The People


THE England that Voltaire found was a nation enjoying a quarter century of relative peace after a generation of costly victories over France; a nation now mistress of the seas, therefore of commerce, therefore of money; holding the lever and balance of power over Continental governments; proudly triumphant over a Stuart dynasty that had sought to make it Catholic, and over Hanoverian kings who were the servants of Parliament’s swelling purse. This was the England that had just won world preeminence in science through Newton, that had just produced the unintentionally revolutionary Locke, that was undermining Christianity with deism, that would substitute Alexander Pope for all the pontiffs of Rome, that would soon watch uncomfortably the devastating operations of David Hume. It was the England that Hogarth loved and excoriated in engravings, the England where Handel found home and audience and outshone all the Bachs as the maestro dei maestri of the age. And here, in this “fortress built by Nature for herself against infection, … this blessed plot, … this England,”1 the Industrial Revolution began to transform everything but man.


1. The Sustainers

Defoe, traversing England in 1722, drew a patriotic picture of “the most flourishing and opulent country in the world,” of green fields and overflowing crops, of pastures rambled by golden fleece, of lush grass turning into plump kine, of peasants roistering in rural sports, squires organizing peasants, nobles organizing squires, lordly manors giving law and discipline to villages, and now and then, refuge to poets and philosophers.2 Word peddlers tend to idealize the countryside, if they are exempt from its harassments, boredom, insects, and toil.

Rural life in the England of 1715 was very much as it had been for a thousand years. Each village—almost each household—was a self-contained economic unit, growing its own food, making its own clothing, cutting its timber for building and fuel from the adjacent woods. Each family baked its bread, hunted its venison, salted its meat, made its butter, jellies, and cheese. It spun and wove and sewed; it tanned leather and cobbled shoes; it made most of its utensils, implements, and tools. So father, mother, and children found work and expression not only in the summer fields but in the long winter evenings; the home was a hub of industry as well as of agriculture. The wife was an honored mistress of many arts, from nursing her husband and rearing a dozen children to making frocks and brewing ale. She kept and dispensed the household medicines; she took care of the garden, the pigs, and the fowl. Marriage was a union of helpmates; the family was an economic as well as a social organism, and had thereby a solid reason and basis for its unity, multiplication, and permanence.

The peasants might have been content with the varied vitality of their homes if they had been allowed to preserve their ancient ways in the fields. They remembered when the landlord had permitted them, or their forebears, to graze their livestock on the manor’s common fields, to fish freely in its streams, to cut wood in its forest; now, by a process begun in the sixteenth century, most of the “commons” had been enclosed by the owners, and the peasants found it hard to make ends meet. There was no serfdom left, and no formal feudal dues; but enterprising landlords, and city merchants investing in land, were farming on a larger scale, with more capital, better implements, greater skill, and wider markets than were available to yeomen tilling their narrow areas. Gregory King had reckoned some 180,000 such freeholders in the England of 1688. Voltaire, about 1730, reported “in England many peasants with 200,000 francs’ worth of property, and who do not disdain to continue cultivating the earth that has enriched them, and in which they live free”; but this may have been propaganda for French stimulation. In any case, by 1750 the number of freeholders had declined.3 The fatter landlords were buying up the thinner tracts; the small homestead, designed for family subsistence or local markets, was giving place to larger farms capable of profiting from improved methods and machines; the farmer was becoming a tenant or hired “hand.” Moreover, the system of tillage predominant in England in 1715 divided the land of a village into different regions according to their fertility and accessibility; each farmer received one or more strips in the separate localities; co-operation was necessary, individual enterprise was balked, production lagged. The enclosers argued that large-scale operation under unified ownership increased agricultural production, facilitated sheep pasturage, and allowed a profitable output of wool; and doubtless they were right. Economic progress shut at least one eye to the human turmoil of displacement and transition.

