South Sea Bubble Research Articles

The South Sea Bubble and Ireland: Money, Banking and Investment, 1690–1721, by Patrick Walsh

The Glorious Revolution is credited with ushering in a greater role for parliament in approving and appropriating taxes, the establishment of the Bank of England as well as of private banks, and investment in paper stocks. If a formidable fiscal-military state gradually emerged, it was attended by periodic crises, notably the South Sea Bubble. Ideas about the English developments pioneered by Peter Dickson, John Brewer and Julian Hoppit are being applied to Ireland and Scotland, in order to assess how much each kingdom contributed and profited. Patrick Walsh, author of this present book, has been to the fore in the latter investigations. Already, he has reconstructed the career of William Conolly, the most successful politician in Ireland during the early eighteenth century. Since Conolly’s supremacy rested heavily on his command over the revenue service in Dublin, Dr Walsh has an enviable understanding of the complexities of Irish public finance. Utilising, too, his familiarity with an intimidating bulk of documentation (unusual riches for historians of Ireland before 1800), he has turned to the Irish (and Scottish) involvement in the South Sea Bubble. The resulting study falls into two parts, each of great novelty and value.

The Great Mirror of Folly: Finance, Culture, and the Crash of 1720 ed. by William N. Goetzmann etal.

Reviewed by: The Great Mirror of Folly: Finance, Culture, and the Crash of 1720 ed. by William N. Goetzmann etal. Robert G. Walker The Great Mirror of Folly: Finance, Culture, and the Crash of 1720, ed. William N. Goetzmann et al. New Haven: Yale, 2013. Pp. xiv + 346. $75. We are told in the foreword that “this is a book about a book,” a massive and deliberate understatement. This is a very large and handsome book—quarto-size (12” x 9”) on glossy paper with 265 illustrations—that studies the first Great Mirror, a “stout folio” published in 1720 in Amsterdam: “bigger than its competitors, more lavishly illustrated. … It reached audiences across much of Europe—its texts and captions were translated into French, English, German, and (in some instances) Latin.” The catalyst and subject matter of the eighteenth-century work were the nearly simultaneous economic crashes that had just hit Europe (the Mississippi Company in France, the South Sea Bubble in Britain, and “a host of smaller joint-stock companies in various parts of Europe”). Of the sixteen essays in this collection, three approach the Mirror bibliographically; the others treat it in a historical (emphasizing the view of the financial world) or aesthetic context (discussing especially its numerous satiric prints). This book’s general appeal will lie, as the editors recognize, in a comparison of this early worldwide financial crisis with the Great Financial Crisis of 2008. The contributors follow the revisionist view of eighteenth-century bubbles advanced over the past few decades, namely that the negative impact of their bursting was overstated by contemporary and subsequent sources. It is tempting here to quote Harry Truman: “It’s a recession when your neighbor loses his job; it’s a depression when you lose yours.” Moreover, overstatement is a characteristic of political argument from which financial issues are never exempt. The consensus of the contributors is that the financial modernization that caused the crashes was a necessary, rather than an unfortunate, development. They repeatedly explain that both in Britain and in France government finances were in terrible shape before 1720 due to the expenses of the War of the Spanish Succession (1701–1714). In both countries, plans had been introduced to retire onerous government debt by exchanging it for common stock in government-chartered private companies. Tied to future profits from international trade, especially in the New World, the stock soared … for a while. Here, then, was an opportunity to draw perhaps the best possible parallel between the crises separated by 300 years. For the only necessary and sufficient cause for the 2008 crisis was not individual and corporate greed, nor the presence of new and poorly understood financial derivatives, nor malfeasance at the banks and rating agencies. All these causes were present, certainly, but were hardly sufficient without the federal government’s blatant manipulation of the housing market—accomplished in a variety of ways but especially in the unprecedented growth of government-chartered private companies like Freddy Mac and Fanny Mae. Readers of the Mirror in 1720 had their attention repeatedly directed through allusions to [End Page 181] lotteries and card-playing toward the gamble that frenzied investors undertook, with disastrous results. A handful of contributors quote the phrase “irrational exuberance,” popularized by Alan Greenspan in a speech in 1996 and not at all referring to or anticipating the 2008 crisis. They would have done better to quote Representative Barney Frank, from a congressional hearing in 2003: “I do not want the same kind of focus on safety and soundness [in the housing agencies that is present in other government agencies]. I want to roll the dice a little bit more in this situation toward subsidized housing.” Despite this missed opportunity to reveal the highly visible hand of government intervention in causing both crashes, there is much of interest in this volume. In “Playing Games with the Financial Crisis of 1720,” Jeroen Salman explicates the April Card, an uncut sheet of 52 playing cards that appeared in the Mirror. Starting with the association of stock trading and frivolous gambling, the April Card develops an amazingly intricate series of connections between the cards and the results of the crash. For instance...

