A Very English Deceit: The Secret History of the South Sea Bubble and the First Great Financial Scandal. Malcolm Balen

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СКАЧАТЬ marriage further up the social scale, to the daughter of a former Governor of Bengal, would come later.

      Blunt was seeking his fortune in an England humming with new ideas. In the 1690s, the moneyed-men, grown rich on lending to the government, had begun to promote an extraordinary range of companies. The catalyst had been the success of a sea captain, one Captain Phipps, who had salvaged Spanish silver by the ton and precious jewels by the sackful from the bottom of the sea off the island of Hispaniola in the West Indies. He returned to England in triumph and to an instant knighthood: his backers had made an extraordinary 10,000 per cent profit on the adventure, a sum close to £200,000 – many millions of pounds today. Inspired by the captain’s success, copycat diving companies had arisen by the dozen, many of which came to London to show off their new deep-sea devices in a public demonstration on the Thames. The novelist and pamphleteer Daniel Defoe invested, and lost, £200 in one diving firm; he also owned a brick and tile factory on marshland near Tilbury, and, more quixotically, seventy civet cats – a leading scientist had once advocated breeding them for the secretion of their glands, which was a basic essence in the manufacture of perfume. The many other projects calling for investors to back them ranged from the Night Engine Company, which patented a burglar alarm, to the ‘Company for the Sucking-Worm Engines’ which had invented a machine to put out fire. Until 1697 when the impecunious government debased the coinage, puncturing investor confidence and putting many firms out of business, the stock market thrived. One coffee trader, John Houghton, published a twice-weekly paper listing share prices, taking care to explain to his readers the mysteries of the new profession: ‘The manner of the trade is this: the monied-man goes among the brokers and asks how stocks go? And upon information, bids the broker buy or sell so many shares of such and such stocks if he can, at such and such prices. Then he tries what he can do among those that have stocks, or the power to sell them, and if he can, makes a bargain.’

      In such a speculative age, Blunt, with his glib personality and gift of the gab, was a man of his time, just as Law was far ahead of it. His initial route to power was through a company whose original business matched the bellicose nature of the times: the Sword Blade Company.

      At the turn of the century, the Sword Blade Company had spotted a gap in the arms market. The English rapier, heavy and flat, was considered both by combatants and by those who wished, more peaceably, merely to make a fashion statement, to be less effective and less pleasing on the eye than the French equivalent, which had a grooved blade. From 1691 the Sword Blade Company, helped by some imported Huguenot craftsmen, was granted a charter to make French blades in England. But the company was soon to widen its horizons and change direction. It moved to Birchin Lane, and John Blunt became its company secretary. Working with him were three men who would play leading roles in the development of the South Sea Company: the goldsmith Elias Turner would become the Governor of the Company; Jacob Sawbridge, the Deputy Governor; and the third was George Caswall, whose family had held the Leominster seat in Parliament for more than a hundred years.

      The Sword Blade Company was a child of its aggressive times, an exploiter of the government’s financial difficulties, and the progenitor of the most corrupt financial institution the country was ever to spawn. The company’s first step was to buy up large tracts of Ireland, at the bottom of the market, acquiring for about £200,000 land worth £20,000 a year in rents. To bankroll its purchase, it decided to issue stock in the company. It did so in a complicated but highly profitable manner, announcing that it would exchange its stock not for money but for government debts called ‘army debentures’. Debentures were slips of paper given to people who had lent money to the government, a type of IOU issued by the Paymaster of the Forces to raise money for the constant state of war. The debts were unsecured, however, and had fallen in value since they first came on the market.

      The Sword Blade’s idea was to call in as many debentures as it could from the people who had lent the government money, by offering them what looked like a profitable exchange deal. The debentures stood at 85 on the stock market, and their holders were offered, in return, Sword Blade shares worth 100. How then could the company make a profit? The answer was that it had, effectively, rigged the market through what today would be called ‘insider trading’. It simply bought up as many debentures as cheaply as it could before announcing its plans, knowing that the scale of its share-swap scheme would cause their price to rise. By this method, the company made an estimated profit of around £25,000. The government, too, was satisfied. As well as buying land from it, the company lent it some £20,000 at a low level of interest as a ‘sweetener’ to facilitate the business between them. Through its financial adventures it became the Sword Blade Bank. It was a key moment in its history, the turning point in what became a growing, and corrupt, entanglement with affairs of state.

      The Bank of England looked on unamused. Its banking monopoly had been enshrined in an Act of 1697, and now it seemed the Sword Blade Company was acting as a land bank, not just as a land corporation. Treasury lawyers pored over the case, and pronounced in favour of the Bank, but no action was ever taken. The deal had been too profitable for the government. But there was worse to come for the Bank of England. A mysterious syndicate, its backers unknown but almost certainly including partners from the Sword Blade Company, offered to lend the government £1.5 million. The Bank could clearly see the danger of such a manoeuvre by its unknown rival. Its charter had only three more years to run, and only by offering to match the size of the loan, and by cutting interest rates to 4.5 per cent, did it see off the threat to its position. Its reward was the extension of its charter to 1732.

      This early skirmish between the two rivals presaged what would be in 1720 their all-out hostility, and the government seemed to be the beneficiary, paying less for its money than before. But the charter’s extension still proved to be a problem for the Chancellor, Robert Harley. The government had, by confirming the Bank’s monopoly, tied itself to a single banking institution to raise money for its conflicts and, over the next three years, the Bank increasingly struggled to deliver. What else could Harley do?

      In 1710, battling with the nation’s finances, he was impressed by the acumen of John Blunt, and the profit he was making. Harley began to discuss the issue of the national debt with Blunt in the hope of finding a radical solution. The first proposal that his new ally put forward, however, was distinctly traditional. Just five years after John Law had produced what would turn out to be one of the greatest analyses of the eighteenth century as a possible cure for Scotland’s economic ills, Blunt persuaded Harley to resurrect the old Whig solution of the lottery; and to let him run a far bigger game than the one which had captured von Uffenbach’s attention in the Banqueting House back in 1710, one which offered even bigger cash prizes and was more a game of chance. It would capitalise on the general fever for gambling and have the delightful side-effect, if it succeeded, of wresting some financial control from the Whig-dominated Bank of England. On 3 March 1711, the new lottery was launched.

      Ostensibly, it was the traditional way of raising loans, to be paid back through yearly payments, or annuities, at a guaranteed rate of interest. One hundred and fifty thousand numbered tickets, costing £10 each, were to be sold, inscribed with the legend: ‘This ticket entitles the bearer to ten Pounds to be paid in due course with Interest to commence from the Nine and twenty Day of September One thousand seven hundred and eleven or a better chance’ – that is, a prize. Interest was to be paid at 6 per cent. But Blunt had made big changes to the scale of the prize money. There were 25,000 prizes to be won, with the smallest at £20 and the largest at a staggering £12,000. The first and last tickets drawn out of the box would win an extra £500. In total, more than £678,000 – nearly as much as it cost to build St Paul’s Cathedral – was to be given away in prize money. Not surprisingly, the lottery was a tremendous success. One knight of the realm complained to a friend who asked him to buy tickets: ‘You may assure yourself that I used my endeavours to have put your money in the Lottery, but it was impossible to do it though I was very early that morning in the City, and a vast number of persons was disappointed as well as myself … As for buying up tickets, I cannot tell how to advise you, such advantage is made of them by the stock-jobbers.’

      John Blunt was on his way to the СКАЧАТЬ