Darien Scheme - Origins

Origins

The late 1600's was a difficult period for Scotland. The country's economy was relatively small, its range of exports very limited and it was in a weak position in relation to England, its powerful neighbour (with which it was in personal union, but not yet in political union).

In an era of economic rivalry in Europe, Scotland was incapable of protecting itself from the effects of English competition and legislation. The kingdom had no reciprocal export trade and its once thriving industries such as shipbuilding were in deep decline. Goods which were in demand had to be bought from England for sterling, the Navigation Acts further increased economic dependence on England by limiting Scots shipping and the navy was tiny. Several ruinous civil wars in the late 1600s had squandered the country's human and other resources; the 1690s also saw several years of wide-scale crop failure, which brought famine. This period was referred to as the "ill years". The deteriorating economic position of Scotland led to calls for a favorable political union, or at least a customs union, with England. However, the stronger feeling among Scots - which played to their pride - was that the country should become a mercantile and colonial great power like England.

In response, a number of remedies were enacted by the Parliament of Scotland: in 1695 the Bank of Scotland was established; the Act for the Settling of Schools established a parish-based system of public education throughout Scotland; and the Company of Scotland was chartered with capital to be raised by public subscription to trade with "Africa and the Indies".

In the face of opposition by English commercial interests, the Company of Scotland raised subscriptions in Amsterdam, Hamburg and London for the scheme. For his part, King William III had given only lukewarm support to the whole Scottish colonial endeavour. England was at war with France and hence did not want to offend Spain which claimed the territory as part of New Granada. It was also under pressure from the English East India Company, who were keen to maintain their monopoly over English foreign trade. It therefore forced the English and Dutch investors to withdraw. Next, the East India Company threatened legal action on the grounds that the Scots had no authority from the king to raise funds outside the English realm, and obliged the promoters to refund subscriptions to the Hamburg investors. This left no source of finance but Scotland itself.

Returning to Edinburgh, the Company raised 400,000 pounds sterling in a few weeks (equivalent to roughly £40 million in 2007), with investments from every level of society, and totalling roughly a fifth of the wealth of Scotland. The Company of Scotland for Trading to Africa was able to raise what was, for Scotland, a massive amount of capital. Scots born trader and financier William Paterson had long been promoting a plan for a colony on the Isthmus of Panama to be used as a gateway between the Atlantic and Pacific — the same principle which, much later, would lead to the construction of the Panama Canal. Paterson, who had a huge capacity for hard work, was instrumental in getting the Company off the ground in London. He had failed to interest several European countries in his project but in the aftermath of the English reaction to the Company he was able to get a respectful hearing for his ideas. The Scots' original aim of emulating the East India Company by breaking into the lucrative trading areas of the Indies and Africa was forgotten and the highly ambitious Darien scheme was adopted by the company. Paterson fell from grace when a subordinate embezzled from the Company. The Company took back Paterson's stock and expelled him from the Court of Directors; he was to have little real influence on events after this point.