the ministry from office. But the theory of party government was as yet
so little perfected, that not only did Stanhope retain his place, but
his administration was so strong, that the Whig malcontents thought it
better to renew their old connection with it, and both Walpole and
Townshend re-entered the Government, the one as Paymaster of the Forces,
the other as Lord President. It seemed as if nothing short of some great
convulsion could shake so powerful a Government, and, though little
apprehended, such a convulsion was near at hand.
[Sidenote: The South Sea Scheme.]
It was still early in the history of finance. It was only of late years
that the moneyed interest had become so important in the country as to
admit of the discharge of the public liabilities by means of large and
regular loans. But when once the practice had been begun it had been
largely adopted, and during the wars of the reign of Queen Anne the debt
had risen from sixteen to fifty-two millions. Ignorant of the resources
of the country and of the ease with which such a debt might be
supported, the financiers of the day were in constant terror of its
rapid increase. A member of the House, a certain Mr. Broderick, was
expressing the general feeling when he said, "I agree with the
ministers, that until the National Debt is discharged, or in a fair way
of being so, we cannot properly call ourselves a nation." But besides
the general dread of the amount of the debt, there was a very
well-grounded dislike to the high terms on which much of it had been
contracted. The money having been borrowed in time of war and
difficulty, the terms offered to the lender had been proportionately
favourable. A settled Government, the success of the Hanoverian
succession, and the continued and rapid increase of wealth which had
followed it, had rendered money much cheaper, and Government was paying
seven or eight per cent. upon its loans, when private individuals could
borrow on good security at four per cent. But the manner in which much
of the money had been raised forbad any effort at changing the rate of
interest. The loans had been largely contracted in the form of
annuities, many of them for ninety-nine years; and of these a
considerable portion were irredeemable, that is to say, Government was
pledged to the payment of the interest as originally arranged, unless
some change could be made with the consent of the creditors.
[Sidenote: Formation of the South Sea Company. 1711.]
Financiers had therefore two objects in view,--to lessen the whole
amount of debt, and to lower the interest payable on what remained. The
establishment of the Bank of England had shown the value, in a
mercantile point of view, of the Government credit. It became an
understood principle that money lent to Government, and thus secured
upon the credit of Government, was an excellent form of capital; and
when advances were required, or when it became convenient to substitute
a single great creditor for a number of little ones, this principle had
been brought into use. Two such attempts had been made, the one by
Harley in 1711, the other by Walpole in 1717. Harley, when Lord
Treasurer, had found a floating debt (a debt, that is, payable on demand
of the creditor) of ten millions, and had got rid of the danger of
immediate demand by forming a company of the creditors of this floating
debt. The ten millions were funded, that is, the interest and not the
capital was paid; the interest was secured upon the customs, and the
fund of ten millions became the capital of the company of creditors, who
were induced to allow their claims to be thus funded by the promise of
the monopoly in the mercantile advantage which Spain had granted England
at Utrecht. This came to but little,--the Assiento, or supply of slaves,
and the admission of a yearly ship of 500 tons burden to the American
colonies. Even this advantage was lost in the difficulties which arose
with Alberoni. The first ship did not sail till 1717, and as far as the
South Sea trade went Harley's plan was a failure. But the credit gained
by the Company in the transaction was good, other lines of trade were
opened up, and the Company became great, flourishing and powerful.
[Sidenote: The South Sea Scheme. 1720.]
