John Gay, poet and dramatist born in Barnstable in 1685, was one of the unfortunate souls who lost a fortune in the financial crisis of 1720 caused by the crash of South Sea Company, in which he had invested a large sum of money. Samuel Johnson in his Lives of the Poets (published 1781) describes how John Gay's South Sea stock, which Gay had believed amounted to £20,000, was actually worthless. The phenomenal events of that year and the fall of the Company, which came to be known as the South Sea Bubble, has a complex history, but what follows is an introductory summary.
In January 1720 John Blunt, one of the directors of the South Sea Company, developed a scheme to eradicate Britain's national debt. The scheme was not new: the Company had in fact been founded in 1711 in order to take on a proportion of this debt in exchange for exclusive trading rights to Spanish colonies in South America. Blunt, however, was inspired by the actions of John Law, the Scottish gambler-cum-economist, who appeared to be diminishing France's national debt and creating a flourishing economy at the same time. In Blunt's proposal the South Sea Company would take on the country's national debt in return for interest payments from the government and the right to turn the debt into shares of the Company, which, his supporters claimed, would make Britain debt free in twenty-five years. This debt was estimated at a staggering £31 million, on which the government was struggling to pay £1.5 million in interest payments alone. The current situation was too intolerable, and Blunt's plan too tantalising, for the government to refuse, especially as Britain now seemed to be facing economic rivalry from France.
However, unlike John Law, who backed his scheme with land in Louisiana, John Blunt's design was based on nothing more than the prestige of the Company (with its link to the country's government and with the King as its governor), the exclusive trading rights to gold mines in South America, and the public's new enthusiasm for speculation. In actual fact the South Sea Company had tried and failed to make profits in trading. A combination of factors, including renewed hostilities with Spain in 1718 and missions planned by the directors who had no experience in trading in the South Seas, meant they achieved very little profit. The Company became less and less interested in acting as a trading company, but it talked up the anticipated riches to build public confidence. The scheme was initially a success; such was the belief that British trade would bring investors a high return.
John Blunt's scheme was a gamble: its success was entirely dependent on the continual rise in the price of stock, with existing investors being paid straight out of funds received from new stock buyers. Blunt would create a £100 share for every £100 worth of debt and persuade the government's creditors to exchange their annuities for shares at a higher market rate. So, a share that rose to £1,000 would mean Blunt could issue a £100 share to redeem £1,000 worth of annuities, and then sell the remaining nine shares (worth £9,000 on the market) for the Company's profit. In order to get the ball rolling Blunt bribed corruptible ministers with discounted stock, meaning that high-ranking members of the establishment were now complicit in his scheme.
The speculating frenzy lasted around eight months with shares indeed reaching £1,000 in August, until the bubble burst in September, and the value of the shares fell dramatically. Thousands of people found themselves ruined, amongst them John Gay. Gay's friend, the great poet Alexander Pope, wrote of the victims of the crash, “They have lived their dream and on awakening found nothing in their hands.” The puppet-master directors controlling the farce were charged with having promoted the South Sea scheme with a view to making profit for themselves to the ruin of public credit and reducing people to beggary.
It was the South Sea Bubble that brought Robert Walpole (P.9771-R) to power. An astute and cunning man, he saw through the chaos created by the crash and realised he could manipulate the situation to achieve political advantage. Walpole negotiated a rescue deal and presented it to the government, and planned to expose the actions of certain individuals. He did not intend to shed light on all corrupt ministers - such illumination would show up his own dealings and might threaten George I's position on the throne - but to implicate a selective few, leaving only those who posed no threat to his ascendancy, as well as those who would be placed within his debt. When he could do so, Walpole positioned supporters in key government posts, so that no area of influence eluded his grasp. Entrenched in power, he would lead Britain as First Lord of the Treasury and Chancellor of the Exchequer for the next twenty-one years, an unprecedented amount of time. The king, who owed Walpole his crown, could do little to stop him. The Order of Bath was revived in Walpole's honour four years later.
There were those who guessed at Walpole's manoeuvrings, though they had no proof to condemn him. One of these people was John Gay, who wrote The Beggar's Opera in 1728, which is mentioned in the title of Francis Kyte's mezzotint. This was a very popular ballad opera which was in part a satire on corruption of the governing classes. Amongst a cast of lowly criminals - featuring thieves, prostitutes, gaolers and fences - the highwayman, Captain MacHeath, was understood by contemporary audiences to represent Walpole. The couplet in the margin comes from the Opera and is inscribed on Gay's tomb in the Poet's Corner at Westminster Abbey.
Gay is said to appear in Hogarth's engraving 'The South Sea Scheme' (c.1721) (22.K.3-110) which mocks the credulity and greed of the nation. Hogarth heaps scorn on those caught up in the craze of speculation. Commercial gambling was not restricted to the South Sea Company, as hundreds of new investment schemes sprung up spurred on by the large Company's success. These schemes became known as 'bubbles' because they seemed to float free of gravitational market forces, but the name also implied that they were also extremely fragile. Some of the companies were genuine but others were ill-thought out or confidence scams and it was often difficult for the public to tell which was which. While some bubbles wanted to find backers to build property or improve breeds of cattle, some promised returns on projects as far-fetched as machines for discovering perpetual motion. One was mysteriously listed as a "company for carrying on an undertaking of great advantage, but nobody to know what it is."
Hogarth's satirical print shows the London Fire Monument on the right, with its inscription altered to transform it into a monument to the destruction caused by the South Sea Company. On the left is the Guildhall, and in the distance is the dome of St Paul's. Some of the figures in the composition are marked with a letter which links them to a description in the caption below. So, "D" (Honesty) is being broken on the wheel, while "F" (Villainy) has tied "E" (Honour) to a pillory to flog him. The South Sea scheme is represented in the centre by a large merry-go-round, ridden by a varied cast of characters. John Gay is alleged to be the man having his pockets picked by the small hunchback, who is usually accepted to be Alexander Pope.
Links to portraits of other notable losers in the scheme:
Isaac Newton (P.10099-R)
Newton lost £20,000 in the Bubble and it is said he couldn't bear to hear the name of the Company spoken in his presence ever after.
Alexander Pope (P.10128-R)
Pope ventured some money in the South Sea scheme as did his friend John Gay, but he sold his shares early enough to escape catastrophe.
Museum Number P.10513-R