, accessed 30 Aug. 2022, https://www.theguardian.com/uk-news/2022/jun/26/prince-charles-calls-for-inv estigations-into-cash-in-bags-controversy.

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Other chartered organisations which may be of personal interest to the monarch include the Jockey Club (incorporating the National Hunt Committee), and the Royal Society of St. George (p. 51). The latter is apparently ‘England’s premier patriotic organisation, promoting and celebrating the English way of life’. The society is clearly resolutely promonarchy. Its website stated that ‘Our present sovereign, Her Majesty Queen Elizabeth II, in 1963, bestowed a notable honour by granting the Society its own Royal Charter, a distinction of which its members are justifiably proud’.23 The honour is also held by the Institute of Cost and Management Accountants, the Sports Council for Wales, and the Chartered Institute for Marketing (PCO, n.d., 52–56).

9.5

Royal Charters and For-Profit Businesses

Surprisingly, the repeal of the Bubble Act did not uncouple royal charters from their role in promoting large-scale businesses. Charters could act as a rule book for charities or other worthy institutions and convey the notion of royal patronage. The repeal meant that entrepreneurs were no longer troubled with an outdated piece of royalist flummery. However, companies were still formed by royal charter rather than the more modern mechanisms invented in the nineteenth century. Charters were used as a piece of marketing, even by organisations that could have taken another pathway to incorporation. They also retained their pre-Bubble Act role of maintaining large-scale, quasi-public companies. A particularly favoured group was that which assisted in the expansion of the British Empire or the consolidation of its power. There was a class of businesses which had held a charter before the repeal year of 1825. The London Assurance Company stated that it was ‘incorporated by royal charter’ in newspaper advertisements in 1888 (Cork Constitution 31 Jan., 1). The Royal Exchange Assurance was advertising in the St James ’ Gazette in a similar fashion in 1883 (16 Feb.:16). It added the legend ‘A.D. 1720’ after mentioning the royal charter. It presumably associated longevity with financial stability, but ironically the date brought to mind a period of instability in the financial markets. The advertisement then went on to list the funds held by the corporation and all of its principal officeholders. It then added: 23 The Royal Society of St. George, About Us, accessed 31 Aug. 2022, https://rssg. org.uk/about-us/.

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A large participation in Profits, with exemption, under royal charter, from the liabilities of partnership, the guarantee of the invested Capital Stock, and all the real improvements in modern practice, with the security of an office whose resources have been tested by the experience of MORE THAN A CENTURY AND A HALF. (Ibid.)

This lengthy sentence appears impressive at first glance, but was not likely to be intelligible to many of its readers. It is an advertising blurb. What, for instance, are the ‘real improvements in modern practice’? Here the phrase ‘royal charter’ is bookended by the words ‘exemption’ and ‘liabilities’. Who would not want exemption from liabilities? The older companies were joined by a raft of newer chartered organisations. The Electric Light Company was advertised in the Globe in 1852 (4 Oct, 1). Directly below the company’s name was printed ‘To be incorporated by Royal Charter, limiting the Liability of Shareholders’. The company does not appear on the PCO list, so the optimism of the promoters was evidently misplaced. There must have been some perceived benefit to the granting of a charter, even when other forms of incorporation were available. The British and Colonial Smelting and Reduction Company, advertising in the Economist in 1853a (22 Jan., 111), highlighted its application for a charter. It reassured potential investors that, if denied, it would still be established. It even quoted the relevant pieces of legislation. Likewise, the Atlantic and Pacific Junction Company stated that it was to be incorporated by Royal Charter or Act of Parliament (Economist 5 March 1853b, 275). The term ‘royal charter’ repeatedly appears in advertisements.24 The Bank of Australasia highlights that it was incorporated by royal charter in 1835 (Economist 9 Dec. 1843, 296). It appears repeatedly in its role as a ‘colonial banker’ for a life assurance company. The Royal Mail Steam Packet Company advertised its Five Per Cent Debenture Stock issue in the Globe in 1910 (11 July, 12). The company was not content with mentioning its original royal charter of 1839. It clarified that it had additional rights under a second charter and gave the precise date of 7 March 24 The companies use the possession of a ‘royal charter’ in a similar way to a ‘royal

warrant’, i.e., as a marketing tool. Companies supplying senior members of the royal family with goods and services can apply for a royal warrant and then display it on their goods. A royal charter, on the other hand, does not imply that a company has gained formal royal patronage. For more information on royal warrants, see the Royal Warrant Holders Association, About Us, accessed 31 Aug. 2022, https://www.royalwarrant.org/.

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1882. It stated that its powers had been extended by charters granted in 1851, 1882, and 1904. This last charter ‘stipulated as a cardinal principle of the Company that it is to be and remain under British Control’. The company allowed interested parties to view all of the charters at the offices of the company’s solicitors ‘on any day while the subscription list remains open between the hours of 11 a.m. and 4 p.m.’. The African Steamship Company advertised its services in Lloyd’s List with its name followed by ‘Incorporated by Royal Charter’ in brackets (23 Feb 1897, 9). Coincidentally, it made stops in some of the same places visited by the Royal African Company centuries before. Its steamships docked at the old slaving forts of Sekondi and Elmina. The ships were also listed as ‘Royal Mail’ steamers, giving them even more connection to the state (Lloyd’s List, 8 Oct 1901, 16). The Liverpool and African Screw Steam-Ship Company received its charter in 1852. Its route is again redolent of the old slave-trading routes. It connected Liverpool to various West African ports including the old Royal African Company base at Cape Coast Castle and to Whydah and Old Calabar (Economist 10 July 1852, 763). In 1847, the Economist included a brief report on a new steamship company which was to connect India and Australia. It reported that the ‘charter received the great seal on the 6th of August’. On the same page, it carried another report which appears at first sight to be about the company. However, the Mail Steam Packet Company was to connect Britain to India and Australia. It was, primarily, a method to improve communications rather than to carry passengers. The Economist stated: Our valuable colonies in the South Pacific are the only portions of the British Empire unconnected by steam navigation with the parent state, and the charter is obtained to facilitate the communication by the overland route. (28 Aug. 1847, 991)

The two companies both required a royal charter. In the first report, it is clear that they facilitate connections between the two colonies within the imperial project. The ritual of the charter being stamped with the great seal was still important enough to be reported. On a more practical note, the second report mentions that a charter will ‘facilitate overland communication’. The charter was performing a role similar to its predecessors in the Bubble period. The early joint-stock companies performed services to the state and received benefits in return. The intended company was to

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perform a vital service to the empire by keeping lines of communication open. Its royal charter was, presumably, a mechanism for it to overcome any difficulties with colonial authorities and thereby facilitate overland communication. There were other links to the imperial project. The Economist reported on meetings where schemes were proposed for which the organisers wished to obtain a royal charter. In 1848, the Canadian Land and Railway Association put forward a plan to encourage the emigration of working-class people from Britain to Canada. The Economist (29 July 1848a, 854) reported that a meeting held in the Mechanics’ Institution in London passed a resolution to create ‘an association of working men, founded upon royal charter, to promote emigration and colonisation’. In the same year, the Irish Amelioration Society sought a royal charter to enable it to ‘employ the peasantry in the preparation of peat fuel and charcoal’ (Economist 5 Aug. 1848b, 883). Both of these examples have elements of charitable association about them. However, they also clearly have economic benefits for the promoters and contribute to the imperial project. The most obvious type of imperialism is demonstrated by the organisations set up to expand colonial territory or to exploit existing colonies. A number of them appeared from 1825 onwards. Ireland seems to have been a particularly fertile ground for chartered companies. The Irish Reproductive Loan Fund Institution was chartered in 1844. The Southern and Western Mining Company of Ireland and the Valentia Slab Company in Ireland followed in 1847. A year later came the Royal Irish Fisheries Company and the Irish Amelioration Society. The British and Irish Peat Company was chartered in 1851, as was the Great Peat Working Company of Ireland. The Irish Sugar Beet Company, West of Ireland Land Investment Company, Irish Land Company, English and Irish Magnetic Telegraph Company, Irish Submarine Telegraph Company, and the English Company for Working Mines in Ireland were all chartered in 1852 (PCO, n.d., 19–22). These companies were all formed after the repeal of the Bubble Act. The chartered company model appears further afield. The Van Diemen’s Land Company was granted a charter in 1825 and is still in existence. It was ‘granted’ 250,000 acres of land in Tasmania. This was land occupied by Aboriginal people and there were frequent violent conflicts between them and the colonisers (Breen 1996, 117–119). The Southern Australian Company was chartered to help colonise territory.

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Coventry (2019) has demonstrated that a significant amount of the investment funding came from West Indian enslavement, specifically from the compensation payments made to enslavers in the 1830s. Recently, there has been more recognition of the rights of indigenous groups and the rejection of the concept of terra nullius.25 This has led to a debate about the very nature of ‘colonising’ Australia. The Imperial British East Africa Company was given its charter in 1888.26 The Royal Niger Company was formed out of the earlier National African Company. It obtained a charter in 1886, becoming The Royal Niger Company, Chartered, and Limited. It was, like its predecessors in West Africa such as the RAC, a tool of British state policy. The Royal Niger Company even issued campaign medals to its own soldiers and police officers and to British army personnel seconded to its forces.27 The medal included a portrait of Queen Victoria with the words ‘VICTORIA REGINA ET IMPERATRIX’.28 This object embodies the connections between empire, royal power, and chartered companies engaged in colonisation. The RAC also had its own soldiers, but it only rented the land which its forts occupied (Davies 1957, 282). The Royal Niger Company claimed sovereignty over territory (although this was disputed by both African and European powers) (Afigbo 1971, 437). It was an example of what Hicks (2020, 53) termed ‘militarist colonialism’. In a crowded field, one of the worst examples of the type is the British South Africa Company (BSAC) (see J. Galbraith 1970 and 1975). It claimed land, extracted resources, and committed abuses against the local populations. BSAC gained a royal charter in 1889 (Slinn 1971, 365). It was part of Cecil Rhodes’ imperialist scheme and a major player in gaining

25 For a discussion of terra nullius in the context of Australia, see Connor 2005. For an explanation of ‘acknowledgement of country’, see ‘Welcome to Country or Acknowledgement of Country’, Indigenous.gov.au, s.v. ‘Reconciliation’, n.d., accessed 1 Sep. 2022, https://www.indigenous.gov.au/contact-us/welcome_acknowledgement-country. 26 For an overview of its history and demise, see Munro 2003, 451–82. 27 This was not unusual amongst these companies. The British South Africa Company

did the same, for instance. See Hicks 2020, 52–53. 28 The inscription reads ‘Victoria Queen and Empress’. For an example, see Royal Niger Company’s Medal 1886–97, Bonhams, accessed 1 Sep. 2022, https://www.bon hams.com/auctions/21704/lot/73/.

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mining concessions and territory. It was allowed to create its own political administration and hold a paramilitary force similar to the EIC’s army. BSAC was part of the Jameson Raid which aimed to overthrow President Paul Kruger of the Transvaal Republic in 1895 (J. Galbraith 1970). The Ndebele rose up in defence of their territory in 1896. BSAC required support from the British Army to defeat them. The Ngoni people then rose up a year later. BSAC claimed mineral rights in what became Southern and Northern Rhodesia. Its claims in Northern Rhodesia (now Zambia) lasted until 1964. It owned the Rhodesian railway system until 1947. BSAC administered territory in Africa as protectorates on behalf of the British government (see, e.g., Slinn 1971). Cecil Rhodes, amongst others, became obscenely wealthy while presiding over a brutally extractive regime.29 Unsurprisingly, there have been calls to remove statues and other memorials to him (Cannadine 2018, 5–8). Rhodes, like Colston before him, engaged in extensive ‘philanthropy’ to burnish his own image and to reinforce particular worldviews by controlling education.30 Again, ‘charity’ is not necessarily the same as altruism. If the Bubble Act itself was a dead letter, it seems that royal charters were not. They were not merely confined to charities and universities but also affected valuable territories claimed as colonial land. They legitimised the extraction of resources for the benefit of ‘the mother country’ and the use of violence against opponents. Sometimes, this took the form of private armies and police forces. Royal charters were partly a marketing gimmick, but evidently an important one. The Liverpool & Australian Steamship Navigation company was so proud of its charter that it named one of its ships ‘Royal Charter’. Unfortunately, the ship sank off Anglesey in Wales in 1859 with the loss of 450 lives. The great storm which wrecked the ship is called the ‘Royal Charter Storm’ (Dry 2009, 46–47).31

29 For a biography of Rhodes, see Flint 1974. 30 For a survey of some of the most problematic benefactors of education, see

Cannadine 2018. 31 Liverpool and Australian Navigation Company, sailing bill for the Royal Charter, 1856, SAS/33F/3/8, National Museums Liverpool, accessed 1 Sep. 2022, https://www. liverpoolmuseums.org.uk/artifact/sailing-bill-royal-charter-liverpool-and-australian-naviga tion-company.

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211

Charters Under Attack

All of the companies discussed above gained their charters after the repeal of the Bubble Act. The Hudson’s Bay Company had obtained its charter in 1670, predating the act by several decades (see Martig 1935). The debate about joint-stock companies post-Bubble focuses on their development, or the lack thereof, rather than on existing rights. The perpetual rights granted by charters could become problematic. In 1849, politicians debated the Hudson’s Bay Company’s ownership of Vancouver Island. It was not clear that the company was the best overseer of this colonial prize. The Earl of Lincoln ‘moved an address to the Crown’ to ask that the charter be reviewed to see ‘if a valid grant had been made of the powers reported to be conveyed’ (Economist 23 June 1849, 691). The granting of royal charters involved some elements of public theatre, such as the use of a great seal. The ending of a charter receives less attention. In 1889, the Financial Times discussed the future prospects of the British North Borneo Company. The article states that the company was ‘incorporated in 1881, with all the prestige of a royal charter, to take over the absolute rights of sovereignty to about twenty thousand square miles of the island of Borneo’ (‘Borneo Bunkum’, Financial Times 28 Jan 1889, 2). The company recruited Sikhs from India to act as police officers and set up its own government, courts, and penal system. The system did not survive the devastation caused by World War II.32 North Borneo became a crown colony in 1946. Immediately prior to this, the people of North Borneo were ‘the only population in the world still subject to chartered company rule’ (Kahin 1947, 43). The charter was surrendered in 1954 (PCO n.d., 29). Similarly, the Imperial College of Tropical Agriculture surrendered its charter in 1961 (p. 40). It was the forerunner of the University of the West Indies. The South Australian Company surrendered its charter in 1950 (p. 24). The surrender of a charter is a small, but symbolic, act which tells a tale about a changing power structure. The examples above are all connected to the fading of empire. Within Britain itself, the state was beginning to encroach upon the power of the elite, particularly with regard to charity. The story of the League of Mercy encapsulates that shift. The league was set up at the instigation of Prince Albert to create a number of voluntary hospitals. Its 32 For an overview of the chartered company, and its wartime destruction, see Kahin 1947.

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‘Grand President’ was always a senior royal. The president would hand out medals, known as the Order of Mercy, at a special award ceremony. Medical care was provided via a charitable, paternalistic system which burnished royal prestige. This all stopped when the league surrendered its charter in 1947, due to the founding of the National Health Service.33 Patients now viewed healthcare as a right provided by the state, rather than seeing themselves as objects of charity. Yet another link to royal power was broken.

9.7

The Cost of a Charter

Ron Harris (1994), in his seminal article, does give some attention to the mechanism by which royal charters are granted. Harris puts forward three different possible explanations for the existence of the Bubble Act. The second concerns revenue raising. Harris (1994, 620) rejects this idea stating: There is no direct contemporary evidence to support it. This explanation does not specify clearly the identity of those who were to benefit from the passage of the BA [Bubble Act]. Potentially these might have been either the English state (through Parliament or the Crown), by increasing its budgetary income, or the M.P.s personally, by putting additional revenues into their own pockets.

Harris (1994, 621) also notes that if M.P.s wished to line their own pockets, there was more scope in the numerous applications for bills of enclosure, turnpike trusts, and the like. In his further work on the Bubble Act, Harris (1997) discusses its repeal. According to him, by 1825, the royal chartering system had been in ‘decline over the [previous] century’ (Harris 1997, 681). Yet, this system was seemingly revivified in the nineteenth century to charter projects within the wider imperial sphere. The royal charter model allowed the state to deal with one actor rather than several. This was important in a colonial context where issues of land ownership and sovereign power were concerned. It was preferable to

33 The League still exists as a charity without a charter and is concerned with rewarding volunteering. See ‘History of the League of Mercy’, League of Mercy Foundation, accessed 1 Sep. 2022, http://leagueofmercy.co.uk/history-of-the-league-of-mercy/.

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have one chartered company operating a private army and a private police force. Otherwise, there would be competition for recruits. It would also be possible for rival powers to divide and conquer if there was a myriad of different players. Essentially, the argument for monopoly power was that there was a natural monopoly, and only one institution could survive. This was the case when the RAC and EIC were founded. It continued to be relevant during the Age of Empire in the nineteenth century. Monopoly power was at odds with the spirit of competition which supposedly fostered the Industrial Revolution in Britain itself.34 The contradiction between free markets and free trade at home and monopoly power abroad is related to ideas of ‘development’. Like charities, chartered companies were supposedly acting for the public good by modernising and developing regions outside Britain. The inhabitants of the colonised regions were framed either as enemies who had to be destroyed or as subjects who needed to be educated in the British way of life. The chartered companies helped to impose a racialised power structure on those regions which persists into the present day. The funding of the Industrial Revolution is closely linked to empire. The colonial territories, whether administered by the state or via a company, were protected markets for British manufactures. The acquisition, or usurpation, of land allowed chartered companies to extract resources. The British elite, including the royal family, materially benefitted from increased economic power but also from the prestige value of an enlarged empire. One tangible symbol of this connection is the Imperial Crown of India, commissioned to be worn by George V at the 1911 Imperial Durbar in Delhi.35 The empire not only enriched the royal family materially and was the source of many of their jewels, but also increased the number of titles and honours which they could hold or bestow on others. Whatever the readers of this book may think of royal titles, it is clear that the royals themselves set great store by them. Otherwise, why would it be necessary to state that someone had been ‘Lady of the Imperial Order of the Crown of India’? Similarly, royal charters have some sort of cachet which goes beyond their practical aspects. This is hard to evaluate, 34 Famously, Adam Smith criticised monopoly companies. See Anderson and Tollison 1982. 35 ‘The Imperial Crown of India’, RCIN 31706, Royal Collection Trust, Accessed 1 Sep 2022. https://www.rct.uk/collection/31706/the-imperial-crown-of-india.

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but they are clearly seen as a honour by organisations such as the Royal Society of St. George. In addition, professional bodies seek out chartered status as a mark of quality. This binds them, at least in some way, to royal power. Royal charters are not merely a list of rules and regulations sprinkled with royal fairy dust. They are still being used, or misused, for political purposes. After the phone-hacking scandal involving the British newspaper News of the World, there were renewed calls for a regulator of the press. Lord Justice Leveson, chairman of the enquiry into the affair, proposed a regulator grounded in statute. The government would not accept that, and a compromise was reached. The ‘Royal Charter on the self-regulation of the press’ was approved in 2013. The Economist noted that the charter would ‘provide a sturdy-sounding basis for a regulator without resorting to a press law’ (28 June 2014, 26). It also noted that there were worries about its effectiveness. A protest group called ‘Hacked Off’ argued that the charter could be unravelled and hence neutralised. The group proposed that there should be a two-thirds majority in both houses of Parliament before the charter could be amended or revoked in order to avoid political tampering (Economist 16 March 2013, 33). The most obvious use of a royal charter to regulate the media is the case of the British Broadcasting Corporation (BBC). The BBC’s charter was first granted in 1927. It is renewed on a ten-year basis. The corporation, like the monarchy, is supposedly politically neutral. Also, like the monarchy, this is hardly possible. The BBC is required to broadcast the news. In an era of ‘fake news’ and culture wars, the BBC has critics on all sides of the current political debates. This has intensified during the Brexit years, with pro-Brexiteers arguing that the BBC was biased in favour of remaining in the European Union.36 Echoing the campaign in the United States to ‘defund the police’, critics have vowed to ‘defund the BBC’.37 The conservative government, responding to its base, has made several moves against the BBC. These include inserting a clause into the new charter which requires a mid-term review to be carried out, rather than waiting for the charter renewal date.38 In addition, the BBC’s in-house 36 For a discussion of the BBC and accusations about bias over Brexit, see Cushion 2019. 37 See ‘Defund the BBC’, accessed 1 Sep. 2022, https:/defundbbc.uk. 38 ‘The Royal Charter’, About the BBC, BBC.com, accessed 1 Sep. 2022, https://

www.bbc.com/aboutthebbc/governance/charter.

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regulator was abolished. This ended 94 years of self-regulation. In 2021, Home Secretary Priti Patel warned that the next mid-term review will be ‘very, very significant’ for the BBC: a barely veiled threat.39

9.8

Conclusion

One aspect of the Bubble Act which has been overlooked is the royal charter. Charters are frequently mentioned by historians and journalists in passing, but not usually discussed in any detail. Perhaps it has been taken for granted by some, especially those born in a republic, that such an outlandish thing as a royal charter is of no real consequence. The Privy Council Office gives a very opaque account of exactly who decides which charters are granted, and what reciprocal arrangement there may be for granting them. It is unclear if any of the permanent charters are subject to review. The PCO foregrounds the importance of charities and gives the impression that the chartering system is essentially benign. Yet royal charters were instrumental in the creation of the brutal coloniser companies which were found across the British Empire. Indeed, the British South Africa Company was sometimes referred to by the Financial Times, not by its name, but merely as the ‘Chartered Company’ (see, e.g., Financial Times 4 Dec 1890, 3). Royal charters relate to royal power, which in turn relates to state power, and hence to imperial power. Although the official line is that the crown is politically neutral, it is not. It is very difficult to unpick exactly why royal charters still exist and how they are distributed. They now seem to be primarily associated with charities, including some set up by the royals themselves. By aligning themselves with the public good, the royals deflect criticism of their vast wealth and power. In triumphalist Whig histories of the corporate form, royal charters should be a moribund feature. What role, if any, could they play in a modern organisation? The wide variety of chartered professions shows that chartering relates to prestige, and marks of prestige have value. Charters also have practical implications as well. There are various pillars of the British establishment, from expensive boarding schools to the BBC, which are chartered. (So too is the devoutly monarchist organisation, the

39 ‘Charter Review is “Significant moment” for BBC, says Priti Patel’, Guardian, 23 May 2021, https://www.theguardian.com/media/2021/may/23/charter-review-is-signif icant-moment-for-bbc-says-priti-patel.