Fraud and Financial Scandals: A Historical Analysis of Opportunity and Impediment

The paper presents a conceptual framework of financial fraud based on the historical interaction of opportunity and impediment. In the long run the character of opportunity is determined by the technical characteristics of assets and their unique, unknowable or unverifiable features. Impediment is promoted by consensus about the real value of assets, such that through active governance processes, fraudulent deviations from real value can be easily monitored. Active governance requires individuals in positions of responsibility to exercise a duty of care beyond merely being honest themselves. Taking a long run historical perspective and reviewing a selection of British financial frauds and scandals, from the South Sea Bubble to the Global Financial Crisis, the paper notes the periodic occurrence of waves of opportunity and the evolutionary response of passive governance mechanisms.

For What It's Worth: Historical Financial Bubbles and the Boundaries of Economic Rationality.

This essay is a historical and epistemological exploration of a traditionally crazy economic event: the financial bubble. Venturing into two different moments in the history of economic thinking, it investigates financial bubbles as epistemic frontiers, where rationality has reached its limits. The first half forays into late twentieth-century economics. Since 1980, an interpretive battle over the ir/rationality of bubbles has made those peculiar events, long beyond the pale of the rational, contested terrain on which the limits of rationality have been fought out. The essay's second half turns to one historical crisis, the South Sea Bubble. For contemporaries in 1720, the bubble was a different kind of epistemic frontier. As they tried to reckon what South Sea Company stock was worth, investors were confronted not with clearly rational or irrational choices but with a decidedly unruly collection of similarly plausible calculations. The story of 1720 suggests that studying historical confusion might be a profitable enterprise for scholars of the economic and epistemological past.

PatrickWalsh, The South Sea Bubble and Ireland: money, banking and investment, 1690–1721 (Woodbridge: Boydell Press, 2014. Pp. xii + 204. 2 figs. 1 plate. 9 tabs. ISBN 9781843839309 Hbk. £60)

The Economic History ReviewVolume 68, Issue 3 p. 1064-1065 BOOK REVIEW Patrick Walsh, The South Sea Bubble and Ireland: money, banking and investment, 1690–1721 (Woodbridge: Boydell Press, 2014. Pp. xii + 204. 2 figs. 1 plate. 9 tabs. ISBN 9781843839309 Hbk. £60) Helen Julia Paul, Helen Julia Paul University of SouthamptonSearch for more papers by this author Helen Julia Paul, Helen Julia Paul University of SouthamptonSearch for more papers by this author First published: 15 July 2015 https://doi.org/10.1111/ehr.12135Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL No abstract is available for this article. Volume68, Issue3August 2015Pages 1064-1065 RelatedInformation

Patrick Walsh. The South Sea Bubble and Ireland: Money, Banking and Investment, 1690–1721. Woodbridge, Suffolk, UK: Boydell & Brewer, 2014. Pp. 216. $99.00 (cloth).

Patrick Walsh. The South Sea Bubble and Ireland: Money, Banking and Investment, 1690–1721. Woodbridge, Suffolk, UK: Boydell & Brewer, 2014. Pp. 216. $99.00 (cloth).

Enlightenment Bubbles, Romantic Worlds

Critical discussions of the bubbles that make fleeting but memorable appearances in several well-known Romantic-era poems—most notably, Samuel Taylor Coleridge’s “The Eolian Harp” (1796), Anna Letitia Barbauld’s “Washing-Day” (1797), and George Gordon, Lord Byron’s Don Juan (1818-1824)—tend to take the bubble’s properties and associations for granted. To do so is a mistake because the eighteenth century—the century of both Isaac Newton’s Opticks (1704) and the South Sea Bubble (1720)—redefines what bubbles mean. Inspired by the bubble’s redefined material and figural status, the three aforementioned poems articulate a poetics of the bubble that envisions aesthetic experience as a form of speculative play involving both illusion and disillusionment. By appropriating the bubble as a figure of aesthetic play, Barbauld, Coleridge, and Byron embrace a ludic imperative that is also at the heart of late seventeenth- and eighteenth-century natural philosophical experiments with soap-bubbles. In so doing they reveal how Romantic aesthetics is as much continuous with as it is self-consciously distinct from Enlightenment science.

