Extraordinary Popular Delusions and the Madness of Crowds Read online

  Thus, each corporation having made two proposals, the House began to deliberate. Mr. Robert Walpole was the chief speaker in favour of the Bank, and Mr. Aislabie, the Chancellor of the Exchequer, the principal advocate on behalf of the South Sea Company. It was resolved, on the 2nd of February, that the proposals of the latter were most advantageous to the country. They were accordingly received, and leave was given to bring in a bill to that effect.

  Exchange Alley was in a fever of excitement. The Company’s stock, which had been at a hundred and thirty the previous day, gradually rose to three hundred, and continued to rise with the most astonishing rapidity during the whole time that the bill in its several stages was under discussion. Mr. Walpole was almost the only statesman in the House who spoke out boldly against it. He warned them, in eloquent and solemn language, of the evils that would ensue. It countenanced, he said, “the dangerous practice of stockjobbing, and would divert the genius of the nation from trade and industry. It would hold out a dangerous lure to decoy the unwary to their ruin, by making them part with the earnings of their labour for a prospect of imaginary wealth. The great principle of the project was an evil of first-rate magnitude; it was to raise artificially the value of the stock, by exciting and keeping up a general infatuation, and by promising dividends out of funds which could never be adequate to the purpose. In a prophetic spirit he added, that if the plan succeeded, the directors would become masters of the government, form a new and absolute aristocracy in the kingdom, and control the resolutions of the legislature. If it failed, which he was convinced it would, the result would bring general discontent and ruin upon the country. Such would be the delusion, that when the evil day came, as come it would, the people would start up, as from a dream, and ask themselves if these things could have been true. All his eloquence was in vain. He was looked upon as a false prophet, or compared to the hoarse raven, croaking omens of evil. His friends, however, compared him to Cassandra, predicting evils which would only be believed when they came home to men’s hearths, and stared them in the face at their own boards. Although, in former times, the House had listened with the utmost attention to every word that fell from his lips, the benches became deserted when it was known that he would speak on the South Sea question.

  The bill was two months in its progress through the House of Commons. During this time every exertion was made by the directors and their friends, and more especially by the Chairman, the noted Sir John Blunt, to raise the price of the stock. The most extravagant rumours were in circulation. Treaties between England and Spain were spoken of, whereby the latter was to grant a free trade to all her colonies; and the rich produce of the mines of Potosi-la-Paz was to be brought to England until silver should become almost as plentiful as iron. For cotton and woollen goods, with which we could supply them in abundance, the dwellers in Mexico were to empty their golden mines. The company of merchants trading to the South Seas would be the richest the world ever saw, and every hundred pounds invested in it would produce hundreds per annum to the stockholder. At last the stock was raised by these means to near four hundred; but, after fluctuating a good deal, settled at three hundred and thirty, at which price it remained when the bill passed the Commons by a majority of 172 against 55.

  In the House of Lords the bill was hurried through all its stages with unexampled rapidity. On the 4th of April it was read a first time; on the 5th, it was read a second time; on the 6th, it was committed; and on the 7th, was read a third time, and passed.

  Several peers spoke warmly against the scheme; but their warnings fell upon dull, cold ears. A speculating frenzy had seized them as well as the plebeians. Lord North and Grey said the bill was unjust in its nature, and might prove fatal in its consequences, being calculated to enrich the few and impoverish the many. The Duke of Wharton followed; but, as he only retailed at second-hand the arguments so eloquently stated by Walpole in the Lower House, he was not listened to with even the same attention that had been bestowed upon Lord North and Grey. Earl Cowper followed on the same side, and compared the bill to the famous horse of the siege of Troy. Like that, it was ushered in and received with great pomp and acclamations of joy, but bore within it treachery and destruction. The Earl of Sunderland endeavoured to answer all objections; and, on the question being put, there appeared only seventeen peers against, and eighty-three in favour of the project. The very same day on which it passed the Lords, it received the Royal assent, and became the law of the land.

  It seemed at that time as if the whole nation had turned stockjobbers. Exchange Alley was every day blocked up by crowds, and Cornhill was impassable for the number of carriages. Everybody came to purchase stock. “Every fool aspired to be a knave.” In the words of a ballad, published at the time, and sung about the streets, [“A South Sea Ballad; or, Merry Remarks upon Exchange Alley Bubbles. To a new tune, called ‘The Grand Elixir; or, the Philosopher’s Stone Discovered.’“]

  Then stars and garters did appear

  Among the meaner rabble;

  To buy and sell, to see and hear,

  The Jews and Gentiles squabble.