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Royal Society of St George.) The BBC’s charter may prove to be something of an Achilles heel. Despite its gushing coverage of royal weddings and funerals, the BBC cannot guarantee that its flattery will be enough to save it. It cannot speak the truth to power, as the powerful can withhold renewal of the royal charter. They can define what is, and what is not, politically neutral. Royal charters are part of a system which is beyond independent scrutiny, and which has managed to evade the reformer’s zeal. They have not been eradicated by some Darwinian process, nor will they be. As long as there is a royal family, there will be royal charters.

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Galbraith, V.H. 1937. A New Charter of Henry II to Battle Abbey. English Historical Review 52 (205): 67–73. Gould, Stephan Jay. 2002. The Structure of Evolutionary Theory. Cambridge, MA: Belknap Press. Harris, Ronald. 1994. The Bubble Act: Its Passage and Its Effects on Business Organization. Journal of Economic History 54 (3): 610–627. Harris, Ronald. 1997. Political Economy, Interest Groups, Legal Institutions, and the Repeal of the Bubble Act in 1825. Economic History Review 50 (4): 675–696. Hicks, Dan. 2020. The Brutish Museums: The Benin Bronzes, Colonial Violence and Cultural Restitution. London: Pluto Press. House of Commons. Select Committee on Political and Constitutional Reform. 2014. ‘The impact of Queen’s and Prince’s Consent on the legislative process’. Eleventh report of session 2013–14. HC Paper 784. https://public ations.parliament.uk/pa/cm201314/cmselect/cmpolcon/784/78402.htm. Ipswich Journal. 1739. ‘London, November 10’, Saturday 17 November, p. 2. British Newspaper Archive. Accessed 6 May 2023. https://www.britishnewsp aperarchive.co.uk/viewer/bl/0000191/17391117/008/0002. Kahin, George McT. 1947. ‘The State of North Borneo, 1881–1946’. Far Eastern Quarterly 7 (1): 43–65. Lloyd’s List, 1901. ‘The African Steamship Co.’, Tuesday 8 October, p. 16. British Newspaper Archive. Accessed 6 May 2023. https://www.britishnewsp aperarchive.co.uk/viewer/BL/0001941/19011008/247/0016. Martig, Ralph Richard. 1935. Hudson’s Bay Company Claims, 1846–69. Oregon Historical Quarterly 36 (1): 60–70. Miller, Andrew H. 1994. Subjectivity Ltd: The Discourse of Liability in the Joint Stock Companies Act of 1856 and Gaskell’s Cranford. ELH 61 (1): 139–157. Moore, R.J. 1964. The Abolition of Patronage in the Indian Civil Service and the Closure of Haileybury College. Historical Journal 7 (2): 246–257. Morgan, Kenneth. 1999. Edward Colston and Bristol. Bristol Branch of the Historical Association: Local History Pamphlets Series 96. Accessed 30 Aug 2022. https://www.bristol.ac.uk/Depts/History/bristolrecordsociety/public ations/bha096.pdf. Munro, J. Forbes. 2003. ‘The Fall of the Imperial British East Africa Company, 1890–3’. Chap. 17 in Maritime Enterprise and Empire: Sir William Mackinnon and His Business Network, 1823–1893, 451–82. Martlesham: Boydell & Brewer. Paul, Helen. 2010. The South Sea Bubble: An Economic History of its Origins and Consequences. London: Routledge. Privy Council Office (PCO). n.d. ‘List of Charters Granted’. PDF document. Available from PCO website, s.v. ‘Royal Charters’. Accessed

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1 Sep 2022. https://privycouncil.independent.gov.uk/royal-charters/list-ofcharters-granted/. Roseveare, Henry G. 1992. The Financial Revolution, 1660–1750. London: Routledge. Schelstraete, Jasper, and Gert Buelens. 2013. “This Game Is Rigged”: Dickens, “The Wire”, and Money. Dickens Quarterly 30 (4): 288–298. Slinn, Peter. 1971. Commercial Concessions and Politics during the Colonial Period: The Role of the British South Africa Company in Northern Rhodesia, 1890–1964. African Affairs 70 (281): 365–384. Stern, Philip. 2011. The Company-State: Corporate Sovereignty and the Early Modern Foundations of the British Empire in India. Oxford: Oxford University Press. Taylor, Miles. 2018. Empress: Queen Victoria and India. New Haven, CT: Yale University Press. Thompson, E.P. 1974. Patrician Society, Plebeian Culture. Journal of Social History 7 (4): 382–405. Truth. 1919. ‘The Fool of an Act’, Wednesday 10 September, p. 455. British Newspaper Archive. Accessed 6 May 2023. https://www.britishnewspaperar chive.co.uk/viewer/BL/0002961/19190910/055/0021.

CHAPTER 10

Babbage’s Age of Speculation: Calculating the Value of Life After the Repeal of the Bubble Act Edward Gillin

10.1

Introduction

When most people think of modern finance, they imagine speculating humans working with computers that never speculate: in the aftermath of the Bubble Act’s repeal in 1825, Charles Babbage (1791–1871) was concerned with both. Most famous for the development of his ‘Difference Engine’, a machine capable of computing tables by adding and subtracting predetermined constants, the famed British mathematician was equally engaged in matters social and economic. The Bubble Act’s repeal came at a moment of extreme financial speculation and, in the ensuing crash, was to become synonymous of the dangers of

E. Gillin (B) Bartlett School of Sustainable Construction, University College London, London, UK e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 H. Paul et al. (eds.), The Bubble Act, Palgrave Studies in the History of Finance, https://doi.org/10.1007/978-3-031-31894-8_10

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an unrestricted market. For Babbage, this was a tremendous crisis that transcended finance, raising profound questions over the fallibilities of human calculation, the risks of speculative knowledge, and the challenge of computing true value. This chapter explores Babbage’s financial interventions, specifically regarding life assurance and the valuation of human life, in the fall out of the Bubble Act’s repeal. It places them within a broader philosophical context: Babbage’s efforts to develop a moral economy for the value of life were part of wider discussions over the problem of speculation. William Ashworth (1994) has demonstrated the connections between astronomy and finance in 1820s’ London, Martin Campbell-Kelly (1994) has explored Babbage’s engagement with the life assurance industry, and Daniel Wilson (2018) has charted the mathematician’s contribution to modern insurance. This chapter builds on previous scholarship by arguing that this was a moment of immense cultural uncertainty that united financial, moral, religious, and epistemological anxieties. Babbage saw the ultimate solution to this disorder in his utopian dream of mechanised calculation, which would eradicate the caprice of human error and fraud. Babbage would never realise this vision and, in many respects, the speculation of the 1820s would persist until the mid-nineteenth century. The floating of £3.4 million in South American loans on the London market in 1822 marked the start of three years of escalating speculation. Further fluctuations followed, as investor enthusiasm spread to shares. Seventy-four new mining companies were registered on the exchange between 1824 and 1825, accompanied by an array of new enterprises, from railways and canals to utilities and insurance. With this dramatic increase from some 150 joint-stock companies trading in the early 1820s, to 624 in 1825, came pressure to remove the legal restrictions of 1720. Following 438 requests for new companies between February and June, Parliament repealed the Bubble Act in July 1825 (Harris 1997, 678–80 and 691). While Ron Harris (1997, 675–76) has emphasised the limited extent of this measure in practical terms, with legislation for securing free incorporation not enacted until 1844 and limited liability not attained until acts in 1855 and 1856, the repeal was, nonetheless, symbolic of a moment of rampant speculation. A few months later, the markets crashed. The Bank of England’s reserves were depleted by December, and some 500 companies collapsed. There were calls for the restoration of the Bubble Act, as well as a national self-reflection over the dangers of speculation (Harris 1997, 692). Yet it was not just a financial crisis, but a

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moral catastrophe. This was the context in which Babbage examined the question of life assurance. Amid all the speculation, he identified life as a uniquely knowable commodity: his moral economy of life was not just about financial value but also the relationship between computation and certainty.

10.2

Speculating Lives

The financial crisis that followed the repeal of the Bubble Act fuelled evangelical fears that the crash constituted a divine punishment for the extravagant speculation of 1824 and 1825. The conception of ‘speculation’ during the 1820s not only engendered notions of economic irresponsibility but also of moral and philosophical doubt (Hilton 1986, 123, 132). Yet if speculation was construed as the antithesis of reason in both finance and morality, then it was even more divisive in early nineteenth-century science. At the centre of Britain’s expanding scientific culture was the question of how to balance empirical observation with a priori hypothesis. For self-proclaimed adherents to the methodological rigour of seventeenth-century natural philosopher Francis Bacon, like Henry Brougham (1778–1868) and David Brewster (1781–1868), true knowledge could only derive from the collection of facts, free of unreasoned speculation. Such an epistemological view dominated what came to be regarded as an especially Scottish approach to natural philosophy, imbued with a Calvinistic conviction that the only way to know nature was through pure experience, and that to speculate on what God might have designed risked the sin of pride (Bord 2009, 44–54; Yeo 1985, 278; Cantor 1983, 176–81). In the mid-1820s, this vision of science took shape in the debates surrounding the reception of French engineer Augustin Fresnel’s (1788– 1827) undulatory theory of light. Rejecting Newton’s conception of light as a projection of corpuscles, Fresnel used mathematical reasoning to posit that its behaviour instead resembled a wave. The wave theory found support from leading mathematicians, including William Whewell (1794– 1866) and John Herschel (1792–1871), but Brewster and Brougham warned that such a theory relied on an undetectable luminiferous ether. With such a medium purely speculative, they continued to defend the Newtonian account of light well into the 1840s, raising questions over the boundaries between theorising and speculating (Cantor 1983, 167–68;

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Cantor 1970). These fears spread to astronomy too, as astronomers struggled to determine the extent of the universe. The key to this measurement was the problem of how to differentiate between optical and binary double stars: to approximate the number of solar systems in the universe required the ability to distinguish stars that appeared to be close but were actually far away from each other—from celestial bodies that were, in fact, in close proximity. In the 1820s and 1830s, John Herschel speculated that these differences could be known by observing the orbits and brightness of far-off stars. His claims carried weight due to the celebrated astronomer’s immense credibility (Case 2014, 27–29). Such work carried profound moral value, as theories about the number of stars and, more alarmingly, their potential to be born from gaseous nebulae raised doubts over God’s role in creation. The anxieties about speculation within scientific reasoning grew increasingly prominent within philosophical discussion throughout the 1820s and 1830s, culminating in the bitter disputes between Whewell and Utilitarian John Stuart Mill (1806–1873) over the role of imagination within knowledge making. In 1837, Whewell set out his vision of science as a great process of inductive reasoning leading to belief in a divine author. He ascribed particular value to man’s creative powers. For Whewell, a priori reasoning, followed by the accumulation of facts, was the sure path to scientific discovery: new knowledge of nature relied on a natural philosopher’s intuition, which was first shaped by sensual experiences of the physical world. This idealistic philosophical programme aroused Mill’s anger, who delivered a Baconian rejection of Whewell’s speculative intuitions in his 1843 work A System of Logic. Mill proposed an epistemological system drawn purely from truths established through physical experiences. He argued that Whewell’s a priori scientific method risked justifying existing inequalities, such as enslavement or forced marriage (Yeo 1993, 13–15; Snyder 2006, 23–25, 204–5). After the crash of 1825, fears over speculation, and the distinction between irrational intuition and reasoned hypothesis, transcended the world of finance and were central to the nation’s religious, moral, and philosophical discussions. In every sense, the repeal of the Bubble Act coincided with the start of an age of speculation. Given the economic drama of the 1820s, it is little wonder that it roused the attention of London’s science elites. The difficulties of applying mathematical skill to financial investment at moments of extreme speculation were, of course, well known. Apocryphally, Isaac Newton

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said, with reference to the South Sea Bubble, that he could ‘calculate the motions of heavenly bodies, but not the madness of people’ (qtd. in Odlyzko 2019, 29).1 As William Ashworth (1994) has demonstrated, before 1825 there were already close connections between London’s astronomical and financial interests. Established in 1820, the Astronomical Society included a host of individuals who united commerce and natural philosophy, hoping to extend the accurate practices of astronomy to the nation’s business. Stockbrokers like Arthur Baily (1774–1844) joined celebrated astronomers in their aspirations to systematise calculation and eradicate error in both scientific and financial computations. There was a collective fear of speculation and determination to replace uncertainty with rational calculation (Ashworth 1994, 410–16, 440). In particular, these astronomical enthusiasts identified life assurance as a subject requiring mathematical reform. Assurance rates were based on the value of the life at the point at which a policy was initiated, in relation to the number of years the assured individual could be expected to live. This work involved the calculation of the value of life, based on highly complex tables of mortality. In the 1820s, most assurance offices employed mortality tables calculated from data collected at Northampton and Carlisle during the late eighteenth century. Astronomical Society members like Baily, however, contested the suitability of both data sets for guiding modern assurance, given that they were dated and unrepresentative of the nation’s population (Ashworth 1994, 420–21). They demanded that assurance offices compute new tables and called for actuaries, the individuals responsible for calculating premia, to eradicate speculation from their business operations. Following the Bubble Act’s repeal, the question of mortality dominated financial discussions at London’s foremost learned institution, the Royal Society. Life assurance and the valuation of life had been a source of concern during the eighteenth century. The recent market speculation, however, gave the matter greater urgency. There were fewer than a dozen assurance companies in 1820, but the boom of 1823–24 saw the formation of about 29 new offices, a third of which had collapsed by 1830 (Campbell-Kelly 1994, 8; on eighteenth-century assurance, see Clark 1999). It was Benjamin Gompertz (1779–1865), stock broker, Astronomical Society founder, and mathematician, who drew attention to 1 There is an ongoing debate about whether Newton lost a fortune or not in the Bubble. See Odlyzko (2019).

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the question of the mathematical principles of predicted mortality rates, in a paper to the Royal Society in 1820 (Gompertz 1820, 214–94). His subsequent letter on the subject, published amid the financial drama of June 1825, seemed increasingly relevant. This time, Gompertz delivered his algebraic expression for calculating the value of life and establishing what he defined as the ‘law of human mortality’ (Gompertz 1825). He was deeply invested in demonstrating the credible nature of the assurance industry. Among the number of new offices founded during the recent boom was the Alliance Assurance Company established by Moses Montefiore and Nathan Mayer Rothschild in 1824. They appointed their mutual relative, Gompertz, as actuary. Gompertz believed that mathematical laws could separate assurance from the speculative nature of less reputable investments. Gompertz communicated his paper at a moment of immense financial confidence, but securing the robustness of Britain’s new offices was not confined to the Royal Society. In Parliament, the question of how these companies should be regulated was under discussion. Three weeks after Gompertz’s lecture, a select committee reviewing the laws surrounding friendly societies, including assurance offices, identified a significant lack of legislation for protecting policy holders. Since 1793, approval from five-sixths of an insurance or assurance office’s members was required to dissolve the interest, but beyond this there was an absence of provision ‘against a fraudulent or inequitable disposition of the funds, or dissolution of the society’ (Select Committee on the Laws Respecting Friendly Societies 1825, 7). Nevertheless, the committee was ‘persuaded, that at this moment of prosperity and confidence, Institutions of good fellowship and mutual assurance are peculiarly deserving of public attention’ and hoped that its report would help render ‘such associations prosperous and secure’ (24). There was little of this ‘prosperity and confidence’ when Thomas Young (1773–1829) addressed the Royal Society in April 1826 about the question of calculated mortality rates and the value of life. Since Gompertz’s confident promotion of the principles of life assurance, the stock market had crashed. Young’s comparison of the wild variations in mortality rates for different tables was a significant intervention. He also compared these tables to recent mortality figures from London’s parish registers. Given his mathematical work to demonstrate light’s behaviour as a wave, Young possessed a considerable scientific reputation. Along with acknowledging a general increase in life expectancy, due to vaccinations and improved living conditions, Young emphasised that the problem of

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efficient life assurance was one that required the attention of the nation’s leading political and scientific authorities. ‘The investigation of the laws’, Young declared, ‘by which the general mortality of the human species appears to be governed, is of equal importance to the statesman, the physician, the natural philosopher, and the mathematician’ (Young 1826, 281). It fell to them, through the collection of accurate data and the calculation of the true value of life at any given age, to ‘undeceive the too credulous public’ (302). Mathematical science and empirical knowledge were, for Young, the tools with which to transform the assurance industry from the speculative mire of the 1820s, into a trustworthy social institution.

10.3

Babbage’s Value of Life

For all this interest in calculating the value of life, it was Charles Babbage who galvanised contemporary discussions over assurance. Matriculating at Trinity College Cambridge in 1811, and graduating in 1814, Babbage moved to London and secured fellowship of the Royal Society in 1816. By the 1820s, he was one of the nation’s most influential natural philosophers, holding Cambridge’s prestigious Lucasian Chair of Mathematics from 1828 until 1839, a position that Newton had once occupied. Yet his career was marked by controversy, usually resulting from his industrious reforming zeal. As an undergraduate, he had united with Herschel and George Peacock in establishing the ‘Analytical Society’, aimed at reforming the university’s Newtonian mathematical curriculum and introducing new Continental methods of algebraic analysis. Then, in 1820, he had been instrumental in the founding of London’s Astronomical Society, intended to challenge the Royal Society’s dominance of scientific activity. (Babbage believed the Royal Society to be riddled with corruption and patronage.) As in mathematics and astronomy, when it came to the nation’s financial affairs, Babbage was quick to identify inequalities and malpractices resulting from those in positions of privilege (Swade 2004). In 1830, this had materialised through his polemical Reflections on the Decline of Science in England, a hugely divisive attack on the Royal Society. In the mid-1820s, however, it was the nation’s life assurance offices that bore the brunt of Babbage’s reforming wrath. In 1824, Babbage accepted the appointment as actuary to the Protector Life Assurance Company, enticed by the £1500 annual salary and Francis Baily’s promise that £1000 extra could be expected for

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private practice. It was common for assurance offices to employ respected mathematicians as actuaries as a way of investing their enterprises with credibility. The Sun Fire Office obtained the services of Joshua Milne, a Fellow of the Royal Society, while the Palladium appointed Thomas Young both actuary and physician (Campbell-Kelly 1994, 5). It is likely Babbage had already applied, unsuccessfully, for a position as assistant actuary at the Equitable Assurance Society, losing out to the son of William Morgan (1750–1833), the firm’s actuary from 1775 until 1830. Babbage spent three months devising mortality tables on which to base the Protector’s premia. However, despite £3 million of capital and several public advertisements, a likely breakdown in relations between Babbage and the directors, combined with the failure to pay commission to agents selling its policies, resulted in the office’s failure. As for Babbage’s tables, he had finished them by September 1824, only to lose them on a voyage to the Isle of Wight when the boat he was on sank (Babbage 1864, 474–75; Wilson 2018; Hyman 1982, 59–60; Campbell-Kelly 1994, 7– 9). Nevertheless, Babbage’s experiences led him ‘to think that the public were not sufficiently informed respecting the nature of assurance on lives’ and he resolved calculate new tables and write a treatise to remedy this (Babbage 1864, 476). By December 1825, Babbage had completed the endeavour, publishing A Comparative View of the Various Institutions for the Assurance of Lives in early 1826. This was not a mathematical treatise, but an accessible guide to assurance. The timing was crucial. Baily’s Doctrine of Life Annuities and Assurance was, Babbage thought, an excellent sketch of the offices in existence in 1810, but ‘so many new ones have arisen since the period at which he wrote, that they require a volume rather than a chapter for their analysis’ (Babbage 1826a, ix). This array of new offices, many with ‘disreputable practices’, were not explicit in how they calculated their premia. Yet for Babbage, life assurance was the one investment that transcended the speculation of stock-market investment. Although the duration of an individual life was uncertain, there were ‘few things less subject to fluctuation than the average duration of a multitude of individuals’ and, Babbage explained, while the insurance of property might never result in compensation, the assurance of life was secured by the certainty of death (Babbage 1826a, xv). Babbage employed tables comparing mortality rates to wheat prices, since 1780, to highlight the disparity in fluctuation between life expectancy and commodities. Deaths were usually within 10 per cent of the yearly

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average, but wheat prices could vary by up to 25 per cent. Babbage therefore reasoned that ‘a person who deals in securities dependent on lives, requires less capital to carry on his business than one who trades to an equal extent in any other species of merchandise’ (xxi). The inevitability of death, theoretically, made life a commodity of certain calculable value and, therefore, an investment unlike any other form of stock. In his 1832 On the Economy of Machinery and Manufactures, Babbage described how an article’s monetary value resulted from a combination of supply and demand, and disturbing forces, such as verification costs to prevent fraud. Speculation represented another distorting influence on value, common to the trade in commodities, in which investors purchased stock to artificially increase prices. Speculation was ‘founded on the principle of purchasing up all the stock on hand, and agreeing for the purchase of the expected arrivals; thus proving the opinion of capitalists to be, that a larger average price may be procured by the stock being held by few persons’ (Babbage 1832, 111). The calculation of true value actually had huge moral significance for Babbage: the balance between value and speculation had religious implications. Reflecting on the relationship between faith and knowledge, Babbage contended that the ‘true value of the Christian religion rests, not upon speculative views of the Creator, which must necessarily be different in each individual, according to the extent of the knowledge of the finite being, who employs his own feeble powers in contemplating the infinite; but it rests upon those doctrines of kindness and benevolence which that religion claims and enforces’ (Babbage 1864, 404–5). Both in financial investment and religious conviction, true value derived from empirical evidence, rather than speculative passions. The value of life was, for Babbage, unique in being accurately calculated, free of speculation. However, his analysis of Britain’s assurance offices revealed that such true value was not the basis of their operations. It seemed to Babbage that Britain’s assurance firms failed to accurately measure the value of the lives they assured, having an array of policies that ensured the life expectancies predicted in existing mortality tables were invalid. Individuals travelling beyond the British Isles were required to pay a higher premium, especially if going to areas of extreme climate. Some policies offered cover as far as Brest or Bordeaux and permitted voyages around the British Isles, but only if in registered ships of considerable size. Similarly, some charged an additional 11 per cent for those who had not had smallpox or been vaccinated, and if they later died

