South Sea Company - Foundation

Foundation

In August 1710 Robert Harley was appointed Chancellor of the Exchequer. The government at this time had become reliant upon the Bank of England, a privately owned company which had obtained a monopoly to be the sole bank in England in return for arranging and managing loans to the government, but the government had become dissatisfied with the service it was receiving. Harley, therefore, was actively seeking new ways to improve the national finances. A new Parliament met in November 1710 with a resolve to attend to national finances which had suffered significantly from the costs of war with France. Harley came prepared, with detailed accounts as to the exact situation of national debt, which was customarily a piecemeal affair with different government departments arranging their own loans at need. He released the information steadily, continually adding new reports of debts incurred and scandalous expenditure until in January 1711 the House of Commons agreed to appoint a committee to investigate the entire debt. Members of the committee included Harley himself and the two Auditors of the Imprests whose task was to investigate government spending, Edward Harley brother of Robert and Paul Foley his brother in law. Also included were William Lowndes Secretary of the Treasury who had been significantly responsibility for re-minting the entire debased British coinage in 1696 and John Aislabie who represented the October Club, a group of around 200 MPs who had agreed to vote together.

Harley's first concern was to find £300,000 for the next quarter's pay for the British army operating in Europe under Marlborough. This was provided by a private consortium of Edward Gibbon, George Caswall and Hoare's bank. The Bank of England had been operating a state lottery on behalf of the government which had not been particularly successful in 1710 and another had already begun in 1711. This too was performing poorly, so Harley granted authority for selling tickets to John Blunt a director of the Hollow Sword Blade Company, which despite its name was an unofficial bank. Commencing 3 March 1711 tickets had completely sold out by the 7th. This was the first truly successful English state lottery.

The success was shortly followed by another, larger, lottery 'The Two Million Adventure' or 'The Classis', with tickets costing £100, a maximum prize of £20,000 and every ticket winning a prize of at least £10. Although prizes were advertised by the total amount, they were paid in the form of a fixed sum annuity over a period of years, meaning the government effectively held the prize money as a loan until it was paid out to the winners. Marketing was handled by members of the Sword Blade syndicate, Gibbon distributing £200,000 of tickets and earning £4,500 commission, and Blunt distributing £993,000. Charles Blunt (a relative) was made Paymaster of the lottery with 'expenses' of £5,000.