The Humbugs of the World

While this monstrous Dutch gambling fury lasted, money was plenty, everybody felt rich and Holland was in a whiz of windy delight. After about three years of fool’s paradise, people began to reflect that the shuttlecock could not be knocked about in the air forever, and that when it came down somebody would be hurt. So first one and then another began quietly to sell out and quit the game, without buying in again. This cautious infection quickly spread like a pestilence, as it always does in such cases, and became a perfect panic or fright. All at once, as it were, rich people all over Holland found themselves with nothing in the world except a pocket full or a garden-bed full of flower roots that nobody would buy and that were not good to eat, and would not have made more than one tureen of soup if they were.

Of course this state of things caused innumerable bankruptcies, quarrels, and refusals to complete bargains, everywhere. The government and the courts were appealed to, but with Dutch good sense they refused to enforce gambling transactions, and though the cure was very severe because very sudden, they preferred to let “the bottom drop out” of the whole affair at once. So it did. Almost everybody was either ruined or impoverished. The very few who had kept any or all of their gains by selling out in season, remained so far rich. And the vast actual business interests of Holland received a damaging check, from which it took many years to recover.

There were some curious incidents in the course of the tulipomania. They have been told before, but they are worth telling again, as the poet says, “To point the moral or adorn the tale.”

A sailor brought to a rich Dutch merchant news of the safe arrival of a very valuable cargo from the Levant. The old hunks rewarded the mariner for his good tidings with one red herring for breakfast. Now Ben Bolt (if that was his name – perhaps as he was a Dutchman it was something like Benje Boltje) was very fond of onions, and spying one on the counter as he went out of the store, he slipped it into his pocket, and strolling back to the wharf, sat down to an odoriferous breakfast of onions and herring. He munched away without finding anything unusual in the flavor, until just as he was through, down came Mr. Merchant, tearing along like a madman at the head of an excited procession of clerks, and flying upon the luckless son of Neptune, demanded what he had carried off besides his herring?

“An onion that I found on the counter.”

“Where is it? Give it back instantly!”

“Just ate it up with my herring, mynheer.”

Wretched merchant! In a fury of useless grief he apprised the sailor that his sacrilegious back teeth had demolished a Semper Augustus valuable enough, explained the unhappy old fellow, to have feasted the Prince of Orange and the Stadtholder’s whole court. “Thieves!” he cried out – “Seize the rascal!” So they did seize him, and he was actually tried, condemned and imprisoned for some months, all of which however did not bring back the tulip root. It is a question after all in my mind, whether that sailor was really as green as he pretended, and whether he did not know very well what he was taking. It would have been just like a reckless seaman’s trick to eat up the old miser’s twelve hundred dollar root, to teach him not to give such stingy gifts next time.

An English traveller, very fond of botany, was one day in the conservatory of a rich Dutchman, when he saw a strange bulb lying on a shelf. With that extreme coolness and selfishness which too many travellers have exercised, what does he do but take out his penknife and carefully dissect it, peeling off the outer coats, and quartering the innermost part, making all the time a great many wise observations on the phenomena of the strange new root. In came the Dutchman all at once, and seeing what was going on, he asked the Englishman, with rage in his eyes, but with a low bow and that sort of restrained formal civility which sometimes covers the most furious anger, if he knew what he was about?

“Peeling a very curious onion,” answered Mr. Traveller, as calmly as if one had a perfect right to destroy other people’s property to gratify his own curiosity.

“One hundred thousand devils!” burst out the Dutchman, expressing the extent of his anger by the number of evil spirits he invoked – “It is an Admiral van der Eyck!”

“Indeed?” remarked the scientific traveller, “thank you. Are there a good many of these admirals in your country?” and he drew forth his note book to write down the little fact.

“Death and the devil!” swore the enraged Dutchman again – “come before the Syndic and you shall find out all about it!” So he collared the astounded onion-peeler, and despite all he could say, dragged him straightway before the magistrate, where his scientific zeal suffered a dreadful quencher in the shape of an affidavit that the “onion” was worth four thousand florins – about $1600 – and in the immediate judgment of the Court, which “considered” that the prisoner be forthwith clapt into jail until he should give security for the amount. He had to do so accordingly, and doubtless all his life retained a distaste for Dutchmen and Dutch onions.

