The Bubble and the crash
There had been a great deal of public interest in the stock market, and share prices rose during the early months of 1720. The market crashed in the autumn of that year. The share price had shown signs of weakness from late summer. Many people lost money, or at the very least they lost the paper gains they had expected. There were fears that the whole economy would be affected. In the language of the day, people complained of the ruin of public credit. There was a public outcry that led to a Parliamentary enquiry. The enquiry had two goals: assisting economic recovery and finding out who was responsible for the crash. Robert Walpole argued that the first goal was paramount. He presented a range of emergency measures. He also took care to shield various leading figures from allegations of corruption. His actions were criticised by contemporaries but ultimately allowed him to establish himself as the pre-eminent politician of the day. The Bubble crisis passed into history. The actual causes of the Bubble, and its after-effects, were not really understood by contemporaries. This situation was not helped by a government cover-up. The traditional story of fraud and speculative mania is not strictly true. The real history is far more complicated. This chapter discusses the main events in the financial history of the Bubble: the rise of the market, and then the crash and its aftermath. The British and French financial systems were both undergoing radical change. France had its own financial bubble, now known as the Mississippi Bubble. When the French market crashed, funds moved to safer havens, including London. The stock market in London was affected by the conditions in the Amsterdam and Paris stock markets. Economists call this ‘contagion’. Contemporaries were less aware of how international financial systems operated. They used basic explanations of fraud or folly. This chapter will also consider contemporary perceptions of the causes of the bubble, many of which do not stand up to scrutiny. The real effects of the crisis were not as bad as might be supposed.