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from this disease, their policy was void. Policy holders had to declare their good health, often undergoing medical examination, and have two persons testify that they had no life-shortening tendencies. They were ‘all selected from the middle and higher ranks of society, and are consequently exempt from many sources of unhealthiness to which the poor are liable’ (Babbage 1826a, 7–10). Assurance offices were dealing with an exceptionally low-risk cliental, but calculated their premia according to mortality rates for the general population. As Babbage concluded, this system failed to account for ‘the real value of the risk’ (5). The result was unjustifiably high profits among the offices. Considering the average age for an individual taking out a policy was 47, Babbage calculated the profits each office derived per policy until the average age of death, with the Sun making 30.9 per cent, the Alliance 30.2 per cent, and the Equitable 29.8 per cent. Even the lowest profit rates, Babbage claimed, would be above 16 per cent. In most cases, this was due to the use of the Northampton or Carlisle tables to analyse a particularly healthy subset of the population. The solution to the overcharging problem was for firms to pay out bonuses, with each policy holder receiving a division of the accumulated capital. However, Babbage noted that ten companies returned no profits, while others paid insignificant or unequally divided fractions to their policy holders (Babbage 1826a, 64, 73–75). Worse still, those that paid tended to do so on a five- or seven-year basis. The worst offender was, Babbage asserted, the Equitable which only paid out once every ten years. This office, of which Babbage was a policy holder, received his sharpest criticism: it was, he argued, unacceptable that profits were not paid annually. Equally, a shortage of clerks or claims of excessive labour were, he maintained, ungrounded excuses to justify infrequent payments. Above all, Babbage demanded new tables be calculated, mobilising the data that had accrued over the past 60 years of assurance. He attached his own mortality tables, despite lacking the information that well-established officers like the Equitable undoubtedly possessed (102–8). Significantly, at the very moment that Babbage condemned the Equitable for corruption, he was working on a machine that would remove human fallibilities from the production of numerical tables. Indeed, he was sure that mechanisation’s prime advantage was ‘the check which it affords against the inattention, the idleness, or the knavery, of human agents’ (Babbage 1832, 39). Within a few weeks of the publication of his life assurance treatise, in January 1826, Babbage (1826b) sent his

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most developed account of his difference engine to the Royal Society. This was his ultimate solution to the challenge of constructing accurate tables. When he had first applied for financial support from the Royal Society in 1822, he proposed a powered engine that could perform operations of ‘human intellect’, capable of computing any table by the aid of differences. He warned that the ‘quantity of errors from carelessness in correcting the press, even in tables of the greatest credit, will scarcely be believed’, citing a series of reputable tables from the French Board of Longitude that contained over 500 mistakes (Mr Babbage’s Invention 1823, 1–2). Babbage’s concern with numerical tables was part of a wider crisis in numbers, particularly in the production of astronomical data, to which his calculating machines promised a utopian eradication of error. When he calculated his own astronomical tables between 1826 and 1827, he later found thirty-two faults in his manuscript, and eight more after typesetting. Even the tables of the highly disciplined Royal Observatory at Greenwich were prone to error. This not only threatened navigation, but the moral rectitude of accurate computation (Schaffer 1996, 275–78). Babbage observed that the variety of the tables producible by mechanisation was extensive, but limited himself to invoking the example of astronomical tables which, in describing the position of stars and planets, were crucial for the navigation on which Britain’s maritime commerce depended. A year later, the Treasury agreed to finance Babbage’s project following a report from a Royal Society committee appointed to consider his proposals. This body included several individuals directly concerned with life assurance, notably Baily and Young (Mr Babbage’s Invention 1823, 3–6). Unsurprisingly, they recommended Babbage’s difference engine receive public funding. Babbage would never complete his engine, nor its successor, the more complex ‘Analytical Engine’, capable of memory and anticipation. A breakdown in relations with his mechanic, Joseph Clement, and Robert Peel’s subsequent refusal of further funding ensured the project’s failure. But during the 1820s, amid uncertainty and speculation, Babbage’s engine represented a fantastic solution to the challenge of table computation. To replace human computers with calculating machines would realise Babbage’s vision of systematically ordered labour: his ideal economy was one in which manufacturers and directors organised their work forces to the discipline of the factory (Schaffer 1994, 205, 215).

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Reading Babbage; Reforming Life Assurance

Babbage’s condemnation of the assurance industry provoked considerable hostility. Morgan, the Equitable’s actuary, published a pamphlet justifying his office’s practices in 1828. Baily responded in The Times, defending Babbage, as did Young in the Philosophical Magazine (Campbell-Kelly 1994, 11). The firmest rejection of Babbage’s treatise featured in the Edinburgh Review. The anonymous reviewer was sorry that Babbage’s mathematical principles were so removed from practical truths and accused him of exaggerating the profit percentages achieved by various offices. Considering the immediate market volatility, the reviewer thought septennial divisions of profits were prudent, especially given that four of Britain’s forty-nine assurance companies had gone bust since 1825 (Anon. 1827, 483–85, 494–95). It was, the reviewer reasoned, essential to avoid annual dividends to prevent ‘encouraging the violent spirit of competition’, especially as ‘no less than twenty have come into existence within the last three years, being nearly one half of the whole’. A state of equilibrium would, the author contended, be attained but Babbage’s calls to lower premia seemed premature, with newer companies slashing rates and forced to ‘snatch at every life they can with decency accept’, even if in poor health (498). Some companies had scrapped travel and vaccination restrictions in the desperate pursuit of business. All of this would, the author claimed, drive down profits and create a huge moment of market uncertainty. In this context, Babbage’s demands for reduced premia and annual dividends appeared dangerous. Across the Atlantic, Babbage received a more positive response in the American Quarterly Review, which ran an article in 1832 on the mathematical theory of probabilities and its application to life assurance. Babbage (1826a) had, the journal contended, successfully raised public awareness over the social value of such institutions, while drawing attention to misconducts within the industry (‘Doctrine of Probabilities’ 1832). Meanwhile, in Germany, the Great Life Assurance Society of Gotha was equally impressed with Babbage’s treatise, using his mortality tables to calculate its premia until 1903, by which time it was the leading Continental assurance firm (Campbell-Kelly 1994, 12). Babbage secured support in Britain too, including from his father, who read the treatise three times during the final two years of his life (Babbage 1864, 477). For John Barrow (1764–1848), questions over the assurance and probability of life were at the very forefront of his work for

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the Admiralty, where the business of polar expedition was fraught with uncertainty and risk. As second secretary to the Admiralty, Barrow was the leading naval advocate for the search for the Northwest Passage through the Arctic and Canada, uniting the Pacific and Atlantic Oceans. While the Royal Navy was accustomed to the loss of life in wartime, this new era of Arctic exploration engendered equally high levels of risk. Since John Ross’s 1818 expedition, Barrow had organised four more ventures under William Edward Parry’s (1790–1855) command and two overland efforts under John Franklin (1786–1847). Between 1825 and 1827, Barrow was especially anxious over the fate of this enterprise. In October 1825, Parry had returned after a perilous voyage in which bad weather had forced him to winter at Port Bowen, trapped for months in the ice, before wind wrecked HMS Fury, leaving him with only HMS Hecla in which to sail back to Britain. Franklin’s first expedition up the Coppermine River to the Arctic, between 1819 and 1822, was a disaster. Eleven of his twenty men had died from starvation, exhaustion, murder, and cannibalism, and Franklin had been reduced to eating his own boots. Franklin had then embarked for the northern coast of Canada, tasked with charting the region, and endured the winters of 1825–1826 and 1826–1827 at Fort Franklin on the Great Bear Lake. Barrow must clearly have been particularly concerned at the fate of this expedition, given the horrors of the first. Franklin’s published account of his Coppermine venture became a best seller. It is fair to say that polar exploration was, along with financial speculation, the great subject of public excitement during the mid-1820s. Both were fundamentally uncertain businesses, as Barrow was especially aware. Barrow was also a director of the Palladium Life Assurance Society, established in 1824. Where once these institutions had been few and of high repute, the formation of some 30 to 40 new companies in the space of a few months was clearly a cause for concern. As Barrow put it, ‘That among such a number, and in such an age, when speculation is the prevailing mania, some of them should be conducted on unsound or unsafe, and others on dishonest, principles, is not much to be wondered at’ (Barrow 1827, 2). In uncovering some of these ‘evils’, Babbage had performed a great public service. Barrow agreed that the use of the Northampton or Carlisle tables to calculate premia was a mistake, given the class of people who generally took out policies. Assurance rates were, he concurred, about 30 per cent too high, and the failure of some companies to pay out a bonus from their excess profits was, clearly, fraudulent.

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Likewise, the Equitable’s claims that calculating its annual profits and liabilities was too laborious was a poor excuse. With £11 million in capital, it could easily afford extra clerks to perform this work on a regular basis. There were, Barrow confirmed, ‘young men enough, even mathematicians from Cambridge, were such deemed necessary, who would willingly accept the employment’ (27). He hoped that Babbage’s attack on the Equitable would bring ‘this gigantic Institution [back] to its ancient and more wholesome principles’. Nevertheless, Barrow believed that the only long-term solution to restoring confidence in the assurance industry was through state intervention. With the boom in offices showing little sign of abating and tens of thousands of families dependent on the institutions, the nation would ‘soon require these establishments to be brought under some statutory regulation’ (30–31). Barrow’s review remained a respected intervention into the question of life assurance for over a decade, with the Quarterly Review’s founding publisher, John Murray, reflecting in 1840 that the ‘paper on Life Assurance was one of the most popular interest and practical value that has ever appeared’ (Barrow 1847, 502). Similarly, in 1839, a young actuary named A. A. Fry wrote to Barrow, expressing his delight ‘that a general law is in contemplation to regulate all Life-offices’ and agreeing on the advantage of disciplining legislation for the industry. ‘Although probably the youngest actuary in England’, wrote Fry, ‘I am old enough even in official existence to see that the “master’s eye” of Parliament is required in some of the dark and dirty holes’ (qtd. in Barrow 1847, 503). Barrow’s calls for regulation, made in 1827, still carried weight over a decade later. Indeed, he remained the foremost of Palladium Life Assurance Society’s twelve directors throughout the 1840s which, with between four and five Fellows of the Royal Society on its board, remained keen to exhibit its scientific credentials. In 1847, for instance, a year before Barrow’s death, Palladium announced revised rules to slash premia in exchange for reduced bonus payments, promising that this new system was secured by ‘the safest and most approved data’, which a committee of actuaries had recently composed using the records of seventeen leading London offices (‘Palladium Life Assurance Society’, advertisement, Lancet 2, 17 July). In April 1828, the Westminster Review, John Stuart Mill’s organ of Utilitarian thought, weighed in on these discussions over Britain’s post1823 life assurance offices. It had little interest in Babbage’s treatise or the responses in the Quarterly Review or Edinburgh Review. Instead, it was the government’s select committee which the Westminster Review

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thought most significant, with questions of the government’s conduct in producing accurate information its main concern. With several assurance firms collapsing since 1825, Parliament resolved to investigate the state of the market, appointing a new select committee to examine the existing mortality tables. In May 1827, this inquiry questioned Babbage and Gompertz together, focusing on the importance of social class in the representativeness of a table. While Gompertz preferred the Carlisle tables, and Babbage suggested the tables of French actuary EmmanuelEtienne Duvillard de Durand (1755–1832) from 1806 as the best for poorer classes, each warned of the risks of applying data without consideration of the type of policy holders in question. Babbage explained that it was essential to ‘get as nearly as we can the law of mortality of the class for which we want to calculate, and add the prices computed from it some proportionate part sufficient to ensure the safety of the establishment which uses them’ (Select Committee on the Laws Respecting Friendly Societies 1827, 30). The dangers of getting this wrong, he maintained, were considerable. Working-class people tended to have lower life expectancies than the Northampton tables predicted. A society aimed at the working class could easily find itself paying out unexpectedly high sums and failing. Conversely, to use tables that included the deaths of poorer classes would result in exaggerated premia and excessive profits. When the select committee reported in June 1827, it endorsed the 1825 committee’s recommendation of a single act to regulate assurance firms, believing it urgent to prevent the fraudulent accumulation of funds. Above all, it stressed the lack of reliable tables on which to conduct efficient assurance. Every witness, save Morgan and John Becher, asserted that life expectancy had increased. This invalidated the authority of existing mortality tables. The discrepancies between the Northampton and Carlisle tables were particularly alarming, with the Northampton predicting that of 1000 25-year olds, 343 would live to 65, compared to the Carlisle’s 513. This had crucial ramifications for the value of life at different ages and what constituted an appropriate annuity premium (Select Committee 1827, 4–5, 12). The Westminster Review applauded the parliamentary inquiry, asserting that the chief duty of the state was to provide security for life and property, and to ensure the welfare of its subjects at moments of sickness and death. The first step involved the collection of ‘the most complete information attainable’ on the circumstance of poor health and mortality rates. Truly accurate equitable tables, which ‘at present a government alone has

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the power to obtain in the requisite degree of perfection’, were demanded with due haste (‘First Report from the Select Committee’ 1828, 385). Above all, the Westminster Review echoed the select committee’s calls for the construction of new mortality tables and heralded the recent formation of the Society for the Diffusion of Useful Knowledge (SDUK) as a significant step towards this end. The Westminster Review reported that the matter of life assurance was much on the minds of its founders (which included Mill). They recognised their duty to inform the public over the advantages and disadvantages of various assurance offices (421). The SDUK’s remit was to cultivate empirical knowledge with workingand middle-class audiences through the production of cheap publications. Its inauguration coincided with the financial boom. Its originator, Brougham, was proposing the institution throughout 1824 and 1825, before establishing it in 1826 with the support of Mill’s father, James Mill. Considering that the elder Mill and Brougham shared the same Scottish intellectual roots, with its emphasis of Baconian empiricism, it is little wonder that they found common ground over the new organisation. It is equally telling that J. S. Mill’s Westminster Review saw the SDUK as a mechanism for remedying the speculation surrounding life assurance. Indeed, Brougham was himself a director of the Law Life Office, established in 1823, and was convinced that life assurance numbered among the advantages of mathematical science, stressing the social value of assurance for those in a wide array of professions, including law, the church, the army, and the navy (Life Assurer’s Handbook 1877, 166–68). Despite the SDUK’s early ambitions, it took time to produce a complete account of Britain’s assurance firms. The society’s trustees requested the publication of a ‘Treatise on Annuities’ in 1838, which would feature in its Library of Useful Knowledge (Penny Cyclopaedia 1841, s.v. ‘Reversion’, p. 431). This was followed in 1841 with an entry on ‘Reversion’ in the SDUK’s Penny Cyclopaedia. Life assurance represented the most common example of this practice, defined as the right of property to commence at some future period, such as a £100 sum to be paid out on a policy holder’s death. Along with delivering a comparative list of Britain’s assurance offices in terms of capital, bonuses, periods of division, and premium rates, the Penny Cyclopaedia accounted for the time it had taken in making such an analysis public (436–37). The SDUK announced that, in 1826, ‘At the time when the article Insurance should have appeared, the mania for forming new companies was at its height, which made us judge it advisable to defer the considerations of

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the subject, that the list which we proposed to give of such companies might be more complete’ (430). For all that Babbage and Gompertz had stressed the certainty of life insurance, the 1820s had evidently been a period of immense speculation within the industry, characterised by a lack of reliable information and uncertainty. Nevertheless, though 15 years after Babbage’s treatise, the SDUK had gone some way to answering his calls for a thorough representation of the comparative merits and drawbacks of rival assurance firms to be made public.

10.5

Conclusion

The spectre of speculation and uncertainty remained prevalent in British society throughout the 1830s and 1840s. Between 1844 and 1853, of some 335 proposed offices, only 149 were realised, and just 59 survived, resulting in a parliamentary investigation in 1853 (CampbellKelly 1994, 12). Despite the repeal of the Bubble Act, the expansion of Britain’s assurance offices after 1825 was considerably constrained by the lack of protective legislation surrounding this financial activity: policy holders remained liable for the failure of their assurance offices (Walford 1887, 304–5). It was not until the Limited Liabilities Act of 1855 and the Joint-Stock Companies Act of 1856 that the legal restrictions of 1720 were removed. The fear of speculation remained endemic until the 1850s, and even when the laws surrounding liability were overhauled, this was as much a moral as a financial reform; opening up markets and share ownership to working- and middle-class investors lacking the security of capital was very much an effort to promote responsible individual behaviour (Loftus 2002, 94). Before this reform, in 1851, Babbage, J. S. Mill, and Brougham all provided evidence before a select committee, with Babbage emphasising that the law of limited responsibility in partnerships restrained the nation’s industry (Select Committee on the Law of Partnership 1851, appendix, at 161). Parliament did not provide specific legislation for regulating the assurance industry until 1870 (Campbell-Kelly 1994, 12). Likewise, philosophical doubts grew through discussions over the age of the Earth and nebular theory, particularly following the anonymous publication of Vestiges of the Natural History of Creation in 1844, as well as through the heated epistemological debates of Mill and Whewell. Politically, the chaos of the failed reform bills of 1831 and Reform Act of 1832

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failed to calm the rising clamour for extended parliamentary representation which found expression through the Chartist movement. Arguably, it was only the absence of a British revolution in 1848, a year of European revolutions, that marked a transition from an age of speculation to what historian W. L. Burn (1964) famously defined as the ‘age of equipoise’. Obviously, such grandiose terms are reductive, but the 1840s undoubtedly witnessed a moment of relative stability, with national celebrations like the Great Exhibition of 1851 embodying the confidence of mid-Victorian Britain. This was a long way from the speculation of the 1820s. If we think about the timing and connections between market, moral, political, and scientific uncertainty, then the lesson of the 1820s is clear: moments of financial disorder often accompany moments of philosophical crisis and social disruption. This was true in the wake of the Bubble Act’s repeal and is evident in the writings of Babbage and his contemporaries. Such anxieties are not unfamiliar to twenty-first-century audiences. Since the financial meltdown of 2008, once trusted institutions and scientific authorities have come under immense scrutiny. From Oxford Dictionaries declaring ‘post-truth’ its Word of the Year for 2016, to the then Lord Chancellor Michael Gove’s declaration that people ‘have had enough of experts’ in 2017, to post-COVID disputes over the extent to which government policy should follow scientific data, financial catastrophe has preceded an unprecedented uncertainty around the forms of knowledge that society trusts.2 What is evident from the 1820s, particularly from Babbage’s mutual concern with financial and philosophical speculation, is that this should come as no surprise.

References Anon. 1827. Review of A Comparative View of the Various Institutions for the Assurance of Lives, by Charles Babbage, Esq. M.A. F.R.S.L. &E. &c. Edinburgh Review 45 (March): 482–513. Ashworth, William J. 1994. The Calculating Eye: Baily, Herschel, Babbage and the Business of Astronomy. British Journal for the History of Science 27 (4): 409–441.

2 On Gove’s quote, see Anand Menon and Jonathan Portes, ‘You’re wrong Michael Gove – experts are trusted far more than you’, Guardian, 9 June 2016, https://www. theguardian.com/commentisfree/2016/jun/09/michael-gove-experts-academics-vote.

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Babbage, Charles. 1826a. A Comparative View of the Various Institutions for the Assurance of Lives. London: J. Mawman. ———. 1826b. On a Method of Expressing by Signs the Action of Machinery. Philosophical Transactions of the Royal Society of London 116: 250–265. ———. 1832. On the Economy of Machinery and Manufactures. London: Charles Knight. ———. 1864. Passages from the Life of a Philosopher. London: Longman, Green, Longman, Roberts, & Green. Barrow, John. 1827. Review of A Comparative View of the Various Institutions for the Assurance of Lives, by Charles Babbage, Esq., M.A., F.R.S., &c., &c. Quarterly Review 35 (Jan.–Mar.): 1–31. ———. 1847. An Auto-biographical Memoir of Sir John Barrow, Bart., Late of the Admiralty, Including Reflections, Observations, and Reminiscences at Home and Abroad, from Early Life to Advanced Age. London: John Murray. Bord, Joe. 2009. Science and Whig Manners: Science and Political Style in Britain, c. 1790–1850. Basingstoke: Palgrave Macmillan. Burn, W.L. 1964. The Age of Equipoise: A Study of the Mid-Victorian Generation. London: Allen and Unwin. Campbell-Kelly, Martin. 1994. Charles Babbage and the Assurance of Lives. IEEE Annals of the History of Computing 16 (3): 5–14. Cantor, Geoffrey N. 1970. The Changing Role of Young’s Ether. British Journal for the History of Science 5 (1): 44–62. Cantor, Geoffrey N. 1983. Optics After Newton: Theories of Light in Britain and Ireland, 1704–1840. Manchester: Manchester University Press. Case, Stephen. 2014. How Bright Planets Became Dim Stars: Planetary Speculations in John Herschel’s Double Star Astronomy. Endeavour 38 (1): 27–34. Clark, Geoffrey. 1999. Betting on Lives: The Culture of Life Insurance in England, 1695–1775. Manchester: Manchester University Press. ‘Doctrine of Probabilities’. 1832. Review of A Comparative View of the Various Institutions for the Assurance of Lives, by Charles Babbage Esq. M. A. &c., &c., &c. American Quarterly Review 11 (June): 473–494. ‘First Report from the Select Committee of the House of Commons, on the Laws Respecting Friendly Societies, July, 1825’. 1828. Westminster Review 9 (April): 384–421. Gompertz, Benjamin. 1820. A Sketch of an Analysis and Notation Applicable to the Estimation of the Value of Life Contingencies. Philosophical Transactions of the Royal Society of London 110: 214–332. ———. 1825. On the Nature of the Function Expressive of the Law of Human Mortality, and on a New Mode of Determining the Value of Life Contingencies. Philosophical Transactions of the Royal Society of London 115: 513–583.

