Vic Keegan: The South Sea Bubble’s Threadneedle Street home

Vic Keegan: The South Sea Bubble’s Threadneedle Street home

If you walk along Threadneedle Street in the City of London towards its junction with Bishopsgate you will find on your left at Number 38 a handsome Grade II listed building which houses, among other things, the Piazza Italiana restaurant. The building went up in 1902 as the London office of the Scottish-owned British Linen Bank, which later became part of the Bank of Scotland. But long before that the site was occupied by South Sea House – pictured above and below – headquarters of one of the most controversial companies in British financial history.

The South Sea Company, despite its romantic-sounding name, is known only for its association with the South Sea Bubble of 1720, a classic example of the madness of crowds blindly buying into get-rich-quick schemes. Its collapse is on a par with the Dutch Tulip scandal and the recent crypto-currency boom as history we didn’t learn at school. Comparatively recently its involvement in the slave trade has also become apparent.

The company began as a clever scheme organised by Chancellor of the Exchequer Robert Harley (later the Earl of Oxford) in 1711 to establish a consortium of public and private investors, including merchants and senior politicians, to relieve the government of its – in those days – huge debt of £10 million.

A big part of that debt was the cost of financing the Royal Navy in its long war with France and others. In exchange, the South Sea Company was issued with government stock paying interest of six per cent a year (which the government tried to recoup by imposing “sin” taxes on wine, tobacco and luxury goods). It seemed like a good deal for both sides and was entirely legitimate. However, the company soon realised it needed income from other sources to sustain it.

The government provided this in 1713 when the South Sea Company was granted a monopoly to supply slaves from Africa to the Spanish colonies in the Americas. It didn’t have much success at first as Spain, which controlled the ports, was reluctant to let the ships in. But, helped by its close links with the Royal African Company, Britain’s biggest slave trader, the South Sea Company gradually became a big slave trader in its own right.

Pasted image 0

Britain’s involvement with the slave trade was a horror  story that was not fully realised until all the details of the voyages were put online. Professor Helen Paul of Southampton University, an authority on the Bubble, recalls one of the worst examples: in 1713/14 a South Sea ship, the St Mark, took 280 enslaved Africans aboard but only 261 arrived in Kingston, Jamaica.

The financial outlook for the company received a boost in 1718 when King George I, already a shareholder, became its governor, creating more confidence in its future. Many of the investors were buoyed up by unfounded stories that it would be able to exploit gold and other riches in the Americas, not least from the gold and silver mines of Peru and Mexico. Rumour fed on rumour and in 1720  the boom took off only to collapse in a single year, with shares rising from £128.5 in January to more than £1,000 in August before collapsing back to £124 in December.

The apparent success of the South Sea Company inevitably spawned lots of imitators. The most notorious took deposits for a “Company for carrying on an undertaking of great advantage but nobody is to know what it is”. Crowds of people gathered to invest but on the third day the fraudster disappeared and, according to Professor John M. Pick in a Gresham College lecture, took the money and “lived a life of a gentleman in Paris for the rest of his days”.

Although many were ruined by the South Sea Company’s crash, others made money, such as John Guy who founded Guys Hospital on the proceeds. His statue still stands in the forecourt of the hospital today. At the time the Bubble was seen as a catastrophe, but these days economists can’t find any evidence that it caused severe dislocation to the economy as a whole. For instance there wasn’t a significant rise in bankruptcies.

Are there any lessons today? The evils of Britain’s history of slavery have been accepted and taken on board by companies in the City and elsewhere, even though they have yet to agree what exactly should be done about it. In a curious way the lessons of share booms, being rooted in a desire to make money, have been harder to learn as can be seen in the recent crypto-currency bubble. Even people who didn’t believe in it were prepared to invest in the hope they could bail out before the collapse. There is sometimes a method in the madness of crowds which is hard to extinguish.

This is the thirteenth article in a series of 20 by Vic Keegan about locations of historical interest in the Eastern City part of the City of London, kindly supported by EC BID, which serves that area. The previous twelve articles are here. On London’s policy on “supported content” can be read here.

Categories: Culture, EC BID supported series

Leave a Reply

Your email address will not be published. Required fields are marked *