The First Crash: Lessons from the South Sea Bubble

256 Pages·2004·3.3 MB·English

by  Richard Dale

The First Crash
The First Crash
LESSONS FROM THE SOUTH SEA BUBBLE
Richard Dale

PRINCETON UNIVERSITY PRESS
PRINCETON AND OXFORD
Copyright © 2004 by Princeton University Press
Published by Princeton University Press, 41 William Street, Princeton, New Jersey 08540
In the United Kingdom: Princeton University Press, 3 Market Place, Woodstock, Oxfordshire
OX20 1SY
All Rights Reserved
Library of Congress Cataloging-in-Publication Data
Dale, Richard The first crash: lessons from the South sea bubble / Richard Dale.
p. cm.
Includes bibliographical references and index. ISBN 0-691-11971-6 (cl: alk. paper) 1. South Sea
Bubble, Great Britain, 1720. 2. Financial crises—Great Britain—History—18th century. 3.
Capital market—Great Britain—History—18th century. 4. Stocks—Prices—Great Britain—
History—18th century. 5. South Sea Company—History. I. Title.
HG6008.D35 2004
′
332.63228—dc22
2004044319
British Library Cataloging-in-Publication Data is available This book has been composed in Sabon
Printed on acid-free paper
www.pup.princeton.edu
Printed in the United States of America 10 9 8 7 6 5 4 3 2 1
To the memory of Peter Carter (1929 to 1983), an
inspirational teacher of history
Contents
Acknowledgements
ix
Introduction 1
CHAPTER ONE
Coffee Houses, The Press and Misinformation 7
CHAPTER TWO
Exchange Alley and the Evolution of London’s Securities Market 22
CHAPTER THREE
Origins of the South Sea Company 40
CHAPTER FOUR
John Law and the Mississippi Bubble 56
CHAPTER FIVE
The South Sea Scheme 73
CHAPTER SIX
The Bubble 96
CHAPTER SEVEN
The Crash 125
CHAPTER EIGHT
Crisis Resolution 140
CHAPTER NINE
Lessons from the South Sea Bubble 155
Appendix I: Hutcheson’s South Sea Parable
171
Appendix II: Technical Note on Stock and Subscription Price Data
172
CHAPTER TEN
Conclusion 178
Glossary
185
Bibliography
187
Index
195
Acknowledgements
I would like to thank Professor Charles Goodhart and Professor Forrest
Capie for their encouragement after reading drafts of early chapters of
this study, as well as several anonymous referees who provided helpful
comments and suggestions. I am also grateful to Richard Baggaley of
Princeton University Press for showing such enthusiasm for the project
from start to finish. I have received valuable assistance from staff at the
British Library, Goldsmiths Library, the London Guildhall Library, the
Bank of England Reference Library and the House of Lords Record
Office. It is thanks to the Courtauld Institute that I was able to track
down a portrait of Archibald Hutcheson MP who emerges as the unsung
hero of the South Sea Bubble. Finally I must acknowledge a special debt
to my wife Niki who acted as a tireless research assistant and without
whose support this work would not have been completed.