In 1717 Walpole had been very desirous to diminish the National Debt. He
established the first sinking fund, borrowing £600,000 at only four per
cent., using this money to pay off liabilities bearing a higher
interest, and applying the money thus saved to the extinction of the
debt. He also, taking advantage of the value of Government credit,
induced both the Bank and the South Sea Company to accept a lower rate
of interest for the money they had already advanced, and to advance
between them nearly £5,000,000 more, for the purpose of paying off as
far as possible those holders of redeemable debts who refused to accept
the lowered rate of interest. The great South Sea Scheme of 1720 was in
principle nothing but a repetition of this manœuvre. The South Sea
Company, believing devoutly in the power of credit, was anxious to
extend itself as far as possible. The Government was so eager for the
reduction of the debt that the King had made special mention of it in
the speech with which he opened Parliament in the close of 1719. Under
these circumstances the proposition of Blunt, director of the South Sea
Company, found a ready hearing with the ministers. Between them an
arrangement was devised, perfectly justifiable and harmless as far as
the principle of it went. The bulk of the Government debt consisted in
redeemable and irredeemable annuities, on all of which large interest
was paid, and on which that interest must continue to be paid unless the
holder of the annuity voluntarily reduced it. There is said to have been
about sixteen millions of each class of security. Government wished to
bring the whole mass into one general fund, bearing a lower rate of
interest, and the South Sea Company was so greedy of the Government
credit, that it expressed itself anxious to add the whole of this
enormous amount to its capital. It is plain that any transaction of the
sort, as far as regarded the irredeemable annuities, must have been
entirely voluntary. All that the Government could do was to allow the
Company to persuade the holders to exchange their annuities for shares
in the Company. With regard to the holders of redeemable annuities,
payment in full must be offered, but that payment might be given in
shares of the Company. In other words, those who accepted the exchange
became proprietors in the Joint-stock South Sea Company to the amount of
their claim on the Government. With regard to the Government, the South
Sea Company alone became creditor, instead of a multitude of old
annuitants, and was contented to receive henceforward, instead of the
seven or eight per cent. the annuitants had received, five per cent.
till the year 1727, and after that four per cent. till the capital as
well as the interest should be returned, for the fund was made a
redeemable one. If the transaction were thoroughly successful the
capital of the South Sea Company would be increased by about thirty-two
millions, advanced to Government at five per cent., and Government would
have to pay five per cent. interest instead of seven or eight, besides
having the power of redeeming the capital.
[Sidenote: Competition of other companies.]
So great were the advantages understood to be gained by this accession
of capital in Government hands, that other companies wished to share in
them. It was voted by a large majority that these advantages should be
put up to public competition. The Bank of England and the South Sea
Company set to work outbidding each other, the latter finally proposing
terms which were virtually a payment to Government of seven millions and
a half. This money was to be devoted to the public service, to pay off
debts contracted to the end of the year 1722, and after that as much as
possible of the capital of the South Sea Company itself. It is plain
that for the success of this scheme two things were requisite. In the
first place, a readiness on the part of the public to accept the
Company's shares in exchange for their Government annuities; without
that Government would not be freed, nor would the Company get its
increased capital. But this exchange would of course bring in no ready
money. Secondly, therefore, a large number of new shareholders would be
required to subscribe, paying for their shares in ready money, in order
to meet the demands of those holders of redeemable annuities who refused
all exchange, and to cover the heavy premium of £7,000,000. Now both of
these objects were dependent on the popularity of the Company's shares;
and it was in this that the mistake of the arrangement lay; Government
had in fact made too good a bargain. By an extensive system of bribes
large sums of fictitious capital were invented and distributed gratis
among influential members of the Government, and still more largely
among the hungry Hanoverian courtiers, whose influence it was regarded
as all important to secure. All fear of the success of the scheme was
almost immediately removed. So great was the belief in the vast Company,
backed up by this huge accession of Government credit, so well had the
directors done their business, that a very large majority of the
annuitants pressed with extreme haste to accept the terms offered,
though those terms were very low. The public were then invited to
subscribe the new capital. Five separate subscriptions of upwards of a
million were in succession opened, and all filled, with equal rapidity.
[Sidenote: The rage for stock-jobbing.]
It was however in its secondary effects, rather than in its immediate
consequences, that the scheme exerted the most extraordinary influence.
