The South Sea Bubble—Nation Catches the Fever of Speculation—Strong Temptation for the Company—Pricking of the Bubble—Narrow Escape of the Adventurers—Knight and his Expedition—Anxiety as to their Fate—Certainty of their Loss—Burnet's Scheme to Cripple the French—It Forces them Westward into Rupert's Land.

The cause of the Governor's recall lay in the existence of a crisis which promised a happy issue. It arose through the venality of some of the Company's directors, who were victims of the South Sea fever.

South Sea Company.

The South Sea Company, whose extraordinary success gave rise to a thousand joint stock enterprises equally unsound and fatuous, owed its origin to Harley, Earl of Oxford, in 1711, who in return for the acceptance of a government debt of £10,000,000 granted to a number of merchants a monopoly of the trade to the South Seas.

At that time the most extravagant ideas prevailed concerning the riches of South America. "If," it was said, "the Hudson's Bay Company can make vast moneys out of the frozen North, what can be done with lands flowing with milk and honey?" The South Sea Adventurers carefully fostered all the current notions, spreading likewise the belief that Spain was ready to admit them to a share of its South American commerce.

In 1717 this Company advanced to the English Government five more millions sterling, at an interest of six per cent. Their shares rose daily. Even the outbreak of war with Spain, which destroyed all hope in the minds of sensible persons of any share in the Spanish traffic, did not lessen the Company's popularity. In Paris, John Law's Mississippi Bubble burst, ruining thousands, but, far from being alarmed at this catastrophe, it was universally believed that Law's scheme was sound, but had been wrecked through unwise methods. In May, 1720, the South Sea Company proposed to take upon themselves the entire national debt of upwards of £30,000,000 upon a guarantee of five per cent. per annum for seven and one-half years, at the end of which period the debt might be redeemed if the Government chose, or the interest reduced to four per cent. The nation was dazzled; Parliament accepted the offer; and the Company's stock rose steadily to 330 on April 7, falling to 290 on the following day.

A fever of speculation.

This day in April witnessed a change in methods on the part of the South Sea directors. Until then the scheme had been honestly promoted; but the prospect of enormous wealth was too near to be permitted to escape. It became thenceforward, until the crash, the prime object of the directors, at no matter what cost or scruple, to maintain the fictitious value of the shares. By May 28, £100 shares were quoted at 550; three days later they had reached 890. The whole nation caught the fever; the steadiest merchants turned gamblers. Hardly a day passed without a new swindling concern being started as a joint stock company.

Meanwhile several of the Hudson's Bay Merchants-Adventurers looked on with envious eyes. The desire was great to embark in so tempting a scheme, and the opportunity to cast inflated shares on the market almost too great to withstand.

But for many weeks the temptation was resisted. At last, at a meeting early in August, the chief director came before a general court of the Adventurers with a scheme by which each partner could either retire with a moderate fortune or remain an active participant, and reap the benefit of an infusion of public capital.

The scheme was simplicity itself, to modern notions; but that it was not so regarded by some of the Adventurers themselves may be gathered from the following passage from a letter of Mrs. Mary Butterfield, one of the owners of the Company's stock.

"I cannot tell you how it is to be done, for that passes my wit; but in short, the value of our interests is to be trebled without our paying a farthing; and then to be trebled again if the business is to the publick taste, and we are told it cannot fail to be."

Plan to reorganize the Company.

It was late in August before the scheme was detailed. It was explained that the Company's assets in quick and dead stock and lands were £94,500. With this as a basis, it was proposed to enlarge the stock to the sum of £378,000, dividing this into 3,780 shares of £100 each. Before this could be carried out, however, the existing stock, being but £31,500, or 315 shares, was to be made and reckoned 945 shares of £100 value each. By such means a result of £94,500 actual capital would appear. A majority of partners favoured the scheme, and the proposal was carried amidst the greatest enthusiasm. Its purpose was to unload the stock at an inflated figure, far even in excess of that actually named by its promoters. Had it succeeded and the flotation been carried out, it would have doubtless administered a death-blow to the Company as then organized, and would probably have involved the revocation of its charter in view of what was soon to occur. But the plan met with a sudden arrest by an event which then happened, and which in beggaring multitudes altered the whole disposition of the public with regard to joint stock enterprises.