It was chiefly on the expanded farms that agricultural technology advanced. The profit motive brought wastelands under cultivation, disciplined labor to greater efficiency, stimulated the invention of new tools and ways, promoted experiments in animal breeding, and sustained the toil of draining marshes, checking soil erosion, and clearing woods. Between 1696 and 1795 some two million acres were added to the cultivated area of England and Wales. In 1730 Charles Townshend introduced the four-course system of crop rotation instead of the wasteful plan of letting a third of the land lie fallow in each year: he planted wheat or oats in the first year, barley or oats in the second, clover, rye, vetches, rutabaga, and kale in the third, turnips in the fourth; then the sheep were brought in to eat the turnips or trample them into the ground, while their offal fertilized the soil; so the earth was prepared for a rich crop of wheat in the next year. His neighbors laughed at him, and called him Turnip Townshend, until a thirty per cent increase in his crops turned them to imitation. As Townshend was a viscount, other aristocrats followed him in improving their land; it became the fashion for an English lord to take a personal interest in agriculture, and the talk of the manors passed from hunting and dogs to turnips and manure.4

Jethro Tull was a lawyer; his health failing, he went back to his father’s farm; his sharpened mind was fascinated by the miracle and profits of growth, but was repelled by the wasteful methods of tillage that he saw—farmers broadcasting nine or ten pounds of seed to an acre so carelessly “that two thirds of the ground was unplanted, and on the rest ’twas so thick that it did not prosper.”5 Traveling in France and Italy, he studied agricultural methods; returning, he bought a farm, and shocked his neighbors with inventions that doubled production. He began (c. 1730) by making a four-coultered plow that would uproot and bury weeds instead of merely shoving them aside. But his most decisive invention (c. 1733) was a horse-drawn drill mechanism that fed seed through notched funnels at a specific spacing and depth in two parallel rows, and then covered the seeds by a harrow attached to the drill. The machine saved seed and labor, and allowed the cultivation, aeration, irrigation, and weeding of the soil between the seeded rows. This apparently trivial change in sowing, and the improvement of the plow, shared in what came to be called the agricultural revolution, whose effects can be measured (even allowing for inflation) by the tenfold rise, during the eighteenth century, in the value of the lands where the new methods were used. The increased productivity of the soil enabled the farms to feed more workers in the towns, and made possible that growing urban population without which there could have been no Industrial Revolution.

Neither the peasants nor the town workers shared in the growing wealth. Peasant proprietors were squeezed out by large-scale competition; peasant laborers were paid as little as the fear of unemployment compelled them to accept. Hear the learned and high-caste Trevelyan:

The social price paid for economic gain was a decline in the number of independent cultivators, and a rise in the number of landless laborers. To a large extent this was a necessary evil, and there would have been less harm in it if the increased dividend of the agricultural world had been fairly distributed. But while the landlord’s rent, the parson’s tithe, and the profits of [landowning] farmer and middleman all rose apace, the field laborer, deprived of his little rights in [the common] land and his family’s by-employment in industry, received no proper compensation in high wages, and in the Southern Counties too often sank into a position of dependence and pauperism.6

The natural concentration of wealth was in some measure mitigated by taxation and organized charity. The English rich, unlike the French nobles, paid the larger part of the taxes that supported the government. The Poor Laws, which had begun in 1536, required each parish to succor persons in danger of starvation. The able-bodied unemployed were sent to workhouses, the disabled were committed to almshouses; the children were bound out as apprentices to those willing to lodge and feed them for their services. The expenses of the system were paid by a tax on the households of the parish. A parliamentary committee reported that of all the children born in workhouses, or those received in infancy, in the years 1763–65, only seven per cent were alive in 1766.7 It was a hard century.

2. Industry

The self-sufficient home of the countryside retarded, for good or ill, the specialization of labor and the Industrial Revolution. Why should the nascent capitalist finance a factory when he could have a hundred families weave and spin for him under their own roofs and the automatic discipline of competition? In the West Riding district of Yorkshire this domestic industry produced 100,000 pieces of cloth for the market in 1740, and 140,000 pieces in 1750; as late as 1856 only half the woolen production of Yorkshire came from factories, half still came from homes.8 Nevertheless those busy households were incipient factories: the head of the family invited servants and outsiders to join in the work; additional rooms were equipped with spinning wheels and looms. As these domestic operations increased in size, and the market widened through improved roads and control of the seas, domestic industry itself created a demand for better tools. The first inventions were implements rather than machines; they could be installed in homes, like Kay’s flying shuttle; only when the inventors made machines that required mechanical power did the factory system replace domestic industry.

