The year was 1688. The mood in England was optimistic. People were flush with cash and had few places to put it. The environment was ripe for a mania.
The East India Company was one of a handful of joint-stock companies trading at the time. Trading is a loose use of the term. Few people were willing to part with their East India shares since they were so lucrative and the company refused to issue more. The demand for shares needed to be supplied…
About 100 new joint-stock
companies schemes would be born over the next four years — insurance, fisheries, tanning, swords, diving, and more. Stories would be woven about the future prosperity of each endeavor.
And like all bubbles, investors ate it up. What started as a need to earn a decent return, morphed into a get-rich-quick greed as the price action and large gains took hold. It would fuel the mania until something — supply for shares exceeded demand — caused the collapse.
If this sounds familiar, it should. It was repeated again in 1720. Twenty-eight years later the South Sea Bubble would birth (and wipe out) a similar list of companies. And that’s just the next market bubble, in a long list of bubbles that mirror it.
The bubble that began in 1688 was mostly forgotten until Lord Macaulay retold the tale almost 200 years after it popped (added paragraph spacing for easier reading):
During the interval between the Restoration and the Revolution the riches of the nation had been rapidly increasing. Thousands of busy men found every Christmas that, after the expenses of the year’s housekeeping had been defrayed out of the year’s income, a surplus remained; and how that surplus was to be employed was a question of some difficulty.
In our time, to invest such a surplus, at something more than three percent, on the best security that has ever been known in the world, is the work of a few minutes. But, in the seventeenth century, a lawyer, a physician, a retired merchant, who had saved some thousands and who wished to place them safely and profitably, was often greatly embarrassed. Three generations earlier, a man who had accumulated wealth in a trade or a profession generally purchased real property or lent his savings on mortgage. But the number of acres in the kingdom had remained the same; and the value of those acres, though it had greatly increased, had by no means increased so fast as the quantity of capital which was seeking for employment. Many too wished to put their money where they could find it at an hour’s notice, and looked about for some species of property which could be more readily transferred than a house or a field. A capitalist might lend on bottomry or on personal security: but, if he did so, he ran a great risk of losing interest and principal.
There were a few joint-stock companies, among which the East India Company held the foremost place; but the demand for the stock of such companies was far greater than the supply. Indeed the cry for a new East India Company was chiefly raised by persons who had found difficulty in placing their savings at interest on good security. So great was that difficulty that the practice of hoarding was common. We are told that the father of Pope the poet, who retired from business in the City about the time of the Revolution, carried to a retreat in the country a strongbox containing near twenty thousand pounds, and took out from time to time what was required for household expenses; and it is highly probable that this was not a solitary case. At present the quantity of coin which is hoarded by private persons is so small that it would, if brought forth, make no perceptible addition to the circulation. But, in the earlier part of the reign of William the Third, all the greatest writers on currency were of opinion that a very considerable mass of gold and silver was hidden in secret drawers and behind wainscots.
The natural effect of this state of things was that a crowd of projectors, ingenious and absurd, honest and knavish, employed themselves in devising new schemes for the employment of redundant capital. It was about the year 1688 that the word stockjobber was first heard in London. In the short space of four years a crowd of companies, every one of which confidently held out to subscribers the hope of immense gains, sprang into existence: the Insurance Company, the Paper Company, the Lutestring Company, the Pearl Fishery Company, the Glass Bottle Company, the Alum Company, the Blythe Coal Company, the Swordblade Company.
There was a Tapestry Company, which would soon furnish pretty hangings for all the parlours of the middle class and for all the bedchambers of the higher. There was a Copper Company, which proposed to explore the mines of England, and held out a hope that they would prove not less valuable than those of Potosi. There was a Diving Company, which undertook to bring up precious effects from shipwrecked vessels, and which announced that it had laid in a stock of wonderful machines resembling complete suits of armour. In front of the helmet was a huge glass eye like that of Polyphemus; and out of the crest went a pipe through which the air was to be admitted. The whole process was exhibited on the Thames. Fine gentlemen and fine ladies were invited to the show, were hospitably regaled, and were delighted by seeing the divers in their panoply descend into the river, and return laden with old iron and ship’s tackle. There was a Green land Fishing Company, which could not fail to drive the Dutch whalers and herring busses out of the Northern Ocean. There was a Tanning Company, which promised to furnish leather superior to the best that was brought from Turkey or Russia.
There was a society which undertook the office of giving gentlemen a liberal education on low terms, and which assumed the sounding name of the Royal Academies Company. In a pompous advertisement it was announced that the directors of the Royal Academies Company had engaged the best masters in every branch of knowledge, and were about to issue twenty thousand tickets at twenty shillings each. There was to be a lottery; two thousand prizes were to be drawn; and the fortunate holders of the prizes were to be taught, at the charge of the Company, Latin, Greek, Hebrew, French, Spanish, conic sections, trigonometry, heraldry, japanning, fortification, bookkeeping, and the art of playing the theorbo.
Some of these companies took large mansions and printed their advertisements in gilded letters. Others, less ostentatious, were content with ink, and met at coffeehouses in the neighbourhood of the Royal Exchange. Jonathan’s and Garraway’s were in a constant ferment with brokers, buyers, sellers, meetings of directors, meetings of proprietors. Time bargains soon came into fashion. Extensive combinations were formed, and monstrous fables were circulated, for the purpose of raising or depressing the price of shares.
Our country witnessed for the first time those phenomena with which a long experience has made us familiar. A mania of which the symptoms were essentially the same with those of the mania of 1720, of the mania of 1825, of the mania of 1845, seized the public mind. An impatience to be rich, a contempt for those slow but sure gains which are the proper reward of industry, patience, and thrift, spread through society. The spirit of the cogging dicers of Whitefriars took possession of the grave Senators of the City, Wardens of Trades, Deputies, Aldermen. It was much easier and much more lucrative to put forth a lying prospectus announcing a new stock, to persuade ignorant people that the dividends could not fall short of twenty percent, and to part with five thousand pounds of this imaginary wealth for ten thousand solid guineas, than to load a ship with a well-chosen cargo for Virginia or the Levant. Every day some new bubble was puffed into existence, rose buoyant, shone bright, burst, and was forgotten.