While all financial bubbles have common features, each has its own individual history. This is true even for the Mississippi and South Sea Bubbles which were almost contemporaneous. They both appeared after a long period of warfare was coming to an end, when people were optimistic about the future. They both related to overseas trade and to the restructuring of government debt. There was even some overlap of the investors. John Law, the architect of the Mississippi Company, was known to have invested some money in the South Sea Company (Paul 2004). However, even these twin bubbles have their differences. Law’s control of the French economy was highly centralised. The South Sea Company never took over the Bank of England and there was no attempt to force paper money onto the public, as there had been in France. There is a strand of financial research that looks for the causes of bubbles and for the similarities between them. These works tend to be highly technical. Allen and Gale (2007) mention some of the more famous crashes over the decades. Economists are familiar with models of financial bubbles such as work by Jean Tirole.1 These elegant models necessarily strip away many of the details that appear with real-world bubbles. Behavioural finance and the rational bubble models can help readers understand how bubbles appear, without resorting to a belief in gambling manias. It is not necessary to argue that an entire stock market was full of naive traders. Only a few need appear, at the right time and under the right conditions, for prices to move upwards. Then informed investors may well decide to buy in to the shares in order to sell out again. A bubble may be the result. Financial bubbles have always posed a problem for neoclassical economic models. In this world view, people are fully rational. The Efficient Markets Hypothesis implies that the stock market should always price shares correctly. Prices should conform to the underlying value of the company or its fundamental value. Even insider information should become known as insiders start to trade on their knowledge. The frequency with which bubbles appear has undermined economists’ faith in completely efficient markets. The theories can yield valuable insights, but they are not fully representative of how financial markets actually function. Critics of the neoclassical approach have argued that it is not realistic. Pricing of shares to reflect some fundamental value is not a precise and inhuman activity. In Mirowski’s words, neoclassical theory is ‘caught in the
sway of physics [and] posited a timeless standard of excellence as a benchmark’ (1987). Mirowski could find no actual market that had managed to meet this standard. Financial bubbles have been studied by those who claim that human beings are wholly rational, and by those who claim that entire societies can be irrational. The South Sea Bubble episode is a good testing ground for both viewpoints, and both are simplistic. If Georgian society had gone gambling mad, it would not have survived. There are cases of societies destroying themselves through some obsession. The Easter Islanders managed to devastate their ecosystem in order to build their famous statues. The Georgians were not comparable. Their economy, credit networks, major joint-stock companies, stock market and monarchy all survived. Their interest in gambling as a pastime and social activity does not mean that they were ‘gambling mad’. If they were, they would hardly have hedged their society around with laws, restrictions and insurance contracts. Gambling has fulfilled a variety of functions besides being an entertainment. Many cultures used systems such as the casting of lots to decide important questions. According to Schwartz, to the Romans ‘gambling was more than a pastime [. . .] it was a metaphor for life itself ’ (Schwartz 2006: 25). A distinction can be drawn between gambling and problem gambling, which is sometimes termed ‘compulsive’ or ‘pathological’ gambling. There are some people who can restrict their gambling so that it remains only a pastime and not an obsession. Orford et al. (2003: 89-90) divide the explanations of problem gambling into two main types. The first blames the availability of opportunities to gamble, or the ‘supply’. The second focuses on the individual. Such explanations assume that only a proportion of the population is at risk. If these individuals could not gamble, they would find some other self-destructive activity. A society may have a proportion of gamblers, only some of whom become compulsive. This seems more credible than the belief that a large proportion of the population suddenly became compulsive gamblers, and then, just as suddenly, stopped. In any case, there is abundant evidence that many investors had good reasons to buy shares in the South Sea and other companies. Some, like Thomas Guy, did make their fortunes. Some were well-advised by their bankers, such as the clients of Hoare’s Bank. The South Sea shares were easily tradable and were one of the few major investments available to those who did not wish to sink their capital into land or their own businesses. The company was guaranteed a government fee and it had the Asiento trade in slaves and goods as well. The Asiento had an option value as the company might be in the vanguard of imperial expansion into Spanish territory. This did not happen, but at one point Spain appeared to be weak indeed. It was entirely possible that the fortunes of trade and warfare would lead to the fragmentation of the Spanish empire. The British were not the only ones with an eye on the region. The French had tried to gain the Asiento, presumably for the same reasons. Two major wars were over, trading was less risky and resources were freed up for investment. The Bubble episode did attract opportunists. Some investors realised that shares were overpriced and that naive traders would continue to push prices
