South Sea Company: Corruption In 17th Century England

Before diving into the South Sea Company and the corruption that ensued in 1720, some historical context of banking in England is necessary. Without efficient forms of taxation in the 17th century, the Crown had particular difficulties financing wars. To compensate and find funding, the crown oftentimes used incorporation, or the “granting of charters,” to corporations in exchange for the company’s right to a monopoly in a given area. One can find an early example in the 17th century by looking at the English Civil War, when Queen Elizabeth granted charters to obtain the funding necessary to finance the military. By the latter part of the 17th century, the crown realized that it needed a better source of stable funding. As the cost of war

Paterson told Harley the following prior to the creation of the company:
[There is] a sufficient argument for undertaking it, and the weariness of a peace will not afford any reason to slacken our preparations . . . This trade may prove the speediest, if not the only means of procuring peace to Europe. It may be the sinews of war as the South Sea trade is the fountain of supply to France. The consequence is obvious; and the public and private interests are so interwoven that quickness of returns being considered no trade can compete with this.
Through the War of Spanish Succession, Paterson found an untapped trade market: The South Sea near South America. In 1711, Paterson’s idea turned into the formation of the South Sea Company. Additionally, along the historical lines of incorporation, the company received a charter from the Crown granting it a “monopoly of trade to the coach of South America (the South Sea).” In the original formation of the company, the queen named the directors for the first year. Those included: Earl of Oxford Robert Harley as governor, financier Sir James Bateman as deputy-governor, and leader of the lottery to originally finance the South Sea Company John Blunt as

The Bubble Act of 1720 proved to be important in regards to marine insurance because it limited the opportunities for new joint-stock companies to compete against the private underwriters within Lloyd’s Coffee House. Thus, while it helped the Royal Exchange Assurance and the London Assurance companies in the short-term, the ultimate collapse of both companies with the bursting of the South Sea Bubble changed the direction of marine insurance underwriting. In the century following the South Sea Bubble collapse, Lloyd’s would be a large factor in why 90% of all marine insurance contracts came from private underwriters rather than joint-stock