The Founding of the South Sea Company
The act for carrying on a trade to the South Sea . . . will, in all probability, if duly executed, be of mighty advantage to the kingdom, and an everlasting honour to the present parliament.
-Jonathan Swift, The Examiner, June 7, 1711 [2]
By 1711, England’s burdensome debt of approximately £9 million threatened to damage the country’s credit standing and increase the cost of borrowing. National debt had been incurred through extensive military expenditures, including those associated with the Nine Years’ War (1688–1697) and the War of the Spanish Succession (1701–1714). As Great Britain had no unified budget, its total incumbrances were unknown. Robert Harley, a Tory and Chancellor of the Exchequer, soon to be Lord Treasurer, served on the House of Commons investigation committee to identify the extent of the national debt. [3] His resulting report, A View of the Taxes, Funds, and Publick Revenues of England, underlined the urgency of the situation and included a yearly accounting of funds allotted by Parliament to support the War of the Spanish Succession. [4]
Publications like Harley’s, which expressed the views of the political parties or commercial entities funding them, were targeted to a broad public. In the late seventeenth and early eighteenth century, a growing printing business in London and higher rates of literacy resulted in Britons reading increasing numbers of newspapers, journals, and government records. “Because the Publick seem to be very little acquainted with the true State of the Debts and Incumbrances this War has left upon us,” Harley wrote, his report was “intended to let every Man into a fair View of the Matter.” [5]
Harley turned for debt relief to the Bank of England, which had traditionally lent money to the government. But because of tensions between the liberal Whig-controlled bank, still loyal to the former administration, and the new conservative Tory government, the Chancellor of the Exchequer had to find another way of addressing the country’s crippling debt. Harley had made the acquaintance of businessman John Blunt, whom he asked to administer the Bank of England lottery. The popular lottery, in which ticket holders won guaranteed prizes, helped raise cash for the government for the short term. Blunt, who was secretary of the Sword Blade Company (which manufactured French-style blades), had raised funds for land speculation in Irish estates that had been confiscated by the Jacobites by exchanging Sword Blade Company stock for army debentures. This debt-equity swap served as the model for the South Sea Company when it was formed in 1711.
Blunt became chief executive and Harley governor of the South Sea Company, a public-private partnership in which government debt was converted into shares in the company. Assets of the company included the government’s payment of 6 percent interest a year to be returned to the company’s stockholders in the form of dividends. Parliament also granted the South Sea Company a monopoly on trade with Spanish colonies in South America.
Popular prints of the time illustrated the impressive building the South Sea Company occupied on Threadneedle Street in London, which housed several offices, halls, and chambers where sales took place. The public could read the particulars about the company in An Act for Making Good Deficiencies, and Satisfying the Publick Debt; and for Erecting a Corporation to Carry on a Trade to the South-Seas, published by Thomas Newcomb and Henry Hills, printers to the Crown, who operated a successful printing establishment in London. [6]
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