Defoe’s The Complete English Tradesman and the Prostitute Narrative: Minding the Shop in Mrs. Elizabeth Wisebourn, Sally Salisbury, and Roxana

Written in the aftermath of the South Sea Bubble collapse of 1720, Daniel Defoe’s The Complete English Tradesman (1726) associates economic survival with the concept of mastery, or “minding the shop.” This concept had been explored in prostitute narratives published earlier in the decade, including Anodyne Tanner’s The Life of the Late Celebrated Mrs. Elizabeth Wisebourn (1721), Charles Walker’s Authentick Memoirs of the Life, Intrigues, and Adventures of the Celebrated Sally Salisbury (1723), and Defoe’s Roxana: The Fortunate Mistress (1724). When one reads The Complete English Tradesman in relation to these narratives, the figure of the female sex worker emerges as a model for Defoe’s middle-class masculine ideal. Much like Defoe’s tradesman, the protagonists of post-Bubble prostitute narratives represent an endangered masculinity that strives for mastery within a precarious economic environment. The “femaleness” of these protagonists—and consequently Defoe’s tradesman—cannot be disregarded, however. Though the prostitute narratives discussed here are male-authored representations of masculine experience, they are also reflections of one of eighteenth-century England’s most fascinating and powerful female figures, a figure associated, albeit loosely, with actual female sex workers. Defoe’s tradesman clearly serves as a masculine ideal, but one that cannot escape its notorious “feminine” literary past.

Irish Money on the London Market: Ireland, the Anglo-Irish, and the South Sea Bubble of 1720

London’s emergence as a significant financial center in the decades after the Glorious Revolution of 1688 created new opportunities not just for Londoners, but also for those living either in the English provinces or in the metropolitan provinces of Ireland and Scotland. This article focuses on the new opportunities available to both Irish men and women for accumulating capital and wealth in the City. It examines the growth in Anglo-Irish investment, during what historians call “the Financial Revolution,” and analyzes the development of increasingly complex financial networks, which spanned both sides of the Irish Sea. Its particular focus is on the experience of Irish investors in the South Sea Company, before, during, and after the famous stock-market bubble of 1720. Drawing on a variety of source materials, including private correspondence, exchange-rate data, and banking ledgers, this article shows how Irish investors, both those living in London, and those more normally residing in Ireland, interacted with the London markets. The importance of personal and familial links is emphasized, while the experience of Irish investors is also situated within the broader context of nonmetropolitan investment in the bubble.

Share portfolios in the early years of financial capitalism: London, 1690–1730

The dramatic expansion of public and private financial markets in the aftermath of the Glorious Revolution has received extensive attention. Despite this, little is known about how ordinary individual investors managed risk within this framework. Using a newly constructed dataset of share ownership for those joint‐stock companies listed in the financial press of the day, we reconstruct individual portfolio holdings for investors in these companies. We examine individual portfolio holdings first for the decade after the Glorious Revolution and then for the years around the South Sea Bubble. Despite a fivefold increase in the number of unique individuals in the market between the 1690s and the 1720s, we find that in each period roughly 80 per cent of those active in the equity market held shares in only one company, even though many shareholders had the capacity or wealth to diversify share portfolios. These outcomes suggest diversification against idiosyncratic liquidity risk. Overall, however, there is limited evidence that individuals were using their financial portfolios to protect against diversifiable shocks. For many, we argue, company‐specific voting and firm governance rules drove market activity.

Riding a wave: the Company's role in the South Sea Bubble

It is widely believed that officials of the South Sea Company deliberately engineered London's stock market bubble of 1720, hoping in the process to line their own pockets. This article considers the available evidence, including some manuscript records of securities trading by Company officials, and finds there is little support for the standard view. An alternative account is proposed. The Company had broader aims to which the bubble was in fact a major obstacle. The directors acted to support the market price of South Sea stock whenever it came under downward pressure.

Troværdighedsbobler. Penge, fantasi og virkelighed i Jonathan Swifts "Gullivers rejser"

Mikkel Thorup: “Credibility Bubbles. Money, Fantasy and Reality in Jonathan Swift’s Gulliver’s Travels”This article explores the interrelations between credit and credibility in Jonathan Swift’s well-known satire Gulliver’s Travels. Starting from a sketch of the monetary and financial innovations and developments of the period, most notably the emerging credit market and the collapse of the South Sea Bubble, the article reads Swift as a commentary on the ways in which economic value is increasingly disconnected from material or use references in favor of opinions, fantasies and imaginaries. To be creditworthy, in both the markets of Swift’s time and in his book, is tightly connected to speech, to reassurances of credibility. Credit and credibility are interlocked and the article explores how that interlocking plays out satirically.