The transition was gradual; it took almost a century (1730–1830), and perhaps “revolution” is too dramatic a term for so leisurely a change. The break with the past was not so sharp as the romantification of history once suggested. Industry was as old as civilization; invention had progressed at a quickening pace since the thirteenth century; in Dante’s Florence factories were as numerous as poets; in Rembrandt’s Holland capitalists were as numerous as artists. But taken in its progressive stages of steam, electricity,oil, electronics, and atomic energy, the industrial transformation of the last two centuries (1760–1960), as compared with the rate of economic change in Europe before Columbus, constitutes a real revolution, basically transforming not only agriculture, transport, communication, and industry, but also politics, manners, morality, religion, philosophy, and art.

Many factors flowed together in compelling industrial charge. The wars that followed the fall of Walpole’s ministry (1742) intensified the urge to accelerate production and distribution. The growth of population, as a result of the rising food supply, offered a swelling domestic market for both agriculture and industry, and encouraged the making of better machines and roads. The machines required skills, which led to a specialization and division of labor promoting productivity. Huguenot and other immigrants brought to England their salvaged savings and their crafts; it was a Huguenot descendant who invented the first spinning machine (1738). The adoption of protective tariffs by Parliament (e.g., the “Calico Act” of 1721, prohibiting the use of imported printed calicos) narrowed foreign competition, and gave the English textile industry full control of the home market; while the growing influence of the merchants on legislation favored the extension of the British economy. In the middle and lower classes the Puritan tradition—soon to be reinforced by the Methodist movement-encouraged the virtues of industriousness, enterprise, and thrift; capital was accumulated, wealth was sanctioned, and the bourgeoisie seemed to enjoy the special grace of God.

Meanwhile the development of mining offered an expanding supply of coal as a fuel for industry. Wood had hitherto been the major fuel for homes and shops, but forests were being thinned to extinction; of sixty-nine great forests known to medieval England sixty-five had disappeared by the end of the eighteenth century.9 Timber had to be imported from Scandinavia or America; it cost more and more, and demand arose for a cheaper fuel. But the mining of coal was still a primitive process; shafts were shallow, ventilation was crude; methane and carbonic-acid gas choked the miners; and the problem of pumping water out of the mines remained unsolved till the steam engines of Savery and Newcomen; indeed, this problem was the chief incentive to the development of such engines. Despite these difficulties the production of coal mounted and spread, so that by 1750 the coal burned in homes and factories was already darkening the London sky.10

The importance of coal for the Industrial Revolution lay especially in its use for smelting iron ore into purer, tougher, malleable iron by separating the metal from the minerals attached to it. Smelting required fusion, which required a high degree of heat; this, since the fourteenth century, had been produced by burning charcoal (i.e., charred wood) in blast furnaces supplied with heavy drafts of air; but now charcoal was becoming costlier through the falling supply of wood. In 1612 Simon Sturtevant recommended coal as smelter fuel; “Dud” Dudley claimed in 1619 that by these means he reduced the cost of smelting iron by one half; but his charcoal-using rivals united to drive him out of business. Finally (c. 1709) Abraham Darby I, settling at Coalbrookdale, where coal was plentiful, successfully and economically smelted iron ore by heating it with coke—i.e., coal “cooked,” or burned, sufficiently to free it from its volatile elements. Coke itself had been known as far back as 1590. Abraham Darby II developed the use of coal or coke in smelting, and improved the blast furnace with bellows worked by a water wheel; soon he was able to outsell all other ironmasters in England. In 1728 the first English rolling mill was set up to pass iron between a succession of cylinders to compress it into desired forms. In 1740 Benjamin Huntsman invented the crucible process by which high-grade steel was produced through heating and purifying metal in clay pots. It was these developments in the marriage of coal with iron that made possible the machines of the Industrial Revolution.

