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When we last left off
Harley, the chancellor of the [exchequer],
and Blunt, one of the principal operatives of the Hollow Sword Blade Company
Were looking for something bigger and better than a simple lottery to keep the government afloat.
The scheme they came up with
was the South Sea Company.
It's South Sea Company by the way,
not South Seas Company.
I think I was saying South Seas company for the entire last episode --
Sorry about that.
Anyway,
Harley, stymied at every turn and frustrated with the Whig controlled Bank of England's refusal to help
finally thought
what if we just built a Tory controlled company to do the Bank of England's job;
at which point Blunt probably started seeing dollar signs and hyperventilating.
Together they came up with a plan for a trading company
that would assume all of the government's debt.
Here's how it would work:
Anybody who held British government debt
would get to exchange that debt for Shares in the new Company.
The government would pay the newly formed company roughly 6% interest on that debt
or about £500,000,
a far lower interest rate than the government had been paying when
All the debt was in the hands of private individuals
The company would then turn around
and use that money as a dividend for its investors
But in order to make this offer enticing
there had to be something more
and that's where the South Seas part comes in
you see
fundamentally to convince anybody
holding government debt to give up the principle of their debt --
the amount of money they first lent to the government --
for stock in an unknown company
and the dividend payment that was probably lower than the interest
they were supposed to be getting anyway
You'd have to convince them that the stock they were getting
was going to be worth
far more than the debt they already held.
So on top of that half a million pounds the government was going to give the company annually
it also gave them a monopoly on trading in the south Seas,
and man did they turn on the hype machine for this?
Everybody from the government
to the directors of the Hollow Sword Blade company
to Daniel Defoe (The guy who wrote Robinson Crusoe)
started talking about the unimaginable riches that would flow from the south Seas into Britain once this company was [established] and
Everybody in Britain knew how well the Honourable East Indian Company had done for its shareholders
Here was a chance [to] get in on the ground floor of something similar
there was only one small problem with this scheme:
the south seas mentioned in the deal
referred to Central and South America
and by Central and South America,
they meant all the major ports in Central and South America
and by all the major ports
they meant a bunch of ports that happens to be exclusively owned by Spain and
Well Britain was currently at war with Spain
like I said last time Britain was at war with like
everybody
This didn't faze Harley or Blunt though
to them the answer was simple
They would simply end a decades-long multinational war.
This time, they got the guy who wrote Gulliver's Travels to do their propaganda work
they laid it on so thick
they even got the famous Whig
Sir Robert Walpole;
and John Churchill, The Duke of Marlborough,
a hero of the war of Spanish Succession
locked in the Tower of London as part of their efforts to smear the opposition
But for all this they still didn't have the votes they needed to get past the House of Lords.
Funny thing about the house of lords though
all you had to do to be a part of it was
be a lord.
You didn't need to be elected to the House of Lords.
Until recently if you were a peer of the realm,
you just got a seat.
So with a little prodding from Harley,
the Queen created
12 new peers and presto!
A majority of the house of lords
now wanted peace.
But oh the irony.
By locking themselves into peace
they locked themselves out of the peace they wanted.
Britain's push for peace
meant that they made peace independently
and earlier than their war allies,
which left them with a little to bargain with when it came time to actually work out the terms of the Peace.
In the end, the Spanish gave the South Sea Company the
Questionably lucrative right to trade slaves in the south Seas,
and the right to send one ship a year to each of the Spanish ports.
One ship a year!
The Honourable East India Company was sending
fleets of ships every month
to maintain the kind of profits that Blunt and Harley had advertised!
So while the public would continue to be told about the riches [of] the South Seas
it was now clear to
everybody close to the venture that the South Sea Company was really just a financial institution
Whose sole business was managing the government debt.
Then, in 1714,
Queen Anne, the Monarch of England,
died without an heir.
After much debate,
George the First
the elector of Hanover,
was chosen by Parliament to succeed Anne,
and with the new King,
came a new government.
Harley fell out of favour
and the whigs regained dominance,
so what did our good Mr. Blunt do in response?
He did what any upstanding citizen would do
and promptly booted his earstwhile ally Harley to the curb,
replaced most of the Tory board members in the South Sea Company with wigs
and in a stroke of genius
Got the King's son, George the Second,
to replace Harley as the largely ceremonial
Governor of the company.
He even got the king, who was desperate for funds for the Royal household,
to invest in the company himself
To further smooth things over in the transition,
and to avoid some of the wrath of the now
Resurgent Walpole and Churchill --
the very men the South Sea Company got locked up a few years before --
the South Sea Company
agreed to forgive the two years of interest
the previous government had owed it,
which helped the new administration to keep things afloat. In
return, the government allowed the company to issue more stock of an equivalent value
to offset the loss
Which meant the company had roughly 10 million pounds of stock issued.
To put that in perspective,
That's about half the total value of stock issued by all companies in England.
This for a trading company
That's only ever managed
to lose money on trading.
This wild success
led members of the government to decide that it was time to offload more of the government's debt onto the South Sea Company.
Because why wouldn't you, right?
After all, if one company accounted for more than half of saved the New York stock exchange,
With no discernible source of income,
clearly the correct play would be to make it bigger
instead of you know
Investigating its activities.
So the new plan was to allow the South Sea Company to issue even more stock
and in exchange the company
Wait for it
would handle the government's debt
from running the 1710 lottery --
the lottery Blunt himself
had created!
Genius!
That is a Montgomery Burnsian kind of genius.
But make no mistake:
The government's strange confidence in the South Sea Company
wasn't just due to starry-eyed
Politicians desire for somebody else to deal with their mess.
There was something else to it.
In 1717,
the King and his son George II
had gotten into a fight.
In an act of spite,
The King had removed his son as Governor of the South Sea Company,
and replaced him with
himself!
John Blunt
now had the King himself as the Company's Royal figurehead .
Whoa, right?
Not only did this mean that they received a level of trust and prestige that they had never even come close to earning,
But it also meant that the company was now, in some ways,
too big to fail.
If the South Sea Company collapsed,
so might faith in the monarch,
and they couldn't let that happen.
But in 1719,
as the lottery debt was being exchanged,
another strange occurrence happened
There was a brief
abortive attempt to overthrow the King by the Jacobites --
the branch of the English monarchy that had itself been overthrown during the Civil war
70 Years before --
it wasn't successful
But when that whole affair was put to rest
the South Sea Company did everything they could to fuel the sense of jubilation
Spreading around England.
Going so far as to peddle
Fabrications like the fact that the pretender to the throne had been captured,
ending the Jacobite threat forever
in doing so
they managed to crank up the stock of the South Sea Company
from a hundred pounds a share to
£114 a share.
Doesn't this make you just want to hit one of these people?
And that stock value increase is important because when the company had agreed
With the government on how much stock they were going to issue,
They agreed to an amount that would let them cover all the debt they were picking up
at a hundred pounds a share
But now as the stock price rose,
They found themselves paying for that same debt
at a hundred and fourteen pounds a share,
and at that rate
They didn't even need all those shares to cover the debt anymore!
What did they do with all those extra shares that they'd issued,
but that they've no longer needed to cover the debt they were obligated to pick up?
Why, they sold them and
pocketed the profit --
because of course they did!
This gave Blunt ideas:
Very, Very big ideas
Join us next time for the meteoric rise of the South Sea Company,
the ennobling of John Blunt,
and a company valuation
higher than all the currency currently in circulation in England!
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