Recreating the South Sea Bubble: Lessons from an Experiment in Financial History

Major bubble episodes are rare events. In this paper, we examine what factors might cause some asset price bubbles to become very large. We recreate, in a laboratory setting, some of the specific institutional features investors in the South Sea Company faced in 1720. Several factors have been proposed as potentially contributing to one of the greatest periods of asset overvaluation in history: an intricate debt-for-equity swap, deferred payment for these shares, and the possibility of default on the deferred payments. We consider which aspect might have had the most impact in creating the South Sea bubble. The results of the experiment suggest that the company’s attempt to exchange its shares for government debt was the single biggest contributor to the stock price explosion, because of the manner in which the swap affected fundamental value. Issuing new shares with only partial payments required, in conjunction with the debt-equity swap, also had a significant effect on the size of the bubble. Limited contract enforcement, on the other hand, does not appear to have contributed significantly.

Book Reviews

Anne L. Murphy of University of Hertfordshire reviews, “Prometheus Shackled: Goldsmith Banks and England's Financial Revolution after 1700” by Peter Temin and Hans-Joachim Voth. The Econlit abstract of this book begins: “Explores the history of goldsmith banks and their role in the growth of England's economy after 1700. Discusses earning and spending in eighteenth-century London; the financial revolution; goldsmith banks; borrowers, investors, and usury laws; the South Sea Bubble; the triumph of boring banking; and finance and slow growth during the Industrial Revolution. Temin is Elisha Gray II Professor Emeritus of Economics at the Massachusetts Institute of Technology. Voth is ICREA Research Professor at the Universitat Pompeu Fabra.”

The medical miracles delusion

Army ants subscribe to a simple rule: follow the ant in front. If the group gets lost each ant tracks another, eventually forming a circle. According to crowd theorist James Surowiecki, one circle 400m in circumference marched for two days until they all died. Humans are not ants, but we often trudge together along the same trail, neglecting to look around for alternatives. Mass delusions involve large groups holding false or exaggerated beliefs for sustained periods. Humanity has a long, sorry list of these shadowthe-leader epidemics of collective consciousness which appear obviously wrong only in hindsight. Some last for centuries: early alchemists intent on transmuting base metals into gold and the Christian Crusades of Europe’s middle ages, for example. Others have correlates which resurface decades or centuries later: McCarthy’s persecution of alleged communists in the 1950s harked back to the Salem Witch hunts of 16th century America just as the 2008 Global Financial Crisis had much in common with the ‘South Sea Bubble’ which slashed 17th century Britain’s GDP. In the educated 21st century, too, we blithely trust in economic and political systems which are stripping the earth’s resources, altering the climate and facilitating wars. Are we then similarly mistaken, en masse, about the capabilities of the health system? Most of us believe in the miracles of modern medicine. We like to think that the health system is increasingly effective, that we are implementing better treatments and cures with rapid diffusion of new practices and pharmaceuticals and that there is always another scientific or technological breakthrough just around the corner promising to save even more lives; all at an affordable price. We maintain the faith despite multiple contraindications. Modern health systems consistently deliver at least 10% iatrogenic harm. Despite very large investments and intermittent but important interventional successes, such as checklists in theatres and clinical bundles in ICU, there is no study showing a step-change reduction in this rate, systems-wide. Only half of care delivered is in line with guidelines, one-third is thought to be waste, and much is not evidence-based, notwithstanding concerted efforts to optimise that evidence and incorporate it into routine practice. The reality is that progress is slowing, and medicine seems to be reaching the limits of its capacities. The potentially disastrous problems of antibiotic resistance, for example, are yet to play out. This is only one point among many. New technologies such as the enormously expensive human genome project have provided only marginal benefits to date. We still do not have the answers to fundamental questions about the causes of common diseases and how to cure them. Many doctors are dissatisfied and increasingly pessimistic. It must also be remembered that although death is no longer seen as natural in the modern era, everyone must die. Yet, we inflict most of our medical ‘miracles’ on people during their last six months of life. Le Fanu describes this levelling off and now falling away of health care progress in The Rise and Fall of Modern Medicine. Every major group of stakeholders has its own specific delusion which acts to augment the metalevel medical miracles delusion. Thus, the overarching delusion is buttressed by a set of related ‘viruses of the mind’, to borrow Richard Dawkins’ evocative phrase. Although politicians think and act as if they are running things, modern health systems are so complex and encompass so many competing interests that no one is actually in charge. Then, bureaucrats – acting under their own brand of ‘groupthink’ – assume their rules and pronouncements provide top-down stimulus for medical progress and improved clinical performance on the ground. Yet coalface clinicians are relatively autonomous agents, so there can only ever be modest policy trickle down. Researchers, too, support the medical miracles industrial complex. The electronic database PubMed holds some 23 million articles and is growing rapidly. Every author hopes it will be his or her results that will make a difference, yet there is far less