These stories about such monstrous valuations of flower roots recall to my mind another anecdote which I shall tell, not because it has anything to do with tulips, but because it is about a Dutchman, and shows in striking contrast an equally low valuation of human life. It is this. Once, in time of peace, an English and a Dutch Admiral met at sea, each in his flag ship, and for some reason or other exchanged complimentary salutes. By accident, one of the Englishman’s guns was shotted and misdirected, and killed one of the Dutch crew. On hearing the fact the Englishman at once manned a boat and went to apologize, to inquire about the poor fellow’s family and to send them some money, provide for the funeral, etc., etc., as a kind hearted man would naturally do. But the Dutch commander, on meeting him at the quarter-deck, and learning his errand, at once put all his kindly intentions completely one side, saying in imperfect English:

“It’sh no matter, it’sh no matter —dere’s blaanty more Tutchmen in Holland!”

CHAPTER XXVI

JOHN BULL’S GREAT MONEY HUMBUG. – THE SOUTH SEA BUBBLE IN 1720

The “South Sea Bubble” is one of the most startling lessons which history gives us of the ease with which the most monstrous, and absurd, and wicked humbugs can be crammed down the throat of poor human nature. It ought also to be a useful warning of the folly of mere “speculation,” as compared with real “business undertakings.” The history of the South Sea Bubble has been told, before, but it is too prominent a case to be entirely passed over. It occupied a period of about eight months, from February 1, 1720, to the end of the following September. It was an unreasonable expansion of the value of the stock of the “South Sea Company.” This Company was formed in 1711; its stock was at first about $30,000,000, subscribed by the public and handed over by the corporators to Government to meet certain troublesome public debts. In return, Government guaranteed the stockholders a dividend of six per cent., and gave the Company sundry permanent important duties and a monopoly of all trade to the South Pacific, or “South Sea.” This matter went on with fair success as a money enterprise, until the birth of the “Bubble,” which was as follows: – In the end of January, 1720, probably in consequence of catching infection from “Law’s Mississippi Scheme” in France, the South Sea Company and the Bank of England made competing propositions to the English Government, to repeat the original South Sea Company financiering plan on a larger scale. The proposition of the Company, which was accepted by Government, was: to assume as before the whole public debt, now amounting to over one hundred and fifty millions of dollars; and to be guaranteed at first a five per cent. dividend, and afterward a four per cent. one, to the stockholders by Government. For this privilege, the Company agreed to pay outright a bonus of more than seventeen million dollars. This plan is said to have been originated and principally carried through by Sir John Blunt, one of the Company’s directors. Parliament adopted it after two months’ discussion – the Bubble having, however, been swelling monstrously all the time.

It must be remembered that the wonderful profits expected from the Company were to come from their monopoly of the South Sea trade. Tremendous stories were told by Blunt and his friends, who can hardly have believed more than one half of their own talk, about a free trade with all the Spanish Pacific colonies, the importation of silver and gold from Peru and Mexico in return for dry goods, etc., etc.; all which fine things were going to produce two or three times the amount of the Company’s stock every year. When the bill authorizing the arrangement passed, South Sea stock had already reached a price of four hundred per cent. The bill was stoutly opposed in Parliament by Mr. – afterwards Sir – Robert Walpole, and a few others but in vain. Under the operation of the beautiful stories of the speculative Blunt and his friends, South Sea stock, after a short lull in April, began to rise again, and the bubble swelled and swelled to a size so monstrous, and with colors so gay, that it filled the whole horizon of poor foolish John Bull: – perfectly turned his bull-headed brain, and made him for the time absolutely crazy. The directors opened books on April 12th for £5,000,000 new stock, charging, however, £300 for each share of £100, or three hundred per cent. to begin with. Double the amount was subscribed in a few days; that is, John Bull subscribed thirty million dollars for ten millions of stock, where only five millions were to be had. In a few days more, these subscribers were selling at double what they paid. April 21st, a ten per cent. dividend was voted for midsummer. In a day or two, another five million subscription was opened at four hundred per cent. to begin with. The whole, and half as much more, was taken in a few hours. In the end of May, South Sea stock was worth five hundred to one. On the 28th, it was five hundred and fifty. In four days more, for some reason or other, it jumped up to eight hundred and ninety. The speculating Blunt kept all this time blowing and blowing at his bubble. All summer, he and his friends blew and blew; and all summer the bubble swelled and floated, and shone; and high and low, men and women, lords and ladies, clergymen, princesses and duchesses, merchants, gamblers, tradesmen, dressmakers, footmen, bought and sold. In the beginning of August, South Sea stock stood at one thousand per cent! It was really worth about twenty-five per cent. The crowding in Exchange Alley, the Wall street of the day, was tremendous. So noisy, and unmanageable and excited was this mob of greedy fools, that the very same stock was sometimes selling ten per cent. higher at one end of the Alley than at the other.

