Money for Nothing in the South Sea Bubble: Thomas Levenson (1720)
Thomas Levenson, Professor of Science Writing at MIT
In this episode of Travels Through Time, Thomas Levenson, Professor of Science Writing at MIT, guides us back to the scene of one the first and most devastating of all stock market crashes, an event that traumatised Georgian Britain: the South Sea Bubble.
***
The early eighteenth century was an energetic, expansive time in British history. Daniel Defoe memorably described it as an ‘Age of Projects,’ when people were frequently swept up in the plotting of grand schemes that promised to make society more efficient and its citizens happier and wealthier.
Contributing to this culture were two distinct revolutions. The first was the Scientific Revolution, the movement personified by the sublime intellectual achievements of Isaac Newton. The second was a revolution in the world of finance that led to the creation of new bodies like the Bank of England and new schemes for generating money like lotteries and bonds.
In Money for Nothing, the writer Thomas Leveson explains how these two distinct revolutions dovetailed in a dazzling way to create the conditions for the event that we remember as the ‘South Sea Bubble.’ It was a time, Levenson writes, when people realised that mathematics ‘could make sense of daily life.’
The problem that mathematics attempted to solve in 1720 was an unsettling one. The Nine Years’ War of the 1690s, followed by the War of the Spanish Succession had generated a huge public debt. Having been debt-free in the year 1693, the total owed by England (later Britain) had risen to £40m by 1713.
“What people had in mind when they referred to a Bubble what a little different to how we think of it today. The word had less to do with the mob’s inability to grasp what was happening and much more with specific, individual sins. To bubble was a verb: to deceive and defraud a person.”
In 1720 a plan was hatched to convert this debt into shares in the recently-founded South Sea Company. In modern terms, it was an early attempt at a debt for equity sway – but it was done with government backing on a huge scale.
The excitement of the scheme generated enormous public interest. As Levenson describes in this episode of Travels Through Time, people from all walks of life was tempted to speculate in the hope of making a quick profit.
As a result in early 1720 the stock prices of the South Sea Company soared. But just as steeply as prices rose in the spring, they came tumbling down again in the early autumn. Thousands of lives were wrecked. Very few investors were spared, including the Duke of Portland, the richest man in England. Among those to lose out was Sir Isaac Newton, who was said to ruefully reflect, ‘I can calculate the movement of the stars, but not the madness of men.’
The South Sea Bubble is commonly thought of a disastrous episode in British history but Levenson argues that it had a positive long-term consequence. This was the establishment of the world’s very first modern bond market, a decisive factor in Britain’s successes over the century that followed.
--
Click here to order Thomas Levenson’s book from John Sandoe’s who, we are delighted to say, are supplying books for the podcast.
About Thomas Levenson
Thomas Levenson is previously the author of Newton and the Counterfeiter, a bestselling book about Isaac Newton's time as Master of the Royal Mint. He published The Hunt for Vulcan in 2016, a book shortlisted for the Science Book Prize. He is a Professor of Science Writing at the Massachusetts Institute of Technology and is a frequent visitor to London.
Listen to the podcast here
Show notes
Scene One: January 22, 1720: John Aislabie, Chancellor of the Exchequer, rises in the House of Commons to present the South Sea deal to the members.
Scene Two: A Sunday in May, 1720. Daniel Defoe goes to church and witnesses the ‘South Sea’ hysteria.
Scene Three: December 20, 1720, the House of Commons. Robert Walpole decides the fate of the speculators
Memento: A pocket watch made in the year 1720
Bonus memento (as a present for being longlisted for the FT Business Book of the Year Award): A fresh of the press Daniel Defoe pamphlet
People/Social
Presenter: Peter Moore
Guest: Thomas Levenson
Editorial: Artemis Irvine
Producers: Maria Nolan
Titles: Jon O
Follow us on Twitter: @tttpodcast_
Podcast Partner: ColorGraph
See where 1720 fits on our Timeline
“‘Tis a trade founded in fraud, born of deceit, and nourished by trick, cheat, wheedle, forgeries, falsehoods, and all sorts of delusions”
The South Sea Scheme: speculators ruined by the collapse of the South Sea Company. Engraving by W. Hogarth after himself, 1721. Wellcome Collection
More about the scenes
Scene One
January 22, 1720: John Aislabie, Chancellor of the Exchequer, rises in the House of Commons to present the South Sea deal to the members. The idea: the South Sea Company will pay the Treasury three million pounds (roughly half a billion in 21st c. terms) for the right to exchange its stock for ten times that amount in Britain’s national debt—basically bonds, held by the public. Aislabie, already profiting from his insider knowledge and a sweetheart deal for shares (anticipating a campaign of bribery that would ultimately reach half of the Commons and many of the Lords) lays out the terms. Aislabie appears to have persuaded the House … until a handful of members, led by its canniest out-of-power member, Robert Walpole, say why not let others bid for the same deal.
