Wednesday, 6 January 2021

the governor and company of the merchants of great britain, trading to the south seas and other parts of america, and for the encouragement of fishery

Though not the only joint-stock venture to hedge its liabilities and ultimately prove ruinous for investors, the South Sea Company (official long form above), founded as a public-private partnership—with the support of the government hoping to offset some of the national debt incurred during its involvement with the War of the Spanish Succession and its own colonial activities—in 1711, was the most spectacular economic bubble, bankrupting thousands of investors and speculators who had underwritten the enterprise. Originally incorporated as a substitute revenue generating operation when a national lottery scheme run on behalf of the Crown failed to turn a profit (the jackpot winners were deprived of their prizes), the public was instead invited to purchase shares of a chartered company with a monopoly over trade with Spain and Portugal and would in time collect dividends from the profits. The stock price was inflated by those late-comers not wanting to miss out (taking out loans to take part) on an opportunity and rife mismanagement, including a not insignificant amount of business in the trafficking of enslaved individuals from Africa to Central and South America—and though huge sums of money were trading hands, the company failed to be profitable and engaged in increasing debt for equity swaps until the price increased in a frenzy from £100 to over £1000 in the course of a few months in 1720, falling just as precipitously at an even faster pace. A decade after its founding, on this day, with recriminations rampant and with the aristocracy, the merchant classes as well as the working poor duped and financially broken, the Committee of Inquiry on the South Sea Bubble came forth with their findings, revealing fraud and corruption at all levels. Amazingly the newly appointed First Lord of the Treasury, Robert Walpole, was able to restore public confidence in the financial market and the company continued—this time focusing its efforts on whaling—until the reign of Victoria, finally dissolved in 1838.