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2011-2012 Huntington Short-term Fellowship (one month), ‘Gamble, Investment, or Public Service?

’ Koji Yamamoto, Univ. of St Andrews, UK

Gamble, Investment, or Public Service? The first Duke of Chandos during the South Sea Bubble, 1719-1721 Koji Yamamoto ‘Hopes, [and] Expectations,’ Defoe declared a year before the South Sea Bubble, were crucial for understanding the dynamics of the stock market. The 1720 Bubble has long been enshrined as the key event in the emergence of modern financial capitalism. Newspapers frequently describe it that way; historians of economics such as Dale et al, and Shea have been debating whether or not it was a ‘rational’ bubble. Not everyone assumes this perspective. Scholars like Hoppit, Harris, and Nicholson have examined economic, legal, and cultural aspects of the Bubble. Yet they have focused on repercussions of the financial bubble, and left the analysis of the Bubble’s growth largely to economists. Consequently, we know relatively little about contemporary values and perceptions that might have shaped speculative investment during the Bubble period. Even though economic historians such as Muldrew, Glaisyer, and McGowen have reminded us that commercial transactions were charged with social and even emotional values we rarely associate with them today, their insights have not been fully tested for the embryonic financial market. Taking up a one-month Fellowship at Huntington will enable me to make substantial contribution to this underexplored subject. My focus will be financial accounts and letters written by one of the largest investors during the Bubble period: James Brydges the first Duke of Chandos (1674-1744). The Fellowship will produce a journal article on Chandos, and will become an essential part of my book-length project on the South Sea Bubble which will revisit the Bubble as a cultural, as much as financial, crisis, something more complex than a familiar tale of economic utility, greed, and credulity. Between May and July 1720, the price of the South Sea stock and other company stocks rose as much as nine times their nominal price, and dropped rapidly by the end of September that year. Chandos acquired more than 47,000 shares of the Company’s by August 1720. (He also had large number of shares of several other companies). Although seeking a ‘killing’ as he put it, Chandos failed to release his shares before the price plunged; he probably lost as much as £200,000 in 1720. As a result, P.G.M. Dickson and J.V. Beckett have depicted him as an investor who ‘was by temperament greedy and a gambler’ – an assessment that echoes the popular conception of the Bubble as driven by irrational exuberance, a view which economists have recently challenged by presenting statistical evidence for the existence of a more ‘rational’ bubble. Holdings at Huntington provide us with an unparalleled opportunity to shift our focus towards the perspective of early modern contemporaries – something Defoe argued was crucial for understanding the dynamism of the market. Family papers, including the Clerk of Pennecuik Papers at the National Archives of Scotland I am currently investigating, often contain business letters received by the family concerned. In contrast, the Stowe Manuscripts (ST 57/17) contains more than 250 folios of letters written by Chandos for 1720 alone, many of them sent to his London financial agents such as Matthew Decker. Thus, one month of thorough analysis of the ducal out-letters between 1719-21, combined with a study of his financial account

2011-2012 Huntington Short-term Fellowship (one month), ‘Gamble, Investment, or Public Service?’ Koji Yamamoto, Univ. of St Andrews, UK

for the same period (ST 12), enables me to examine just how a nobleman conceptualised and carried out his financial activities during the Bubble period. Within this framework, I will pursue three sets of specific questions. First, depicting Chandos as a ‘gambler’ seems to prevent us from considering whether attempts at speculation existed alongside a degree of caution and prudence. As Temin and Voth have shown, some investors acted upon ‘reasoned optimism’ and were even capable of ‘riding’ the Bubble, i.e., profit from other more naïve investors. Chandos was an acute man of business who amassed above £700,000 as the paymaster of forces abroad between 1705-13. Given this, it is conceivable that he failed to ‘ride’ the Bubble not so much because of reckless speculation as despite his effort to gather information from trusted sources. I will test this hypothesis by analysing his ledgers alongside instructions he gave to his London agents. It is likely that the archival research will allow me to issue a warning against ascribing instances of loss to credulity or mere incompetence. Rather, the case of Chandos would highlight the challenging nature of the emerging financial market, one in which even competent operators might find it difficult to strike a fine balance between exercising caution and taking risks based on imperfect information. If unsuccessful investors like Chandos did exercise some judgement in the market, they had to have certain criteria for assessing information. Secondly, therefore, I will use ducal letters to examine how a nobleman investor evaluated credibility of different sources. Nascent stockbrokerage was expensive and frequently unreliable, newspaper reports often inaccurate. Investors thus relied heavily upon friends, relatives, subordinates and trusted business partners as Anne Murphy have shown. Was kinship and established connections, then, more important than social and economic prestige of particular sources? How about reputation of probity or financial ‘expertise’? Did political and religious affiliations carry any implications? Examining Chandos’s letters with these questions will allow us to explore how certain criteria were put to use in financial transactions in the run-up to the collapse of the Bubble. If we consider financial stakes of speculative investment, it is highly likely that a range of criteria was combined and used in conjunction, some of them given more weight than others depending on contexts. The close analysis of ducal out-letters would thus give us much needed historical texture to speculative investment during the first financial bubble in British history, something trans-historical concept of utility and profit-calculation cannot do adequate justice. Third, and most important, if Chandos was indeed attracted by the possibility of making a ‘killing’, it is unlikely that he simply ‘dirtied’ his hands without moral justification. Indeed, a study I have conducted for mining entrepreneurs of the 1690s has revealed that wealthy entrepreneurs, middling merchants and even clergymen passed company shares and interest-bearing bonds to widows and donated them to workhouses and hospitals. Chandos, for one, was a regular churchgoer, and wrote diaries (1697-1702) and ‘Observations’ upon the Bibles (1697). Just like many others, he was probably not standing outside the contemporary godly frame of mind in which ‘Riches, and Honour, and Power’ were understood to be ‘given unto Mankind, for no other end, but to Do Good’ as a priest preached to the Levant Company in 1707. Thus, I will use ducal letters to examine how far Chandos viewed his involvement in the booming speculation as a means for reducing debts, providing for the family and relatives, and maintaining his ducal dynasty. Chandos was an influential patron of experimental philosophers and business enterprises. How far, then, was speculation conceived of as an attractive means to raise money for technological and economic ‘projects’ – something that, if successfully managed, would not only raise money for

