Mackay's narrative of 1841, the best known of the South Sea year, does not blame a crowd alone, and that is what this chapter shows. In the part read here, the fault is spread across the company's directors, who strove to raise the price while extravagant rumours ran, the legislature, whose Lords were seized by a speculating frenzy, and a nation of every rank. The Act at the centre of the story does not follow from any blame: blame is laid against it, by those who opposed it in Parliament. Skeptron's modern record blames no one and explains the episode by the company's authority over the debt. For the debate between mania and fundamentals (Mackay 1841; Kindleberger and Aliber 2005; Garber 2000), the chapter adds that Mackay's own text already tells a story about expected fundamentals, and that his folly is largely a belief in a trade that the same text says did not exist. Mackay is given here in this study's own words, in the order of his chapter.
5.1A narrative of 1841, not an Act of 1720
No text of the British state of 1720 is read in this chapter. The text is the opening of a chapter written more than a century later by a popular author for a general reader, which is a period text, not based on careful research into the sources. What it can show is how the story was told in 1841 and whom the teller blamed. It cannot show what Parliament or the company wrote in 1720, nor whether Mackay's figures and speeches are accurate. They are given here as his.
Mackay sets the tone before his first sentence, with eight lines of Pope. In them corruption floods everything like a deluge, and avarice creeps on like a low mist until it hides the sun. Statesmen and patriots play the stock market alike; a peeress and her butler share a box; judges deal in shares, bishops cheat the town, and great dukes rig the cards for half a crown; the whole of Britain, the last line says, has sunk into the charms of money.
The epigraph names the same vice as the preamble of 301, avarice, and gives it a different social shape. In the preamble it belonged to a few rich sellers set against the provinces. In Pope's lines it is a flood and a mist that covers every rank, and the highest are named: statesmen, a peeress, judges, bishops and dukes. Before Mackay tells a single event, the reader has been told that the fault was general and that it reached the top.
5.2The scheme as Mackay tells it
Mackay's narrative begins as a story of public finance. The South Sea Company, he writes, was founded in 1711 by Harley, Earl of Oxford, to restore public credit, which had suffered from the dismissal of the Whig ministry, and to provide for the army and navy debentures and other parts of the floating debt, nearly ten millions sterling in all. A company of merchants, as yet without a name, took this debt upon itself, and the government guaranteed it interest at six per cent for a time. To pay that interest, some six hundred thousand pounds a year by Mackay's figure, duties on wines, tobacco, silks and other goods were made permanent, and the company, incorporated by Act of Parliament, was granted the monopoly of the trade to the South Seas.
Mackay reports that the minister took great credit to himself for the transaction, and that his flatterers called it his masterpiece.
The trade, in Mackay's account, never matched the hopes. Everyone had heard of the gold and silver mines of Peru and Mexico, he writes, and believed that English manufactures sent to that coast would be repaid a hundredfold in ingots; a report spread that Spain would open four ports to English traffic. Spain, Mackay says, never meant to admit the English to free trade. The negotiations produced only a contract to supply the Spanish colonies with enslaved people and the right to send one ship a year, limited in tonnage and cargo, on condition that the King of Spain took a quarter of the profits and a tax on the rest. The first voyage of that ship was not made until 1717, and the trade was suppressed the following year by the rupture with Spain. Mackay's verdict is that the company's trade added little or nothing to its revenues, yet the company went on flourishing as a monetary corporation.
The company was, in Mackay's account, a holder of the state's debt that called itself a trading company. After a first round of proposals in 1717, when the king's speech had recommended reducing the national debt and Parliament passed three Acts, the company accepted five per cent instead of six on an enlarged capital. In January 1720 it made the proposal for which it is remembered. It offered to take upon itself debts of the state amounting, by Mackay's figure, to more than thirty millions sterling, at five per cent a year secured until Midsummer 1727, after which the whole was to become redeemable at the pleasure of the legislature and the interest was to fall to four per cent.
The Bank of England offered rival terms, and Mackay calls what followed a singular auction. Each side revised its offer: the company, fearing to be outbid, agreed that the government might redeem the debts after four years instead of seven, and the Bank answered with new terms of its own. Robert Walpole spoke for the Bank, and Aislabie, the Chancellor of the Exchequer, for the company. On 2 February the Commons resolved that the company's proposals were the more advantageous to the country. On Mackay's own telling, then, the scheme was a public bargain over the price at which the state could refinance its debts, competed for by two corporations and decided by the House.
5.3Whom Mackay blames
Within this account of finance, Mackay places blame at several points, and each time on a different party.
The first party is the company's directors. They were inspired, Mackay says, by John Law's Mississippi scheme in France, and they believed, wise in their own conceit, that they could avoid Law's errors, keep their schemes going for ever, and stretch credit to its utmost without its breaking. While the bill was before the Commons, Mackay writes, the directors and their friends, and above all the company's chairman, made every effort to raise the price of the stock, and the most extravagant rumours circulated.
The rumours he lists are rumours about the company's business: treaties by which Spain would grant free trade to all her colonies, silver from the mines of Potosi brought to England until it was almost as plentiful as iron, the people of Mexico emptying their gold mines in exchange for English cotton and wool, and every hundred pounds invested yielding hundreds a year. Mackay does not say in the part read here who started the rumours; he sets them beside the directors' effort to raise the price, and the picture of future earnings that they paint is one his own text shows to be false, since Spain never meant to allow the free trade they promise. His verdict on the directors joins conceit to effort: they are wise in their own conceit, and they work to push the price up.
