Farmers Market

Einblick

Farfalline

Bilmek

Lewis & Quark

Einblick

British Economical Hijinks


         What does a nation do when it is deeply in debt, needs money as quickly as possible, and can't get that money by legitimate means? They turn to...less savory means of acquiring funds. During the Seven Years war, Great Britain found itself in this very position.

          British Chancellor of the Exchequer Robert Harley, and business entrepreneur John Blunt quickly put their heads together. Over the next couple months, with secret government assistance, Mr. Blunt went about making as much money as he could. In one trick, he managed to corner the real estate market in Ireland, by which means he managed to conjure 20,000 pounds, which he lent to the government.

          After messing with Ireland, Harley got Mr. Blunt in charge of a Lottery the Bank of England was running. He immediately began to shake the status quo. Every ticket he offered was sold soon after. The reason tickets kept selling was because everyone who bought a ticket was guaranteed to win at least 10% back of what they had paid. Why would he make a lottery like this? Well, this way, he could rearrange payment for the debt. Through the Lottery, the two conspirators pushed payment away by a few years, keeping creditors off the government's backs.

          This would keep the government afloat for sometime, but the two knew they were going to need a more permanent solution. And so they dreamed up the greatest scheme of the 18th century: the South Sea Company.

          At the time, the East India Company was all the rage. People saw how well that company had done financially, and how its shareholders profited. Harley and Blunt capitalized on this interest, and hyped it up further. They got everyone from the common man on the street to members of Parliament talking about the riches to be made from the South seas.

          There was only one problem. The South seas refers to the waters of South America. Take one solid guess who owned South America at the time. Spain. Take one solid guess who Great Britain was at war with. Spain. Not to worry, the conspirators decided. Where there is a will to make money, there is a way to make peace. The two conspirators applied pressure on Parliament and the Queen through both the common people and with bribes. Soon enough, Great Britain was at peace.

          By attaining peace ahead of their allies, however, they didn't get what they wanted. Spain agreed to let them trade in South American ports, but on one condition: they could only send one ship to each port per year. That would hardly let them get any money! And so the South Sea Company became less of a Company, and more of a financial institution, like the Bank of England.

          The South Sea Company badgered and got permission from the government to assume responsibility over its debt, with a bonus: they were able to issue stock in their Company proportional to the debt they were in charge of. If the share price rose after the debt was handed over, however, that meant that Harley and Blunt wouldn't have to sell all of their shares to repay all of the government debt anymore. Instead, they could pocket the difference for themselves.

         And the stock price did rise, substantially even. You see, a Company suddenly issuing some 10,000,000 pounds worth of stock all at once reflects very nicely on the graphs. It looked like the Company was suddenly booming, thriving in its trade. People rushed to buy shares at once. When the Queen died and a rebellion rose up, the conspirators made sure to encourage the public feeling of consumerism and generosity, so that when the rebellion was quelled, the share price rose higher than ever.

          Unfortunately, the new King didn't like Harley. Harley was a Tory, and when King George became the new ruler, the Whigs became the dominant political party in Great Britain. Seeing his potential chances of making the scheme work start to dwindle, Blunt made the pragmatic decision,  kicking Harley off the Company.

          From there on out, Blunt focused all of his energy on keeping the stock price rising. After all, that was the only way to keep paying the government debt, and pocket money for himself to boot. So far, the South Sea Company had only lost money on trading in Spanish ports, so Blunt made sure to keep that part of the business covered up. The path to victory lay in the continued manipulation of the common people.

          When the stock price began to drop, Blunt saw he was going to need more than just publicity to keep things running. He began a series of manipulations that would've made Machiavelli proud. He offered people the opportunity to buy share with downpayments. That is, giving 20% of the cost upfront, and then paying the other 80% in two months time. This was a brilliant setup, because people would feel like they had found a loophole. When the two months passed, they would simply sell their shares back, and pay off their debt to the South Sea Company, while pocketing the difference. Often, however, they would just use more downpayments, investing their new profits once again into the company.

          Soon after downpayments, Blunt started offering loans to anyone interested in purchasing stock. He practically paid people to buy into his schemes! Things went along very nicely over the next half a year, the price continuing to rise, and whenever it started drooping, Blunt simply offered better downpayments or even lower interest loans.

          There came a day, however, when the bubble suddenly burst. Blunt stumbled over an invisible line when he issued yet another proclamation of additional downpayments and loans. If people actually bought in, then the Company would have had to make more than the entire GDP in Great Britain to pay back their stockholders. The stock price instantly collapsed, falling faster and faster until South Sea Company shares were worthless. Blunt, strangely enough, had disappeared into the woodwork, leaving the public outraged.

          The historical anomaly of the South Sea Company is both hilarious, and tragic. The populace was utterly fooled, and if it wasn't for the timely intervention of certain members of the government, the consequences could have been worse than that of the Great Depression. Yet it is important to note that, if the Company hadn't existed, the United Kingdom as we know it today, would not have survived the troublesome 18th century. I hope this has been insightful.
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