There was a great deal of money in the country, and there was no
satisfactory way of using it. Much had been hoarded, for there were not
then as now numerous industrial investments in the market in which small
sums could be employed. The apparent success of the South Sea Company,
and the promises which it held out for rapid fortune-making, excited the
spirit of speculation to the highest degree, and companies sprang
into existence with unexampled rapidity. Some were real and
serious--waterworks, paving companies, and companies for the improvement
of all branches of manufacture. Some were mere transparent
impostures--as a company for the importation of Spanish donkeys, for the
fixing of quicksilver, or for wheels of perpetual motion. It did not
matter much what they were, for the rage for stock-jobbing was such that
any hardy promoter of a company might hope to float it at all events
till he had himself realized a handsome fortune. Change Alley became a
scene of the wildest excitement--people in all lines of life hurrying to
buy and sell as during the railway mania of our own time. But among all
the companies the South Sea Company maintained its pre-eminence, and its
shares rose, till in August the £100 share was worth £1000. The Company
continued to promise largely, even fifty per cent. profits. The
absurdity and danger of such reckless proceedings began to become
obvious. The nominal value of all the shares in all the companies then
existing was held to be £500,000,000, or twice the value of all the land
in England. But many of these companies, being unchartered, were
illegal, and had no right to issue shares, and the legitimate
companies, especially the South Sea, looked with jealousy at their
illegal competitors. Apparently unconscious how much their own success
depended upon the universal delusion, they proceeded to prosecute some
companies which had acted illegally. The effect was instantaneous. The
nation began to return to its senses; the bubble burst, and the stocks
of all unchartered companies fell with extreme rapidity. In the
universal ruin they carried with them the South Sea Company. The panic
was as rapid as the eagerness to purchase had been. Before the end of
September South Sea stock was at 175. The difference between that sum
and the £1000 which they had touched will give some measure of the loss
involved. The ruin among all classes was unspeakable.
[Sidenote: Bursting of the bubble.]
So great was the desolation that it was found necessary for Parliament
to intervene. Not that the great Company itself was in any way bankrupt,
its shares were still at a large premium, they never fell below 175; not
that any law of political economy had been broken; Government had never
pledged itself to support the credit of the Company, or to force either
its shares or its engagements on the public; but simply because private
speculation had caused so vast an amount of misery, and because the
nation was exasperated at it, interference became absolutely necessary.
Examination into all the details of the plan no doubt proved a
considerable amount of venality on the part of the ministry, of bribery
and fraud on the part of the directors. But even thus it was freely
acknowledged that under no old law had any crime been committed, and it
required a retrospective Act of Parliament and the creation of a
temporary crime to bring the directors within the reach of punishment.
As Gibbon said, the steps taken were in fact an act of popular vengeance
and contrary to justice. They consisted in the appropriation of the
private property of the directors to the amount of £2,000,000 for
distribution among the sufferers, the remission of the £7,000,000 due by
the Company to Government, the payment of all the just liabilities to
the Company, and a division of the capital that then remained, about
thirty-three per cent., among the proprietors.
[Sidenote: Punishment of the directors.]
[Sidenote: Supremacy of Walpole. 1721.]
These measures are due exclusively to Walpole, the one man specially
fitted from his financial abilities to deal with the present crisis, and
in whose favour it was remembered that he had been out of office when
the plan was set on foot. The official inquiries into the circumstances
of the South Sea Scheme left him indeed in a position of undisputed
supremacy in the House. Several members of the Government were
implicated in the frauds of the Company; Aislabie, the Chancellor of the
Exchequer, was found guilty and expelled the House. The younger Craggs
died of smallpox before the inquiry was completed, and his father
committed suicide. Charles Stanhope was acquitted by a majority of three
only, and although Sunderland was declared innocent by a large majority,
public opinion was so strong against him that he had to leave the
ministry. In the following year he died. During the angry debates which
arose on these matters Lord Stanhope had been attacked with virulence by
the Duke of Wharton, and the anger which he had felt had been such as to
cause a rush of blood to the head, of which he died shortly before his
relative Charles Stanhope was acquitted. There remained no possible
rival to Walpole, who with his brother-in-law Townshend returned to
power as First Lord of the Treasury. Thus, when the new Parliament
assembled, he found himself absolute master of the field, at the head of
an unbroken Whig party, supported by an overwhelming majority, and for
twenty years maintained his position, to the immense advantage of
England and to the lasting security of the reigning house.