That seemingly innocent intervention sets up the flaw that will, months later, bring down the whole deal. In the bidding war that follows, the South Sea Company wins—but in doing so gets permission for a financial maneuver that will lead directly to an unprecedented boom and an equally impressive crash.
Scene Two
One Sunday in May, 1720, Daniel Defoe goes to church in London. Defoe has been an eager supporter of the South Sea Company and its scheme, seeing it as a way to create a financial system in Britain that allows the nation to borrow more, and thus support both more trade and more of a navy and an army than its rivals. But by May, the frenzy in bidding up South Sea stock has led to what, for now, seems mostly like a moral panic. As he writes in one of his many news sheets, “I thought once, that Love and Jealousy were the only Two Things that could make the World mad; but I see now that Avarice and eager Flight of the gasping soul after money is capable of all the Fury and Rage” of any human desire. This spring is a time of hopeful madness — and Defoe would chronicle it over and over again, with increasing trepidation.
Scene Three
December 20, 1720, the House of Commons, again. This time it is the restored Robert Walpole who rises to settle the South Sea matter. The key point: the losers must lose. None of the deals in which people traded valuable, safe government securities for wildly overpriced, now collapses shares in the South Sea company would be undone. The result? Widespread individual ruin, including the destruction of the formerly richest man in England, Henry Bentinck, Duke of Portland—(not to mention that the cleverest man in the nation, Isaac Newton, who was himself a victim of that folly). And the other result? Britain wins. It gets (after a bit more work) the first modern national bond market—and exactly the power Defoe had earlier glimpsed in the financial experiments that lay at the heart of the Bubble.
And, 1815 …
If we can flash forward to one more moment?—that instant on a field outside Brussels on Sunday, June 18, 1815 when the Napoleon’s Imperial Guard regiment broke, and Wellington’s army plunged down the slope after them—we’ll see the fruits of that earlier, seemingly bloodless advance measured in pounds, shillings and pence. Britain survived to fight against, at times, almost all of Europe, and the perservered to win, at least in part because it had mastered the arts of money better than France, and thus could pay its way to victory in the long eighteenth-century of war against its traditional rival.
What will you learn in this episode:
How mathematics was increasingly turned to public use in the late 1600s
About the role of the ‘projector’ in the early eighteenth-century
The nature of the financial device at the heart of the South Sea Bubble
The effect of Robert Walpole’s intervention in the House of Commons
How the South Sea Bubble created the conditions for Britain’s golden century of success
About the involvement of Isaac Newton in the South Sea affair
Featured images
Listen on YouTube
Complementary episodes
The Magical Mathematician: Prof. Simon Schaffer (1684)
On a frozen January day in 1684 three friends – Christopher Wren, Robert Hooke and Edmond Halley - met at a London coffee house to confront one of the great questions in knowledge: planetary motion. Their conversation and […]
Radicalism, madness and laughing gas: Mike Jay (1799)
In this episode of Travels Through Time the author and cultural historian Mike Jay takes us back to 1799 – a year of anxiety, action and excitement on the cusp of a new century. Although the 1790s is often overlooked, it was an extraordinary, bewildering and formative decade in European history […]
Click here to order Money for Nothing by Thomas Levenson from our friends at John Sandoe’s Books.
Featured images from Colorgraph
Daredevil, 1917. Colourised by Jordan Lloyd
(10% off at the checkout if you use the voucher code: TTT)