The social history of the crash
The previous chapter illustrated how complicated the financial side of the Bubble history can be. Researchers have the benefit of hindsight, modern financial theory and access to many of the primary sources. Even so, confusion has still reigned. The Georgian public had even less chance of understanding what had happened. Economics had not yet emerged as a separate academic discipline. Although there were texts available to explain how to invest, the financial theories that were needed to explain a financial bubble were not available. Contemporaries tried to make sense of the Bubble at the same time as they were trying to deal with its effects. A rich social history has built up around the episode. It has little to do with financial history. It tells us about the social context of the Bubble, rather than what actually caused it. After the crash, politicians argued whether to discover why the market crashed and then fix the problem, or vice versa. The early debates in the House of Commons show that no one had a clear idea what had caused the crash (House of Commons 1720). Sir William Wyndham argued that the British Parliament could not be seen to be less vigorous than the Paris authorities in punishing offenders (after the Mississippi crash).1 Sir Robert Walpole favoured tackling the economic effects of the crash first. However, a mixed strategy is what appeared in practice. Some actions were taken to deal with the financial side of the crisis, but also there was an element of laissez-faire, especially regarding issues that were not clear-cut. The hunt for scapegoats was inevitable, and the Commons set up a committee, the Committee of Secrecy, to uncover wrongdoing. Outside of the political sphere, the social commentary on the Bubble had less and less to do with finance. The financial rescue strategy has already been discussed in Chapter 5. In addition, Walpole did insist that contracts for stock were legal and would have to be honoured (Plumb 1956: 336). This removed some of the uncertainty from the market. The stock market started to recover. However, there is usually a small upturn in prices after a crash.2 Naive traders sell out at any price, and more experienced traders can pick up stock at bargain prices. A slight price rise may have nothing to do with anything happening elsewhere, such as on the political scene. Walpole’s decision on contracts was important, as there had been great confusion about their legal status. Firstly, the legal system had not caught up
with the developments in finance. (Hutcheson (1721b) wrote that he did not know what the Courts of Law would make of cases ‘so very New and Extraordinary’.) Secondly, it was unclear whether such contracts were morally acceptable or whether they were ‘stock-jobbing’. George I offered a ‘Free and General Pardon to give Ease and Quiet to the rest of my Subjects many of whom may, in such a general Infatuation, have been unwarily drawn in to transgress the Laws’ (House of Commons 1720). These moves were part of the establishment’s attempt to finish the debate. It was not clear which laws, if any, had been broken by the investing public. The whole discussion seems to be about the ignorance of all concerned and Georgian society’s struggles to cope with the unfamiliar. It was widely believed that the economy was in trouble. It is true that there were disturbances around the time of the Bubble. For example, a mob entered the lobby of the House of Commons and the Riot Act had to be read twice before they dispersed (Realey 1931: 70). Care has to be taken when considering mob activity. Stevenson (1992: 22) argued that ‘riot and disorder form part of the stock image of the eighteenth century’, but that this is misleading. Individuals in a crowd may have different motives and be performing different actions. Taking Stevenson’s warning into account, it is not clear whether the most noticeable elements of a mob were genuine stock-traders or simply people who enjoyed public disturbances. Petitions were made to the House of Commons and the House of Lords. Some came from entire communities, including Lancaster, York, Oakhampton in Devon and Appleby in Westmoreland (House of Commons 1720: vol. 19). The format of these petitions is that the entire economy has collapsed due to the activities of the South Sea Company directors. The petitions asked for relief and for the punishment of those responsible. The Lancaster petition mentions a ‘general Deadness in all Sorts of Business’ and blames the ‘villainous’ South Sea scheme. It is possible that, for the small effort in writing a petition, a community might gain some sort of ‘relief ’, i.e. cash. This strategy was based upon the assumption that if someone had made a large fortune out of the stock market then these gains could then be confiscated and redistributed. There was a financial incentive to demand the conviction of the directors and the confiscation of their estates. The existence of petitions and disorder does not, in itself, prove that there was lasting economic damage. It might be expected that there would be widespread confiscations of land, as the same thing had happened after the Jacobite rising of 1715 only a few years earlier.3 (George wanted the revenue from the sales of land to be used in the Scottish Highlands for schooling, and the rest for the public debt (Hatton 1978: 179).4) Coxe (1798) linked Walpole’s rise to power to his handling of the South Sea Bubble. This early biography set the pattern for other historians. Coxe believed that Walpole had seen the South Sea scheme as a fraud and a chimera, and had shrewdly spoken out against it. Walpole had then been able to rescue the country from financial chaos by astute management of the situation. Coxe’s assessment was repeated by many other historians but has been refuted by Plumb (1956) and Realey (1931). Both insisted that Walpole was not possessed of special foresight
about the crash and had invested heavily in the company himself. Plumb cast doubt on Walpole’s supposed financial acumen. He showed that Walpole bought land when it was highly priced; was saved from higher losses by his assistant, Jacombe; and that the remedy to the crash was proposed by Jacombe even though it was called Walpole’s scheme. In the event, the proposal was not even used. Plumb (1956: 339) argued that ‘time was the healer, not Walpole’. Even so, Walpole might try to claim credit. Plumb argued even this was not sufficient to bring him to power. Plumb thought that it was the death in 1722 of Walpole’s main rival, Sunderland, that did that.