[Sidenote: Revival of Jacobite hopes.]
[Sidenote: Bishop Atterbury's plot.]
Not that the Jacobites were as yet extinct, but they were silenced in
Parliament, and had to rely upon conspiracy or foreign assistance. Their
hopes in fact were at this moment in some respects higher than ever, for
the disturbance and discontent caused by the collapse of the South Sea
Scheme, together with the birth of an heir to the House of Stuart in the
person of Prince Charles Edward, seemed to afford them an opportunity
for greater activity. The Stuart papers prove the existence of a
well-organized intrigue, under the management of a Committee of five,
Lord Orrery, the Earl of Arran Lord Orford's brother, Lord North, Lord
Gower, and Atterbury Bishop of Rochester. The letters display in a very
curious manner the false hopes with which the party were constantly
buoyed up. Atterbury indeed showed signs of considerable wisdom, the
reintroduction of Walpole and Townshend to the ministry seemed to him a
great blow to the cause. "The reconciliation," he writes, "is not yet
hearty and sincere, but I apprehend it will by degrees become so. The
Tories have no good foundation on which to stand. Disaffection and
uneasiness will continue everywhere, and probably increase. The bulk of
the nation will be ever in the true interest and on the side of justice.
The present settlement will perhaps be detested every day more and
more, and yet no effectual step will or can be taken to shake it." The
great South Sea Scheme also seemed to him a difficulty. "That body of
men, who have increased their capital by £40,000,000, begin to look
formidable. They cannot but be the governors of the kingdom." He
therefore urged instant action before the Whig settlement had time to
ripen or the financial plans to be brought to successful conclusion.
Even a few years later the Earl of Orrery wrote, "It is not an
extravagant computation that four out of five of the whole nation wish
well to you." Nevertheless all these Jacobite writers were obliged to
confess, even after the failure of the scheme, that the united Whigs
were too powerful, and the general prudence of all classes too great, to
allow of any successful movement without assistance from abroad. It is
plain also that there were numerous sections and much want of discipline
in the Jacobite camp. Atterbury's influence was disapproved of by many;
Gower had a band of followers of his own; and James was so alive to this
source of weakness that he earnestly pressed for the election of a
responsible head, naming the Earl of Oxford as the fittest person for
the purpose. These divisions, and the want of self-reliance in the face
of the powerful Government, constantly prevented the Jacobites from
obtaining success; their agents were perpetually soliciting foreign
countries for help, and the chain of foreign diplomacy which Stanhope
had wrought was so close, that such ill-advised requests could scarcely
fail to reach the ears of the English ministry. Thus a determination to
take advantage of the confusion caused by the South Sea Scheme, by the
death of Stanhope, which was supposed to have broken the link with
France, and by the new election for Parliament, was brought to Walpole's
knowledge. The Regent had been asked to supply 5000 men, but Dubois was
not likely to overthrow the diplomatic edifice he had so carefully built
up. He at once informed the English minister at Paris. And at the
opening of the new Parliament George was able to give a short summary of
the conspiracy, involving an expedition headed by James and Ormond from
Spain and Italy, the seizure of the Tower, the Bank and the Exchequer,
and the declaration in London of King James; and at the same time he
could state that some of the chiefs, especially the Bishop of Rochester,
were already under arrest.
[Sidenote: Failure of the conspiracy.]
[Sidenote: Quarrel between Carteret and Walpole.]
