The South Sea Bubble and the Davenport Family Fortunes

on Thursday, 10 August 2017. Posted in Davenport

In common with many investors of the early 18th Century, Henry Davenport and a number of his relatives bought shares and annuities in the South Sea Company which spectacularly collapsed in 1720. Many previously wealthy people were brought to poverty although some others managed to cash-in their shares at just the right time and gained exceptional riches. A number of the gainers were politicians, company directors or traders with inside knowledge of what was really happening within a company which was basically a sham.

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The South Sea Company coat of arms

The South Sea Company

The South Sea Company was formed in 1711 with the aim of trading with Argentina and the Americas. At that time the Government of Britain was heavily indebted to the Bank of England due to borrowing money to pay for constant wars with France and Spain. It was hoped that the South Sea Company would be able to consolidate the debt by selling shares which would pay dividends to shareholders whilst the capital would help to keep the Government financially afloat. The Company itself was to be paid £500,000 a year by the Government whilst the Company took on the Government debt of £9,000,000. A new bank called the Sword Blade Bank was to take over the financial administration. The bank was set up by John Blunt who wanted to rival the Bank of England. The biggest flaw in the scheme was that Spain controlled South America and Britain was at war with Spain which meant there was a trade embargo.

During a lull in hostilities with Spain Britain were given trading rights, but only to supply slaves to work for Spanish colonists. By 1719 a total of 45 slave ships had delivered 13,000 slaves, which was a huge cost in human lives but failed to make a financial profit. The national debt had become incalculable and King George I who was Governor of the South Sea Company was also in serious financial difficulty. The British Government were concerned by the rising prosperity of France which had been engineered by an exiled Scot called John Law who had masterminded the Mississippi Company. A strong France was considered dangerous to Britain as it could mean an escalation in hostilities.

John Blunt first issued annuities which would be paid back over a 90 year period. He then began to sell shares to the Government’s creditors, he took on the national debt and floated it on the stock market. In the meantime little or no trade was taking place, so all of the capital was the money of people buying shares and annuities and funds from the Government. So long as enough investment was made people selling their shares would get their money which basically belonged to other people buying shares. Blunt then went to work on the Government so that in 1720 a bill was passed which gave the South Sea Company a monopoly to trade with South America. The Government would pay 5% interest for the national debt to be underwritten. MPs were bribed with “notional stock” which they could claim when the South Sea Company made a profit. Lord Aislabie from the treasury bought £22,000 of stock and sold it at huge profit after the Bill was passed. Robert Walpole also added to his fortune by knowing exactly when to sell his stock in South Sea.

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A receipt for Henry Davenport for £1,800 pounds of shares in the South Sea Company

Due to what was perceived as Government backing the sale of stocks and shares in the South Sea Company became frenzied. Blunt devised a scheme where people only had to pay 20% of the purchase price and the rest in two-monthly increments. Everything was based on credit and therefore many people who would not otherwise have risked their money did so because they thought it was Government run. This sudden rush to buy shares caused a bubble effect as the prices became evermore inflated. Unfortunately for the investors the Company had no business plan and no business. People who sold their shares quickly made a fortune: Sir Isaac Newton doubled his £7,000 stake although he reinvested and lost it all.  Sir Thomas Guy was more successful, and he founded Guy’s Hospital in London out of the proceeds. He sold £54,000 of stock for £234,428 cash. However by 24th September 1720 the Sword Blade Bank ran out of money and the South Sea Bubble burst.

The Government debt was not paid, the King was almost bankrupt and many people not only lost everything they had but were also in debt because they had purchased shares on credit. Some were brought to such a desperate position that they committed suicide. The Bank of England was also brought close to collapse and financially the country was on its knees. In 1721 John Blunt and various others were brought before the House of Commons; other directors escaped to France. Blunt admitted spending £1,000,000 in bribes to MPs. Eventually the loans to investors were written off. Strangely because of the complexity of Government involvement the South Sea Company continued until 1853 when Gladstone dismantled it. Subsequent to 1721 the Company tried to establish a whale fishing business, which also failed.

Within the Davenport family Henry himself suffered some loss of money, but not all of his fortune. However, his children were severely deprived of a huge inheritance because their grandmother’s estate had been mainly invested in the South Sea Company.