  The greatest ladies thither came,

  And plied in chariots daily,

  Or pawned their jewels for a sum

  To venture in the Alley.

  The inordinate thirst of gain that had afflicted all ranks of society, was not to be slaked even in the South Sea. Other schemes, of the most extravagant kind, were started. The share-lists were speedily filled up, and an enormous traffic carried on in shares, while, of course, every means were resorted to, to raise them to an artificial value in the market.

  Contrary to all expectation, South Sea stock fell when the bill received the Royal assent. On the 7th of April the shares were quoted at three hundred and ten, and. on the following day, at two hundred and ninety. Already the directors had tasted the profits of their scheme, and it was not likely that they should quietly allow the stock to find its natural level, without an effort to raise it. Immediately their busy emissaries were set to work. Every person interested in the success of the project endeavoured to draw a knot of listeners around him, to whom he expatiated on the treasures of the South American seas. Exchange Alley was crowded with attentive groups. One rumour alone, asserted with the utmost confidence, had an immediate effect upon the stock. It was said, that Earl Stanhope had received overtures in France from the Spanish Government to exchange Gibraltar and Port Mahon for some places on the coast of Peru, for the security and enlargement of the trade in the South Seas. Instead of one annual ship trading to those ports, and allowing the King of Spain twenty-five per cent. out of the profits, the Company might build and charter as many ships as they pleased, and pay no per centage whatever to any foreign potentate.

  Visions of ingots danced before their eyes,

  and stock rose rapidly. On the 12th of April, five days after the bill had become law, the directors opened their books for a subscription of a million, at the rate of 300 pounds for every 100 pounds capital. Such was the concourse of persons, of all ranks, that this first subscription was found to amount to above two millions of original stock. It was to be paid at five payments, of 60 pounds each for every 100 pounds. In a few days the stock advanced to three hundred and forty, and the subscriptions were sold for double the price of the first payment. To raise the stock still higher, it was declared, in a general court of directors, on the 21st of April, that the midsummer dividend should be ten per cent., and that all subscriptions should be entitled to the same. These resolutions answering the end designed, the directors, to improve the infatuation of the monied men, opened their books for a second subscription of a million, at four hundred per cent. Such was the frantic eagerness of people of every class to speculate in these funds, that in the course of a few hours no less than a million and a half was subscribed at that rate.

  In the mean time, innumerable joint-stock companies started up everywhere. They soon received the name of Bubbles, the most appropriate that imagination could de
vise. The populace are often most happy in the nicknames they employ. None could be more apt than that of Bubbles. Some of them lasted for a week, or a fortnight, and were no more heard of, while others could not even live out that short span of existence. Every evening produced new schemes, and every morning new projects. The highest of the aristocracy were as eager in this hot pursuit of gain as the most plodding jobber in Cornhill. The Prince of Wales became governor of one company, and is said to have cleared 40,000 pounds by his speculations. [Coxe’s Walpole, Correspondence between Mr. Secretary Craggs and Earl Stanhope.] The Duke of Bridgewater started a scheme for the improvement of London and Westminster, and the Duke of Chandos another. There were nearly a hundred different projects, each more extravagant and deceptive than the other. To use the words of the “Political State,” they were “set on foot and promoted by crafty knaves, then pursued by multitudes of covetous fools, and at last appeared to be, in effect, what their vulgar appellation denoted them to be – bubbles and mere cheats.” It was computed that near one million and a half sterling was won and lost by these unwarrantable practices, to the impoverishment of many a fool, and the enriching of many a rogue.

  Some of these schemes were plausible enough, and, had they been undertaken at a time when the public mind was unexcited, might have been pursued with advantage to all concerned. But they were established merely with the view of raising the shares in the market. The projectors took the first opportunity of a rise to sell out, and next morning the scheme was at an end. Maitland, in his History of London, gravely informs us, that one of the projects which received great encouragement, was for the establishment of a company “to make deal-boards out of saw-dust.” This is, no doubt, intended as a joke; but there is abundance of evidence to show that dozens of schemes hardly a whir more reasonable, lived their little day, ruining hundreds ere they fell. One of them was for a wheel for perpetual motion – capital, one million; another was “for encouraging the breed of horses in England, and improving of glebe and church lands, and repairing and rebuilding parsonage and vicarage houses.” Why the clergy, who were so mainly interested in the latter clause, should have taken so much interest in the first, is only to be explained on the supposition that the scheme was projected by a knot of the foxhunting parsons, once so common in England. The shares of this company were rapidly subscribed for. But the most absurd and preposterous of all, and which showed, more completely than any other, the utter madness of the people, was one, started by an unknown adventurer, entitled “company for carrying on an undertaking of great advantage, but nobody to know what it is.” Were not the fact stated by scores of credible witnesses, it would be impossible to believe that any person could have been duped by such a project. The man of genius who essayed this bold and successful inroad upon public credulity, merely stated in his prospectus that the required capital was half a million, in five thousand shares of 100 pounds each, deposit 2 pounds per share. Each subscriber, paying his deposit, would be entitled to 100 pounds per annum per share. How this immense profit was to be obtained, he did not condescend to inform them at that time, but promised, that in a month full particulars should be duly announced, and a call made for the remaining 98 pounds of the subscription. Next morning, at nine o’clock, this great man opened an office in Cornhill. Crowds of people beset his door, and when he shut up at three o’clock, he found that no less than one thousand shares had been subscribed for, and the deposits paid. He was thus, in five hours, the winner of 2,000 pounds. He was philosopher enough to be contented with his venture, and set off the same evening for the Continent. He was never heard of again.

