Readers who look at the main title of this book might be forgiven for believing that this was a book paralleling recent financial developments in Ireland with the infamous South Sea Bubble of 1720.
Many such parallels could be made: excessive credit, hubris, groupthink, corruption and lack of regulation are common to both periods. Even the cover, depicting a South Sea playing card which portrays the unfortunate Teague, looking for a position as a footman because he had unwisely sold his “potatoe lands” to buy South Sea shares, has strong current echoes for the many Irish people who rashly sold or mortgaged property to purchase shares in Anglo Irish.
However, the running title of the book brings the reader back to the last decade of the 17th and the early decades of the 18th century. This was a period of intense financial innovation which produced the Bank of England, a multiplicity of joint stock companies, the institutionalisation of the national debt and the development of insurance companies, ultimately culminating in the world’s first stock market bubbles: those of the Mississippi Company in France (1717-20) and the South Sea (1720) in Britain.
Patrick Walsh has produced a fascinating book of meticulous scholarship that greatly adds to Irish financial history. The book deals with the varieties of financial innovation, banking and investment on the periphery with particular emphasis on the Irish investment in South Sea stock and the consequence of this investment.
A central point of his analysis is the interconnectivity in financial innovation that existed between London and both Ireland and Scotland. Scotland wisely innovated in banking, producing joint stock banks in the form of the Bank of Scotland (1695) and later the Royal Bank of Scotland (1725); these banks would develop to finance a large part of the Industrial Revolution.
Ireland, on the other hand, financially innovated in the area of taxation, with its predominantly Anglican parliament voting for new methods of taxation and the creation of the national debt in order to pay the costs of the occupying regiments of the British army – an early warning sign of our weaknesses in the area of the national debt. Furthermore, the Irish Parliament rejected a plan to create a national bank in Ireland in 1721, a costly decision when the benefits of the Bank of England and the Scottish banks for their respective economies during the 18th century are analysed.
Significant Irish investment
Walsh attempts to show that Irish investment in the South Sea Bubble was significant. PGM Dickson's magisterial 1967 work The Financial Revolution in England found that Ireland, with 100 investors holding £81,988 worth of stock, was the third-biggest source of foreign investors in the South Sea Company. Walsh has been able to revise this figure upwards to show 136 Irish people holding £184,651 of stock. However, as Walsh admits, both these estimates are based on those who still held stock in 1723, some three years after the momentous events of the spring and summer of 1720 when many of the South Sea shareholders had to sell their stock to cover their losses in the vast myriad of collapsing "bubble companies" such as Puckle's Machine Gun (an attempt to produce square cannon balls).
Those figures, however, would have been dwarfed by the investments of Irish “wild geese” investors based in France who took positions in the South Sea Bubble. Richard Cantillon, most notably, took huge option positions against the South Sea that, inter alia, resulted in his classification as one of the Mississippian millionaires in France. Thus, while Walsh’s analysis of Irish-based investment is interesting per se, it is only part of a larger story of overall Irish investment in these bubbles.
The last three chapters of the book deal with the efforts to create an Irish national bank in 1720-21. There were a number of proposals for such a bank. The first one, led by John Irwin and James Hamilton, 6th Earl of Abercorn, proposed raising a capital of £500,000, while a second one, led by George, Lord Forbes, and Brabazon Ponsonby proposed a capital of £1 million.
These proposals were made while the South Sea boom was at its height, but, even after the collapse of the Bubble, their proposers and their potential subscribers worked hard to obtain a Royal charter in 1721. Unfortunately, as Walsh shows, the Irish Parliament decided that the proposed bank ran the risk of becoming another bubble – the continuous outflow of stories from London about the corruption of the South Sea directors and British politicians not helping matters. Thus, for most of the 18th century a great opportunity to have a public bank lending at lower interest rates was missed. The Bank of Ireland would only be established in 1783.
Despite the vitriol poured on banks and bankers in recent times, it should be recognised that money, banks, credit and financial innovation – albeit with periodic bubbles and crashes – have been considerable drivers of global economic growth over the centuries. The collapse of the Mississippi System created a strong reaction against banks and financial innovations in France, which left France with an antiquated financial structure right up to the French Revolution. In Britain, the banking system continued to grow, notwithstanding the collapse of the South Sea Bubble. This enabled Britain to expand very strongly relative to France in the 18th century.
The Irish Parliament, in following the French line, most probably stifled prospects for economic growth by rejecting the national bank proposal. Politics, economics and finance are inextricably linked both at the domestic and international levels. Walsh’s book deserves the attention not only of historians but also the 21st-century public when it comes to assessing the judicious balance that is necessary between this difficult to balance triumvirate.
Antoin E Murphy is a professor and fellow emeritus of Trinity College Dublin. His latest book, co-authored with Donal Donovan, The Fall of the Celtic Tiger: Ireland and the Euro Debt Crisis, is published in paperback by Oxford University Press