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Harris, Ron. 1997. Political Economy, Interest Groups, Legal Institutions, and the Repeal of the Bubble Act in 1825. Economic History Review 50 (4): 675– 696. Hilton, Boyd. 1986. The Age of Atonement: The Influence of Evangelicalism on Social and Economic Thought, 1785–1865. Oxford: Clarendon Press. Hyman, Anthony. 1982. Charles Babbage: Pioneer of the Computer. Princeton, NJ: Princeton University Press. Loftus, Donna. 2002. Capital and Community: Limited Liability and Attempts to Democratize the Market in Mid-Nineteenth-Century England. Victorian Studies 45 (1): 93–120. Long, George. 1838. ed. The Penny Cyclopaedia of the Society for the Diffusion of Useful Knowledge. Vol. 19: Primaticcio-Richardson. London: Charles Knight & Co. Mr Babbage’s Invention: Copies of the Correspondence Between the Lords Commissioners of His Majesty’s Treasury and the President and Council of the Royal Society, Relative to an Invention of Mr Babbage, 22 May 1823. 1823. House of Commons Papers, no. 370. London: HMSO. Odlyzko, Andrew. 2019. Newton’s Financial Misadventures in the South Sea Bubble. Notes and Records of the Royal Society 73 (1): 29–59. Schaffer, Simon. 1994. Babbage’s Intelligence: Calculating Engines and the Factory System. Critical Inquiry 21 (1): 203–227. ———. 1996. ‘Babbage’s Calculating Engine and the Factory System’. Réseaux: The French Journal of Communication 4 (2): 271–298. Select Committee on the Law of Partnership. 1851. ‘Report from the Select Committee on the Law of Partnership; Together with the Proceedings of the Committee, Minutes of Evidence, Appendix, and Index’, 8 July, HC Papers 509, XVIII.1. Select Committee on the Laws Respecting Friendly Societies. 1825. ‘Report from the Select Committee on the Laws Respecting Friendly Societies, Minutes of Evidence’, Appendix, 5 July, HC Papers 522, IV.321. ———. 1827. ‘Report from the Select Committee on the Laws Respecting Friendly Societies’, 1826–27, HC Papers 558, III.869. Snyder, Laura J. 2006. Reforming Philosophy: A Victorian Debate on Science and Society. Chicago: University of Chicago Press. Swade, Doron. 2004. ‘Babbage, Charles (1791–1871), mathematician and computer pioneer’. Oxford Dictionary of National Biography. (23 September). https://doi.org/10.1093/ref:odnb/962. The Life Assurer’s Handbook, and Key to Life Assurance by the Editor of ‘The Bullionist’. 1877. London: Effingham Wilson. Walford, Cornelius. 1887. History of Life Assurance in the United Kingdom (continued). Journal of the Institute of Actuaries 26 (4): 302–315.

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Wilson, Daniel C. S. 2018. Babbage Among the Assurers: Big 19th-Century Data and the Public Interest. History of the Human Sciences 31 (5): 129–153. Yeo, Richard. 1985. An Idol of the Market-Place: Baconianism in NineteenthCentury Britain. History of Science 23 (3): 251–298. ———. 1993. Defining Science: William Whewell, Natural Knowledge, and Public Debate in Early Victorian Britain. Cambridge: Cambridge University Press. Young, Thomas. 1826. A Formula for Expressing the Decrement of Human Life. In a Letter Addressed to Sir Edward Hyde East, Bart., M.P., F.R.S. Philosophical Transactions of the Royal Society of London 116 (1): 281–303.

CHAPTER 11

The Repeal of the Bubble Act and the Debate Between the Currency School and the Banking School Charles Read

11.1

The Repeal of the Bubble Act

Two great repeals, the successful campaign to repeal the Corn Laws and Daniel O’Connell’s unsuccessful campaign to repeal the Act of Union between Great Britain and Ireland, dominate historians’ accounts of nineteenth-century Britain.1 In contrast, the repeal in 1825 of the Bubble Act of 1720—which deleted the clauses in that legislation forbidding the formation of new joint-stock companies unless approved by royal charter—barely generated a whimper of protest. The only recorded opposition to its repeal in Parliament at the time was procedural in nature, 1 For the background to these, see, for instance, Read (2014, 2015, 2019), Irwin and Chepeliev (2020), Schonhardt-Bailey (2006), and Geoghegan (2010).

C. Read (B) University of Cambridge, Cambridge, UK e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 H. Paul et al. (eds.), The Bubble Act, Palgrave Studies in the History of Finance, https://doi.org/10.1007/978-3-031-31894-8_11

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rather than on ideological or policy grounds.2 With the notable exception of the scholarship of Ron Harris (1994, 1997, 2000), relatively few historians have been interested in the subject. Yet although the repeal of the Bubble Act itself was uncontentious, its aftermath was anything but. It was during this period that the most ferocious debate in economics (aside from that over free trade and the repeal of the Corn Laws) occurred between the Currency School and the Banking School over how monetary policy and the gold standard should be regulated. Using the writings and speeches of the intellectual leaders of the two schools, this chapter explains how the waves of speculation and crises that took place during and after the Bubble Act’s repeal contributed to the emergence of this debate between the Banking and Currency Schools, particularly their ideas about the trade cycle. The first section of this chapter begins by explaining the context of the repeal of the Bubble Act, how it triggered a legal revolution in company and banking regulation and how it links to the debate between the Currency and Banking Schools. The second section explains the ideas of the Currency and Banking Schools about the nature of speculation and crises, which were reinforced by their different interpretations of the crises of 1825, 1837 and 1847. The final section explores the recent revival of some of the Banking School’s ideas in the form of the rise of the so-called ‘carry trade’. This is a method of exploiting the differences in exchange rates and interest rates in different countries to make a profit through arbitrage. However, it can result in large capital flows that are troublesome, particularly for financial stability.

11.2

The Legal Background

The Bubble Act (6 Geo. 1, c. 18) was passed in the same year as the panic of 1720, which was caused by the bursting of the asset-price bubble in the value of shares in the South Sea Company. It was then repealed in the same year as the banking crisis of 1825 (6 Geo. 4, c. 91), caused in part by the bursting of an asset-price bubble in various speculative investments. Both events involved the dramatic collapse of bubbles; both also stand out as among the worst crises in the City of London in their 2 See Hansard, 2nd ser., HC Deb, 29 March 1825, vol. 12, cc. 1279–85; and HC Deb, 2 June 1825, vol. 13, cc. 1018–23. Ultra-Tories in the Cabinet raised objections, but this does not appear to be recorded in Hansard.

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respective centuries. Yet it would be wrong to assume that the passage and later repeal of the act were measures taken in response to the two crises to prevent future occurrences. In both cases, the legislation was envisaged before the famous bubbles burst. Research in recent decades has suggested that the Bubble Act was passed to prevent a new wave of smaller bubbles in other investment opportunities diverting capital away from the larger speculative bubble in South Sea Company shares (Harris 1994, p. 612). The purpose of the Bubble Act was therefore initially a short-term measure by interested parties to prop up the South Sea Bubble, not deflate it. Nevertheless, the unintended consequence was, in Harris’s (1997, p. 675) words, the prohibition of ‘the free and spontaneous formation of joint-stock companies in England’ for 105 years.3 This significantly changed the nature of company formation during one of the most important periods of Britain’s industrial revolution. Likewise, historians since Harris’s work in the 1990s have also tended to argue that repeal of the Bubble Act itself was less the result of an ideological drift towards liberal Toryism in the 1820s and more the result of interested parties attempting to sustain various speculative bubbles emerging in 1824–25 (Harris 1997, 692–93). At the time, however, some thought that the act’s repeal would make very little practical difference in law. It was regarded in Parliament as an ill-worded piece of legislation that had rarely seen prosecutions under it (Hansard, HC Deb, 29 March 1825, vol. 12, cc. 1283–84). In any case, just before the issue was brought to Parliament in March 1825, Lord Eldon in the Court of Chancery had ruled that to act as a corporation was an offence under common law, even without the Bubble Act (Kinder v. Taylor 1825, cited in Harris 2000, pp. 243–44). Even so, 1825 remains an important moment in company law, as it is from this moment that the legal system became increasingly permissive towards joint-stock companies and the idea of limited liability. Just a year after the Bubble Act was repealed, the so-called Country Bankers Act of 1826 (7 Geo. 4, c. 46) permitted joint-stock banks with more than six partners to be formed for the first time, as long as they remained 65 miles away from London, where the Bank of England’s joint-stock monopoly

3 Exceptions were made for the Royal Exchange and London Assurance Corporation, as well as institutions incorporated by royal charter such as the Bank of England and the East India Company.

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continued.4 The Bank Charter Act of 1833 (3 & 4 Wm. 4, c. 98) subsequently allowed joint-stock banks to set up in London (as long as they did not issue banknotes), ending the Bank of England’s monopoly in this area. The Trading Companies Act of 1834 (4 & 5 Will. 4, c. 94) and the Chartered Companies Act of 1837 (7 Will. 4, & 1 Vict. c. 73) made it easier for the government to grant companies the legal privileges of incorporation. The Joint Stock Companies Act of 1844 (7 & 8 Vict., c. 110), passed by the government of Sir Robert Peel in the same year as its own Bank Charter Act, established a process under which companies could register at will with the government for incorporation, providing them with a separate legal entity and transferable shares. In 1855 the Limited Liability Act (18 & 19 Vict., c. 133) enabled the shareholders of a corporation to limit their liability. By this time a recognisably modern system of company law for limited-liability joint-stock companies had been established—a legal revolution from almost complete prohibition to becoming the standard model of corporation within just three decades (Harris 2000, p. 1). The repeal of the Bubble Act—in terms of the gist rather than the letter of the law—can thus be seen as a 30-year process rather than an event. This same three-decade period in British economic history was marked by a series of severe financial crises—in 1825, 1837, 1847 and later in 1857—and the development of a debate between the Currency School and the Banking School about the relationship between speculation and crises. The former is best known as the supporter of the banknote restrictions of Peel’s Bank Charter Act of 1844. Its supporters believed that additional banknote issuance by the Bank of England should be backed up by gold reserves on a one-to-one ratio. The Banking School, in contrast, opposed the legislation and did not believe in the need for such strict rules about note issuance.5 Yet this was a battle that went far beyond a disagreement about one piece of legislation. Both schools had already developed their ideas long before Peel revealed the outlines of his bill of 1844. Scholars have discussed at length the views of the two schools on money, currency and banking regulation in relation to Peel’s Bank 4 Another piece of legislation the same year allowed joint-stock banks outside of London to issue banknotes. 5 For a traditional description of the Banking School and the Currency School, see Schwartz (2008).

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Charter Act. In contrast, their two different interpretations of the ‘trade cycle’ (or business cycle) have received less attention and are presented in a confused manner in some publications. Yet it is their conflicting approaches to this topic that are key to understanding why the two schools disagreed so vehemently about the causes of financial crises and the regulatory policies required to prevent them. The contention of this chapter is that their differing explanations of the relationship between these cycles and crises arose from the conflicting narratives the two schools developed about the waves of speculative activity that imploded in 1825, 1837 and 1847—waves which were unleashed during the period that the Bubble Act and its associated legal prohibitions were dismantled. As Lord Overstone (Samuel Jones Loyd before 1850), the intellectual leader of the Currency School put it in Parliament in 1856: ‘the history of our commercial and monetary progress during the last thirty years was full of instructive lessons, if we would only read them aright’ (Hansard, HL Deb, 14 March 1856, vol. 141, c. 141). The leading thinkers of the Banking School would have also agreed with that sentiment—but would have disagreed with Overstone over the historical narrative and the lessons to be learned from it. The two schools were less partisan about the narrow legal technicalities of the Bubble Act’s repeal than they were about the nature of speculative cycles more generally. Overstone opposed the granting of any legal privileges to joint-stock companies, opposed the legalisation of joint-stock banks (commenting ‘I think that joint-stock banks are deficient in everything requisite for the conduct of the banking business except extended responsibility’), and fiercely opposed any grant of limited liability (Overstone qtd. in Price 1876, p. 86; and see Hansard, HL Deb, 14 March 1856, vol. 141, cc. 139–43; Hansard, HL Deb, 24 June 1856, vol. 142, cc. 1890–93). This was because he thought that they exacerbated the booms and busts of what the Currency School conceived to be the trade cycle (Hansard, HL Deb, 14 March 1856, vol. 141, cc. 142–43). Thomas Tooke, the intellectual leader of the Banking School and the most prominent opponent of Peel’s Bank Charter Act in the 1840s, also tended to be cautious about joint-stock companies and any grant of limited liability to them (Amsler et al. 1981, 781–83). However, he did support this model for the country banks, which he thought would aid their stability in the context of the Banking School’s conception of the trade cycle (Tooke 1826, pp. 125–26). The emphasis here is less an ideological aversion to a particular policy and more an assessment of what the policy would do

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to financial stability. This is shown by the later splits within (rather than between) each school over the Limited Liability Act of 1855.6 Nevertheless, both schools developed more fixed views over currency issues in the wake of the crises of 1825, 1837 and 1847 (Money Bag, 1858, p. 43). The repeal of the Bubble Act and the liberalisation of joint-stock banking that had followed in its wake also set the vested interests behind the Currency School and the Banking School against each other. In the eighteenth century, the Bubble Act had created a situation of strife between the only English joint-stock bank allowed that issued notes (the Bank of England) and its competitors, the private or country banks. The Bubble Act, although intended by some to assist the South Sea Company, had the effect of limiting the ability of other firms to compete with the Bank of England in the long term. Banks that issued notes in England were limited to six partners or less by the Bank’s charter of 1708. In addition, the removal of the possibility of banks forming jointstock companies in England by the Bubble Act meant that all banks were limited to unincorporated country banks and the private banks in London. A dependent relationship developed between the country banks and the private London banks. The country banks received the deposits of the rural farming community and kept their excess funds at the London banks. They, in turn, invested the funds into industrial enterprises across England. In contrast, the Bank of England concentrated on providing for government debt and owed its privileges to government patronage. The perception grew up among supporters of the Banking School that the country and private banks tended to be run by those with a commercial background and that they were providing a useful service in terms of supplying finance for British industry. In contrast, they thought that the Bank of England was run by the privileged, feckless nobility who lived off unearned wealth7 . With the Bubble Act repealed in 1825 and joint-stock banks outside London permitted from 1826, the Bank of England’s provincial branches and the country banks became direct competitors. Previous prejudices 6 For instance, both Overstone (Currency School) and James Gilbart (Free Banking School) opposed the Limited Liability Act of 1855, whereas Thomson Hankey (Currency School) and John Stuart Mill (Banking School) supported it (see Chaplin 2016, pp. 259– 60). 7 Circular to Bankers, 25 July 1834

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boiled over into outright hostility. The Currency School supported the Bank of England and what they saw as its central role in regulating the currency. The Banking School, in turn, campaigned in favour of the Bank’s main competitors, the country banks, which increasingly became joint-stock firms after 1826. The Banking School blamed the periodic speculative bubbles and financial crises of the nineteenth century on the Bank of England’s management of monetary policy, a power which arose from its original monopoly over joint-stock banking and was sustained by the restrictions on banknote issuance in the Bank Charter Act of 1844 (Money Bag, 1858, p. vii). The Currency School, unsurprisingly given their support for this legislation, attributed this cycle to other factors (Money Bag, 1858, p. 45).

11.3

The Two Schools of Thought

The conflict between the two schools was more than simply one between two sets of vested interests. It was a battle between ideas as well. Each school had radically different conceptions of the trade cycle, speculation and the origins of crises. The Banking School believed that crises were linked to interest rates, were driven by monetary policy and were avoidable. Overstone and the Currency School thought that the irrational behaviour of investors themselves was the root cause. These contrasting positions were the result of differing interpretations of the events of the 1820s, 1830s and 1840s. The Banking School’s view was popularised as a satirical cartoon in a short-lived journal called the Money Bag in 1858. The Money Bag, founded and written in the wake of the financial crisis of 1857, campaigned ferociously against the Currency School’s ideas. The cartoon in question was called ‘The Overstone Cycle of Trade’ (Fig. 11.1), which at first glance appears to be illustrating the Currency School’s description of crises. This has become well-known among some financial historians as an illustration of Overstone’s view on the trade cycle, thanks to the cartoon being incorporated into an edited edition of his correspondence by D. P. O’Brien in 1971. This gave the misleading impression that the illustration was explaining and supporting, rather than criticising, Overstone’s theories (Besomi 2011, p. 301). However, the Money Bag was a Banking School publication which proclaimed in its rubric that ‘money’s uses in the commonwealth of industry, should measure the supply of

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legal tender, not the ebb and flow of golden quicksands in Threadneedle Street’, and described the Bank Charter Act as ‘the dry rot in our English heart of oak’ (Money Bag, 1858, inside front cover and p. vii). Its cartoon was explicitly blaming Overstone’s Currency School restrictions for the crises of 1847 and 1857, and the text unequivocally mentioned the Bank Charter Act of 1844 as the responsible policy (Money Bag, 1858, pp. 113– 14). This contrasts with Overstone’s (1840, p. 104) description of crises as inevitable, but momentary, ‘storms and tempests’, caused by irrational bouts of optimism and pessimism among investors, that just had to be suffered. Overstone outlined his analysis of crises while arguing with Horsley Palmer, a Banking School-inclined governor of the Bank of England in the 1830s, as to whether it was possible that the quantity of banknotes could be adjusted according to the bullion reserve in practice. Overstone suggested that in crises banks tended to issue too many notes in order to keep their customers happy (showing, in his view, the need for legal limits

Fig. 11.1 The Overstone cycle of trade

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on banknote issuance). Overstone’s (1837, p. 44) description of a cycle of the ‘state of trade’ was as follows: First we find it in a state of quiescence, – next improvement, – growing confidence, – prosperity, – excitement, – overtrading, – convulsion, – pressure, – stagnation, – distress, – ending again in quiescence.

Supporters of the Currency School view believed that the Bank Charter Act helped to avert such a cycle by preventing the over-issuance of notes that would fuel the ‘excitement’ and ‘overtrading’ parts of the cycle. They also thought this would help to curtail bullion drains from the Bank of England’s reserves; although they believed that such drains were due to the balance of trade and payments for goods, rather than investment flows. The link between note issuance and gold reserves in the Act of 1844 meant that note circulation would shrink whenever the Bank’s bullion reserves fell. The Currency School believed that bullion which had left the country would soon return, thanks to David Hume’s pricespecie-flow mechanism. Hume’s theory was that a bullion drain would lead to a reduction of notes. In turn, this would reduce prices. Therefore, exports would become more competitive and imports would become more expensive relative to domestic products. As exports increased and imports decreased, the net outflow of bullion to pay for trade goods would change direction. Bullion would then be coming into the country, and the Bank of England’s reserves would therefore increase. When it came to internal drains within a country, Overstone argued that they were as unstoppable as external drains, unless there was a good reserve of gold (Select Committee on Banks of Issue 1840, p. 222, Q. 2726). To keep down the required level of bullion an ‘early contraction’ of notes was necessary as soon as the bullion started disappearing (Select Committee 1840, pp. 222–23, 400, Q. 2726). Theorists associated with the Currency School gave no explanation for investment flows or how they might fuel speculative bubbles and crises. The panics, many thought, were just a ‘Cycle of Trade’ that had to be endured and the best that could be done was to expose or regulate dishonest investment schemes (Overstone 1837, p. 44; 1840, p. 104). This is why, in part, Overstone opposed the legalisation of joint-stock companies and the introduction of legal liability so ferociously, as he thought they would encourage excessive risk-taking in commerce.

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The cartoon in the Money Bag shows a cycle similar to Overstone’s summary of the ‘state of trade’. However, some stages are missing or conflated with others. ‘Over-trading’, for instance, was not a generally accepted concept for the Banking School and was probably omitted by the Money Bag for this reason. Another significant difference is the inclusion of a character at the centre of the cycle called ‘the hard calculator’, a name mentioned in the Times (24 Nov. 1857, p. 5). This newspaper had complained that government action had prevented ‘the hard calculator’ from making 12 or 15 per cent in interest from his gold. The Money Bag made the ‘hard calculator’ in the cartoon resemble Overstone (Fig. 11.2). This is a continuation of the criticism made in 1847 by Thomas Wakley, a medical reformer and founding editor of the Lancet, that the reforms in the Act of 1844 that Overstone had influenced had favoured the wealthy (Hansard, HC Deb, 15 Dec. 1847, vol. 95, cc. 1148–49; O’Brien 1971, vol. 1: pp. 401–2).8 The Money Bag (1858, p. 40) suggested that rich investors such as Overstone benefitted from interest earned in the periods of high rates that the Act of 1844 had brought about. In Fig. 11.2, this is represented by ‘the hard calculator’ carrying a bag of gold which is full when interest rates are at 10 per cent and nearly empty when the rates are at 2 per cent. Thus, the rate of interest and bullion holdings in the United Kingdom are put at the heart of the mechanism of the cycle. The commentary which accompanies the cartoon, designed for easy reading, was at pains to point out that ‘the whole “cycle” is in our opinion, connected with the pernicious monetary system now existing’—in other words, the Bank Charter Act of 1844 (Money Bag, 1858, p. 113). The Money Bag describes how the Banking School believed that the cycle starts. With little demand for money after a crisis ‘it therefore accumulates in the Bank, and in the hands of money dealers’. It is added to by ‘an enormous amount of commercial money, consisting of bills of exchange, cheques &c’ (Money Bag, 1858, pp. 113–14). The description of the rest of the cycle follows the ideas of Henry Thornton, an early political economist associated with the Banking School, who suggested that the disparity of interest rates between home and abroad would result in bullion being exported to pay for goods and to find a better rate of interest as a return. After a period of ‘Prosperity’, comes ‘Excitement’ driven by low interest rates of ‘2%’ advertised on the front of 8 The Money Bag added a reasoning as to how the 1844 Act favoured the wealthy: by the interest earned in the periods of high rates (Money Bag, 1858, p. 40).

