The South Sea Bubble - George i's Enron - Reviews - A Very English Deceit: The Secret History of the South Sea Bubble and the First Great Financial Scandal - Book Review

Contemporary Review, July, 2003 by Michael Karwowski

A Very English Deceit: The Secret History of the South Sea Bubble and the First Great Financial Scandal. Malcolm Balen. Fourth Estate. [pounds]17.99. 260 pages. ISBN 1-84115-552-7.

The South Sea Company, originally a trading enterprise to exchange English cloth for Spanish gold in South America, gave itself the lyrical motto, From Cadiz to the Dawn. With the benefit of hindsight, a more appropriate motto would have been 'from a castle in Spain to a rude awakening', equally poetical, if only in the sense of 'poetic justice'. For this book is a cautionary tale, told by the head of news for ITN in London, Malcolm Balen, with frequent illustrative quotes to point out comparisons with contemporary events, principally the 'dot-corn bubble', or the Great Silicon Valley Swindle, as the Financial Times characterised it, but also scandals involving Nick Leeson and Barings Bank, Robert Maxwell, the Millennium Dome, Enron and so on. Plus ca change, plus c'est la meme chose, in other words.

As such, the book is written in the racy style of a tabloid newspaper within a moral framework symbolised by the construction of St Paul's in the City of London, whose completion in 1710 preceded the events in question and an account of which begins and ends the book. Thus, the sordid events of the South Sea Bubble are said to have occurred 'in the shadow' of the Cathedral, both in space and in time. What's more, in tune with our celebrity-obsessed times, Mr Balen tells the story largely by concentrating on three principal characters. These are the Scottish gambler, John Law, who first launched a similar speculative scheme in France, John Blunt, who inflated the English bubble in its wake, and the politician, Robert Walpole, who, though heavily involved with the South Sea Company, cunningly used the fallout following its collapse to rise to power.

John Law, in exile after killing a love rival in a duel, made himself a fortune in Europe's casinos before developing the concept of a credit-based economy and persuading the bankrupt French state to give him an opportunity to put it into practice. His amazing initial success-- he was the first person to introduce banknotes into France -- led to a copycat scheme in England. John Blunt, the son of a Kent shoemaker on the make, proposed, like Law, to buy the national debt and issue shares in it as a means of exploiting the notional trading profits of his company. The hollowness of the scheme -- the South Sea element was largely fictitious -- was concealed through a policy of bribing Government Ministers and MPs and persuading the King, George I, to participate. At first, the enterprise seemed to be a licence to print money. This was the period when the term 'millionaire' was first coined. But once the initial confidence evaporated, the whole rotten venture collapsed and the term 'bubble' came into its own to ch aracterise the process.

The book's most powerful lesson is that if determined individuals such as Law and Blunt can dictate how entire economies and nations perform, they could not do this without most people being prepared to act as lemmings or lambs to the slaughter. Even Isaac Newton, we are told, lost [pounds sterling]20,000 in the South Sea Bubble. Jonathan Swift, on the other hand, while also a disappointed investor, was said to have been partly inspired by the bubble's collapse to write Gulliver's Travels, while the bookseller, Thomas Guy, who made a fortune in the early days of the scheme, left [pounds sterling]240,000 in his will to found the London hospital that still bears his name. Truly, every cloud (or illusion) has a silver lining.