3. Invention

The first half of the eighteenth century saw no spectacular acceleration of invention as compared with the two preceding centuries; and half a volume might be required to list the inventions that this age inherited from the past. As one example, the clock, so necessary in science, industry, and navigation, was almost perfected in the seventeenth century; by 1758 it reached a degree of accuracy (one minute’s deviation in six hundred days) not surpassed till 1877.11 The workers themselves, though often the source of inventions, discouraged them as threatening technological disemployment; so the hostility of labor compelled the abandonment of the first English sawmill (1663); not till 1767 was the attempt successfully renewed. Industrial invention was further retarded by poor roads; there was little incentive to increase production so long as the expansion of the market was hindered by difficulties of transport. Marine transportation, however, was improving; colonies, almost entirely agricultural, were avid customers for manufactured products; here was a rising stimulus to invention. The profit motive helped; Parliament granted patent rights for fourteen years. Foreign competition in the export trade provided another stimulus; so the textiles of India, produced by skilled but low-paid labor, spurred English manufacturers to economy of production through improved mechanical equipment. Hence it was in textile machinery that invention inaugurated the great change.

The first outstanding invention in textile production was John Kay’s “flying shuttle” (1733); here might be dated the beginning of the Industrial Revolution. Previously, with minor exceptions, the width of the cloth to be woven had been limited to the stretch of the weaver’s arms, for he had to throw the shuttle (the instrument that passed the threads of the woof through those of the warp) from one side of the loom with one hand and catch it with the other hand at the opposite side. Kay arranged a mechanism of wheels, hammers, and rods whereby a sharp tap of the hand would send the shuttle flying from one side to an automatic stop at any predetermined width, with a considerable saving of time. When he sought to install his invention at a mill in Colchester the weavers denounced him as trying to deprive them of their daily bread. He fled to Leeds (1738), and offered his patent to the cloth manufacturers for a fee; they took his invention, but withheld his royalties; he sued, and was ruined by legal costs. He went to his native Bury, but there the populace rose in a riot against him (1753), sacked his home, and threatened to kill him. One woman, however, greeted his machine with enthusiasm, crying, “Weel, weel! The warks o’ God be wonderful, but the contrivance o’ man bates Him at last!”12Kay found more acceptance in France, whose government adopted his invention and awarded him a pension. Not till 1760 did the flying shuttle surmount all opposition and pass into common use.

The textile industry was hampered by the fact that weavers could weave yarn faster than spinners could spin and supply it. Till 1738 spinning was done by hand, on wheels that still adorn homes idealizing the past. In that year Lewis Paul, son of a Huguenot immigrant, patented a spinning machine built apparently on lines suggested by John Wyatt: a system of rollers drew out the corded ropes of cotton or wool into threads of any desired fineness, and spun it on spindles, all with a minimum of toil. Paul and Wyatt sold the patent to Edward Cave, friend of Dr. Johnson. Cave set up five machines in a Northampton factory in 1742—the first of a long succession of spinning mills in old and New England.

Now that iron could be treated to make strong machines, and economic conditions called for large-scale production, the problem remained of finding some mechanical power to substitute cheaply for the muscles of men and the patience of women. The earliest solution was through water power. In a hundred countries the great water wheel, leisurely turning with the flow of streams, had from time unremembered moved pumps, bellows, rollers, hammers, even, since 1500, heavy iron machines. It continued to be the main source of mechanical energy through the eighteenth century; it survived into the twentieth; and the hydraulic installations of our time are water power transformed into portable electricity. The motive power of winds was not so reliable; comparatively little use was made of it in the calm lands of the south; but in northern latitudes the air currents were set to work turning windmills whose “sails” could be set into the “eye of the wind” by a hand-moved winch at the base. This clumsy and unsteady engine reached its zenith in the United Provinces in the eighteenth century, and then entered into its picturesque decline.