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Fig. 11.2 The ‘hard calculator’

a bank. As the unspent savings chase better returns inside and outside the country, there is a building boom in the background of the cartoon (Fig. 11.1). Over-optimistic investments are represented in the cartoon by a steam-driven flying machine. Speculative investments abroad are satirically represented by the ‘South Pole Warming Company’. As interest rates increase to stem the flows abroad and to protect the Bank of England’s bullion reserves, ‘Convulsion’ arises, and the ‘Royal Bubble Bank’ explodes. ‘Stagnation’ follows with workers in front of the ‘Workhouse’ and a businessman hanging himself in a shop window; in spite of this, the ‘hard calculator’ is happy with interest rates of 10 per cent and a full bag of gold. ‘Improvement’ after the crash is driven by manufacturing leading to ‘Confidence’ in trade and the return of ‘Prosperity’. The ‘hard calculator’ is unhappy with his 2 per cent return, though, and the process restarts (Money Bag, 1858, pp. 112–14). The Banking School’s version of the cycle suggested that it might be possible to control and prevent financial crises through management of interest rates and capital flows. Many economists associated with the Banking School—including Henry Thornton, Tooke and, later on, Sir Inglis Palgrave, an editor of the Economist —substantially blamed the Bank of England’s interest-rate policy for exacerbating speculative cycles and crises (Palgrave 1903, viii). Government pressure down on interest rates

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(to reduce its servicing costs on the national debt) moved short-term interest rates well below long-term rates (or market rates). This triggered a search by investors for better returns for their available funds. It also incentivised speculators to borrow money at short-term rates for longterm investment. Funds flowed to investments with higher returns, which were often abroad, thus causing international capital flows. To stem the capital flows going abroad, interest rates in the country suffering the drain were increased and would reach the same level as the investment abroad, adjusted for any transaction costs, fundamental risks, etc. This stopped the flow of investment as the opportunity to profit through arbitrage ended. As the short-term rate rose above the long-term rate, speculators found themselves in a credit crunch, being unable to refinance their short-term borrowings. Neither could their long-term investments be cashed in profitably at this point in the cycle. When short-term and long-term rates equalised and the flow of funds to the targeted investment stopped, the value of the investment slumped. This caused speculators to take losses and possibly fail. Because of the speed at which the Bank of England had to raise rates and limit credit to comply with the Bank Charter Act of 1844, firms would be unable to service their loans, and bankruptcies would follow. After a wave of liquidations, the now un-invested funds piled up in deposit accounts, lowering interest rates and expanding credit, to restart the cycle all over again as short-term interest rates fell below long-term ones. Many economists associated with the Banking School recognised the role of low interest rates, as set by the Bank of England, in fuelling speculative bubbles. Thornton ([1802] 1965, pp. 332–36) suggested that when interest rates fell below a ‘natural’ rate there was a considerable incentive to search out better returns which could lead to mistakes such as borrowing at short-term rates and investing long-term. Thomas Attwood (1829, pp. 11, 45–46) claimed that low interest led to a situation of stagnation in which those with money found that ‘nothing but loss or danger can attend its employment’ (p. 46). Tooke (1826, pp. 24–64) concluded that low interest rates gave ‘great latitude to speculation’ (p. 24) and that, as the demand for capital progressed with the development of investment schemes, a ‘third’ class of inexperienced investor was drawn in and fell into the trap of unwise or fraudulent schemes through overenthusiasm. The Banking School also argued that credit should be loosened, rather than tightened as the Currency School suggested, at the height of a crisis. The loosening could be achieved by the Bank or the government

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purchasing government debt. This raised the price of the debt and thus lowered the return and exerted a downward pressure on interest rates. Thornton stated that this was the only way to deal with internal drains. He thought the tightening of credit, as later recommended by Overstone and the Currency School, would ‘aggravate that sort of rise [in the price of gold] which is caused by an alarm in the country [internal drain]’ (Thornton [1802] 1965, p. 104). In other words, contracting credit during a financial panic would simply make the panic worse. The key part of the Banking School’s thinking on this issue was that external bullion flows were partly driven by movements of investment capital, rather than simply by payments for trade (as the Currency School thought). Investors would be motivated by the opportunity to earn a higher rate of return abroad and then transfer the proceeds back home. This assumed a disparity of interest rates between countries, something that Overstone had claimed was theoretically impossible in the long term because global interest rates would eventually converge (Select Committee 1840, p. 234, Q. 2796; Overstone, letter to the Times, Jan. 1857, in Overstone 1858, p. 355). The Banking School predicted that it would become necessary to increase interest rates to return overseas investment bullion back home (Fullarton 1844, pp. 133–34, 142; Tooke 1844, pp. 115–17). At first this was restricted by the usury laws, but as these were relaxed, interest rates took over from the restriction of credit as the main tool used by the Bank to attract bullion back from overseas. Overstone initially denied this would be necessary but came round to this opinion after the 1847 crisis. He privately asked William Gladstone, the then chancellor of the Exchequer, to raise rates during the 1857 crisis (O’Brien 1971, vol. 2: pp. 667–74, 626).

11.4

The Causes of Financial Crises

The theoretical divide between the ideas of the Banking and Currency Schools was not as great as their ideas on speculative cycles may suggest. Both schools of thought did believe that note issuance could move prices; the question was how quickly it could do this. Overstone thought equilibrium could be reached quickly through the price-specie-flow mechanism and that thus limiting note issuance was a good way to control prices and trade flows. In contrast, Tooke and John Fullarton thought this process would take a lot longer and even that investment flows might interfere in the price-specie-flow mechanism before this process could take

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place (Fullarton 1844, pp. 60–62). This divide was based on the Banking School’s and Currency School’s different interpretations of the financial events of the 1820s, 1830s and 1840s, which will be outlined in this section. At the beginning of the nineteenth century, Thornton ([1802] 1965) generally promoted the view that crises such as that caused by the South Sea Bubble could be overcome if the problem was properly understood. ‘Extravagant and hurtful speculations’ he wrote, ‘[such as] the South Sea scheme […] have a tendency to correct themselves […] In a country possessed of commercial knowledge and experience, confidence, in most instances, will not be misplaced’ (p. 78). Where serious crises had arisen abroad, they proved ‘the gross ignorance which at this time prevailed on the subject of exchanges and of paper credit […] In the instance of our own South Sea scheme, no new bank was instituted, and the credit of the Bank of England paper was sustained’ (p. 252). By the time of Tooke, just before the passage of the Bank Charter Act of 1844, Thornton’s more relaxed approach had been replaced among the Banking School by caution. Up to the 1825 financial crisis, Tooke (1826, p. 47) believed the public had shown a ‘complete […] abandonment of all the most ordinary rules of mercantile reasoning since the celebrated bubble-year 1720’. He saw bubbles as transient but pointed out that they had a ‘real’ effect on the ‘fortunes of individuals’ and needed to be addressed (pp. 51–52). Fullarton, in response to the Bank Charter Act of 1844, championed the view that the principles of the Currency School on which it was based on would not put an end to speculative manias such as the South Sea Bubble. He argued that ‘the state of the circulation has about as little to do with the aberrations of speculators, as with a failure of the crops or the waste of a foreign campaign […] Witness the insanities of the period of the South Sea bubble in this country, originating at a period (1720) when, for practical purposes, as remarked by Mr. Tooke, the circulation might be considered metallic, the Bank issues at the commencement being under two millions’ (Fullarton 1844, pp. 157–58). The Banking School developed its ideas through the bubbles and subsequent crises of 1825, 1837 and 1847. The Banking School theory of international bullion drains for investment abroad arose from the crisis of 1825. Historians often see this panic as caused by lending to Latin American governments that went wrong, beginning with a loan to Colombia in 1820. The economies of these countries were not robust, and difficulties in repaying the loans were almost inevitable. Even so, however fragile

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the economies of the new Latin American states were, it was a banking crisis in England that triggered the collapse (Read 2023, Chap. 4). This cut off the loans which would have helped to service the interest on the debt which these countries now owed. The Times (15 April 1825, p. 3) recorded the sharp rise in market interest rates in London from April 1825 due to an ‘inexplicable panic’. The Times of 20 July 1826 (p. 2) tells what then happened: the failure of B. A. Goldschmidt & Co., an English merchant house, started a domino effect of Latin American states, most newly independent from the Spanish Empire, defaulting on loans raised in London. The Colombian government was relying on Peru to raise a further loan from London in order to pay interest on loans owed to Colombia. The Colombians could use that money for the payments on their own loan contracted in England. They had few funds to hand and otherwise could not afford to do this, so a default was inevitable. The Columbian loan bond which had been trading at a price of 92.5 per cent of face value in March 1825 fell to 26 per cent in July 1826. Peruvian bonds fell in price from 88.5 per cent of face value to 23 per cent over the same period. By 14 December 1825 the Times was quoting the effective market interest rate in London at around 50 per cent, and even as the panic abated on 24 December, it was still as high as 8–10 per cent (Times, 14 Dec. 1825, p. 2, and 24 Dec. 1825, p. 2). These rates surpassed the rates provided by the Latin American loans of 6–8 per cent, and as the Banking School later suggested, capital flows reversed. As a result, Latin America was starved of further loans. The share prices of British mining interests in Mexico plummeted, and a major stock market crash, which became known as the panic of 1825, followed in London. By 1829 Spain, Portugal, and all Latin America had defaulted, except for Brazil which only defaulted on its sinking fund (Read 2023, Tab. 4.1). By contrast, the Currency School’s view of the 1825 crisis was that the excessive issue of small value banknotes was the source of the irrational bubble in high-yielding assets (Huskisson 1831, p. 588). The Times, which at the time was particularly forthright in its support of the Currency School’s ideas, presented the crisis as not really significant and soon to pass: ‘it creates in our minds no great terror as a national evil’. It snootily placed the blame on country bankers: ‘many of them mere retail shopkeepers […] deluging the provinces with millions’ of small notes while the Bank of England was ‘without the issue of a single one or two pounds note’ (Times, 13 Dec. 1825, p. 2). The low denomination banknotes that

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they tended to issue were regarded by the Currency School as being used by the most speculative of investors in this period, and thus in need of limitation. The Banking School denied this train of thought. Attwood, for instance, claimed that the small notes had been part of the solution to the crisis not part of the problem and criticised renewed attempts in 1826 to stop their issue.9 Attwood (1829) viewed the commercial problems in the country as an ‘underproduction of money’ not ‘overproduction’ of goods (p. 8). He also put this in moral rather than simply economic terms by blaming the restriction of money for the victimisation, through unemployment, of ‘what is blasphemously called, the “surplus population”’ (p. 11). Echoing Thornton’s theories, he described how crises start from accumulations of excess money in times of low interest rates (p. 45). Attwood explained these in terms of a lack of opportunities for investment and how the situation leads to unwise investments. He attributed the success of Currency School’s views to the support of the newspapers— most notably the Times —and journals of which ‘the proprietors are often stock-jobbers, interested in the national plunder’ (p. 15). The same themes were developed by the two sides of the debate in reaction to the 1837 and 1847 crises. The Currency School blamed the 1837 crisis on an excess of banknotes and claimed that the 1847 crisis was minimal thanks to the restrictions of the Bank Charter Act of 1844. In contrast, the Banking School pointed to flows of capital abroad, taking away bullion from the United Kingdom, as contributing to the crises (Read 2023, Chaps. 4 and 5). In the report from the Select Committee on Banks of Issue in 1840, Overstone held that a potential crisis was avoided after a bullion drain between May 1830 and May 1832 because credit was restricted; whereas he argued this was not the case for drains of 1835–37 and 1838–39 (Select Committee 1840, pp. 218–19, Q. 2712). Such arguments were opposed by Palmer, who as governor of the Bank of England at the time, confirmed that the Bank had not restricted credit in 1830–32 (Select Committee 1840, p. 24). The debate in the wake of the 1847 crises became particularly fierce, as the two sides sought to use the event either for the vindication of or the case against the Bank Charter Act passed three years earlier (Read 2023, Chap. 5). Overstone and the Currency School tended to blame

9 Bank Notes Act 1826, 7 Geo. 4, c. 6.

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the bullion drains that triggered the two crises of that year on a railway building boom and on grain imports. Meanwhile, the Banking School argued that government borrowing to pay for Irish relief and the limits on banknote issuance in the Bank Charter Act—in other words, the direct effects of government policy—were to blame for the crises (see Read 2016, 2022, Chaps. 3 and 4). Even so, many supporters of the Currency School doubled down on their position. One such enthusiast, Charles Wood, the then Chancellor of the Exchequer, wrote that he still held ‘the act of 1844 to be perfect against a foreign drain, the best security against an internal drain of gold [is] by gathering a large stock of bullion, – for panics no system can be laid down – I admit that I never saw my way for alarms and great hoarding’.10

11.5

Theory and Policy

The theories provided by the Banking School offered a more complex insight into the mechanisms of financial crises. However, that complexity meant that the message was less convincing than that of the Currency School. Overstone won the day at the 1840 parliamentary enquiry on currency reform because his theory was easily explained. His link between banknote issuance and prices also appealed to Peel’s overarching interest in policy tools that could be used to reduce the cost of food for the benefit of the labouring classes (Read 2019, pp. 78–83). The diversity of ideas represented by the Banking School, in contrast to the message discipline of the Currency School, also confused policymakers. Thus, it was Overstone’s ideas that Peel chose as the basis of the Bank Charter Act of 1844, part of which is still in force today as the statutory backbone for regulation of the Bank of England.11 As of 2022, the Bank of England and many other central banks around the world are required by law to manage monetary policy in a way that achieves price stability, an idea loosely based on the Currency School’s ideas. Nevertheless, the Banking School’s theories continue to reappear whenever crises occur. In the wake of the global financial crisis of 2007– 9, the Banking School’s link between international investment flows and 10 C. Wood to F. Baring, 3 Nov. 1847, MS MF 54, reel 1490, Cambridge University Library, Cambridge, UK. 11 Bank Charter Act of 1844, 7 & 8 Vict., c. 32, accessed 22 March 2022, https:// www.legislation.gov.uk/ukpga/Vict/7-8/32/contents.

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financial crises has been unwittingly revived by an increasing appreciation of the role of the ‘carry trade’ among academic economists and financial commentators. The first major book with ‘carry trade’ in its title that critically analysed its consequences was published just before the COVID19 pandemic began, at the start of 2020 (Lee et al. 2020). This book explained that, in recent decades, traders have noted that a profit could be made by borrowing in a country with low interest rates, and then lending or investing in a country with high interest rates. To mitigate the problem of whether changes in the exchange rate between when the money was exported and re-imported would eat into any profit, options to hedge against this could be arranged. Behaviour of this sort in British money markets can be seen as far back as the nineteenth century. Jacob Viner (1937, Chap. 5, n119) has pointed out that the Bank of England forward traded in government bonds in 1847 to avoid a loss. The Bank was forced to sell bonds at a low price in order to contract the note issue, as required by the Bank Charter Act whenever bullion reserves were in decline, but at the same time the Bank demanded the option to buy them back at a similar price at a later date, assuming the crisis would be over. Later in the century several publications popularised the use of ‘puts’, options to buy securities at a certain price in the future, and ‘calls’, which allow securities to be bought at an agreed price in the future, in foreign-exchange markets to take advantage of interest-rate arbitrage. Charles Castelli (1877) and Leonard Higgins (1896) explained their use in foreign-currency trading to a British audience. In America the principles were promoted by Samuel Nelson (1904). Foreign-exchange options were commonly traded by the 1930s (Auten 1961, p. 558). Thus, a profit could be made at low risk in the situation where the interest rates in the two countries were far enough apart (Berge et al. 2011, p. 358). After the recent global financial crisis of 2007–9, some researchers began to discuss mechanisms in modern times which were similar to those described by the Banking School. For instance, Swarnali Hannan (2017), using a sample of 34 emerging markets and developing economies from the third quarter of 2009 to the fourth quarter of 2015, discovered that the gap between long-term and short-term government bond yields is a driver of cross-border investment during periods of high capital flows. Her conclusions directly parallel Thornton’s theories about how crises start from the beginning of the nineteenth century. It also confirms Thornton’s observations that interest-rate differences have more effect in periods

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of high capital flows, which tend to be just before crises. In a more recent Bank of England working paper, Ambrogio Cesa-Bianchi et al. (2017) demonstrated the importance of capital flows by using a set of 38 advanced and emerging economies from 1970 to 2011. They showed that credit growth in the rest of the world has the significant effect of increasing the likelihood of a banking crisis at home. This conclusion is close to the Banking School’s theory that cross-border capital flows were a contributor to banking crises in Victorian Britain. Capital flows seeking arbitrage between the interest rates of two different countries can, in theory, easily cause financial instability. Investors who carry out such trades without hedging to protect against future currency fluctuations are likely to withdraw as soon as there is no advantage to them, exactly as was the case in the nineteenth century. However, in modern times this may lead to what has become known as a ‘carry crash’. Capital flows into the high-interest-rate country cease or even reverse; a floating exchange rate will plunge; and a fixed-exchange will break once foreign-currency reserves are exhausted. The sudden withdrawal of capital from a banking system can trigger a systemic crisis. The mechanism as a whole defies long-term analysis, but is very clear in shortterm analyses of particular crises, from the global financial crisis of 2007–9 to Turkey’s carry crashes since 2018. Some recent research on financial stability echoes the Banking School’s idea that an important underlying condition for increasingly frenzied and rash investments is low interest rates and returns, rather than simply under-regulation of the banking sector (Engel 1996). In 2018 Yueran Ma of Harvard University and Wilte Zijlstra of the Dutch Authority for the Financial Markets observed that when the risk-free yield falls below its historic average, investors’ use of risky assets increases in a non-linear fashion. This insight dates from as far back as Henry Thornton in the nineteenth century, although it was labelled in the research, understandably, as ‘new’. Ma and Zijlstra (2018) also argue that when interest rates decline and investors start searching for higher yields, systemic financial risk increases. It has been noted that since interest rates declined after the 2008 crisis and particularly since 2014, the opportunity for currency carry trades has greatly increased, and that there is a burgeoning demand for forward foreign-currency hedges and a widening spread between both short- and long-term interest rates (John 2018). Another parallel concern is that major banks and institutions will use cheap borrowing thanks to quantitative easing to engage in carry trades in order to try and build

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their reserves (Chuffart and Dell’Eva 2020). The lesson from the ideas of Banking School is that this situation, if not handled correctly by regulators, could provide the seeding ground for financial crises in the future (Borio et al. 2016; Coffey et al. 2009).

11.6

Conclusion

Economic theory has come a long way since the Bubble Act was repealed in 1825. Yet policymakers today still wrestle with many of the same issues that the Currency School and the Banking School did in the decades after this legislative change was made. Does company law encourage excessive risk taking and speculation? What is the relationship between speculation and the business cycle? What is the relationship between investment flows and financial crises? Given this, how could such crises be avoided in the future? As this chapter has shown, in the nineteenth century the Banking School and the Currency School came up with very different answers to this question, thanks to their conflicting interpretations of the crises of 1825, 1837 and 1847, in the wake of the Bubble Act’s repeal. The Banking School’s ideas have been revived in recent years in the form of the ‘carry trade’. However, in reality, it is unlikely that one particular theory alone can provide all the answers. As Gertjan Vlieghe, a monetary-policy committee member at the Bank of England, admitted to British MPs in 2017, economists are probably not going to be able to exactly predict the timing and nature of the next financial crisis or recession: ‘Our models are just not that good’.12

References Amsler, Christine, Robin Bartlett, and Craig Bolton. 1981. Thoughts of Some British Economists on Early Limited Liability and Corporate Legislation. History of Political Economy 13 (4): 774–793. Attwood, Thomas. 1829. Distressed State of the Country. Birmingham: Beilby, Knott and Beilby. Auten, John. 1961. Monetary Policy and the Forward Exchange Market. Journal of Finance 16 (4): 546–558.

12 ‘Bank of England not able to forecast next recession, it admits’, Financial Times, 21 Feb. 2017, https://www.ft.com/content/005d4c0e-f84e-11e6-bd4e-68d53499ed71.

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Berge, Travis, Òscar. Jordà, and Alan Taylor. 2011. Currency Carry Trades. NBER International Seminar on Macroeconomics 7: 357–388. Besomi, Daniele. 2011. Graphical Representations of Overstone’s Cycle of Trade. In Classical Political Economy and Modern Theory: Essays in Honour of Heinz Kurz, ed. Neri Salvadori, Christian Gehrke, Ian Steedman, and Richard Sturn, 289–312. Abingdon: Routledge. Borio, Claudio, Robert McCauley, Patrick McGuire, and Vladyslav Sushko. 2016. Covered Interest Rate Parity Lost: Understanding the Cross-currency Basis. BIS Quarterly Review (Sep): 45–64. https://www.bis.org/publ/qtrpdf/r_q t1609.htm. Accessed 22 Mar 2022. Castelli, Charles. 1877. The Theory of ‘Options’ in Stocks and Shares. London: Mathieson. Cesa-Bianchi, Ambrogio, Fernando Eguren Martin, and Gregory Thwaites. 2017. Foreign Booms, Domestic Busts: The Global Dimension of Banking Crises. Bank of England Working Paper No. 644 (3 Feb.). https://www.ban kofengland.co.uk/working-paper/2017/foreign-booms-domestic-busts-theglobal-dimension-of-banking-crises. Accessed 22 Mar 2022. Chaplin, Julia. 2016. The Origins of the 1855/6 Introduction of General Limited Liability in England. PhD diss., University of East Anglia. Chuffart, Thomas, and Cyril Dell’Eva. 2020. The Role of Carry Trades on the Effectiveness of Japan’s Quantitative Easing. International Economics 161 (May): 30–40. Coffey, Niall, Warren Hrung, and Asani Sarkar. 2009. Capital Constraints, Counterparty Risk and Deviations from the Covered Interest Rate Parity. Federal Reserve Bank of New York Staff Report No. 393 (Sep., rev. Oct.). https:// www.newyorkfed.org/research/staff_reports/sr393.html. Accessed 22 Mar 2022. Engel, Charles. 1996. The Forward Discount Anomaly and the Risk Premium: A Survey of Recent Evidence. Journal of Empirical Finance 3 (2): 123–192. Fullarton, John. 1844. On the Regulation of Currencies. London: John Murray. Geoghegan, Patrick. 2010. Liberator: The Life and Death of Daniel O’Connell, 1830–1847 . Dublin: Gill & Macmillan. Hannan, Swarnali. 2017. The Drivers of Capital Flows in Emerging Markets Post Global Financial Crisis. IMF Working Paper No. WP/17/52 (10 March). https://www.imf.org/en/Publications/WP/Issues/2017/03/10/ The-Drivers-of-Capital-Flows-in-Emerging-Markets-Post-Global-Financial-Cri sis-44739. Accessed 22 Mar 2022. Harris, Ronald. 1994. The Bubble Act: Its Passage and Its Effects on Business Organization. Journal of Economic History 54 (3): 610–627. ———. 1997. Political Economy, Interest Groups, Legal Institutions, and the Repeal of the Bubble Act in 1825. Economic History Review 50 (4): 675–96.