“Bankrupt in all but my good wishes”: Speculative Economics in Cleomelia; Or The Generous Mistress

This article explores Eliza Haywood’s Cleomelia; Or The Generous Mistress: Being the Secret History of a Lady Lately Arrived from Bengall (1727), an obscure tale preoccupied with the politics of British investment in exotic foreign trade and speculation. Against the Eastern backdrop of Bengali trading posts and the remote Spice Islands, Haywood examines the sanguine Whig attitude to the economic possibilities of foreign trade. Exploiting the associations between female sexuality and speculative investment that had emerged so powerfully after South Sea Bubble incident in 1720, Haywood uses Cleomelia’s many marriages to illuminate an abstract notion of value. Cleomelia enters the contemporary socio-political discourse of credit and speculation with ambivalence; while Haywood appears to criticize the self-interest, exploitation and high level of risk involved in Whig overseas trade policy, she also explores these elements more sympathetically through the heroine’s astute manipulation of the marriage market.

The Charitable Corporation for the Relief of Industrious Poor: Philanthropy, Profit and Sleaze in London, 1707–1733

AbstractThe Charitable Corporation's mission was to offer small loans on pledges on fair terms, thereby supplanting as a source of credit those pawnbrokers who were believed to be exploiting the poor. However, it was poorly served by its management, who allowed fraud to run unchecked for many years. Shedding new light on a neglected experiment during Britain's ‘financial revolution’, this article sets out to reconstruct the history of the Corporation from its foundation in 1707 to its disintegration in 1731. On the way, it details the Corporation's original business model, how, in the years following the South Sea Bubble, it attracted investors, its descent into corruption and the fall‐out from its eventual failure. It also explores some larger issues raised by the Corporation. The fact that it was established in the first place seems to imply a surprisingly lenient attitude to individual responsibility and financial risk in the eighteenth century. Questions of responsibility also dominated debates after the Corporation's fall, as parliament and the courts grappled with the difficulties of pinning down the point where negligence becomes a breach of trust. Furthermore, as it was not only a charity but also a business whose shareholders were expecting healthy dividends, it opens up questions of the proper relationship between charity and self‐interest.

Recreating the South Sea Bubble: Lessons from an Experiment in Financial History

Major bubble episodes are rare events. In this paper, we examine what factors might cause some asset price bubbles to become very large. We recreate, in a laboratory setting, some of the specific institutional features investors in the South Sea Company faced in 1720. Several factors have been proposed as potentially contributing to one of the greatest periods of asset overvaluation in history: an intricate debt-for-equity swap, deferred payment for these shares, and the possibility of default on the deferred payments. We consider which aspect might have had the most impact in creating the South Sea bubble. The results of the experiment suggest that the company's attempt to exchange its shares for government debt was the single biggest contributor to the stock price explosion, because of the manner in which the swap affected fundamental value. Issuing new shares with only partial payments required, in conjunction with the debt equity swap, also had a significant effect on the size of the bubble. Limited contract enforcement, on the other hand, does not appear to have contributed significantly. (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this it (This abstract was borrowed from another version of this item.)

New evidence on the first financial bubble

The Mississippi Bubble, South Sea Bubble and the Dutch Windhandel of 1720 together represent the world's first global financial bubble. We hand-collect cross-sectional price data and investor account data from 1720 to test theories about market bubbles. Our tests suggest that innovation was a key driver of bubble expectations. We present evidence against the currently prevailing debt-for-equity conversion hypothesis and relate stock returns to innovations in Atlantic trade and insurance. We find evidence consistent with the innovation-driven bubble dynamics documented by Pastor and Veronesi (2009) for new economy stocks. Our evidence seems inconsistent with clientele-based theories that emphasize bubble-riding and short-sales restrictions.

“I Am Not Master of Events:” The Speculations of John Law and Lord Londonderry in the Mississippi and South Sea Bubbles. By Larry Neal. New Haven, CT: Yale University Press, 2012. Pp. 232. $50.00, cloth.

“I Am Not Master of Events:” The Speculations of John Law and Lord Londonderry in the Mississippi and South Sea Bubbles. By Larry Neal. New Haven, CT: Yale University Press, 2012. Pp. 232. $50.00, cloth. - Volume 72 Issue 4