Meanwhile the inventors were striving to bring the steam engine to a profitable efficiency. It had already a long history, from Hero’s steam-operated doors and toys in the third century A.D. through Jerome Cardan (1550), Giambattista della Porta (1601), Salomon de Caus (1615), Giovanni Branca (1629), the Marquis of Worcester (1663), Samuel Morland (1675), Christian Huygens (1680), Denis Papin (1681), and Thomas Savery (1698) to Thomas Newcomen’s steam engine of 1712; this is a tale a thousand times told. Here again, at 1712, is a possible birth date for the Industrial Revolution; for Newcomen’s “fire-engine” was equipped with piston, rocking beam, and safety valve, and was effectively applied to draining water from deep mines. It remained the basic model for steam-operated pumps for three quarters of a century.

4. Capital and Labor

As machines increased in size and cost, and required mechanical power for their operation, enterprising men found it profitable to replace domestic industry with factories that gathered men and machines into buildings located preferably near streams that could provide both energy and transportation. Factories, as we have seen, were no novelty; hundreds of them had existed in Elizabeth’s England and Colbert’s France. The “factory system”— if we define it as an industrial economy in which production is carried onchieflyin factories—hardly existed anywhere before the nineteenth century. But after the inventions of Kay and Paul textile factories began to take over more and more of the spinning and weaving that had been done in homes. In 1717 Thomas Lombe set up at Derby a textile factory 660 feet long, with three hundred workers operating 26,000 wheels. Soon other structures of like immensity rose at Stockport, Leek, Birmingham, Leominster, Northampton …

To buy and house machines, to secure raw materials, to hire labor and management, to transport and market the product, required capital. The capitalist—the provider or manager of capital—was also an ancient phenomenon; but as the demand for capital increased, the men who would take the risk of providing it rose in economic importance and political power. The guilds, still theoretically governing most European industry, resisted the capitalistic reorganization of production and distribution. But the guild systemwas predicated on handicrafts rather than machines; it was equipped to supply local needs rather than a national, much less an international, market; it could not meet the rising demands of armies, cities, and colonies; it was hampered by fidelity to traditional methods and norms; and it was deteriorating into a coterie of masters exploiting apprentices and journeymen. The capitalist was better able to organize quantity production and distant distribution; he had learned the subtle art of making money breed money; and he was favored by a Parliament eager for industrial capacity to supply far-ranging commerce and wars.

As factories and capitalism spread, the relation of the worker to his work was transformed. He no longer owned the tools of his trade, nor did he fix the hours and conditions of his toil. He had only a minor share in determining the rate of his earnings or the quality of his product. His shop was no longer the vestibule of his home; his industry was no longer a part of his family life. His work was no longer the proud fashioning of an article through all its stages; it became, by the division of labor that would so impress Adam Smith, the impersonal and tedious repetition of some part of a process whose finished product no longer expressed his artistry; he ceased to be an artisan, and became a “hand.” His wages were set by the hunger of men competing for jobs against women and children. As a miner he received, on the average, one shilling sixpence a day; as a building laborer, two shillings; as a plumber, three shillings; these rates varied little between 1700 and 1770.13 A male weaver, toward 1750, was paid six shillings per week; a woman weaver, five shillings sixpence; a child, two shillings sixpence. Women spinners received from two to five shillings per week; girls six to twelve years old earned one shilling to one shilling sixpence.14 Prices, however, were low, and remained stable till 1760.15Sometimes an allowance was added for bread and beer at work, and most miners received free coal.

Employers contended that their workmen merited no more, being addicted to laziness, drink, unreliability, and irreligion. The only way to make workers temperate and industrious, argued an employer (1739), was to “lay them under the necessity of laboring all the time they can spare from rest and sleep in order to procure the common necessaries of life.”16 “The poor,” said a writer in 1714, “have nothing to stir them up to be serviceable but their wants, which it is prudence to relieve, but folly to cure.”17 Eleven to thirteen hours constituted the normal working day, six days a week; the long stretch was relieved by an hour and a half for meals; but those who lingered unduly over their meals forfeited a quarter of a day’s pay.18 Employers complained that their workmen stopped work to attend fairs, prize fights, hangings, or wakes. To protect themselves against these and other irregularities the employers liked to have a pool of unemployed workers in the neighborhood, upon which they could draw in emergency or in times of quickened demand.19When times were slack, workers could be laid off and left to live on the credit of the local tradesmen.

