Malcolm Balen - A Very English Deceit - The Secret History of the South Sea Bubble and the First Great Financial Scandal

Edwin Thrasher was stony-broke before he won, and one day he touched the ring that his father left him when he died, and said, ‘Dad, please send me some money.’ That afternoon he won £50,000 on an Instants scratch card. ‘Fun Facts About Winners’, the UK National Lottery website

With hindsight, it was five shillings’ worth of metal that changed the course of history.

In April 1694, in the London suburb of Bloomsbury, two men walked purposefully out of a tavern, glancing around in case there were any bystanders. Within a few paces, they had drawn their swords to settle their differences over a woman they both loved. It was over as quickly and silently as it began. The younger man made a single quick thrust; his rival fell to the ground, and was left dying, alone in Bloomsbury Square.

Within a day the survivor was arrested and thrown into Newgate jail. Within a fortnight he was in court to hear the charge against him: that ‘of his malice aforethought and assault premeditated he made an assault upon Edward Wilson with a certain sword made of iron and steel of the value of five shillings with which he inflicted one mortal wound of the breadth of two inches and depth of five inches, of which said wound the said Edward Wilson then and there instantly died’.

John Law, ‘Beau’ Law, scion of the Laws of Lauriston, gambler and ladies’ man, was sentenced to hang. There was little time to lose if his life was to be saved. According to the official version of events, Law was handed the means of escape by friends: they managed to supply him with a file with which he cut through the bars of his cell; also, drugs which he somehow managed to slip into his guards’ food or drink, to put them to sleep; and, for when he had achieved both these tasks, Law’s friends had a carriage waiting outside the prison, ready to whisk him away. Shortly after New Year’s Day, 1695, Law jumped thirty feet from his prison wall, and, although he apparently sprained his ankle on landing, he made it to the carriage and was promptly driven to the coast and smuggled aboard a boat to Holland. It appeared, in every detail, to be a daring escape, and one which became more and more colourful in the telling.

Soon afterwards, the newspapers were supplied with this description of the man on the run: ‘Captain John Lawe, a Scotchman, lately a prisoner in the King’s Bench for Murther, aged 26, a very tall black lean Man, well-shaped, about Six foot high, large Pockholes in his Face, big High-Nosed, speaks broad and low, made his Escape from the said Prison. Whoever secures him so he may be delivered at the said prison shall have £50 paid immediately by the Marshal of the King’s Bench.’ Descriptions can be misleading: Law had a clear complexion, and his nose was not large. Nor was his voice broad and low, and neither, for that matter, was he a captain. It appeared that influential friends had persuaded the newspapers to run a misleading description. Escape routes from justice, in the seventeenth century, could be arranged for the influential.

For the best part of two decades, John Law would wheel around Europe in exile. A quarter of a century would pass before he returned to London to receive a royal pardon. A quarter of a century in which he became the most important politician in Europe, a millionaire who invented a financial system that would capture the shattered economy of England’s greatest enemy and transform it into the most powerful in the Western world.

Many countries, but especially England and France, had empty coffers and restive taxpayers, mainly because they had failed to shake off their habit of waging expensive wars against each other. Since 1688, the English government had been almost permanently in combat against the French and Spanish. As the wars ground on, so the national debt had spiralled out of control, matched only by the harshness of the taxes on the country’s landowners and the crippling generosity of the government’s rate of interest to its moneylenders. All men were ‘led by their profit’, declared the banker Sir Josiah Child. The new breed of unprincipled, self-serving ‘moneyed-men’ was doing fast business in the coffee houses of’ Change Alley, growing fat on the interest on their loans.

In 1693 Parliament, for the first time, had guaranteed the government’s debt, removing the responsibility and authority for it from the monarch. The cost of borrowing money soon came to dominate political life. Within a year, in April 1694, Parliament voted to establish the Bank of England as an expedient to get the government out of financial trouble. Under its charter, the Bank was required to lend more than £1 million to the government, although in return it was guaranteed a profitable 8 per cent interest a year on its money. The Bank was also given permission to issue its own paper currency, and soon Exchequer bills and promissory notes were introduced to manage the debt.

Trading companies, too, were tapped for loans by the government. The East India Company was forced to pay heavily for its charter: £2 million in 1698 to see off a rival syndicate, and another £1 million in 1708 when these two companies merged. The Bank of England and the East India Company were the country’s two great financial institutions, the pillars of the City, the props on which a financially enfeebled government relied. They sharpened the divide between the landowners who paid tax and the moneyed-men of the City. But as for signs of progress in the great wars for which all this money was being spent, there were none.

The country considered it was fighting for its independent future, both politically and as a trading nation. The changing alliances in Europe were as complicated as the fighting was interminable, but England had, for some twenty years, battled to bring Louis XIV of France to heel, to stop him from dominating Europe, and it hoped, too, to capture the valuable trade in gold and silver with Latin America. During the course of the conflict, international allegiances had shifted like the sand, washed away by many deaths and many broken promises.

For more than twenty years there had scarcely been a break in the campaigning season, and still the roll-call of valour and ignominy was evenly balanced: a desperate defeat at the Battle of Beachy Head in 1690; a famous victory over the French fleet at La Hogue in 1692, triumph at Barcelona and Vigo Bay, failure at Brest and Cadiz, then success at Blenheim, Ramillies, Oudenarde and Tournai. On and on went the wars, a ghastly and never-ending ritual punctuated only by the failure of desultory peace proposals. All this was scarcely a good return on England’s crippling taxes. More taxes are calculated to have been imposed between 1702 and 1714 than in the previous three reigns put together. The writer Jonathan Swift, who backed the Tory politicians who opposed the wars, noted in his Journal to Stella that ‘few of this generation can remember anything but war and taxes …’tis certain we are the most undone people in Europe’.

As the wars rumbled on, an army of two hundred thousand men had to be supported, and inevitably the greatest burden fell on the landowners. They were forced to hand over a fifth of their income in land tax to pay for the war effort, which they did reluctantly; and they faced heavy local taxes too. So desperate was the government for money that it would regularly raise loans on the future collection of taxes, rather than waiting for the money to come in. The battle with the enemy across the Channel was eventually reflected in a fight for the political control of England, for the grass roots of one political party – the Tories – lay in the old landed interest and the conservative rural squirearchy, which wanted peace; while the Whigs, whose leadership was aristocratic and who were in a majority in the House of Lords, had come to represent the new financial and mercantile interests which were making money from the war with France.