A general impression had gained ground that the South Sea Company's stock had attained high-water mark, and so many holders rushed to realize that the price fell, on June 3rd, to 640. The directors were not yet ready for their coup. Agents were despatched by them to buy up and support the market, and the result was that by nightfall of that day the quoted price was £750. By means of this and similarly unscrupulous devices, the shares were sent, early in August, to 1,000. This was the long-awaited opportunity. Many of the directors sold out; a general anxiety began to prevail and the shares began to drop. In view of this change in affairs, the Hudson's Bay Company's meeting for September 3rd was deferred. On the 12th, South Sea shares were selling at 400, and the decline continued. The country was thrown into the greatest excitement, and by the time December had arrived, Parliament had been hastily summoned to consider the calamity.

With what happened subsequently, to the authors and participators in this celebrated joint stock swindle, it is not my present purpose to deal, except to say that the Hudson's Bay Company was saved in the nick of time from sharing the fate of its neighbour and rival. A meeting on the 23rd of December was held, at which it was resolved that the "said subscription be vacated; and that the Company's seal be taken off from the said instrument."

Nevertheless one permanent result remained. The capital had been trebled, and it was now further resolved that each subscriber should have £30 of stock "for each £10 by him paid in." This trebled, the total capital stood, at the beginning of 1721, at £94,500.

The Company had had a narrow escape. To what extent its shares would have been inflated may be conjectured; but it is certain that it could not have avoided being swept into the vortex and sharing the same fate which overtook so many of its commercial contemporaries. Its enemies were on the watch, and they would have proved relentless. The revocation of its charter would have accomplished its final downfall. Already the Company was being assailed because it had not complied with one of the provisions named in that instrument: that of making search for a north-west passage.

It was not, however, to quiet these reproaches, so persistently levelled at it, that a year before the bursting of the South Sea Bubble an expedition was actually set on foot to accomplish the long-deferred exploration.

Knight, the Company's aged Governor at York Factory, had long listened to the tales of the Indians concerning the copper mines to the north; and resolved, on his return to England, to bring the matter before the Company. This he did, but it was by no means an easy matter to induce the Adventurers to consent to the expense of further exploration. Nevertheless Knight's insistence prevailed, more especially as, besides the profitable results to be obtained through such a voyage, he was careful to point out that the Company were expected by their charter to undertake such an expedition.

Expedition to explore the north-west passage.

In 1719 the Company, therefore, fitted out two ships for the purpose of discovery north of Churchill. One of these, called the Albany, a frigate, was commanded by George Barlow, whom we have already seen as Deputy-Governor at Albany in 1704, when the French failed to capture that post. The other, named the Discovery, a sloop, under David Vaughan. But the command of the expedition itself was entrusted to Knight, who was a man of great experience in the Company's service, who had been for many years Governor of different Factories in the Bay, and who had made the first settlement at Churchill River.

Nevertheless, in spite of the experience Knight possessed of the Company's business, and its methods of trade with the Indians, there was nothing to lead any one to suppose him especially adapted for the present enterprise, having nothing to direct him but the slender and imperfect accounts which he, in common with many other of the Company's servants had received from the Indians, who, as we have seen, were at that time little known and less understood.

But these disadvantages, added to his advanced years, he being then nearly eighty, by no means deterred his bold spirit. Indeed, so confident was he of success and of the material advantages which would accrue from his impending discoveries, that he caused to be made, and carried with him, several large iron-bound chests, wherein to bestow the gold dust and other treasures which he "fondly flattered himself were to be found in those parts."

The first paragraph of the Company's instructions to Knight on this occasion was as follows:—

4th June, 1719.

To Captain James Knight.

Sir,—From the experience we have had of your abilities in the management of our affairs, we have, upon your application to us, fitted out the Albany frigate, Captain George Barlow, and the Discovery, Captain David Vaughan, Commander, upon a discovery to the northward; and to that end have given you power and authority to act and do all things relating to the said voyage, navigation of the said ship and sloop only excepted; and have given orders and instructions to our said Commanders for that purpose. You are, with the first opportunity of wind and weather, to depart from Gravesend on your intended voyage, and by God's permission to find out the Straits of Anian, and to discover gold and other valuable commodities to the northward.