The growth of this monstrous, noxious bubble hatched out a multitude of young cockatrices. Not only was the stock of the India Company, the Bank of England, and other sound concerns, much increased in price by sympathy with this fury of speculation, but a great number of utterly ridiculous schemes and barefaced swindles were advertised and successfully imposed on the public. Any piece of paper purporting to be stock could be sold for money. Not the least thought of investigating the solvency of advertisers seems to have occurred to anybody. Nor was any rank free from the poison. Almost a hundred projects were before the public at once, some of them incredibly brazen humbugs. There were schemes for a wheel for perpetual motion – capital, $5,000,000; for trading in hair (for wigs), in those days “a big thing;” for furnishing funerals to any part of Britain; for “improving the art of making soap;” for importing walnut-trees from Virginia – capital, $10,000,000; for insuring against losses by servants – capital, $15,000,000; for making quicksilver malleable; “Puckle’s Machine Company,” for discharging cannon-balls and bullets, both round and square, and so on. One colossal genius in humbugging actually advertised in these words: “A company for carrying on an undertaking of great advantage, but nobody to know what it is.” The capital he called for was $2,500,000, in shares of $500 each; deposit on subscribing, $10 per share. Each subscriber was promised $500 per share per annum, and full particulars were to be given in a month, when the rest of the subscription was to be paid. This great financier, having put forth his prospectus, opened his office in Cornhill next morning at nine o’clock. Crowds pressed upon him. At three P. M., John Bull had paid this immense humbug $10,000, being deposits on a thousand shares subscribed for. That night, the financier – a shrewd man! – modestly retired to an unknown place upon the Continent, and was never heard of again. Another humbug almost as preposterous, was that of the “Globe Permits.” These were square pieces of playing-cards with a seal on them, having the picture of the Globe Tavern, and with the words, “Sailcloth Permits.” What they “permitted” was a subscription at some future period to a sailcloth-factory, projected by a certain capitalist. These “permits” sold at one time for $300 each.

But the more sensible members of Government soon exerted their influence against these lesser and more palpable humbugs. Some accounts say that the South Sea Company itself grew jealous, for it was reckoned that these “side-shows” called for a total amount of $1,500,000,000, and itself took legal means against them. At any rate, an “order in council” was published, peremptorily dismissing and dissolving them all.

During August, it leaked out that Sir John Blunt and some other “insiders” had sold out their South Sea stock. There was also some charges of unfairness in managing subscriptions. After so long and so intense an excitement, the time for reaction and collapse was come. The price of stock began to fall in spite of all that the directors could do. September 2, it was down to 700.

A general meeting of the company was held to try to whitewash matters, but in vain. The stock fell, fell, fell. The great humbug had received its death-blow. Thousands of families saw beggary staring them in the face, grasping them with its iron hand. The consternation was inexpressible. Out of it a great popular rage began to flame up, just as fires often break out among the prostrate houses of a city ruined by an earthquake. Efforts were meanwhile vainly made to stay the ruin by help from the Bank of England. Bankers and goldsmiths (then often doing a banking business) absconded daily. Business corporations failed. Credit was almost paralyzed. In the end of September, the stock fell to 175, 150, 135.