Slowly a dependent proletariat formed in the towns. An old law of Edward VI forbade working-class combinations, and this prohibition was renewed by Parliament in 1720. But the journeymen—i.e., day laborers-continued to organize, and appealed to Parliament for better wages; these journeymen’s associations—not the guilds—became the forerunners of the trade-union movement that took form in England at the end of the eighteenth century. In 1756, on an appeal from the textile workers of Gloucestershire, the House of Commons ordered the justices of the peace to maintain the legal minimum wage, and to prevent wage cutting in the industry; but a year later this order was withdrawn, and Parliament adopted the policy of letting the supply and demand of labor fix wages.20 The age of “free enterprise” and laissez-faire had begun.

5. Transport and Trade

The development of the economy depended upon improvements in communication and transport. England had an advantage in her coastline and rivers; half the population lived within reasonable access to the sea, and could use it to carry goods; rivers ran far inland, providing natural waterways. But the condition of England’s roads was a constant sore in English life. Their soil was soft, their ruts were hard and deep in winter, many of them were turned into streams by spring or summer rains, or into sinks of mud so tenacious that carriages had to be exhumed by supplementary teams of horses or oxen, and foot travelers had to take to neighboring fields or woods. Only after Bonnie Prince Charlie had led his rebel Scots as far south as Derby in 1745, because the state of the highways thwarted the royal forces sent against him, did the government undertake, for military purposes, to build a system of turnpikes “proper for the passage of troops, horses, and carriages at all times of the year”21 (1751). Robbers, however, still haunted the roads, and the cost of transport was high.

Those who could afford it traveled on horseback or by private carriage. On long trips they could hire fresh horses at “posts” (i.e., positions) en route; there were such “post houses” all over Western Europe. The word post came to be applied to the transmission of mail because at such points the mail carriers could deliver or pick up mail and change horses; by this system they could cover 120 miles per day. Even so, Chesterfield complained (1749) that “our letters go, at best, so irregularly, and so often miscarry totally.”22He thought it “uncommon diligence” that a letter from Verona reached London in eight days. Most travel was by stagecoach, drawn by two or four horses with driver and armed guard on the outside, and six passengers swaying within. Coaches left London on a regular schedule two or three mornings a week for the major towns of south England; they averaged seven miles an hour, and took six days between London and Newcastle.

Hampered by roads, internal trade remained picturesquely primitive. The wholesale merchant usually accompanied the pack horses that carried his goods from town to town; and peddlers hawked their wares from house to house. Shops were distinguished from dwellings chiefly by colorful signs; goods were kept inside, and ordinarily there was no window display. Almost every store was a general store; a “haberdasher” sold clothing, drugs, and ironware; the grocer was so called because he sold in gross; the “grocer” Henry Coward sold everything from sugar to nails. Each town had a market day, when, the skies permitting, merchants would expose samples of their wares. But the great centers of domestic commerce were the annual fairs held in London, Lynn, Boston, Gainsborough, Beverley, and, above all, Stourbridge. There, every August and September, a veritable city took form, with its own administration, police, and courts; nearly all products of English industry could be found there, and manufacturers from all over the island met to compare prices, qualities, and woes.

Foreign commerce was expanding, for Britain ruled the waves. Exports more than doubled in value and quantity in the first half of the century; tonnage of vessels leaving English ports rose from 317,000 in 1700 to 661,000 in 1751 to 1,405,000 in 1787.23Liverpool doubled its size and docks every twenty years. Imports came from a hundred lands to tickle the fancies or stomachs of the rich, or to adorn milady’s dressing table with captivating toiletries. The East India Company made such profits by buying cheap in India and selling dear in Europe that it lured fifteen dukes or earls, twelve countesses, eighty-two knights, and twenty-six clergymen and physicians into the roster of its shareholders.24 The aristocracy did not in England turn up its nose at commerce as it did in France, but helped to finance it, and shared in its prosperity. Middle-class Voltaire was delighted to find English nobles taking an active interest in trade. “It is only because the English have taken to trade,” he told France in 1734, “that London has outgrown Paris both as to size and as to the number of its inhabitants, and that England can have two hundred men-of-war and subsidize allied kings.”25