Henry Davenport's dealings

Henry Davenport was a merchant who had served with the East India Company. He had married his first wife, Mary Lucie Chardin in India. Mary Lucie died in 1712 and in 1713 Henry returned to England with his three surviving children; Mary Lucy, Sharington and Mary Elizabeth and also his mother-in-law, Madame Chardin, who was also widowed. Mary Magdalen Chardin was a wealthy woman whose husband Daniel had made a huge fortune in India. Having lost her husband and her two daughters she decided to return to Europe in order to be closer to her family in England and France. Her fortune was bequeathed equally between her four grandchildren: Henry’s three children and Daniel Boone who was the son of Madam Chardin’s other daughter and Charles Boone, who was a Governor in the East India Company. Like Henry, Charles was a widower. The children were to receive their inheritance at 21 years of age.

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Henry Davenport

On his return to England Henry continued his role as a merchant, trading mainly in diamonds, fabrics and wine and spirits as well as possibly opium as he traded frequently with China. He also invested in land as well as stocks and shares. He had a number of shares in the East India Company which was a lucrative enterprise, though the shares were expensive. He also remarried, to Barbara Ivory, the daughter of John Ivory and Anne Talbot.

Henry conducted most of his business himself through James Colebrooke and Abraham Franks. Colebrooke was a scrivener who invested money and arranged loans on behalf of other people. He had been extremely lucky in the national lottery of 1711 when he won £4,000. The lottery was yet another scheme to raise money for the state. Abraham Franks was a dealer in stocks who worked out of the coffee houses in the city of London, he normally arranged to meet Henry at the Jerusalem Coffee House. All of the stockbrokers used the coffee houses as they could meet multiple clients and they were close to Exchange Alley which allowed them to keep in touch with price fluctuations.

The records in the archive shows that Henry bought and sold South Sea Stock on a regular basis. Prices of shares in 1719 seemed to range between £110 for a hundred shares up to £117 + for £100 worth of shares. Henry tended to buy and sell shares on a regular basis dealing with sums between £300 and £4,000. In September 1718 Mr Franks wrote: “South Sea Stock has been on a continuing advance. We have hardly known how to secure your orders satisfactorily”. On 12th March 1719 Mr Franks wrote to Henry to say that he had sold £4000 of Henry’s stock for £110 ¾ for 100 shares, but “just now Mr Gumley came and bought upwards of £40,000 and has raised it to 111 ¼ and now they say there is not more troops to be raised”. Although Henry had sold at a profit at the beginning of the day he would have made more money at the end had anyone been able to predict Mr Gumley’s purchase pushing up the sale price. At the end of May 1719 Henry received £5,917 10s for £4,000 of South Sea Stock after paying a brokerage of £120.

The South Sea Act of 1720 which basically gave the company free rein in return for taking on the National Debt made prices soar. In May 1720 Abraham Franks told Henry that on the morning of 31st May stock dividend values were expected to rise from 450% to 700% at the close of trading. Then one month later on 28th June 1720, James Colebrooke, who oversaw Henry’s finances, quoted £1,000 of stock was worth dividends of 775% and expected to climb to 1,000%. Henry bought £500 worth of shares for £595 then another £500. However he also sold £3000 and requested to purchase another £500 worth of stock when next available. Although these were not small amounts of money it was not in the same league as those who dealt in tens of thousands of pounds. Henry did not want to lose out on the frenzy but did maintain some caution. The repercussions for many others was far more devastating.

On 19th September 1720, four days before the crash, John Talbot wrote to Henry saying “I hope that Parliament will find some way to restore South Sea though nothing can bring it to so high a value as it has been”. He went on to say that he hoped the current situation would induce Henry to sell at least half of his stock. He then opined, “I have reason to blame my indolence in not getting something in this scramble at ye stocks when so little a matter would have made me easy. But I comfort myself I have not contributed to ye ruin of my country”. In a further letter on 10th October 1720 when the full extent of the burst of the South Sea Bubble was realised John Talbot wrote, “I am glad to hear you’re out of the scrape. We hear everyday of greater fortunes being undone and such numbers of country gentlemen ruined”. Later in the same letter John Talbot explained that he would be busy in Parliament and especially wished to be present: "For one particular piece of justice that is to call ye directors to account and if they are guilty of many thousands ruin, the confiscation of their Estates".

It is obvious that Henry lost some money and he was certainly left with some almost worthless shares and annuities but there is no definitive account remaining showing the extent of his losses and Henry kept his cards close to his chest. In a letter dated 22nd April 1721, to Stephen Shaw in Dublin Henry Davenport wrote, “Since I saw you there has been strange revolutions among many here in the affair of the South Sea, that it not only affects those here in London but the whole Kingdom in general and I hear not a little in Ireland. I thank God I was not one of the enterprizing Gentlemen, not venturing so much as to do me prejudice, tho’ had I had less faith I might have been a gainer, as I am now not a great sufferer at the intrinsical value of the stock”.