Meanwhile violent riots were feared. South Sea directors could not be seen in the streets without being insulted. The King, then in Hanover, was imperatively sent for home, and had to come. So extensive was the misfortune and the wrath of the people, so numerous the public meetings and petitions from all over the kingdom, that Parliament found it necessary to grant the public demand, and to initiate a formal inquiry into the whole enterprise. This was done; and the foolish, swindled, disappointed, angry nation, through this proceeding, vented all the wrath it could upon the persons and estates of the managers and officers of the South Sea Company. They were forbidden to leave the kingdom, their property was sequestrated, they were placed in custody and examined. Those of them in Parliament were insulted there to their faces, several of them expelled, the most violent charges made against them all. A secret investigating committee was set to rip up the whole affair. Knight, the treasurer, who possessed all the dangerous secrets of the concern, ran away to Calais and the Continent, and so escaped.

The books were found to have been either destroyed, secreted, or mutilated and garbled. Stock bribes of $250,000, $150,000, $50,000 had been paid to the Earl of Sunderland, the Duchess of Kendal (the King’s favorite,) Mr. Craggs (one of the Secretaries of State,) and others. Mr. Aislabie, the Chancellor of the Exchequer, had accumulated $4,250,000 and more out of the business. Many other noblemen, gentlemen, and reputable merchants were disgracefully involved.

The trials that were had resulted in the imprisonment, expulsion or degradation of Aislabie, Craggs, Sir George Caswell (a banker and member of the House,) and others. Blunt, a Mr. Stanhope, and a number more of the chief criminals were stripped of their wealth, amounting to from $135,000 to $1,200,000 each, and the proceeds used for the partial relief of the ruined, except amounts left to the culprits to begin the world anew. Blunt, the chief of all the swindlers, was stripped of about $925,000, and allowed only $5,000. By this means and by the use of such actual property as the Company did possess, about one-third of the money lost by its means was ultimately paid to the losers. It was a long time, however, before the tone of public credit was thoroughly restored.

The history of the South Sea bubble should always stand as a beacon to warn us that reckless speculation is the bane of commerce, and that the only sure method of gaining a fortune, and certainly of enjoying it, is to diligently prosecute some legitimate calling, which, like the quality of mercy, is “twice blessed.” Every man’s occupation should be beneficial to his fellow-man as well as profitable to himself. All else is vanity and folly.

CHAPTER XXVII

BUSINESS HUMBUGS. – JOHN LAW. – THE MISSISSIPPI SCHEME. – JOHNNY CRAPAUD AS GREEDY AS JOHNNY BULL

In the “good old times,” people were just as eager after money as they are now; and a great deal more vulgar, unscrupulous, and foolish in their endeavors to get it. During about two hundred years after the discovery of America, that continent was a constant source of great and little money humbugs. The Spaniards and Portuguese and French and English all insisted upon thinking that America was chiefly made of gold; perhaps believing, as the man said about Colorado, that the hardship of the place was, that you have to dig through three or four feet of solid silver before the gold could be reached. This curious delusion is shown by the fact that the early charters of lands in America so uniformly reserved to the King his proportion of all gold and silver that should be found. And if gold were not to be had, these lazy Europeans were equally crazy about the rich merchandise which they made sure of finding in the vast and solitary American mountains and forests.

In a previous letter, I have shown how one of those delusions, about the unbounded wealth to be obtained from the countries on the South Sea, caused the English South Sea bubble.

A similar belief, at the same time, in the neighboring country of France, formed the airy basis of a similar business humbug, even more gigantic, noxious, and destructive. This was John Law’s Mississippi scheme, of which I shall give an account in this chapter. It was, I think, the greatest business humbug of history.

Law was a Scotchman, shrewd and able, a really good financier for those days, but vicious, a gambler, unprincipled, and liable to wild schemes. He had possessed a good deal of property, had traveled and gambled all over Europe, was witty, entertaining, and capital company, and had become a favorite with the Duke of Orleans and other French nobles. When the Duke became Regent of France at the death of Louis XIV, in 1715, that country was horribly in debt, and its people in much misery, owing to the costly wars and flaying taxations of the late King. When, therefore, Law came to Paris with a promising scheme of finance in his hand, the Regent was particularly glad to see him, both as financier and as friend.

