A Trojan horse in the House of Lords? The South Sea Company and the peerage

2020 marks the 300th anniversary of one of the most spectacular stock market crashes in British history when the South Sea Bubble burst. Dr Charles Littleton re-examines the way in which the scheme was guided through Parliament and the impact it had on some members of the House of Lords

On 22 January 1720 the chancellor of the exchequer, John Aislabie, presented to the House of Commons the scheme for the South Sea Company to assume responsibility for the National Debt. Under this plan the Company, founded in 1711 ostensibly to conduct trade with the Spanish colonies of southern America, would encourage government creditors to convert their long-term annuities and securities into Company stock. Those taking advantage of this offer were promised lucrative dividends from the proceeds of trade (which never materialized). The principal proponents of the scheme were Sir John Blunt, a director of the Company, and its cashier Robert Knight, who brazenly promised to pay the Treasury £7.5 million for the privilege of taking over the Debt, money the Company did not have. Knight further clinched the deal by granting Aislabie and the first lord of the treasury, the earl of Sunderland, stock which did not exist, with the assurance that they could realize a hefty profit by ‘selling’ the fictitious stock back to the Company when its market value had increased. The ministers had a clear incentive to endorse the project and to ensure the Company’s share price increased.

Despite some stirrings of opposition, the bill to increase the capital stock of the South Sea Company went through both houses relatively easily. In the debate on the bill’s second reading in the House of Lords on 5 April 1720 the former lord chancellor, Earl Cowper, compared the bill presciently to the Trojan Horse which ‘was ushered in and received with great pomp and acclamations of joy, but which was contrived for treachery and destruction’. As he predicted, the bill led to a frenzy of speculation resulting in one of the most famous ‘bubbles’ and financial crashes in British history. The stock’s value soared to heights of about 1000 in July 1720, before crashing down to 150 by October.

The South Sea Scheme: speculators ruined by the collapse of the South Sea Company. Engraving by W. Hogarth after himself, 1721. (c) Wellcome Collection

Much has been made of the ‘South Sea Bubble’, whose 300th anniversary we mark this year, and its many devastating effects. It is often invoked as a general disaster owing to the many individuals whose fortunes where ruined by reckless speculation. Many members of the peerage were drawn in, and there were some spectacular losses. The duke of Portland led an extravagant lifestyle even before the bubble, maintaining a large house on St James’s Square. He contracted additional loans to maintain his way of living, on the tenuous security of the stock ‘lent’ to him by the Company, reputedly borrowing £84,000 on the security of an investment in stock of just £17,100. Just before the crash he professed himself fully satisfied with the actions of the court of directors, but he found himself ruinously in debt after the bubble burst. As one observer had it, ‘thinking to retrieve himself by the South Sea, [he] has completed his ruin’. In September 1721 he had himself made governor of Jamaica to evade his creditors.

Viscount Lonsdale, had a reputation as a gambler and speculator. By 1720 it was said that he ‘games every way’, and at one point ‘lost £8,000 one day in the City but won it back again’. He probably invested between £20,000 and £30,000 in Company stock, and also lost badly when the bubble burst. Rumour had it that he was so angered by his losses that he tried to stab Blunt. Gossip suggested that he also wished take the route favoured by Portland, and was to apply for a colonial governorship.

Another big loser was one of the most famous speculators of the period, the duke of Chandos. At first he did well, realizing £30,000 from the sale of stock in March 1720. However, this only spurred him on to implicate himself further in the scheme, and even to embark on some major building projects on the basis. By May he held about £300,000 worth of stock, and refused to sell. Even though he went on to lose heavily at the crash, he was still able to invest in prestige building projects in the new development in Cavendish Square.

In the winter of 1720-21, the Commons embarked on an investigation into the nefarious dealings of the South Sea Company. It became clear that leading officers of the government had been bribed to ensure the bill’s passage through Parliament. Aislabie was expelled from the Commons on 8 March 1721. Sunderland also saw his authority decay. In an earlier debate of 5 April 1720 on the bill Sunderland had argued that the Company directors should be able to make a healthy profit if they helped relieve the country of the Debt. After the crash he had to do some furious backpedalling, claiming he had been duped. He was ultimately saved from censure by the Commons through the efforts of his rival for the leadership of the Whigs, Sir Robert Walpole. Sunderland resigned, allowing Walpole to begin his long tenure as first lord of the treasury and ultimately to emerge as ‘prime minister’.

CGDL

Further reading:

John Carswell, The South Sea Bubble (rev. edn. 1993)
Julian Hoppit, ‘The Myths of the South Sea Bubble’, Transactions of the Royal Historical Society, 6th ser. xii (2002), 141-166
C.H.C. Baker and M.I. Baker, The Life and Circumstances of James Brydges, First Duke of Chandos (1949)
Pat Rogers, ‘South Sea Bubble Myths’, Times Literary Supplement, 9 Apr. 2014