Banks, Bubbles and Busts: A Four Nations History of the Financial Revolution
This week, Dr Patrick Walsh (University College Dublin) examines the South Sea Bubble and contends that a four nations approach will help us understand the British and Irish financial revolutions.
1720 was the year of the South Sea Bubble. Over the course of the year the share price of the South Sea Company dramatically rose to record highs before falling even faster than it had risen. Individual fortunes were made and lost as investors flocked to London’s Exchange Alley to join one of the earliest financial manias. Not all investors in the South Sea Company were driven by either ‘irrational exuberance’ or the ‘madness of crowds’, but instead were behaving rationally and within the accepted norms of their social networks, while others, still, were members of a rising professional financial elite. Importantly, especially for readers of this blog, not all South Sea investors came from London or the greater metropolitan area. The bubble was both a transnational event – investors and speculators came from Holland, Germany, Switzerland, and France – as well as from right across the three kingdoms. Achieving a greater understanding of the motives and contexts that influenced the latter group allows us to develop a non London-centric view of the beginnings of financial capitalism within the four nations of these islands.
The South Sea Bubble was not just one of the earliest financial debacles; it was also the great crisis of the ‘financial revolution’. The origins of this revolution are traditionally dated to the 1690s and to the series of financial innovations that took London by storm allowing England to emerge as a great power and fiscal-military state in the eighteenth century, namely the beginning of the national debt in 1692, the founding of the Bank of the England in 1694 and the regulation of coinage through the great recoinage of 1696. This was also the age of the ‘stock-jobber’ and of the ‘project’ as described so well by the failed entrepreneur, hack writer and novelist Daniel Defoe. Put simply, the very ideas of what was money, credit and debt were being transformed and reimagined into the forms that we are still familiar with today. This story has traditionally been written as an exclusively English or even London-based one, starting with the pioneering and still magisterial 1967 work of P.G.M. Dickson.
My research on Irish and Scottish investors in the South Sea Company, together with other recent efforts to reimagine the financial revolution as a British and Irish rather than solely as an English phenomenon, has, however, demonstrated how each component part of the eighteenth-century British polity experienced its own distinctive variant of a wider revolution in public finance. Looking at developments in Dublin and Edinburgh as well as in London it is possible to discern different varieties of innovation. While the Bank of England is seen as an essential feature of the English ‘revolution’, thanks to its role as the principal government creditor, the almost contemporaneous Bank of Scotland (founded in 1695) provided a very different role. Its function was to provide credit for local mercantile interests and to boost economic development. Meanwhile successive attempts to establish an Irish national bank foundered in 1695, 1696 and 1721 with the Bank of Ireland only appearing in 1783 almost a century after its English and Scottish counterparts. Instead a network of private banks stepped into the credit creation vacuum in Dublin, leading to the emergence of a vibrant if inherently unstable banking system (plus ca change!). Moving away from banking, it is clear that there were different levels of appetite for joint-stock investment across the three kingdoms in the decades before the bubble, with Scotland, through the infamous Darien affair, witnessing the greatest boom and bust in the 1690s. Its causes were largely Scottish in origin, but viewing it, or indeed the contemporaneous stock market boom in England, solely within a national framework obscures important elements; instead they should be seen as linked phenomena.
Such conclusions whether drawn from the very different banking structures that emerged in London, Dublin and Edinburgh or the varying levels of enthusiasm for joint-stock investment (perhaps overly so in Scotland!) do not diminish the importance of the metropolitan centre but warn the historian away from making assumptions about the linear transfer of ideas and practices outwards from the centre. This becomes even clearer when the investment practices of individual Scottish and Irish investors during the ‘year of the bubbles’ are explored. These investors, often seen as novices and as evidence of a bubble or mania mentality by both contemporaries and later historians, need to be understood not just as peripheral or provincial innocents (although some undoubtedly were) but instead as products of the different but no less sophisticated and innovatory financial spaces of Dublin and Edinburgh. Only by taking a four-nations or three kingdoms approach can we therefore appreciate the variety and complexity of the British and Irish financial revolutions.
 P.G.M. Dickson, The Financial Revolution: A Study in the Development of Public Credit (London 1967)
Dr Patrick Walsh is an Irish Research Council/Marie Curie Research Fellow in the School of History and Archives at University College Dublin. His most recent book is The South Sea Bubble and Ireland: Money, Banking and Investment, 1690-1721 (Woodbridge, 2014), while he has published articles on eighteenth-century British and Irish history in Eighteenth-Century Life, Eighteenth-Century Ireland Historical Journal and The Scottish Historical Review.