Even before it had ended, the South Sea Bubble of 1720 was already more than an economic problem. Since then it has become a morality tale about the perils of greed, an example of the madness or delusions of crowds, or a case study in unchecked market cycles and the use (or abuse) of financial institutions. Helen Paul argues that she is one of the first to combine these three separate strands into an integrated analytical study, in order to set the Bubble within its wider financial, commercial and social contexts. This is an ambitious aim for a slim volume of just under 120 pages, once the footnotes, glossary and index are removed. Indeed, the first four of the ten chapters are an extended methodological and historical introduction, and although by no means extraneous they also leave only about 70 pages for the analysis and conclusion.
Within these remaining chapters, Paul's argument is threefold. The first point is that the South Sea Bubble can be understood and explained in terms of modern economic theories of bounded rationality and noise or bandwagon trading within stock markets, and that even if some uneducated or overenthusiastic investors became caught up in the thrill of speculation this does not necessarily point to a wider ‘gambling mania’ or mass delusion within eighteenth-century English society. Her second point is that investment in the South Sea Company was not necessarily an irrational act. In a limited marketplace where the Bank of England and the East India Company represented the only other ‘blue chip’ stocks available, the South Sea Company – formed in 1711 primarily as a vehicle for holding government debt – was a sounder commercial investment than many other schemes. Having secured the asiento from Spain to export slaves from West Africa to the Spanish colonies in South America, the company hired the Royal African Company to do so with a degree of efficiency comparable to other contemporary slave traders, and exploited its links with Parliament and the British fiscal-military state. Finally, her third point is that responses to the Bubble in 1720 became entangled in wider and long-standing criticisms of new financial markets that shaped the nature of those responses. Paul therefore presents a clear and convincing argument for the rationality – however bounded – of the South Sea Bubble, and the capacity for it to be explained in rational terms.
This reassessment is long overdue, and Paul makes effective use of the extensive secondary literature to push the argument forward. Historians familiar with the cliometric or quantitative literature on this topic will find a clear and concise synthesis of these elements, and those unfamiliar with it will find a useful introduction to the literature itself and its methodological framework. Paul is largely successful in making complex concepts and terms accessible, although she sometimes overcompensates, for example in the rather self-evident comment that ‘anyone wanting to sell something prefers a high price to a low one’ (p. 81). She also engages in a forceful – but unfortunately rather brisk – analysis of contemporary writers and commentators, particularly Archibald Hutcheson, whose prejudices she deconstructs. These appear to have been a concern for the pernicious social effects of the Bubble and its aftermath on patriarchal elite society that led Hutcheson and others to blame foreigners, Jews and women for the unscrupulous or irrational actions of investors. This leads Paul to a discussion, once again regrettably sketchy, of the wider social factors surrounding the Bubble and financial markets in early modern England. More space would have allowed the more nuanced treatment that this topic deserves.
The most original claim made by Paul and one of the central planks of her argument – that the South Sea Company was a rational investment in 1720 by virtue of its commercial success – also requires, at the very least, more detail. The asiento allowed the Company to export up to 4,800 slaves a year. Yet the graphs she provides in chapter 6 suggest that it never landed more than 4,000 slaves in each year between 1714 and 1720, that in 1719 the number barely reached three figures, and that on average the Company provided barely half its target during these years. Even assuming that the Company was a commercial success, these figures and the other information Paul summarises do not suggest there was ever a realistic chance of it yielding returns sufficient to justify the eightfold increase in the value of the stock which occurred in 1720. On the other hand, if the perception of commercial success rather than its reality was more important, then Paul's arguments are misdirected and need to focus more upon the activities of the Company's directors and their strategies for managing the flows of information within London financial markets. Such an approach would also give more weight to the South Sea Company as a holder and manager of government debt, its competition to exchange government annuities for stock in 1719 and 1720, and the ‘rationality’ or otherwise of investment in this enterprise. As the book stands, it does not seem to present enough evidence to justify its wholesale challenge of the existing historiographical consensus that investment in the South Sea Company in 1720, rational or not, was a factor determined primarily by its status as one of the largest holders of government paper and the exploitation – fraudulent or otherwise – of that status by its directors.
Paul has therefore produced a forceful and convincing summary of vast swathes of the existing literature on the South Sea Bubble, and her project to encourage an interplay between social and economic understandings of this episode points to fruitful directions of further enquiry. However, the short length of the book does not allow her the space needed to develop these ideas in depth, and to explore their interaction. As such, it will probably be more useful as an outline of the argument, a manifesto for future research and a gateway to further literature than as a point of reference in itself.