upwards in the short term. It was rational for the informed traders to buy in, in order to sell out. Years later, Adam Smith would extol the positive effects of self-interest in The Wealth of Nations. Georgians had been taught that selfinterest undermined society, as it did a family. The vices that could destroy a household were thought to be equally harmful to the nation. This analogy does not hold true. However, those who benefited from the Bubble were called vultures by Archibald Hutcheson. He was used to a system that protected landed gentlemen at the expense of others. Wives had no legal identity of their own. Creditors might find their contracts were overturned in the courts so as to protect the integrity of a landed estate. The lower classes were subject to draconian laws about the use of land, culminating in the Black Acts. Foreigners, Jews, Catholics and Dissenters were all suspect simply because they were not Englishmen and members of the Church of England. Scots, Irish and Welsh were also outsiders. The Scots had only recently signed the Act of Union, after all. It may well have been members of the elite who were the greatest opportunists. Perhaps they did not all make great fortunes in the Bubble, but they used it to consolidate their position. They seemed to think that the crash proved that they alone should rule. Those who lost in the crash were deemed to be ‘sufferers’, whether they were truly impoverished or not. There was no mention of the benefits of moving wealth from the rich and indolent to the entrepreneur. Some politicians, like Hutcheson, wanted to claw that wealth back through taxes or by overturning transactions. The greatest opportunist of them all, Robert Walpole, somehow realised that this should not happen. He saw the importance of the financier class, perhaps only for their ability to pay for warfare. By insisting that the bargains made should remain valid, he acted according to modern financial practice. He restored some confidence to the system by removing one issue that had caused uncertainty and threatened to mire the country in lawsuits. This does not mean that Walpole fully understood what was going on. He had opposed the South Sea scheme at some points, but he had also wanted to invest in it. It is only luck that his request to buy more shares was delayed. His genius was to realise that he would gain more by screening powerful people than he would by trying to settle political scores. He may have been termed the ‘Screen-Master General’, but his actions laid the foundations of one of the most successful political careers in British history. Meanwhile, ordinary people had even less idea of what was going on than politicians did. Archibald Hutcheson may have been writing his pamphlets but they were not easy to read and of doubtful significance. Instead, the people had an opportunity to see a morality play. The company directors were brought low along with other token scapegoats. The Bubble provided a focus for all sorts of social commentary but much of it had little to do with share-trading. One common theme was the distrust of outsiders such as Jews and Catholics. Another was a warning about allowing women financial independence, in case they should start to marry outside of their own social group. These two themes even merged in some places such on the Bubble cards held at Harvard University Library, or in Hogarth’s depictions of the Bubble. The fears expressed in these
artworks say more about those who commissioned such objects than they do about the investors themselves. It is to be hoped that more primary sources will be uncovered showing what Jews, Catholics, women, servants et al. thought of finance, and also what they thought of Anglican men. Many primary sources have been preserved in the country house libraries of the landed squires and nobility. This process introduces a huge amount of selection bias into the evidence. Some historians seem to have taken the elite’s propaganda at face value. Many of the elite had little idea about finance. They did not need to, as they were usually already wealthy. It was those who had to make their way in the world who learned about the trading of shares. One such man was Thomas Guy. He started as a bookseller and eventually founded a hospital with the money he made from the South Sea. It is hard to see him as one of Hutcheson’s vultures. Instead, we should remember that a huge proportion of the land in Britain is still owned by a few aristocratic families (Cahill 2002). Hutcheson would no doubt be pleased. By the same token, nothing much was said of the other people involved in the Bubble. The real victims of the episode were not bankrupted investors. They were people who had less status than Georgian women, servants, foreigners and non-Anglicans. They were African slaves. Their sufferings were not part of the political debate, because they were invisible to Georgian society except as sources of profit. Many Georgians saw nothing wrong with the enslavement of Africans. Colley argued that this was in marked contrast with their obsession with liberty at home (Colley 1992: 351). There were some dissenting voices. For example, Alexander Pope was an exception to the rule (Richardson 2001: 1-17). The abolitionist movement that appeared at the end of the eighteenth century developed ‘cautiously and haphazardly’ (Brown 2006). Before this, individual opponents to slavery faced the vested interests of a profitable trading sector. The plight of thousands of people has not appeared in many histories, because it has often been claimed that the South Sea Company was not interested in the Asiento trade. This argument has made the desire to invest in the company seem even more strange. Another effect is that it obscures the histories of a very large number of people who were bought by the company. Their only epitaph appears to be the accounts of the numbers brought on and off ship. From these statistics, it can be seen that the company was indeed interested in the trade and was even successful at it. The company’s thorough preparations for the whaling trade also show that it had the ability to run large-scale enterprises. The company did not have the longevity or success of the East India Company, but the East India Company was exceptional. The South Sea was more similar to many other middling companies. It did not immediately go bust, but it did not end up ruling large tracts of territory either. Instead with its partner, the Royal African Company, it managed to carry on despite setbacks. The Bubble, the failure of the whaling trade, the fate of the Luxborough Galley – all these should be set against the numerous successful voyages when the company delivered thousands of people to their fate. The main histories of the Bubble were written by Dickson (1967), Carswell (1960) and Scott (1912), and they have formed the basis of all subsequent works.