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———. 2000. Industrializing English Law: Entrepreneurship and Business Organization, 1720–1844. Cambridge: Cambridge University Press. Higgins, Leonard. 1896. The Put-and-Call. London: Effingham Wilson. Huskisson, William. 1831. Speeches of the Right Honourable William Huskisson. London: John Murray. Irwin, Douglas, and Maksym Chepeliev. 2020. The Economic Consequences of Sir Robert Peel: A Quantitative Assessment of the Repeal of the Corn Laws. NBER Working Paper No. w28142, SSRN (Nov.; last rev. 24 Nov. 2021). https://ssrn.com/abstract=3739639. Accessed 18 Mar 2022. Jacob, V. 1937. Studies in the Theory of International Trade. London: Routledge. John, Dewi. 2018. Briefing: The Return of Carry. IPE Magazine (Jan.). https://www.ipe.com/briefing-the-return-of-carry/10022500.article. Accessed 22 Mar 2022. Lee, Jamie, Kevin Coldiron, and Tim Lee. 2020. The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis. New York: McGraw Hill. Ma, Yueran, and Wilte Zijlstra. 2018. A New Take on Low Interest Rates and Risk Taking. VOX eu , CEPR Policy Portal, 7 March. https://voxeu.org/art icle/new-take-low-interest-rates-and-risk-taking. Accessed 22 Mar 2022. Nelson, Samuel A. 1904. The ABC of Options and Arbitrage. New York: Nelson. O’Brien, Denis, ed. 1971. The Correspondence of Lord Overstone. 3 vols. Cambridge: Cambridge University Press. Overstone, Samuel Jones Loyd, Baron. 1837. Reflections Suggested by a Perusal of Mr. J. Horsley Palmer’s Pamphlet on the Causes and Consequences of the Pressure on the Money Market. London: Pelham Richardson. ———. 1840. Remarks on the Management of the Circulation; and on the Condition and Conduct of the Bank of England and of the Country Issuers, During the Year 1839. London: P. Richardson. ———. 1858. Tracts and Other Publications on Metallic and Paper Currency by the Right Hon. Lord Overstone, ed. J.R. McCulloch. London: Longman, Brown. Palgrave, Robert. 1903. Bank Rate and the Money Market in England, France, Germany, Holland, and Belgium 1844–1900. London: John Murray. Price, F.G.H. 1876. A Handbook of London Bankers. London: Chatto & Windus. Read, Charles. 2014. Peel De Grey and Irish Policy 1841–1844. History 99 (334): 1–18. ———. 2015. The “Repeal Year” in Ireland: An Economic Reassessment. Historical Journal 58 (1): 111–135. ———. 2016. Laissez-faire, the Irish Famine and British Financial Crisis. Economic History Review 69 (2): 411–34.

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———. 2019. The Political Economy of Sir Robert Peel. In Money and Markets: Essays in Honour of Martin Daunton, ed. Julian Hoppit, Adrian Leonard, and Duncan Needham, 71–89. Woodbridge: Boydell Press. ———. 2022. The Great Famine in Ireland and Britain’s Financial Crisis. Woodbridge: Boydell Press. ———. 2023. Calming the Storms: The Carry Trade, the Banking School and British Financial Crises Since 1825. London: Palgrave Macmillan. Select Committee on Banks of Issue. 1840. Report from Select Committee on Banks of Issue; with the Minutes of Evidence, Appendix, and Index, 17 Aug. 1840, HC Papers 602, IV.1. Schonhardt-Bailey, Cheryl. 2006. From the Corn Laws to Free Trade: Interests, Ideas, and Institutions in Historical Perspective. Cambridge, MA, and London: MIT Press. Schwartz, A.J. 2008. Banking School, Currency School, Free Banking School. In The New Palgrave Dictionary of Economics. vol. 1, Abramowitz–collusion, ed. Steven N. Durlauf and Lawrence E. Blume, 353–58. London: Palgrave Macmillan. Thornton, Henry. (1802) 1965. An Enquiry into the Nature and Effects of the Paper Credit of Great Britain. New York: Augustus M. Kelley. Tooke, Thomas. 1826. Considerations on the State of the Currency. London: John Murray. ———. 1844. An Enquiry into the Currency Principle. London: Longman, Brown, Green, and Longmans.

CHAPTER 12

Agency Houses in Bengal and the Indigo Bubble Tehreem Husain and Nadeem Aftab

12.1

Introduction

Historians treat 1720, the year of the South Sea Bubble and passage of the Bubble Act, as a watershed moment in the development of the jointstock company (Harris 1994). The conservative nature of the act gave the Crown near-monopoly power over the creation of corporations, which could be created only through the use of royal charters, letters patent, or acts of Parliament. There are three main explanations for the introduction of the act: to check alternative investment opportunities so that capital could be diverted toward shares in the South Sea Company (Harris 1994; Turner 2018); to divert attention from popular uproar related to investor

T. Husain (B) University College London, London, UK e-mail: [email protected] N. Aftab Banking and Finance, University of Northampton, Northampton, UK e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 H. Paul et al. (eds.), The Bubble Act, Palgrave Studies in the History of Finance, https://doi.org/10.1007/978-3-031-31894-8_12

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abuses (Shannon 1931); and to raise revenue through a grant of royal charters (Patterson and Reiffen 1990). It was a highly cumbersome course of action for entrepreneurs to obtain authorisation in a charter or an act. This limited the formation of joint-stock companies with transferable shares. To circumvent the law, businesses responded by organising themselves as family firms, closed partnerships, or unincorporated, trust-based ‘Deed of Settlement’ companies (Televantos 2020). The creation of the English East India Company (EIC)1 achieved two milestones in the evolution of the public company (Chaudhuri, 1965). Firstly, the EIC raised capital from investors and hence involved a wider set of people than would occur under a partnership. Secondly, it created a permanent and perpetual joint-stock (Neal 1993). To protect the commercial interests of the EIC, it was given exclusive monopoly trading rights with various countries. The EIC was a pioneer joint-stock organisation which had state protection against competition from merchant firms (Harris 2000). (It was obviously based on its predecessor the Dutch East India Company or VOC.) The Bubble Act reinforced the monopoly powers of the EIC, increasing the restrictions on uncharted businesses to prevent them from challenging the EIC’s monopoly and the state’s privilege to grant it (Butler 1985). This chapter takes the debate on the impact of the Bubble Act outside Britain. It argues that the passage and repeal of the act had little, if any, direct impact on the growth and trade of business in Bengal, the first trading post in colonial India. Although the passage of the Bubble Act established the ‘doubtful’ status of unincorporated joint-stock enterprises in Britain (Hunt, 1935, 23), unincorporated business organisations known as agency houses occupied a major position in the trade and finance of the Far East (Chapman, 1988). Those heavily engaged in the East India trade, namely the unincorporated East India agency houses trading in various commodities including indigo, flourished in India and had an extensive network of branches, franchises, and partners overseas (Rungta 1962). Synonymous with ‘commission house’, the agency houses

1 Founded in 1600 by royal charter as the Governor and Company of Merchants of

London Trading into the East-Indies. See ‘Copy Letters Patent of Elizabeth I granting to the Earl of Cumberland and 215 others the power to form a corporate body to be called the “Governor and Company of Merchants of London, trading into the East Indies” and naming Thomas Smith the first governor’, 31 Dec. 1600, ref. IOR/A/1/2, British Library, UK. After 1707, it became the British East India Company.

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invested in indigo factories, acted as agents for indigo planters, and had interests in sugar plantations, ship building, and commercial relations with other mercantile firms in the Far East (Chapman 1992, 107). In that sense, it can be argued that the Bubble Act remained a ‘dead letter’ (barring the few instances when the act was invoked) as unincorporated agency houses thrived in India (Shannon 1931, 269). Consequently, in 1825, when the Bubble Act was repealed and an ensuing (or coincidental) speculative crisis was brewing, London’s indigo market also experienced highly volatile price swings. This chapter investigates the case of Bengal-based East India agency houses, which engaged in the indigo trade and faced a spate of failures from 1827 to 1833. Indigo offered a lucrative avenue of investment for the EIC and its officers; that, coupled with easy monetary conditions in Bengal, would make it the focus for the agency house crisis that followed. Soon, the Indian market was flushed with indigo supplies and, in the aftermath of the global crisis of 1825, faced depressed prices of the crop in London. The disequilibrium led to the failure of the East India agency houses in Bengal and had a systemic impact on local businesses and financial institutions. This multi-sector crisis spurred a debate on legislation for limited liability corporations. Eventually, replicating legal developments in Britain, the Companies Act was passed in India in 1850, with the benefit of limited liability extended to banking companies in 1860. The chapter is organised as follows. Section 12.2 gives a brief background of the Bubble Act in England. Section 12.3 discusses the Bubble Act and its impact in England and India. Section 12.4 and 12.5 discuss the indigo boom and bust episode in India and the resulting demise of the East India houses of agency. Section 12.6 discusses how the failure of the East India agency houses led to a discussion of the need for regulation in India, which resulted in the passage of the Indian Companies Act of 1850. Section 12.7 concludes.

12.2

Background

The opening of new trade routes between Europe and Asia at the end of the fifteenth century offered European merchants and traders opportunities to explore various parts of the world including India (Broadberry et al. 2015). Over time, fierce competition emerged between the Portuguese, Dutch, and French for establishing control over various regions in India. However, developments like restrictions imposed by the

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government of Louis XIV to limit independent trading ventures for the French and a muted interest of the Dutch and other European powers created more opportunities for the EIC’s trade with India (Bhattacharya 1954). The EIC established its first factory in India as early as May 1633. By the mid-eighteenth century, the Mughal empire was reduced to ‘roughly a rectangular wedge of territory, about 250 miles from north to south and 100 miles broad’ (Spear 1951, 5). The weak and fragmented government created a vacuum that allowed the EIC to strengthen its grip on Bengal, and they achieved a clear political ascendancy after the battles of Plassey in 1757 and Buxar in 1763 (Bhattacharya 1954). After establishing its foothold, the EIC made Calcutta its administrative and commercial centre and expanded its mercantile networks to other parts of India. This also allowed the EIC to strengthen its links to multiple destinations overseas, including China and the Far East, America, France, the Persian Gulf, the Netherlands, and South America (Singh 1966). The EIC’s political control of Bengal and other foreign territories needed a strong institutional base. The private unincorporated business organisations, the East India agency houses, with their bases in the city of London and branches in India and beyond, filled the market gap (Manton 2008; Chapman 1988). In Britain, these enterprises represented domestic merchants and manufacturers of considerable standing, and in India, they had partnership arrangements with Indian businessmen. Under the umbrella of the EIC, the East India agency houses in London and Bengal employed civil and military officers of the company to tap mercantile skills as well as local knowledge. These conglomerates played their crucial role in bridging the two trading posts of London and Calcutta. The agency houses grew in power, commanding a network of trading, financial, and shipping businesses. Tensions between the EIC and the agency houses surfaced with the latter starting to challenge the company’s monopoly over trade with the East. This is also evident in Fig. 12.1, which shows the importance of private trade in India. Chapman (1992) argues that the Liverpool and Manchester manufacturer-merchants campaigned to break the EIC’s monopoly over trade to the East. The Charter Act of 1793 helped those interest groups and brought an end to the exclusive monopoly of the EIC in Bengal, opening the market to private traders (Singh 1966). The Charter Act of 1813 imposed more limits on the company’s monopoly and restricted it to trade in tea and opium only. In the final round, the Charter Act of 1833 prohibited commercial trading activities of the EIC and reduced it to a purely political entity (Sinha

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Fig. 12.1 Company and Private Trade (Source Tripathi [1954, 347, 351, 359, 367, 375, 406, 415])

1927). Overall, the period from the 1790s to 1830 witnessed a transition in trading rights from the EIC’s monopoly to a rather competitive market structure; however, the trade itself remained confined to select commodities like cotton, indigo, opium, and tea (Misra 1999).

12.3 The Bubble Act and Its Impact on the Metropolis and Colonies Harris (1994, 611) showed that the ‘special interests’ of the South Sea Company led to the Bubble Act. As it transpired, the act’s creators did not aim to affect home and foreign trade, and the statute had only a limited impact on the partnership form of businesses. To counter the legal restrictions, the business and legal community innovated by introducing a new device ‘the Deed of Settlement Company’. These hybrid (unincorporated) joint-stock companies increased both in number and importance (Lord Lindley cited in Evans 1908, 354). They helped in circumventing the law, as they were counted as ordinary partnerships; however, for all practical purposes (e.g., issuance of transferable common stocks), they worked like joint-stock companies (Rungta 1962). The Bubble Act was only used

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once to cast doubts on the legality of unincorporated companies, and that was in 1825. The act itself was repealed by Parliament the same year (Shannon 1931). In fact, in the common law, there is no instance of labelling an unincorporated joint-stock as ‘illegal’ (Hunt 1935, 9). According to Harris (1997), the repeal of the Bubble Act is only explained by integrating the working of interest groups within Parliament and the legal system. Broadly, the repeal of the act was related to a particular phase of economic development. The abundance of private wealth promoted a ‘search for yield’. British investors started looking for profit opportunities beyond government debt and a few chartered companies, like the Bank of England and the EIC. Frenzied trading of newly formed unincorporated joint-stock companies supposedly investing in the South American region led to a speculative bubble in 1825. These joint-stock companies promised extraordinary returns on investment. Unincorporated joint-stocks were more popular than partnerships because the former could be freely traded; this attracted investors to a wide range of sectors, from mining to retail, in the domestic and overseas markets (Hunt 1935). The repeal of the Bubble Act coincided with a speculative stock market bubble which eventually crashed and, after a hiatus, sparked a new debate on the incorporation of joint-stocks (Harris 1997). The passage and repeal of the Bubble Act had no direct impact on enterprises or business houses in India. Throughout the existence of the act, the EIC offered relentless opposition to the granting of any charter, particularly for banks, which could jeopardise its monopoly privileges. Until the mid-nineteenth century, only the Presidency Banks of Calcutta, Bombay, and Madras were founded by acts of Parliament. This was done to strengthen the EIC’s grip on Indian finance and administration. In a parallel world, aloof from the legal debates on the corporate form, Indian businesses mostly remained family- or community-oriented partnerships. A range of factors contributed to this status quo. According to Bayly (1988), they were: the agrarian character of the Indian economy; the deliberate absence of a body of entrepreneurial laws; the informality of the relationship between businesses and the state (before the EIC); and the long-standing historical divisions on the basis of religion, caste, location, ethnicity, and a host of local customs.

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12.4 The East India Company, Houses of Agency, and the Indigo Boom Exploring British exports during the industrial revolution, Crouzet (1980) argued that the overall growth trend witnessed volatility from no or low growth to high growth periods. However, the mean growth rate remained a meagre 1.5 per cent during the period from 1697 to 1800. From 1781 to 1800, there was extraordinary growth which exceeded 5 per cent on average. This was, in part, backed by a strong 14 per cent growth in exports of cotton yarn and manufactures. The other contributing factors were the end of the American War of Independence in 1783; the Charter Act of 1793, which diluted the EIC’s monopoly powers; and the growing political stability at home. These developments gave impetus to the British economy. With the conclusion of the Napoleonic Wars in 1815, British business houses had already established a foothold in new markets and dominated the trade in new commodities like indigo, cotton, and various metals (Bhattacharya 2021). Overseas, these developments were matched by the growing wealth of merchant traders and monopoly ‘company-states’ like the British EIC. The civil and military officers of the EIC had amassed savings and needed dependable channels for remittance to Britain and investment in profitable concerns (see Table 12.1). A combination of the factors already mentioned gave a strong incentive to the merchant-trader agency houses to expand their networks in India (Singh 1966). Later, with the passage of the Charter Act of 1813, there was a complete opening of the East India trade to private enterprise. This led to a rush to open branches of British agency houses in India or to forge partnerships with Indian houses of the agency. Unsurprisingly, the new houses usually had connections with manufacturing bases like Manchester, or ports like Liverpool. From small beginnings, they developed their foothold in Bengal. In 1790, there were 15 agency houses in Bengal. By 1828, their number had risen to 27 (Webster 2007; Singh 1966). (For a list of the principal agency houses in London, see Table 12.2.) Toward the end of the eighteenth century, the reforms initiated by Lord Cornwallis resulted in three distinct trading groups in India: the EIC, European traders, and British private traders. The last group, the British private traders, organised themselves into properly constituted firms known as the agency houses. A majority of them undertook agency and banking business in and outside Britain. With growing commerce

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Table 12.1 Private Remittable Capital of Bengal Savings of the Civil Service: Total Income-82 lakh and pension fund Savings of the Military Service: Total Income-150 lakh European Mercantile Profits: Gross Profit-67 lakh Profits from Industries, houses and professions (Profits from indigo manufacture calculated as 5 per cent on a capital of 80 lakh) Interest payable to resident creditors on 4 crores at 6% Interest payable to absentee creditors on 6 crores at 6% Total

21.5 19 33.5 22 24 36 156

Source Tripathi 1954, 292

Table 12.2 East India Houses of Agency in London, 1828

Bazett, Colvin, Crawford and Co Blanshard, Henry Burnie, Williams and James Campbell, John Cockburn, J. & Co Cockerell, Trail and Co Fairlie, Bonham and Co Fletcher, Alexander and Co Gregson, Melville and Knight Hunter and Co Inglis, Forbes and Co

Lubbock, Sir J. W. and Co Macdonald, John Palmer, Mackillop and Co Raikes, William and Thomas and Co Rickards, Mackintosh and Co Saunders, Thomas Scott, Robert, Fairlie and Co Small, Colquhoun and Co Watts and Heath Weeding, Thomas Wigram and Co

Source East India Register and Directory, 1828, lxiii

and trade between Britain and India, those agency houses took over a large part of the business from the EIC officials and acted for them on commission (Kumar and Desai., eds. 1983). In fact, the agency houses had little capital of their own and operated principally on borrowed capital. They attracted substantial deposits by offering a higher rate of return than government debt instruments (Webster 2007). The agency houses invested their own and the company servants’ money in government paper, afforded help to the EIC in remittance of funds to China,

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and placed their ships at the disposal of the company for the conveyance of troops to various theatres of war (Singh 1966; Tripathi 1954). These agency houses had a global business and were closely tied with mercantile organisations in London. The biggest and most important agency house of Palmer & Co.2 had commercial connections in India, Southeast Asia, China, South Africa, the USA, and Europe (Webster 2007). Their London correspondents were the house of PalmerMackillop & Co. and the East India house of Paxton, Cockerill, Trail & Co. (Knight 1975). Relations between the houses centred on mutually beneficial commercial activities. The London firm purchased indigo and other commodities using loans made to producers by Palmer & Co. (Webster 2007). Other important agency houses operating in India were the house of Fairlie, Fergusson & Co., closely connected with David Scott & Co. of London; Messrs Mackintosh & Co., connected with Messrs Rickards, Mackintosh & Co. of London; and Messrs Alexander & Co. with Messrs Fletcher, Alexander & Co. The capital with which agency houses operated was obtained mostly locally, though they might have also relied on the financial resources of their metropolitan correspondents (Singh 1966). Indigo, which was primarily used as a dyestuff, was a new article of export and soon became an important item of trade (Sinha 1927). Indigo was a superior blue dye, unsettling the European woad industry. It also had a high value-to-volume ratio, which made it ideal for longdistance shipping (Nadri 2016). It was initially obtained from Jamaica and other British possessions in the West Indies. Indigo was then abandoned as a crop there in favour of higher profits yielded by coffee and sugar cultivation (Sinha 1927). Subsequently, British dyers relied on the American colonies, but supply was disrupted by the war of independence. Bengal indigo also prospered due to the rapid decline in the cultivation of the commodity in St Domingue (modern-day Haiti), from which the French drew their supplies. Investment in indigo first appeared in the EIC’s portfolio in 1780, when the company entered into a contract with

2 John Palmer, the company’s founder, set up business in Bengal as early as the 1780s and expanded partnerships in Calcutta. Palmer & Co. was formally established in 1810 (Knight 1975).

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Mr Princep, then resident of Calcutta,3 to purchase indigo at favourable prices (Tripathi 1954). With the Charter Act of 1793 abolishing the exclusive monopoly of the EIC, the British and their correspondents and partner agency houses in India engaged in competition in indigo cultivation. In a few years, Bengal became one of the leading indigo-producing regions of the world (Greenberg 1969). In 1810, out of a total of 6 million lbs. of indigo imported into Great Britain, more than 5 million lbs. came from Bengal (Nadri 2016, 114). It is important to understand the indigo supply chain and how intricately each player was bound to the agency houses. Everyone, from the planter to the EIC itself, depended on the agency houses for financing. The agency houses gave advances to the indigo planters at a high rate of interest of 12 per cent, mostly under the condition that the indigo produced had to be sent to the money-lending agent for sale. In addition to the interest, the agency houses charged planters 2.5 per cent on advances and 2.5 per cent on sales of indigo. The EIC received advances on account of indigo from these agency houses (Singh 1966).

