Refinancing Government Debt
Events in France now came to influence the future of the South Sea company. A Scottish economist and financier, John Law, exiled after killing a man in a duel, had travelled around Europe before settling in France. There he founded a bank, which in December 1718 became the Banque Royale, national bank of France, while Law himself was granted sweeping powers to control the economy of France, which operated largely by Royal decree. Law's remarkable success was known throughout Europe in financial circles and now came to inspire Blunt and his associates to make greater efforts to grow their own concerns.
In February 1719 Craggs explained to the House of Commons a new scheme for improving the national debt by converting the annuities issued after the 1710 lottery into South Sea stock. By Act of Parliament, the company was granted the right to issue £1,150 of new stock for every £100 of annuity which was surrendered. The goverrnment would pay 5% on the stock created, which would halve their annual bill. The conversion was voluntary, amounting to £2.5 million new stock if all converted. The company was to make an additional new loan to the government pro-rata up to £750,000, again at 5%.
The South Sea company chose to present the offer to the public in July 1719. In March there was an abortive attempt to restore the Old Pretender, James Edward Stuart to the throne of Britain, with a small landing of troops in Scotland. They were defeated at the Battle of Glen Shiel on 10 June. The Sword Blade company arranged to spread a rumour that the Pretender himself had been captured, and the general euphoria encouraged the South Sea share price to rise from £100 where it had been in the spring to £114. Annuitants were still paid out at the same money value of shares, the company keeping the profit from the rise in value before issuing. Approximately 2/3 of the available annuities were exchanged.
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