The superiority of the Whig party was now shown in the Bills that were
passed relative to this conspiracy. The Habeas Corpus Act was suspended
for a whole year, the longest time on record; sums were granted for an
increase of the army; a tax of £100,000, to be collected from all
Nonjurors, was enacted; and as the evidence was scarcely sufficient to
go before a Court of Law, Bills of Pains and Penalties were introduced
against some of the subordinate agents, and against Atterbury himself,
who was forced to leave the kingdom. At Calais he met Bolingbroke, who
had just received his pardon and was returning to England. He had been
dismissed by the Pretender after the failure of 1715, and had vowed
never again to serve so ungrateful a master. None the less did he
continue for the rest of his life to hamper by his intrigues the Whig
party. The chief cause of his irritation was that his overtures were
rejected by Walpole, who already began to show that thirst for power and
jealousy of men of great talents which was one of his marked
characteristics, and which was the ultimate cause of his fall. Carteret,
who with Townshend was now Secretary of State, was his first victim--a
man of the most brilliant parts and of unrivalled knowledge of foreign
affairs. He had succeeded to much of the influence as well as to the
views of Stanhope. Abroad he was inclined to plunge England into the
complications of Hanoverian policy. It was in fact natural that with his
great knowledge of foreign affairs he should be led to consider them
more important than other English statesmen, who then as now were
inclined towards a policy of isolation. At home, too, his views were
less exclusively those of a Whig partisan than those of his fellow
ministers. He feared probably less than the occasion demanded the
strength of the Jacobites. He looked upon the sole possession of power
by the Whigs on the Hanoverian succession as a necessary but only
temporary evil. He was desirous of a far larger admission of the Tory
element, and would willingly have admitted Bolingbroke and those Tories
who would have accompanied him among the ranks of the ministry, or at
all events among the ranks of the ministerial supporters. But to Walpole
such views were exceedingly distasteful. He well knew Bolingbroke's
ability and feared him as a personal rival. He felt also that if
Bolingbroke were instrumental in destroying the Tory opposition, the
King could not but feel under considerable obligations to him, and that
his own exclusive influence would be shaken. Bolingbroke's overtures
were therefore most coldly received, and he withdrew again to Paris,
where an intrigue was going on, in which he took a prominent part, and
which ended in the fall of his friend Carteret. The intrigue itself was
of a very despicable character, and was connected with the marriage of
a daughter of Madame de Platen, sister of the King's mistress, the
Countess of Darlington. To counteract Carteret, who was employing the
English ambassador in the Countess's interest, Townshend sent Horace
Walpole as his agent to Paris. The existence of two rival ambassadors,
one only properly accredited, brought matters to a crisis. The King, in
spite of a strong personal friendship for Carteret, was obliged to yield
to the influence of Walpole, and his rival had to withdraw to the Lord
Lieutenancy of Ireland.
[Sidenote: Excitement in Ireland.]
But although the office given to Carteret was regarded as a retirement,
in the present instance it promised to be no sinecure. Ireland was in a
state of wild excitement, lashed to fury by the exceedingly able but
untrue writings of Swift, who in his Drapier's Letters had by
exaggeration and falsehood given an aspect of tyrannical misgovernment
to a commonplace and legitimate financial act. There was great need of a
new small coinage for Ireland, and Walpole had given a patent in 1722 to
a certain William Wood, giving him power to coin farthings and halfpence
to the value of £108,000. The contract and quality had been declared
satisfactory by Sir Isaac Newton, Master of the Mint. The Irish
Parliament declared that the patent would occasion a loss to the nation
of one hundred and fifty per cent., an extraordinary assertion based
upon the fact that a pound of rough copper in Ireland was worth twelve
pence, while a pound of coined fine copper was to be worth thirty pence.
But the mint in London gave eighteenpence a pound for its copper. The
charge of coinage was fourpence, the duties upon copper imported into
Ireland were twenty per cent., and the difference of exchange between
England and Ireland rendered a slight diminution of the weight
reasonable. Of course, however, it is certain that the patentee made
something by the bargain, especially as the voracious Duchess of Kendal
had been bribed to obtain it. But all facts and all reasoning were
useless against the storm raised by Swift's Letters, and it was not till
Walpole had exhibited his usual prudence in accepting inevitable defeat,
and cancelling the patent, that Ireland was quieted.
[Sidenote: Disturbances in Scotland. 1725.]