2011-2012 Huntington Short-term Fellowship (one month), ‘Gamble, Investment, or Public Service?’ Koji Yamamoto, Univ. of St Andrews, UK

the family, but also help develop local economy and create more jobs to the poor? Here we are not only interested in Chandos’s business instructions, but also how he packaged and presented his financial activities alongside other concerns. In addition to letters sent to financial agents, therefore, his letters addressed to family members and his peers and associates will also be surveyed as well. In short, the Stowe Collection at Huntington provides me with an exciting historical window through which to cast light on under-studied aspects of the so-called financial revolution in general, and the South Sea Bubble in particular: how a noble businessman tried to balance risk taking with caution; how he combined specific criteria to sort out credible information; how he justified his speculative transactions by conceptualising them as integral part of the maintenance of the family dynasty and the ‘improvement’ of the wider economy. It is anticipated that an article for Huntington Quarterly will be written based on this archival research. Findings, moreover, will become an indispensable part of my ongoing book project which, for the first time, gives detailed attention not only to political and economic perspectives, but also to the religious, social, and cultural factors which informed the Bubble’s initial growth and its subsequent collapse. 2020 will mark the tercentenary of the South Sea Bubble; thus the incident would continue to attract attention of both historians and the wider public alike. Archival research at Huntington will enable me to provide a rich ‘thick description’ of market transactions as they were embedded in historical contexts of the early eighteenth century, and enables me to take a crucial step towards completing archival research needed for writing the monograph on this historical subject with increasing contemporary relevance.

Select Bibliography: Baker, C.H., Baker, M.I., The Life and Circumstances of James Brydges, First Duke of Chandos (1949); Carswell, J. The South Sea Bubble (1960, rev. 2001); Dale. R.S. et al, ‘Financial Markets can go mad’, Economic History Review, 58 (2005); Defoe, D. The Anatomy of Exchange Alley (1719); Dickson, P.G.M., The Financial Revolution in England (1967); Dickson P.G.M., Becektt, J.V., ‘The Finances of the Dukes of Chandos’, Huntington Library Quarterly, 64, (2001); Glaisyer, N. The Culture of Commerce in England, 1660-1720 (2006); Hacket, L. A sermon preach’d [. . .] before the Honourable Company of Merchants trading to the Levant-Seas (1707); Harris, R. ‘The Bubble Act: Its Passage and Its Effects on Business Organization’, Journal of Economic History, 3 (1994); Harvey, E. ‘The Letters and Accounts of James Brydges, 1705-1713’, Huntington Library Quarterly 2 (1931); Hoppit, J. ‘The Myths of the South Sea Bubble’, Transactions of the RHS 12 (2002); McGowen, R. ‘From Pillory to Gallows: Punishment of Forgery in the Age of the Financial Revolution’, Past &Present, 165 (1999); Muldrew, C. The Economy of Obligation: The Culture of Credit and Social Relations in Early Modern England (1998); Murphy, A., The Origins of English Financial Markets: Investment and Speculation before the South Sea Bubble (2009); Nicolson, C. Writing and the Rise of Finance (1994); Shea, G.S., ‘Financial Market Analysis can go mad’, HER, 60 (2007); Temin, P., Voth, H.J., ‘Riding the South Sea Bubble’, American History Review, 94 (2004); Yamamoto, K, ‘Piety, Profit, and Public Service in the Early Financial Revolution’, English Historical Review (forthcoming).