chapter  1
11 Pages

Introduction

At the end of the War of the Spanish Succession, the Spanish Crown granted the Asiento contract to Queen Anne. The Asiento gave monopoly rights to import slaves into Spanish-held America. Anne passed the contract over to a joint-stock company called the South Sea Company. In exchange, the company was to help restructure part of the National Debt. From the start, the company undertook public and private roles. It was a quasi-public entity – a hybrid. It was involved in a range of activities which to modern eyes might seem to have little in common. However, it was part of a national project to make England (and after 1707, Britain) strong enough to fight future wars. Trade, government finance and military strength were thought to be interlinked. It is not for these things that the South Sea Company is chiefly remembered. Instead, its name is famous because of a few months when its share price, along with the rest of the stock market, boomed and then crashed. The architect of the sales of South Sea stock was Sir John Blunt, who is always cast as the villain of the piece. He and the other directors were accused of fraud. They were brought in front of the House of Commons and questioned. They had their estates confiscated and were vilified by the public. Even before the crash, the nascent stock market in Exchange Alley was held in great suspicion. Critics of the Alley bandied about the term ‘stockjobbing’. The epithet ‘jobber’ is usually pejorative but there is no one definition of what ‘jobbing’ might be. Machlup (1940) defined a jobber merely as a broker, or someone who trades on behalf of others. Others use the term to mean a speculator. Many contemporary accounts seem to equate ‘jobbing’ with fraud. Contemporaries had a better understanding of the old rules of warfare and politics, than they did with the new ways of the stock market. The South Sea Bubble of 1720 is one of the most famous financial market crashes in history. Indeed, it has become a byword for folly and fraud. Its name is evoked every time a devastating crash occurs. Journalists mentioned the South Sea Bubble when reporting the Dotcom Bubble of the late twentieth century and, more recently, during the Credit Crunch of the early twenty-first. No doubt, journalists will mention it again when the next crash occurs. At each economic setback, a crop of books appears on the financial history of crashes. Some cover a number of episodes and often look for similarities between them. Some concentrate on just one event in detail.