Though Henry wrote with a certain amount of bravado to a business colleague he obviously felt the need to make economies at home. In a letter to his wife Barbara dated 5 May 1722, it is obvious that there had been some discussions of economising that had not been well received. He agreed with her that “there is no living without money” but although she had made “several shifts” he went on to address various bills she had sent and was sarcastic about shopping commissions she had requested and asked her to make more economies. In case Barbara had not received the full import of Henry’s economy drive he resorted to emotional blackmail saying he would do his best to provide to her satisfaction and that his main concern was that “Harry is provided for his future if I should suddenly take ill and die”. Harry was his first son with Barbara, who did not survive into adulthood.

Henry’s disagreement with Barbara was not the only one concerning the South Sea Bubble and family involvement. In June 1719 Henry’s sister Mary Hallifax wrote to say that she and her husband William would like to buy shares in South Sea stock but they could raise the funds to the £300 minimum required “if you will be pleased to help us out with £50 or £60 to make up the sum it will be a very great kindness to us. But if you can think of anything better: I am willing to leave it wholly to you not doubting but you will act as much for our profit as your own”. The deal obviously eventually took place as on the 9th January 1720 Mary wrote to Henry asking why she had not received dividends yet. During the same month Henry had obviously written to the Hallifaxes advising them to sell their shares because on 16th January 1720 Dr Hallifax replied that he thought stock would rise if there was peace with Spain and also that if sold now he would be “a considerable gainer” but then would not know how to invest the lump sum to make similar profits. He then gave Henry permission to sell if he thought that was the best course of action. On the 3rd February 1720 Mary wrote to Henry “Dr Hallifax asks me to say he hopes you have had the good fourtune both upon your owne account and his to sell out ye stockes in ye South Sea Company now it is so high”.

A little later in February William Hallifax wrote to Henry again saying that he had not “positively” asked Henry to sell at the price in February. He continued: “Now you are pleased to tell me you did not sell then but tried when the stock rose to 165 and then parted with £4000 of your own. You lead me to understand tho you don’t say that mine also went. If it did I am sorry for it”. Dr Hallifax quoted prices he had seen in the newspaper which were very high. Obviously they were disappointed at only making what they considered a modest profit in comparison with some other people. Mary also wrote that they had “very ill fourtune” and thought that Henry could have done better and she accused him of being “timrous”. Henry was not impressed by their response and quoted various parts of their letters giving permission to sell. He concluded his letter: “I am sorry for my sister for such a loss but Cousin Gilbt (Gilberta) Talbot had £5000 not £250 and she had the best advice. Of your £349 10s you have had a dividend of £513 which one would think as profit you have made you wouldn’t be dispirited because it was not 1000. This morning you were paid £504 for your £300 South Sea Stock at £165 + £9 Christmas dividend”. Gilberta Talbot was the unmarried daughter of Sir John Talbot and had only received the settlement of £6000 from her father’s will in 1716 after John Ivory Talbot’s marriage. In only four years she had lost everything and as a single woman was left to rely on the goodwill of her sister. In fact the gains the Hallifaxes made were almost doubled and £50 of the original stake had been supplied by Henry anyway. Like many people William and Mary Hallifax believed they could become instantly rich with minimum effort and Mary would not have thought Henry timorous had he sold when prices fell. Not everyone Henry advised fared so well.

William Carville was a retired army Colonel living in Ireland on a fairly meagre pension. His letter to Henry Davenport on 28th May 1720 makes it clear that Henry had done some business in London for William Carville in the past. He told Henry that he had seen an advertisement for the South Sea Company “which says it is particularly good for people with long term annuities”. He explained that he had a small, 99 year annuity and the advertisement “does not rightly express the nature of or advantage arising thence or how it might affect the little I have in England”. He then gave Henry power of attorney to invest £50 if he thought it was sensible and safe.

Henry obviously purchased an annuity in South Sea as on 3rd September 1720 William wrote to thank Henry and say that he understood that he had a £100 invested for 36 years. He also acknowledged that he knew the price was precarious and that if Henry thought it was the right time he should sell as money was not plentiful. The next letters from William Carville are rather sad. On the 2nd March 1721 William wrote that he had not heard from Henry, nor had he had a dividend at Christmas. He said that he was indebted to the amount of £10 to his daughter Brownjohn, who was expecting a baby and in great need. On 21st May 1721 he wrote to thank Henry for the £10 and was hopeful that in the long run he would not be a loser: he was concerned for his infirm wife as he was himself 79 years old so could not expect to continue for much longer. The final letter in the archive from William Carville is dated July 1721: it acknowledged £25 received from Henry, but pointed out that on the 7th December there would be two years dividend due from South Sea, he explained “money begins to grow low, so I should be glad of some recourse if it may be had”. It is very poignant that an elderly and relatively poor man who was just hoping to modestly augment the little pension he had was yet another dupe of the wealthy directors and politicians involved in the South Sea Company.

