The Whigs under King William had created the great financial corporation of the Bank of England. Of the commercial corporations the greatest was the East India Company, which, originally associated rather with the Tories, had also become preponderantly Whig since its union with the Second East India Company.
The Bank and the East India Company were both extremely useful to the Whigs, while a Tory Government could not with equal confidence rely upon their help. Hence when the Tories came into power in 1710 they created another commercial association in the hope that it would serve them as the other corporations served the Whigs.
This was the South Sea Company, with a commercial programme based upon the rights and privileges which were to be the reward of the peace which Harley and St. John at once set about negotiating.
It was anticipated that the monopoly of the South Sea trade which was formally opened to England by the Treaty of Utrecht would soon bring immense wealth to the South Sea Company. The company, in return for the monopoly, took over the government debt of ten millions, the government appropriating to it for the payment of interest the proceeds of particular duties.
Rising National Debt
There was in fact a substantial trade, and the position of the company as originally constituted was reasonably sound. But shortly afterwards Europe was visited by an epidemic of speculative mania. The thing was not confined to England; France went crazy over the fabric of crazy finance erected by Law of Lauriston.
Until 1719 the South Sea Company so far prospered that its shares stood at a premium, now at the close of the War of the Spanish Succession the National Debt amounted to more than fifty millions, and the annual charges thereon were more than three and a quarter millions. These figures seemed alarming, and there was a very strong desire to reduce the debt as rapidly as possible.
But very little had been done in this direction by Walpole's institution of a sinking fund, made just before the Whig split. The South Sea Company now came forward with a proposal to take over another thirty millions of the National Debt, which would be converted into South Sea stock, and to pay seven and a half millions to the government, in return for which then-existing privileges in the South Sea trade were to be expanded into an entire monopoly, and the expenses of management entailed by the scheme were to be provided for by the Treasury, Government adopted the scheme in spite without restoring public credit.
Collapse of the South Sea Company
The company itself was preserved with its nominal shares of £100, once worth £1000, reduced to £33. The private property of directors was confiscated, and provided some two millions for the immediate relief of the sufferers from the catastrophe.
The Government's claim on the company for the promised seven millions was cancelled. The South Sea Company remained a going concern. As for the ministry, Ayslabie, the Chancellor of the Exchequer, was expelled from the House in disgrace.
Sunderland was deservedly acquitted, but the bitterness of popular feeling forced him into retirement. Stanhope, conspicuously honest and blameless, might have held his own, but was killed by the shock of the whole affair. Townshend and Walpole became the first ministers of the Crown.
This article is excerpted from the book, 'A History of the British Nation', by AD Innes, published in 1912 by TC & EC Jack, London. I picked up this delightful tome at a second-hand bookstore in Calgary, Canada, some years ago. Since it is now more than 70 years since Mr Innes's death in 1938, we are able to share the complete text of this book with Britain Express readers. Some of the author's views may be controversial by modern standards, particularly his attitudes towards other cultures and races, but it is worth reading as a period piece of British attitudes at the time of writing.
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