  Well might Swift exclaim, comparing Change Alley to a gulf in the South Sea, –

  Subscribers here by thousands float,

  And jostle one another down,

  Each paddling in his leaky boat,

  And here they fish for gold, and drown.

  Now buried in the depths below,

  Now mounted up to heaven again,

  They reel and stagger to and fro,

  At their wit’s end, like drunken men

  Meantime, secure on Garraway cliffs,

  A savage race, by shipwrecks fed,

  Lie waiting for the foundered skiffs,

  And strip the bodies of the dead.

  Another fraud that was very successful, was that of the “Globe Permits,” as they were called. They were nothing more than square pieces of playing cards, on which was the impression of a seal, in wax, bearing the sign of the Globe Tavern, in the neighbourhood of Exchange Alley, with the inscription of “Sail Cloth Permits.” The possessors enjoyed no other advantage from them than permission to subscribe, at some future time, to a new sail-cloth manufactory, projected by one who was then known to be a man of fortune, but who was afterwards involved in the peculation and punishment of the South Sea directors. These permits sold for as much as sixty guineas in the Alley.

  Persons of distinction, of both sexes, were deeply engaged in all these bubbles, those of the male sex going to taverns and coffee-houses to meet their brokers, and the ladies resorting for the same purpose to the shops of milliners and haberdashers. But it did not follow that all these people believed in the feasibility of the schemes to which they subscribed; it was enough for their purpose that their shares would, by stock-jobbing arts, be soon raised to a premium, when they got rid of them with all expedition to the really credulous. So great was the confusion of the crowd in the alley, that shares in the same bubble were known to have been sold at the same instant ten per cent. higher at one end of the alley than at the other. Sensible men beheld the extraordinary infatuation of the people with sorrow and alarm. There were some, both in and out of Parliament, who foresaw clearly the ruin that was impending. Mr. Walpole did not cease his gloomy forebodings. His fears were shared by all the thinking few, and impressed most forcibly upon the government. On the 11th of June, the day the Parliament rose, the King published a proclamation, declaring that all these unlawful projects should be deemed public nuisances, and prosecuted accordingly, and forbidding any broker, under a penalty of five hundred pounds, from buying or selling any shares in them. Notwithstanding this proclamation, roguish speculators still carried them on, and the deluded people still encouraged them. On the 12th of July, an order of the Lords Justices assembled in privy council was published, dismissing all the petitions that had been presented for patents and charters, and dissolving all the bubble companies. The following copy of their lordships’ order, containing a list of all these nefarious projects, will not be deemed uninteresting at the present day, when there is but too much tendency in the public mind to indulge in similar practices :-

  “At the Council Chamber, Whitehall, the 12th day of July, 1720. Present, their Excellencies the Lords Justices in Council.

  “Their Excellencies, the Lords Justices in council, taking into consideration the many inconveniences arising to the public from several projects set on foot for raising of joint stock for various purposes, and that a great many of his Majesty’s subjects have been drawn in to part with their money on pretence of assurances that their petitions for patents and charters, to enable them to carry on the same, would be granted: to prevent such impositions, their Excellencies, this day, ordered the said several petitions, together with such reports from the Board of Trade, and from his Majesty’s Attorney and Solicitor General, as had been obtained thereon, to be laid before them, and after mature consideration thereof, were pleased, by advice of his Majesty’s Privy Council, to order that the said petitions be dismissed, which are as follow :

  “1. Petition of several persons, praying letters patent for carrying on a fishing trade, by the name of the Grand Fishery of Great Britain.

  “2. Petition of the Company of the Royal Fishery of England, praying letters patent for such further powers as will effectually contribute to carry on the said fishery.