The second party is the legislature. Mackay records that the stock, at a hundred and thirty the day before the Commons' resolution, rose to three hundred while the bill was debated, was pushed to near four hundred, and stood at three hundred and thirty when the bill passed the Commons, by a hundred and seventy-two votes to fifty-five. In the Lords, he writes, the bill was hurried through all its stages with unexampled speed in the first week of April and passed by eighty-three peers to seventeen, receiving the royal assent the same day. Several peers spoke against it, Mackay says, but their warnings fell on deaf ears, because a speculating frenzy had seized the peers as well as the common people. He does not exempt the nobility from the fever he describes.
The third party is everyone. Mackay's words for the public are the language of illness and intoxication: the English, he writes, began their extravagance later than the French, but once the delirium seized them they were determined not to be outdone, and Exchange Alley was in a fever of excitement. When the bill had passed, it seemed to him as though the whole nation had turned stockjobbers; crowds blocked Exchange Alley every day and carriages made Cornhill impassable. The thirst for gain, he concludes, had afflicted all ranks of society and could not be satisfied even by the South Sea, so that other and wilder schemes were started.
Set beside the preamble of 301, Mackay's distribution of blame is the reverse. The emperors blamed a few and addressed the many as their victims. Mackay blames the few who led, the directors and their chairman, and also the many who followed, and he places the peers among the many. No one in his account stands outside the fault except those who warned against it.
5.4Blame before the event
Those who warned are given the clearest statements of where the fault lay, and they made them before the scheme took effect. Mackay reports Walpole's speech in the Commons at length. In Mackay's report, Walpole said that the bill encouraged the dangerous practice of stock-jobbing and would turn the nation's genius away from trade and industry; that it would lure the unwary to their ruin by making them give up the earnings of their labour for a prospect of imaginary wealth; and that the great principle of the project was an evil of the first magnitude, since it was to raise the value of the stock artificially, by stirring up and keeping up a general infatuation, and to promise dividends out of funds that could never be enough to pay them.
Walpole's charge, as Mackay gives it, is against the design of the project, not against the character of the people. The public in this speech are not culprits; they are the unwary, to be decoyed to their ruin. Mackay adds Walpole's further prediction that if the plan succeeded the directors would become masters of the government, and that if it failed it would bring general discontent and ruin on the country. Mackay presents him as a prophet who was not believed.
In the Lords the charge took a form that recalls the preamble of 301 closely. Lord North and Grey, Mackay reports, called the bill unjust in its nature and possibly fatal in its consequences, because it was designed to enrich the few and impoverish the many.
The structure is the emperors': a few enriched at the expense of the many. The direction is turned around. In 301 the authority blamed the few, and the measure was its answer. In 1720, as Mackay tells it, the few are enriched by the measure, and the blame is laid against an Act that the legislature was about to pass and then passed by large majorities. The measure does not follow from the blame. Mackay presents Walpole's warning as a prophecy, but the part of his chapter read here ends before the collapse, with shares bought by crowds and new schemes started. It reports no losses and names no one who paid. Who suffered appears only in the future tense of the warnings: the unwary, the many, the country.
5.5The modern record
Skeptron's record of 1720 tells the story in two sentences.
After the South Sea Company obtained the authority to absorb part of the national debt, the stock price rose sharply and subsequently collapsed. An explanation is also left in place that the company received a trade privilege, but actual trade was extremely limited.
The record blames no one. It names no director, no minister, no House and no public. Its explanation of the episode is a sequence: an authority over the debt, a sharp rise, a collapse. Where Mackay's narrative and the record overlap, they agree: the trade was small, and the debt was the business. The record's next answer adds what a reader may not conclude.
The patent, the debt absorption, the trading revenue, and the stock price must be verified separately. The chronology is not real daily price data, so price anchors and returns must not be invented.
The record separates four things that Mackay's narrative runs together: the charter, the taking over of the debt, the revenue from trade, and the share price. It declines to give any price at all, on the ground that the chronology is not real daily price data. Mackay gives prices freely, from a hundred and thirty to near four hundred. This study repeats them as his and computes nothing from them.
The record's last answer states what a later comparison would need.
What must be observed is liquidity by maturity, borrowing entities, and records of actual performance. If expected inflows are counted as available cash or the support of other entities is combined, the plan must be recalculated.
This is the language of a balance sheet. It turns a charge against persons into a test of accounts, and drops everything Mackay says about who was answerable and who might suffer. The study's two independent readings of the record agreed that it does not name who bore the cost, and did not agree on what kind of act it shows: a reader learns that the company obtained the authority, but not from whom or on what terms.
5.6What the case adds
The case speaks to the debate between mania and fundamentals, and adds three things. First, the classic text of mania does not blame a crowd alone: Mackay sets the directors' effort to raise the price beside extravagant rumours, puts the peers inside the fever, notes that the Commons passed the bill by a large majority, and spreads the vice across all ranks. Second, the folly he describes is largely a belief about fundamentals, the expected trade with Spanish America, in a text that also reports that the trade produced little or nothing; Garber's argument (Garber 2000) and Mackay's story meet on that ground, and differ on whether the expectation was reasonable. Third, the measure did not follow from blame; blame was laid against it by its opponents, in the emperors' terms of the few and the many. For the series' question, the proposal as Mackay reports it carried a term, interest secured until Midsummer 1727 and the debt redeemable after that, but neither his chapter nor the modern record says who bore the cost when the share price collapsed, as the record says it did.