The great merchants were now rivaling the old landowning aristocracy in riches and power, determining foreign relations, fomenting and financing wars for markets, resources, and trade routes. The merchants who managed the English trade in sugar, tobacco, and slaves controlled the life of Bristol; the shippers ruled Liverpool, the coal owners dominated Newcastle. The wealth of the merchant Sir Josiah Child, who held £50,000 of stock in the East India Company, equaled that of many lords; his gardens at Wanstead were among the famous sights of England. “In most countries of Europe,” wrote Hume in 1748, “family—i.e., hereditary—riches, marked with titles and symbols from the sovereign, are the chief source of distinction. In England more regard is paid to present opulence.”26 A considerable osmosis went on between the upper and middle classes: the daughters of rich merchants married the sons of the landed nobility, the sons of merchants bought estates from impoverished aristocrats, the gentry went into trade and law and administration. Aristocracy was passing into plutocracy; money was replacing birth as a title to power.

6. Money

European bankers were now providing nearly all financial services. They received deposits, protected these from fire and theft, arranged payments between depositors by merely transferring from the account of one to that of another, and issued bank notes redeemable in gold or silver on demand. Since not all noteholders were expected to ask for such redemption at the same time, the banks could issue notes up to five or ten times the value of their mutual reserves. The circulation of money, so multiplied, provided additional capital for business enterprise, and shared in expanding the European economy. Bankers stimulated industry by lending money on the security of land, buildings, materials, or simply on trust in a person’s responsibility. Commerce was eased with letters of exchange or credit, which enabled capital to travel by mere transfer of bank paper, even across hostile frontiers.

Joint-stock companies were formed in England, as in Holland, Italy, and France. Promoters—then called “projecters”—organized industrial or commercial associations, issued shares, and promised dividends; stock or share certificates could be transferred from one person to another; and for that purpose a stock exchange had been established in London in 1698. The early eighteenth century saw a brisk development of speculation in company shares, with “stock jobbers” who manipulated the rise and fall of market values. Defoe in 1719 described such a manipulator:

If Sir Josiah Child had a mind to buy, the first thing he did was to commission his brokers to look sour, shake their heads, suggest bad news from India; … and perhaps they would actually sell for ten, perhaps twenty, thousand pound. Immediately the Exchange … was full of sellers; nobody would buy a shilling, till perhaps the stock would fall six, seven, eight, ten per cent, sometimes more. Then the cunning jobber had another set of them employed … to buy, but with privacy and caution, till by selling ten thousand pound at four or five per cent loss, he would buy a hundred thousand pound stock at ten or twelve per cent under price; and in a few weeks, by just the contrary method, set them all a-buying, and then sell them their own stock again at ten or twelve per cent profit.27

Almost as soon as stock exchanges opened, the eagerness of the public for unearned increment raised waves of speculation and deflation. The inflation and collapse of the “South Sea Bubble” in England followed in unusual concord the rise and fall of John Law’s “Mississippi Bubble” in France. Sensitive to complaints by Bolingbroke, Swift, and others that the national debt—£52,000,000 in 1714—laid upon the state a ruinous annual charge of £ 3,-500,000 interest, the government conceived a plan to transfer £31,000,000 of the debt to the South Sea Company. This had been formed in 1711 with a grant of monopoly in English trade with Spanish colonies in America and the Pacific isles. The holders of government notes were invited to exchange them for stock in the company. King George I became its governor and every effort was made to spread the belief that its monopoly charter promised high profits. The apparent success of Law’s “System” in contemporary France infected England with a similar fever of speculation. Within six days of the company’s offer to accept government notes in payment for shares, two thirds of the noteholders accepted the proposal. Many others bought shares, which in a month rose from £77 to £123.5 (1719). To ensure continued governmental co-operation, the company directors voted large gifts of stock to members of the ministry, and to two mistresses of the King.28 Robert Walpole, not yet minister, warned the House of Commons against the scheme as “pernicious … stockjobbing”; the project, he said, was “to raise artificially the value of the stock, by exciting and keeping up a general infatuation, and by promising dividends out of funds which would not be adequate to the purpose.” He predicted, with remarkable accuracy, that the project would fail, and that if it were allowed to involve the general public its failure would entail a general and dangerous discontent.29 He argued that at least some limit should be placed upon the rise of the company’s stock. The House refused to heed his warning. On April 7, 1720, both houses of Parliament approved the proposals of the company.