The Regent quickly fell in with Law’s plans; and in the spring of 1716, the first step – not, however, so intended at the time – toward the Mississippi Scheme was taken. This was, the establishment by royal authority of the banking firm of Law & Co., consisting of Law and his brother. This bank, by a judicious organization and issue of paper money, quickly began to help the distressed finances of the kingdom, and to invigorate trade and commerce. This success, which seems to have been an entirely sound and legitimate business success, made one sadly mistaken but very deep impression upon the ignorant and shallow mind of the Regent of France, which was the foundation of all the subsequent trouble. The Regent became firmly convinced, that if a certain quantity of bank bills could do so much good, a hundred thousand times as many bills would surely do a hundred thousand times as much. That is, he thought printing and issuing the bills was creating money. He paid no regard to the need of providing specie for them on demand, but thought he had an unlimited money factory in the city of Paris.

So far, so good. Next, Law planned, and, with the ever ready consent of the Regent, effected, an enlargement of the business of his bank, based on that delusion I spoke of about America. This enlargement was the formation of the Mississippi Company, and this was the contrivance which swelled into so tremendous a humbug. The company was closely connected with the banks, and received (to begin with) the monopoly of all trade to the Mississippi River, and all the country west of it. It was expected to obtain vast quantities of gold and silver from that region, and thus to make immense dividends on its stock. At home, it was to have the sole charge of collecting all the taxes and coining all the money. Stock was issued to the amount of one hundred thousand shares, at $200 (five hundred livres) each. And Law’s help to the Government funds was continued by permitting this stock to be paid for in those funds, at their par value, though worth in market only about a third of it. Subscriptions came in rapidly – for the French community was far more ignorant about commercial affairs, finances, and the real resources of distant regions, than we can easily conceive of now-a-days; and not only the Regent, but every man, woman, and child in France, except a very few tough and hard-headed old skeptics, believed every word Law said, and would have believed him if he had told stories a hundred times as incredible.

Well, pretty soon the Regent gave the associates – the bank and the company – two other monopolies: that of tobacco, always monstrously profitable, and that of refining gold and silver. Pretty soon, again, he created the bank a state institution, by the magnificent name of The Royal Bank of France. Having done this, the Regent could control the bank in spite of Law (or order either); for, in those days, the kings of France were almost perfectly despotic, and the Regent was acting king. I have mentioned the Regent’s terrible delusion about paper-money. No sooner had he the bank in his power, than he added to the reasonable and useful total of $12,000,000 of notes already out, a monstrous issue of $200,000,000 worth in one vast batch, with the firm conviction that he was thus adding so much to the par currency of France.

The Parliament of France, a body mostly of lawyers, originating in the Middle Ages, a steady, conservative, wise, and brave assembly, was always hostile to Law and his schemes. When this great expansion of paper-currency began, the Parliament made a resolute fight against it, petitioning, ordaining, threatening to hang Law, and frightening him well, too; for the thorough enmity of an assembly of old lawyers may well frighten anybody. At last, the Regent, by the use of the despotic power of which the Kings of France had so much, reduced these old fellows to silence by sticking a few of them in jail.

The cross-grained Parliament thus disposed of, everything was quickly made to “look lovely.” In the beginning of 1719, more grants were made to Law’s associated concerns. The Mississippi Company was granted the monopoly of all trade to the East Indies, China, the South Seas, and all the territories of the French India Company, and of the Senegal Company. It took a new and imposing name: “The Company of the Indies.” They had already, by the way, also obtained the monopoly of the Canada beaver-trade. Of this colossal corporation, monopolizing the whole foreign commerce of France with two-thirds or more of the world, its whole home finances, and other important interests besides, fifty thousand new shares were issued, as before, at $100 each. These might be bought as before, with Government securities at par. Law was so bold as to promise annual dividends of $20 per share, which, as the Government funds stood, was one hundred and twenty per cent. per annum.! Everybody believed him. More than three hundred thousand applications were made for the new shares. Law was besieged in his house by more than twice as many people as General Grant had to help him take Richmond. The Great Humbug was at last in full buzz. The street where the wonderful Scotchman lived was busy, filled, crowded, jammed, choked. Dangerous accidents happened in it every day, from the excessive pressure. From the princes of the blood down to cobblers and lackeys, all men and all women crowded and crowded to subscribe their money, and to pay their money, and to know how many shares they had gotten. Law moved to a roomier street, and the crazy mob crowded harder than ever; so that the Chancellor, who held his court of law hard by, could not hear his lawyers.