12.5

Agency Houses and Indigo Trade Crisis

Jobbing in indigo is ruining all the commercial houses in Calcutta. If they are to confine themselves to the profits of their commission, they would all make fortunes. (Jacquemont 1834, 209)

During the 1820s, agency houses were heavily involved in the indigo trade. The lucrative nature of the crop, with a 20–40 per cent price differential between India and Britain, attracted business houses from both London and Bengal (Select Committee of the House of Lords 1830). However, the speculative nature of the indigo market, the time lag between indigo’s sowing and harvesting (from six to eight months), and the time required for its shipment from India to England (another six to seven months) drove volatility in its prices. The fact that indigo could be stored for a long period also affected its marketability in the next

3 The residency was an institution which grew in tandem with the EIC’s political predominance in India. As the company’s territorial acquisitions increased, it forged agreements with local rulers and neighbouring states and posted their political residents to secure their frontiers (Wilkinson 2017).

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Fig. 12.2 Decade-Wise Exports of Indigo, Opium, and Cotton (Source Kumar and Desai [1983, 846])

season. Nonetheless, indigo remained a key cash crop until the 1830s (see Fig. 12.2), serving as a major vehicle for remittance in the days when the EIC still enjoyed a monopoly on trade with China and on a number of Indian commodities. (Bagchi 1987).4 There was strong international demand for indigo in the years 1820 to 1825. Even during times of increased production in Bengal, prices remained high. Britain represented the largest market for Bengal indigo. Tripathi (1954), using Bengal Commercial Reports, notes that indigo fetched Rs. 120–160 per maund in 1820–21, but then jumped to Rs.190– 320 in 1822–23 (Fig. 12.3). (For a comparison with other commodities, see Table 12.3.) In India, the domestic environment after the provisional revision of the Charter of the Bank of Bengal in 1823 permitted note issuance up to the value of Rs. 2 crores. This led to easy monetary conditions and stimulated the indigo boom (Bagchi 1987). Easy money drove agency houses to borrow at low-interest rates and then invest heavily in indigo. This, in turn, offered a highly profitable means of remittance in Europe (Tripathi 1954). Greenberg (1969, 34) states that, at the height of the commodity boom, Calcutta agency houses controlled 1.2 million

4 Webster (2007) takes the example of Palmer & Co. to explain ‘remittance’ in detail. Broadly, he explains, remittance is the value of goods imported from India and set off in the books of the London firm against monies paid out by them on behalf of either Palmer & Co. or the constituents of the Calcutta firm.

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Fig. 12.3 Indigo Prices, 1822–1830 (Source Singh [1966, 313])

acres of indigo plantations worth £2–3 million and nearly 300 indigo factories giving subsistence to 500,000 Indian families. By 1825, the indigo market reached its peak in London, where every rupee invested produced a remittance of two shillings and one and a half pence (Singh 1966; Bagchi 1987). It is no surprise that the favourable global prices and easy monetary conditions domestically resulted in a reckless speculative bubble in indigo. Then, conditions changed. There were a large number of rival company promotions in different sectors, including railways.5 Then, between the repeal of the Bubble Act in 1825 and the opening of the next stock exchange trading session in 1826, the London stock market crashed. Many of the newly promoted companies were traded for the first time below par on the London Stock Exchange. Even the prices of EIC and Bank of England shares took a downward turn (Harris 1997). Interest rates had risen, making borrowing more expensive. Investor sentiment became more cautious, eventually leading to a panic. Thirty-six country banks subsequently failed (Brunnermeier and Schnabel 2015). 5 There was an explosion of company promotions and bond issues by foreign governments, mining companies, railways, utilities, docks, and steamships. In total during 1824–1825 some 624 companies hoping to raise £372 million were brought to the market (Singh 1966).

12/08–14 8/8–9/8 8/8–12 – -/14–1–5

Cotton per maund Sugar (Benares) per maund Silk (Cossimbazar) per seer Indigo per maund Rice (Buckerrange) per maund

18–22 9/1–11/8 Dec-13 120–160 1/11–1/14

1820–21 13/8–16 8–9/13 14–15/8 190–320 1/5–1/9

1822–23

Source ‘Price Currents in Bengal Commercial Papers’, cited in Tripathi 1954, 294 and 309

1813–14

Article

Table 12.3 Prices of Indian Goods, 1813–1832 (Prices in sicca rupee)

13/4–16/9/4–10/4 14/8–16/270–330 –

1826

12/8–14/10/6–11/12 12/12–13/4 233–310 –

1828

12/8–13/3/4–10/9/4–11/8 140–158 –

1832

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Years of easy monetary policy in India were suddenly halted in the aftermath of the first Anglo-Burmese War (1824–1826) (Doveton 1852). The British Indian government dominated the debt market to satisfy its demand for war finance. The crowding-out effect made it difficult for the agency houses to compete for market finance (Sinha 1927). The large subscriptions to the 1826 5 per cent government loan led to monetary scarcity (Singh 1966). The agency houses were heavily dependent on external funds for financing the crop, and hence they were severely affected. Adding to the injury, in 1826, the prospects of indigo prices in London remained discouraging. After the bursting of the speculative bubble, the recessionary conditions in Britain had spill-over effects on the agency houses, including that of Messrs Palmer & Co. (Bagchi 1987). The British Indian government was aware of the difficulties faced by the mercantile community and advanced loans to the agency houses in June 1826. The largest loan went to Messrs Palmer & Co. However, six months later, Messrs Palmer & Co. requested further help. Instead of offering further loans, the government extended the period of repayment by another three months (Singh 1966). This action compounded the difficulties of agency houses that relied on borrowed capital for financing their business (Tripathi 1954). G. G. de H. Larpent gave evidence to the Select Committee on Manufactures, Commerce and Shipping in 1833, saying: ‘The state of prices in England in the year 1826 and 1827, after the panic of 1826, which added considerably to all commercial difficulties; and these causes, and the low prices of the produce exported from India, brought some of the houses of Calcutta into difficulties’ (para. 2066). In addition to recessionary conditions in England, monetary stringency continued in India, and by 1827–28, several European and Indian agency houses had gone bankrupt for a total sum of Rs. 157 lakh (Bagchi 1987). Indigo prices fell in London in April 1828 (in a range between Rs. 233–310/maund), due partly to a bumper crop. The EIC and private traders were adversely affected (Sinha 1927). The crisis in the Bengal indigo market deepened in 1830 with the demise of the Agency House of Messrs. Palmer & Co. Its interconnections with Cockerill, Trail, and Co. in London shook investor confidence in the remaining agency houses,

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banks and businesses.6 There was a run on the Bank of Hindostan and a serious decrease in its note circulation (Singh 1966). The demise of the Agency House of Messrs Palmer& Co. had a devastating effect on other businesses in Calcutta (Singh 1966; Chaudhuri 2010). The Bank of Bengal, a government bank, was also extensively involved with the operations of the agency houses and came to their rescue on several occasions. There were three reasons for this: the partners of the agency houses were heavily represented on its board; much of its business involved agency houses as its customers; and due to its status as a government bank, the government directors were in constant touch with agency houses, especially during the crisis episode. In June 1830, the Bank of Bengal advanced Rs. 0.9 million to the agency house of Alexander & Co. (Bagchi 1987). However, this could not stem the deluge of problems faced by the agency houses. A sharp decline in indigo prices in 1832 to Rs. 140–158 precipitated a series of further failures. Alexander & Co. collapsed in 1832, followed by Mackintosh & Co. in 1833. This led to the failure of the house of Rickards, Mackintosh, and Co. of London.7 In subsequent years, indigo exports partially recovered. However, by 1837–38, opium had become the new gold and replaced indigo exports (Bagchi 1987). The spate of failures of the agency houses led to increased calls for regulation. In an ‘Extract Letter from the Court of Directors to the Governor-General in Council at Bengal (Financial Department)’, dated 2 April 1828, the Court of Directors wrote of the commercial crisis in India following the collapse of major agency houses. They noted that this created distrust among the native population for the ‘European mode and character of transacting business’. They also made a case for an appropriate law: For their opinion upon the state of partnership and bankrupt [sic] laws, as applicable to India; it being our intention to consider the propriety of applying for a legislative enactment, to remedy so far as may be practicable all existing defects, and to guard the Indian community against losses

6 Knight (1975) refers to Palmer’s Letter Books which held account of some £400,000 debt owed to Cockerill Trail and Company. The total debt of Palmer & Co. around their bankruptcy was £5 million. 7 See Asiatic Journal and Monthly Register, n.s., 11 (June 1833): 55.

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in their transactions with Europeans, whether arising from improper collusion, or from the failure of firms the partners in which may have transferred their property to England. (Select Committee on the Affairs of the East India Company 1831–32, HC 734, general append. 5, at pp. 287–88)

In later evidence given to the Select Committee on Indian territories (1853, para. 5941), R. Wright stated: In India, I believe, it is usual for merchants to direct their capital into as many channels as they can, in the expectation that if one should fail, another may succeed. But supposing a merchant starting with a capital of say 10,000 rupees, intending to confine his transactions to cotton alone; his first object, I presume, would be to commence his purchases when prices in this country were high […] The period which must elapse between the purchase in India and the sale in England is so considerable […] that the prices may, in the interval, have changed so much, that what promised to prove a lucrative speculation has become a very losing one.

He goes on to say: In such a case his future operations would be crippled for want of funds […] In the case of a joint stock company such a result is less likely to follow a first loss, for, each shareholder being but slightly affected, is less likely to be discouraged from trying his luck a second time.

These debates and the passage of the Companies Acts in India are discussed in the following section.

12.6

Toward the Companies Acts

While giving evidence to the Select Committee on the State of Affairs of the East India Company (1831–32, HC 735-II, append. 4, at p. 590), Holt Mackenzie, a British colonial administrator, said: Skill and capital, and character and credit which create capital, should be invited to the country, not repulsed from it. Every measure should be taken that is likely to promote the introduction of new articles of export, or the improvement of the existing productions of the country. […] the establishment of joint stock societies for beneficial ends should be encouraged.

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After the failure of the agency houses, the Charter of the Bank of Bengal underwent several changes. The bank was allowed to increase its capital in 1836 and was allowed a legal personality in 1839 (East India […] Acts of the Governor-General of India 1860). It had the five characteristics of a modern company: i.e., a separate legal personality, limited liability, transferable joint-stock, delegated management, and investor ownership (Turner 2018). Therefore, a plausible argument can be made that agency houses were forerunners of joint-stock banks established in India along European lines (Savkar 1938). The first companies act was passed in India in 1850. The act made registration of joint-stock companies optional and laid down certain conditions—primarily in regard to the disclosure of information and the prohibition of certain types of sharp practices. It did not confer the advantage of limited liability on shareholders of registered companies (Bagchi 1987). The 1850 act made a provision for the registration of a company by the then Supreme Courts of Bombay and Calcutta, which were to be merged into the High Courts in the 1862 reforms. In 1857, a new companies act, patterned on the British acts of 1855 and 1856, was passed in India. The 1857 act conferred the privilege of limited liability and purported to regulate the activities of a registered company (Bagchi 1987). Again, following the British Act of 1858, the government of India passed a law in 1860, allowing the shareholders of joint-stock banks to enjoy limited liability, provided they were properly registered. Limited liability became very popular among industrial firms in Bombay and Calcutta. The global character of Indian port cities required them to adopt a legal framework compatible with Britain and the empire. Even before the passage of the 1857 act, the idea that a joint-stock firm had a legal personality took shape in the Indian port cities due to sustained contact with English law (Roy and Swamy 2016).

12.7

Conclusion

The passage of the Bubble Act, considered a ‘watershed moment’, had implications for the genesis of the joint-stock company (Harris 1994, 610; Shannon 1931, 2). The act attempted to forbid the formation of incorporated joint-stock companies and, in theory, imposed a limit on business organisation. However, barring some controversy as to the aims, the ‘legal ambiguity’ and lack of ‘enforcement’ meant that the act has little impact on enterprise growth and performance. The partnership-based businesses

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of eighteenth-century Britain, armed with utilitarian motives, responded quickly and started to organise themselves as unincorporated joint-stock firms (Televantos 2020). With the growing political power of Britain in overseas territories, such businesses continued to expand and multiply both at home and abroad. Using the case of Bengal, then part of British India, to assess the impact of the Bubble Act outside Britain, we find that the passage of the act had little, if any, direct impact on the growth and trade of business in Bengal, the first trading post in colonial India. The flailing and fragmented government in eighteenth-century India attracted foreign traders from all over the world, providing room to the British partnership-based organisations, the East India agency houses, to expand their eastern trade by building a network of branches, franchises, and overseas partnerships (Bernier 1826; Singh, 1966). With their vast business networks, the East India agency houses seized the moment and forged strong commercial ties with the EIC and the correspondent networks in London. The East India agency houses offered a multitude of agency and financial services in India. In the first quarter of the nineteenth century, the agency houses rode the global demand for indigo and heavily engaged in the commodity life cycle, from financing the planter to purchasing the crop output and eventually shipping it to London for onward sales through their parent-concerns or correspondents. In 1825, when the Bubble Act was repealed and the speculative stock market crisis ensued, London’s indigo market went into a tailspin, exhibiting unprecedented price volatility. Recessionary conditions in London transmitted through the commodity price channel had an indirect impact on the Bengal-based agency houses. The records show that the agency houses engaged in speculative trading in the crop that resulted in the Calcutta price of indigo increasing from Rs. 130 to Rs. 300 per maund in 1824, followed by a downward spiral in subsequent years, bringing it down to Rs. 145 per maund in 1832. The sharp fluctuation in prices reflected the speculative nature of the agency houses’ indigo trade. The disequilibrium between indigo supply and demand conditions in London and Bengal, coupled with sharp monetary contraction in India, eventually led to massive failures of agency houses during the period from 1828 to 1833. This had a systemic impact on banks and local business houses in India. The multi-sector crisis spurred a debate on legislation for limited liability corporations. In a document returned to the House of Commons titled ‘On the need

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for improving Internal Communication in the Carnatic’, and dated 20 November 1838, J. Kellie, an assistant surgeon, observed that, with the decline in indigo, and a concerted effort toward the promotion of cotton cultivation, The formation of joint stock companies will at once effect every thing that is desired. It is to them that England is indebted for her railroads, canals, and indeed for almost every establishment of great public utility, carried on as they are by the combined capital and energies of large bodies of individuals. (Kellie 1838, p. 49)

Eventually, mimicking the legal developments in Britain, the Companies Act was passed in India in 1850, with the benefit of limited liability extended to banking companies in 1860. Important structural changes were undertaken to reshape the financial architecture of the country. This included the separation of agency and banking business, greater involvement of the Indian government toward ‘financialization’ through the founding of country-wide banks, and a realisation of the importance and need for a ‘greater banking establishment for India’—in simple terms, a central bank (Reasons for the Establishment 1836, 2).

References Bagchi, Amiya Kumar. 1987. The Evolution of the State Bank of India. Vol. 1, The Roots, 1806–1876. Oxford: Oxford University Press. Bayly, C.A. 1988. Rulers, Townsmen and Bazaars: North Indian Society in the Age of British Expansion, 1770–1870. Cambridge: Cambridge University Press. Bernier, François. 1826. Travels in the Mogul Empire. Vol. 1. Translated by Irving Brock. London: W. Pickering. Bhattacharya, Prabir. 2021. India in the Rise of Britain and Europe: A Contribution to the Convergence and Great Divergence Debates. Journal of Interdisciplinary Economics 33 (1): 24–53. Bhattacharya, Sukumar. 1954. The East India Company and the Economy of Bengal from 1704 to 1740. London: Luzac. Broadberry, Stephan, Johann Custodis, and Bishnupriya Gupta. 2015. India and the Great Divergence: An Anglo-Indian Comparison of GDP per capita, 1600–1871. Explorations in Economic History 55 (Jan.): 58–75. Brunnermeier, Markus K., and Isabel Schnabel. 2015. Bubbles and Central Banks: Historical Perspectives. CEPR Press discussion paper no. 10528. London: Centre for Economic Policy Research. Accessed 22 Sep. 2022. https://cepr.org/publications/dp10528.

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Butler, Henry N. 1985. Nineteenth-Century Jurisdictional Competition in the Granting of Corporate Privileges. Journal of Legal Studies 14 (1): 129–166. Chapman, S.D. 1988. The Agency Houses: British Mercantile Enterprise in the Far East c. 1780–1920. Textile History 19 (2): 239–254. ———. 1992. Merchant Enterprise in Britain: From the Industrial Revolution to World War I . Cambridge: Cambridge University Press. Chaudhuri, K.N., ed. 2010. The Economic Development of India Under the East India Company 1814–58: A Selection of Contemporary Writings. Cambridge: Cambridge University Press. Reprint. Crouzet, François. 1980. Toward an Export Economy: British Exports During the Industrial Revolution. Explorations in Economic History 17 (1): 48–93. Doveton, F. B. 1856. Reminiscences of the Burmese War in 1824–5–6. (Originally published in the Asiatic Journal) […] with illustrations, from original sketches by the author. London. East India (incorporation of banks of Bengal, & Co.): Copies of the Several Acts of the Governor-General of India in Council for the Incorporation and Regulation of the Banks of Bengal, Bombay and Madras Respectively, 1860, HC Papers 53, XLIX.571. Evans, Frank. 1908. The Evolution of the English Joint-Stock Limited Trading Company. VII. Trading Companies Incorporated under General Act of Parliament. Columbia Law Review 8 (6): 461–480. Greenberg, Michael. 1969. British Trade and the Opening of China, 1800–42. Cambridge: Cambridge University Press. Reprint. Harris, Ron. 1994. The Bubble Act: Its Passage and Its Effects on Business Organization. Journal of Economic History 54 (3): 610–627. ———. 1997. Political Economy, Interest Groups, Legal Institutions, and the Repeal of the Bubble Act in 1825. Economic History Review 50 (4): 675–696. ———. 2000. Industrializing English Law: Entrepreneurship and Business Organization, 1720–1844. Cambridge: Cambridge University Press. Hunt, Bishop C. 1935. The Joint-Stock Company in England, 1800–1825. Journal of Political Economy 43 (1): 1–33. Jacquemont, Victor. 1834. Letters from India; Describing a Journey in the British Dominions of India, Tibet, Lahore, and Cashmere During the Years 1828, 1829, 1830, 1831. Vol. 1. London: Edward Churton. Kellie, J. 1838. On the need for improving Internal Communication in the Carnatic, 20 Nov. 1838. In A Return of Papers in Possession of the East India Company, Showing Measures Taken Since 1836 to Promote Cultivation of Cotton in India, 1847, HC Papers 439, XLII, doc. no. 28, at pp. 45–49. Knight, G.R. 1975. John Palmer and Plantation Development in Western Java During the Earlier Nineteenth Century. Bijdragen Tot De Taal-, Land- En Volkenkunde 131 (2/3): 309–337.

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Kumar, Dharma, and Meghnad Desai, eds. 1983. The Cambridge Economic History of India. Vol. 2, c. 1757–c. 1970. Cambridge: Cambridge University Press. Manton, Michael George. 2008. The Rise of the British Managing Agencies in North Eastern India 1836–1918. MPhil thesis, School of Oriental and African Studies, University of London. Misra, Maria. 1999. Business, Race, and Politics in British India, c. 1850–1960. Oxford: Clarendon Press. Nadri, Ghulam. A. 2016. The Political Economy of Indigo in India, 1580–1930: A Global Perspective. Leiden: Brill. Neal, Larry. 1993. The Rise of Financial Capitalism: International Capital Markets in the Age of Reason. Cambridge: Cambridge University Press. Patterson, Margaret, and David Reiffen. 1990. The Effect of the Bubble Act on the Market for Joint Stock Shares. Journal of Economic History 50 (1): 163–171. Reasons for the Establishment of a New Bank in India; with Answers and Objections Against It. 1836. London: Longman, Rees, Orme, Brown, Green, and Longman. Roy, Tirthankar, and Anand V. Swamy. 2016. Law and the Economy in Colonial India. Chicago, IL: University of Chicago Press. Rungta, R.S. 1962. Indian Company Law Problems in 1850. American Journal of Legal History 6 (3): 298–308. Savkar, D. S. 1938. Joint Stock Banking in India. Bombay: Popular Book Depot. Select Committee of the House of Lords. 1830. Report from the Select Committee of the House of Lords Appointed to Inquire into the Present State of the Affairs of the East India Company, and into the Trade between Great Britain, the East Indies and China; with the Minutes of Evidence Taken before the Committee, 1830, HC Papers 646, VI.1. Select Committee on Indian Territories. 1852–53. Fourth Report from the Select Committee on Indian Territories; together with the Proceedings of the Committee, Minutes of Evidence, and Appendix, 1852–53, HL Papers 224-IV, XLII.i. Select Committee on Manufactures, Commerce, and Shipping. 1833. Report from the Select Committee on Manufactures, Commerce, and Shipping; with the Minutes of Evidence, and Appendix and Index, 1833, HC Papers 690, VI.1. Select Committee on the Affairs of the East India Company. 1831–32. Report from the Select Committee on the Affairs of the East India Company; with Minutes of Evidence in Six Parts, and an Appendix and Index to Each, 1831– 32, HC Papers 734, 735-II, III, IV, V, VI; VIII.1, IX.1, X pt. 1.1, X pt. 2.1, XI.1, XII.1, XIII.1, XIV.1.