On April 12 the company issued new stock at £ 300 a share; this was subscribed for at once. On April 21, flush with the government’s payment of interest on the government notes now held by the company, it announced that it would pay a summer dividend of ten per cent. It took advantage of the enthusiasm aroused by this announcement to float a further issue of shares at £400 (April 23); this was taken up in a few hours. The rush to purchase shares raised their price to £550 on May 28, and to £890 on June 2; in July a new issue was sold at £ 1,000 a share. The whole fashionable world came to subscribe: dukes, clergymen, politicians, musicians, poets; Exchange Alley became the scene of such excited competition in buying as could be found only in the Rue Quincampoix in Paris at almost the same time; the nature of man revealed itself across frontiers. Shares were bargained for in taverns, coffeehouses, and milliners’ shops; each night men and women calculated how rich they had become, and how much richer they might be if they had bought sooner or more.

Public money was so eager for speculation that eighty-six minor issues were floated. Stock was sold in companies formed to transmute metals into silver, to erect hospitals for bastard children, to extract oil from radishes, to create perpetual motion, to import jackasses from Spain. One promoter announced “a company for carrying on an undertaking of great advantage, but nobody to know what it is” until later; he received a thousand subscriptions of £ 2 each by midday, and disappeared in the afternoon.30

The excesses of these smaller “bubbles” (for so the time called them) began the reaction against the South Sea enterprise. Walpole and others renewed their warnings and sold their shares. On June 11 the King outlawed all stock issues except by companies licensed by Parliament. Most of the lesser ventures soon collapsed, and their failure cooled the fever of speculation. Word spread that the Spanish government was severely restricting the trade of the company in the American settlements. In July news came that Law’s “Mississippi Bubble” had burst in Paris. Sir John Blount and other directors of the South Sea Company secretly sold their shares at great profit. During all of August the stock declined, until on September 2 it was quoted at £700.

The rush to sell now became a stampede; the approaches to Exchange Alley were crowded to suffocation. The shares fell to £570, to £400, to £150, to £135 (September 29). Hundreds of English families lost their savings in the crash. Stories of ruin and suicide ran the rounds.31 Banks that had lent money on the security of the South Sea Company share certificates went into bankruptcy. Public meetings throughout England demanded the punishment of the directors, but absolved the public of vanity and greed. The King hurried back from Hanover, and summoned Parliament. The treasurer of the company fled to France, taking with him many of the records that would have incriminated the directors. In January, 1721, a parliamentary committee, examining the books of the company, found “a scene of iniquity and corruption” 32 startling even in that age when legislation by corruption of Parliament seemed part of the constitution of England. Apparently the directors had spent £574,000 in bribing leaders of the government.

Some members of Parliament called for drastic penalties; one proposed that the guilty directors should be sewn in a sack and thrown alive into the Thames.33 The debate rose to such warmth that members challenged one another to duels; one member suffered a hypertension crisis, and died the next day. Directors and government ministers were summoned to trial before the House. John Aislabie, chancellor of the exchequer, was sentenced to the Tower; the estates of the directors—including Edward Gibbon, grandfather of the historian—were confiscated, leaving them some ten per cent of their fortunes. It was noted that Sir John Blount, who had been a prime organizer of the company, and among the first to sell his shares, was a man “of a most religious deportment,” who had “constantly declaimed against the thievery and corruption of the age” and the avarice of the rich.34

Robert Walpole, whose predictions had been justified by the event, counseled moderation in the vengefulness of the reaction, and mitigated the collapse of the company by persuading the Bank of England and the East India Company to absorb some £18,000,000 of the troubled stock. Sufficient reserves were found in the South Sea Company to allow an early payment of thirty-three per cent to its shareholders. Shorn of its privileges and its glamour, but making money on the sale of slaves, the company continued to exist, in waning vitality, till 1853.

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