East India Company Shareholders and the South Sea Bubble

5
of the slave trading market in the Western Hemisphere. The Company certainly
looked to be well positioned in this fruitful new market.
By the autumn of 1719, however, a new war with Spain had halted the
Company‟s South Sea trade. Unlike the EIC, with its strong Asian trade, and the BoE,
with its home-counties banking monopoly, the South Sea Company had little room for
action. The South Sea Company‟s proposed escape from this dilemma was to yet
again attempt a conversion of government debt obligations into new equity shares in
the Company. The scale of the proposed scheme was, however, unprecedented, except
to the extent that it was inspired by the Law System in France. By the end of 1719
John Law had successfully converted the entire French national debt into shares of the
newly formed Compagnie des Indes, which monopolistically combined national
banking, tax-collection and overseas trading into one large firm. Some of the
grandiosity of the Law System was evident in the proposals first put forward
tentatively by the South Sea Company. In these proposals the idea was tried that the
South Sea Company too would attempt to convert the entire British national debt into
South Sea shares. It was in this regard that the South Sea scheme first touched against
the affairs of the East India Company and the Bank of England (Dickson, 1967). The
EIC and the BoE, like the South Sea Company, were both „great monied‟ companies,
that is, both had made large loans to the government and indeed were required to do
so to justify their chartered existences. A South Sea Company proposal to exchange
the entire national debt for South Sea shares would ultimately have become a threat to
the chartered existence of the other two companies. For reasons that are
undocumented, but can be reasonably inferred from events, the South Sea scheme
eventually developed into a plan to convert the remaining national debt into South Sea
shares, but exclusive of the debt that was already in the hands of the EIC and the BoE.