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Shannon, H.A. 1931. The Coming of General Limited Liability. Economic History 2 (6): 267–291. Singh, S.B. 1966. European Agency Houses in Bengal, 1783–1833. Calcutta: Mukhopadhyay. Sinha, J.C. 1927. Economic Annals of Bengal. London: Macmillan. Spear, T.G.P. 1951. Twilight of the Mughals: Studies in Late Mughal Delhi. Cambridge: Cambridge University Press. Televantos, Andreas. 2020. Capitalism Before Corporations: The Morality of Business Associations and the Roots of Commercial Equity and Law. Oxford: Oxford University Press. Tripathi, Amales. 1954. Trade and Finance in the Bengal Presidency, 1793–1833. PhD diss.: School of Oriental and African Studies, University of London. Turner, John D. 2018. The Development of English Company Law Before 1900. In Research Handbook on the History of Corporate and Company Law, ed. Harwell Wells, 121–141. Cheltenham: Edward Elgar Publishing. Webster, Anthony. 2007. The Richest East India Merchant: The Life and Business of John Palmer of Calcutta, 1767–1836. Martlesham: Boydell & Brewer. Wilkinson, Callie Hannah. 2017. The Residents of the British East India Company at Indian Royal Courts, c. 1798–1818. PhD diss.: University of Cambridge.

CHAPTER 13

Epilogue Julian Hoppit

Like the South Sea Bubble as a whole, the Bubble Act of 1720 has been beset by assumptions, with careful research at something of a premium. Building upon the path-breaking article of Ron Harris (1994), this collection of essays reacts in important ways to that sorry state of affairs. As the varied subject matter of the chapters shows, this is done in various ways. These closing remarks reflect on some of their more general consequences. This is done under three headings: interpreting the Bubble Act in the context of other economic legislation of the period; its consequences—‘operation’ seems too strong a word—for business formation and fortunes; and its role as an organising myth. The Bubble Act was of a piece with many other attempts at regulation of economic life within England and, since 1707, Britain and its empire that had been tried since time out of mind. Few at the time thought that there was anything inherently wrong or unreasonable about such interventions. It was taken for granted that people’s passions and interests

J. Hoppit (B) University College London, London, UK e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 H. Paul et al. (eds.), The Bubble Act, Palgrave Studies in the History of Finance, https://doi.org/10.1007/978-3-031-31894-8_13

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induced behaviour that was corrosive of the commonwealth, that some public goods had to be provided, and that the challenges of the natural world might be mitigated by sharing risks collectively. Some matters, the coinage for example, were jealously guarded executive prerogatives, but these were few and far between. Parliament legislated therefore over a wide range of economic life, including skills, wages, prices, weights and measures, roads, and indebtedness. If passing a measure such as the Bubble Act was unsurprising in general terms, it obviously needs situating in relation to the financial and legislative revolutions that followed the Glorious Revolution of 1688 (Dickson 1967; Hoppit 2017). The former was brought into being through legislation that was now much more easily passed because, for the first time in a generation, Parliament was meeting annually and more or less continuously for several months. However, most economic legislation of the period was passed, not at the behest of the central government, but through the urgings of particular interests, if often justified by invocations of the public good. In fact, in this regard, the Bubble Act can be seen as a sort of hybrid form of legislation, both public and private. A common characteristic of major economic legislation of the period since the Restoration of the monarchy in 1660 was the expectation that new as well as old laws would be known, respected, and obeyed. This was bound up with a widespread belief by the social elite of the importance of hierarchies and deference: that the rest of society was naturally submissive and knew its place. Unsurprisingly in such an unequal society, such arrogant presumptions were often disappointed. Quite apart from the uncertainties surrounding the promulgation of statutes, without a police force and given the considerable antipathy that existed towards a standing army, the authorities had limited means of enforcing the laws. Consent had to be earned, not imposed. Consequently, considerable discretion was available to victims, juries, and judges and often used against the wishes of legislators so as not only to make the punishment better fit the crime but, in some cases, to redraw what was and what was not illegal. Prescription and practice were often very different things. Social historians have explored this much more carefully and ingeniously than economic historians (Beattie 1986; King 2000). One response of the central government to ineffective legislation was to issue a new but amended act. For example, a ban on the export of raw wool was first legislated for in 1660, but was followed by 23 others in a vain attempt to make the ban work. They never satisfied their framers

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and the ban was lifted in 1824, a year before the repeal of the Bubble Act (Hoppit 2017, 220). Compliance, however, was not a serious threat to the Bubble Act, as it sought to control behaviour that was explicitly public—advertising and trading shares—and so difficult to hide. An interesting feature of this initiative touched on by several authors above is that the act hardly troubled legislators between its passage and repeal, though its extension to the American colonies in 1741 was a notable development. Indeed, the Bubble Act was that rare thing among economic legislation in meeting its objectives with surprising ease. In part, as several authors show, that was because the behaviour it sought to control was fairly limited and easily defined. There were several aspects to this. One was a preference among businesses to remain small, in part in order to address principal–agent issues or because the capital and credit required to operate could be provided from within a family or small partnership. The Bubble Act was irrelevant to them. Another was that the bursting of the Bubble in 1720 was a defining moment in views of the challenges and dangers of large-scale corporate enterprise. As Aaron Graham nicely shows, the problem with the Jamaica Mines Company was that the finance raised was out of all proportion to what was needed. A key lesson here is that we should not assume that corporate enterprise was well suited to most business initiatives, something that was exposed by the speculative surges in the 1690s and 1719–1720. In this respect, while the Bubble Act was clearly pushed forward to help the South Sea Company, it can also be seen as a response to broader structural changes in the nature of capitalism in Britain; more specifically, the act was intended to contain excessive risk taking and bring greater stability to economic life after decades of slow economic growth had, given income and wealth inequalities, created larger pools of available savings in the hands of some. Robin Pearson and others make very clear that there were plenty of ways to work around the constraints of the Bubble Act. Often these involved fairly simple and readily available legal devices. Sometimes, though, a greater collective effort was involved. In which case, resort to Parliament for bespoke legislation was a common solution. By this means, for example, rivers were improved, canals dug, docks built, and roads turnpiked. The preparatory, legal, lobbying, and financial effort involved in this was considerable, expended on around 2400 acts between 1720 and 1800 (Hoppit 2017, 94). It is impossible to know whether this would have been the case without the Bubble Act, but it certainly evidences the desire of parliament to consider most collective enterprise

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on a case-by-case basis rather than by passing general enabling legislation that entrepreneurs or local interests might employ. That said, the capital costs of these initiatives generally fell far short of those required by the railways in the nineteenth century, the raising of which was instrumental in the expansion of the London stock exchange. An important feature of several contributors to this volume is to think about the consequences of the Bubble Act beyond England. As Paul Kosmetatos shows, it is important to remember that Scottish law remained distinct after the Union of 1707, with its particular circumstances allowing the Ayr Bank debacle of 1772 to emerge. Three essays also offer a challenge in thinking about the act in the imperial context. Clearly, the existence of the East India Company across the period, and with a monopoly of trade with Asia until 1813, was a major structural factor limiting the impact of the Bubble Act in India. Across the Atlantic things were different, with most emphasis being put upon overseas trade through the Navigation Acts, without any direct attempt to manage economic life. Consequently, the trade in enslaved Africans, as well as the internal economies of the Atlantic colonies, were more constrained by external rather than internal regulation. Robert Wright offers a provocative challenge when considering the role of the Bubble Act in colonial North America, arguing that it was part and parcel of other damaging encumbrances, but which specifically ensured that well-funded banks did not emerge to address severe problems around the money supply. Clearly, the central government in London did not adequately grasp the various needs of the rapidly expanding colonial economies at the time, but part of this was the failure of the executive to provide metal coins—the Mint in London was a crown responsibility. Moreover, in Britain, the Bank of England provided very little paper money before the suspension of cash payments in 1797, and there was an acute shortage of coinage in Britain in the last decades of the century (Dykes 2011). At the time, while the financial crisis of 1720 was widely known, the Bubble Act was not and, as the essays by Claire Wilkinson and Alison Daniell show, did not feature in the flood of literature that explained and condemned the extraordinary financial events that gripped London, Paris, and Amsterdam in that year. Indeed, it is important to remember that the full formal title of the act was ‘An Act for Better Securing Certain Powers and Privileges Intended to be Granted by His Majesty by Two Charters, for Assurance of Ships and Merchandizes at Sea, and for Lending Money

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upon Bottomery; and for Restraining Several Extravagant and Unwarrantable Practices Therein Mentioned’ (6 Geo. 1, c. 18). Only later did it usually come to be known as the ‘Bubble Act’. (Similarly, the term the ‘South Sea Bubble’ only entered common use much later.) Such a label is not merely a necessary piece of shorthand but also serves a mythic function as a way of encapsulating, characterising, and judging. After all, bubbles are flimsy and transient; part substance, but mostly air; the product of an enthusiastic optimism that a small globule of substance can be puffed up to seemingly improbable proportions. Such an anachronistic framing has its advantages, but it tends to see the Bubble Act by looking forward rather than back, robbing it of some of its contexts. Two general contexts might be stressed here. First, the Bubble Act can be seen as one of the events that closed what Daniel Defoe had called in 1697 the ‘projecting age’, which was itself a sort of denouement to the quest for ‘improvement’ in seventeenth-century England that Paul Slack (2015) has skilfully charted. If projects and improvement had some roots in a developing scientific culture, they were also fed by vivid imaginings that were enabled by a slowly growing and urbanising economy, where the service sector was looming ever larger, in part expressed through an emerging public sphere. Second, the Bubble Act should in part be seen in relation to these earlier developments, but also in explicitly political terms. It was a means by which the political order sought to contain developments that were unsettling, not simply in terms of the rise of excessive risk taking but also in relation to the meanings of value, especially the relationship between landed and non-landed wealth. This has been well explored by historians of political thought, notably J. G. A. Pocock (1975, Chapters 13 and 14), and it is important to consider the Bubble Act within that literature. But the Bubble Act can also be seen as more directly political in relation to a wider suite of laws passed after the accession of George I in 1714 to take the sting out of the political discord that had riven Britain since before the Glorious Revolution of 1688–1689. Of course, it contributed much less than the Riot Act of 1715 or the Septennial Act of 1716 to the ‘growth of political stability’, but it can reasonably be seen as part of a means of addressing one aspect of the ‘problem of truth’ within the intense internal political strife of the period (Plumb 1967; Knights 2005, Chapter 6; Yamamoto 2018). The dangers of an anachronistic view of the Bubble Act also include its demise. With hindsight, it seems obvious that a maturing industrial economy would provide increasing opportunities for scale economies that

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in some cases would best be exploited by corporations. But in 1825 the railway age was not even yet a glimmer in its parents’ eyes. What mattered then was the post-war condition of the British economy and public finances, the specific circumstances of the financial crisis of that year, and developing lines of financial and economic thought. On this last point, a large amount of such thinking had been published in 1720, but it lacked much in the way of a disciplinary framework: in Kuhnian terms, it was pre-paradigmatic (Hoppit 2006). By 1825 the great works of Hume, Smith, Malthus, and Ricardo provided a canon of sorts, brought into play in the fractious political debates over the economic policy of the era, including paper money, the gold standard, the corn laws, income taxes, and free trade. It is worth noting that in 1825 the Drummond Professor of Political Economy was established at Oxford and a textbook for the discipline was published by J. R. McCulloch (1825), one of the political economy’s most effective proselytisers. But an important point that Charles Read makes in his essay is that the repeal of the Bubble Act was not only the product of new thinking but helped to stimulate subsequent intellectual developments. In this, there was an important asymmetry between the act’s creation and destruction. It has only been possible to touch on some of the interesting and important ideas in this volume. And wide-ranging and stimulating though the essays are, they could not cover every sort of question that might be asked about the Bubble Act. Lines of research remain, for example, into how France and the Dutch Republic reacted to the crises of 1720. In this way, what was distinctive about the act will be made clearer. What is clear is that the South Sea Bubble, of which the act was an integral part, will continue to be prey to ill-informed myth makers, requiring continuous vigilance on the part of historical researchers, emphatically demonstrating that if the past is fixed, its history is not.

References Beattie, J.M. 1986. Crime and the Courts in England, 1660–1800. Oxford: Oxford University Press. Defoe, Daniel. 1697. An Essay upon Projects. London: Printed by R. R. for Tho. Cockerill, at the Corner of Warwick-Lane, near Pater-noster-Row. Dickson, P.G.M. 1967. The Financial Revolution in England: A Study in the Development of Public Credit, 1688–1756. London: Macmillan.

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Dykes, David W. 2011. Coinage and Currency in Eighteenth-Century Britain: The Provincial Coinage. London: Spink. Harris, Ron. 1994. The Bubble Act: Its Passage and its Effects on Business Organization. Journal of Economic History 54 (3): 610–627. Hoppit, Julian. 2006. The Contexts and Contours of British Economic Literature, 1660–1760. Historical Journal 49 (1): 79–110. ———. 2017. Britain’s Political Economies: Parliament and Economic Life, 1660– 1800. Cambridge: Cambridge University Press. King, Peter. 2000. Crime, Justice and Discretion in England, 1740–1820. Oxford: Oxford University Press. Knights, Mark. 2005. Representation and Misrepresentation in Later Stuart Britain: Partisanship and Political Culture. Oxford: Oxford University Press. McCulloch, J.R. 1825. The Principles of Political Economy, with a Sketch of the Rise and Progress of the Science. Edinburgh: Printed for William and Charles Tait, and Longman and Co., London. Plumb, J.H. 1967. The Growth of Political Stability in England, 1675–1725. London: Macmillan. Pocock, J.G.A. 1975. The Machiavellian Moment: Florentine Political Thought and the Atlantic Republican Tradition. Princeton, NJ: Princeton University Press. Slack, Paul. 2015. The Invention of Improvement: Information and Material Progress in Seventeenth-Century England. Oxford: Oxford University Press. Yamamoto, Koji. 2018. Taming Capitalism before its Triumph: Public Service, Distrust and ‘Projecting’ in Early Modern England. Oxford: Oxford University Press.

Index

A Act of Union (1707), 164, 243 Adams, John, 147, 150 Africa, 38–41, 49 agency houses, 8, 268–270, 273–277, 280, 281, 283, 284 Americas, the, 1, 8, 15, 37–39, 58, 142, 147. See also Caribbean, the colonial North America, 292 Latin America, 94, 257 South America, 100, 270, 272 Arctic, the, 233 astronomy, 222, 224, 225, 227 Australia, 207 Ayr Bank, 6, 24, 164, 165, 167, 171–179, 181, 183–187, 189 B Babbage, Charles, 7, 221–223, 227–235, 237, 238 Bacon, Francis, 223 banking, 6, 7, 24, 27, 32, 143, 163–167, 169–171, 173–175, 178–181, 184–186, 189, 190,

244, 246–249, 257, 261, 269, 273, 285 land banks, 146, 147, 175 Bank of England, 6–8, 164, 170, 202, 222, 245, 246, 248–251, 253, 254, 256–262, 272, 278 Bank of Scotland, 166, 173, 186, 188, 189 bankruptcy, 141, 166, 167, 172, 178, 184 bankruptcy law, 17 debtors’ prisons, 142, 143 bankruptcy law, 17 Barnard’s Act, 15 Behn, Aphra, 115 Bengal, 8, 268–270, 273, 275–277, 280, 281, 284 Borneo, 211 British Broadcasting Corporation (BBC), 7, 214–216 British Empire, 146, 156, 204, 205, 207, 215

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 H. Paul et al. (eds.), The Bubble Act, Palgrave Studies in the History of Finance, https://doi.org/10.1007/978-3-031-31894-8

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C Canada, 208, 233 canals. See transport infrastructure Caribbean, the, 1, 137, 138, 146, 152, 155, 275 British Caribbean (including Jamaica), 5, 65–70, 72–74, 76–79, 275 Centlivre, Susanna, 92, 98, 100, 101, 104 Chandos, Duke of, 41, 70, 75 charity, 204, 210, 212 charter. See royal charter China, 270, 274, 275, 277 coffee, 18, 100, 275 colonial North America, 292 Companies Acts, 32, 269, 282, 283, 285 cotton, 271, 273, 282, 285 Craggs, James (senior), 98, 112, 116, 117, 122, 125, 126 D debtors’ prisons. See bankruptcy deed of settlement, 19, 20, 24, 58, 268 Defoe, Daniel, 6, 87, 111, 120 Dickens, Charles, 198 Dundas, Henry, 167, 172, 173, 181, 183–186, 188–190 Dutch East India Company (VOC), 50, 268 E East India Company, British (EIC), 9, 17, 27, 50, 113, 180, 202–204, 210, 213, 268–278, 280, 282, 284 economic thought, 294 Economist, the (magazine), 206–208, 214, 253

education, 179–182, 210 England, 2, 4–6, 17, 24, 30, 31, 38, 40, 41, 49, 73, 98, 103, 118, 139, 141, 142, 151, 152, 156, 197, 199, 201, 205, 245, 248, 257, 269, 276, 280, 282, 285

F forfeited land, 70 estates forfeited, 69 Forfeited Estates Commission, 69, 70 France, 87, 104, 105, 174, 270 Franklin, Benjamin, 137, 140

G Gay, John, 88 Germany, 152, 232 Glorious Revolution, 290, 293 Great Northern War, the, 104

H Haywood, Eliza, 6, 88, 111–127 Home, George, 165, 172, 181–186, 189 hospitals, 148, 211 Hudson’s Bay Company, 211 Hume, David, 21, 137, 190, 251

I Imperial Crisis, the, 6, 131, 132, 144 incorporation, 10, 13, 15–17, 19, 23, 26–32, 64–67, 80, 148, 198, 202, 205, 206, 222, 246, 272 India, 8, 27, 202, 204, 207, 211, 268, 276, 277 indigenous peoples in Africa, 210 in the Americas, 6

INDEX

299

in Australia, 209 in Borneo, 211 indigo, 8, 268, 269, 271, 273, 275–278, 280, 281, 284, 285 Industrial Revolution, the, 3, 4, 10, 197, 213, 245, 273 insurance fire insurance, 19, 20, 22 life insurance, 7, 19, 24, 237 marine insurance, 5, 14, 27, 28, 50 Ireland, 13, 70, 156, 208, 243

paper money, 133–135, 146, 151, 168, 186, 187 Morice, Humphrey, 5, 37–58, 72 Mortimer, Thomas, 9

J Jacobites, 15, 69 Jamaica. See Caribbean, the Joint Stock Companies Act (1844), 13, 246 joint-stock company form, 196

O opium, 270, 271, 281

L Latin America, 94, 256, 257. See also South America Law, John, 86, 87, 104 legal personality, 4, 10, 283 letters patent, 30, 31, 267 limited liability, 3, 4, 7–10, 16, 25, 26, 29, 30, 64, 196, 198, 202, 222, 245, 247, 269, 283–285 London Assurance, 14, 27 London Stock Exchange, 9, 278

M Mill, John Stuart, 224, 234, 236, 237 mining, 28, 30, 32, 66, 67, 69, 72, 73, 75–77, 80, 210, 222, 257, 272 Mississippi Bubble, 86, 87, 105 money commodity money, 102, 284

N Navigation Acts, the, 18, 139 Navy. See Royal Navy Netherlands, the, 87, 179–181, 270 Newton, Sir Isaac, 224

P pandemic, 1, 260 patent, 5, 6, 17, 31, 64–70, 80 poetry, 6, 86, 88, 91, 93, 96, 101–103, 105 Pope, Alexander, 88, 91 Portugal, 174, 257 Privy Council, 17, 28, 64, 199, 204

Q quakers, 174

R railways. See transport infrastructure Ramsay, Allan, 92–96, 98, 103, 105 religion and economic thought, 294 Rhodes, Cecil, 209, 210 Royal African Company (RAC), 1, 4, 5, 9, 38–41, 45, 47, 56, 75, 201–204, 207, 209, 213 royal charter and charity, 211 charter, 1, 16, 19

300

INDEX

and colonial power, 212 and legislation, 4, 7, 17 and royal power, 7, 195, 199, 201, 209, 212, 214, 215 in the modern era, 2, 10 in the Victoria era, 209 Royal Exchange Assurance, 14, 27, 42, 71, 205 Royal Navy, 202, 233 royal power, 7, 195, 199, 201, 209, 212, 214, 215 Russia, 104, 139 S satire, 25, 102 Scotland, 6, 15, 24, 98, 163–166, 170–172, 174, 175, 178, 182–185, 187, 189 Glasgow. See Scotland Scott, W.R., 2, 4, 14, 15, 64, 71, 72, 77 shares, 4, 9, 14–20, 24, 25, 28, 30, 31, 37, 41, 42, 46, 49, 53–58, 69–73, 75, 76, 78, 90, 92, 93, 95, 99, 148, 222, 244–246, 267, 268, 278 slavery, 95 enslaved, 37 Smith, Adam, 164, 165, 167, 171, 174, 186 South Africa, 275 South America, 100, 222, 270, 272 Brazilian ships, 40 South Sea Bubble, 1, 2, 5, 6, 8, 14, 24, 37, 67, 78, 86–91, 105, 112–114, 125–127, 225, 245, 256, 267 South Sea Company (SSC), 1, 2, 4, 6, 14, 42, 58, 63, 64, 67, 74, 85–95, 98, 100–105, 112, 116, 121, 126, 201, 202, 244, 245, 248, 267, 271

Spain, 174, 257 specie (gold and silver), 131, 132, 144 Steuart, Sir James, 175, 176, 186, 189, 190 sugar, 19, 269, 275 Swift, Jonathan, 88, 91, 123 T tea, 270, 271 The Great Mirror of Folly, 86 tobacco, 132, 166 Trading Companies Act (1834), 30, 31, 246 transport infrastructure, 4 canals, 10, 222, 285 railways, 22, 32, 222, 278 steamships, 207 turnpike roads, 8, 10, 17 trusts, 20, 21, 49, 65, 70, 148, 185, 212, 238 Turkey, 261 U United States of America (USA), 13, 30, 64, 214 W Walpole, Horace, 38, 46 Walpole, Robert, 38, 42, 43, 46, 51, 74 war, 9, 137, 138, 140–142, 152, 155, 156, 275, 280 Wealth of Nations . See Smith, Adam West India merchants, 23 West Indies. See Caribbean, the Whig history, 196, 198 witchcraft, 6, 112, 113, 118–122, 124–126 women investors, 49 wool, 290