Although Henry Davenport lost money it did not seem to affect him as badly as many people. He had spread his investments between the East India Company, trading and land rather than placing faith in only the South Sea Company. He continued to speculate and began to build Davenport House at Worfield, Shropshire which was an enormous country house. Surprisingly he was able to use South Sea Stock as security for loans and a bond after 1722. It may have been because the funds were underwritten by the Government that they seemed safe. Small dividends were paid because the South Sea directors had placed Parliament in a position of legal obligation.

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Davenport House

The Lost Legacy of Mary Magdalen Chardin

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Wall plaque from South Sea House

Henry Davenport’s first mother-in-law, Mary Magdalen Chardin, died in 1719. She bequeathed the bulk of her estate to her four grandchildren who were each to inherit at the age of 21 years. She also made small bequests to her godchildren, servants, the church and £50 each to her three executors. In monetary terms these legacies totalled less than £500. At the time of her death her estate was worth a great deal, unfortunately for her heirs £62,947 of their inheritance was in South Sea Shares and annuities.

Henry Davenport and Charles Boone were the trustees for their children until they came of age. Henry was left to administer things in England as Charles was still in India and any correspondence took many months to arrive; sometimes letters were lost due to a ship sinking so communication between the two men was extremely difficult. The archive suggests that Charles was in agreement with Henry and certainly a copy of a letter from Henry to Charles makes it clear that he wished Charles was in England so they could consult. Henry was concerned by the actions of the executors of the will. Henry believed that having the vast amount of capital in South Sea was dangerous and he wanted the executors to sell the stock and spread the investment. They refused to do so and Henry took the case to Chancery which was a very long process.

The two active executors were Peter de Tascher and Andrew Lapostre. In 1720 de Tascher wrote to Henry to say they were unsure how to proceed with the South Sea stocks. “So mysterious and intricate and the guesses and the conjectures about them have so many foundations but, at the same time are wrapp’d up in so much darkness and attended with so many lyes and uncertainties, that the wisest heads are at a losse what to do in the present circumstances”. Both executors were afraid to act because if the price of stock continued to rise the legatees may sue them if they sold at the wrong price. Even in October 1720 after the bubble burst de Tascher and Lapostre were unwilling to act. The third executor appears to have played no part in the proceedings. Henry drew up a hypothetical account showing a ten year forecast of interest to be gained if stocks could be sold at £350 and reinvested in several different ways with a 5% interest rate. When he suggested this course of action the stock were selling “at 310 or 320 which is a great gain to the Estate if an opportunity is found to sell. It is pretended that ye South Sea will make great Dividend by ye gains she will make by ye lotteries and that they’ll rise it to 500%”.  Henry was not so convinced by South Sea that he thought it was worth such a gamble. The reply was that if the executors “should sell at 300 or 320 and it should rise to 500 by a long peace when the children comes to age they may prosecute ye executors and ruin them”. Although the shares rose even higher anticipating when to sell would have been well-nigh impossible. Henry’s view was that it was already a good price so why expect more?

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Henry's forecast

The case was eventually heard in Chancery in 1727. Despite the plummet in stock prices Andrew Lapostre insisted that he was right. There is also a hint that he and Henry had not seen eye to eye prior to Madame Chardin’s death as Henry had advised him not to place so much of her money in the South Sea Company. Lapostre’s view was that Henry and Charles Boone were not well informed of the value of English funds because they had been in India. The court stated that of the £62,947 shares and annuities only £1,687 remained and should be distributed equally between the grandchildren. In the event Mary Elizabeth, Sharington and Mary Louisa Davenport, and Daniel Boone, were left with legacies of £5,315.3s.4d each plus some South Sea annuities which were not eligible for sale. The total fell well short of the original legacy of at least £15,500 each in shares and annuities even if they had merely been sold at face value and not been reinvested in other commodities. Mary Louisa was still trying to sell South Sea Stock in 1737 in order to invest in land. Though the stock was paying some dividends they were not a good investment nor were the dividends reliable.

It seems very strange that the South Sea Company, which was meant to be a trading and fisheries company, and woefully failed on both counts, continued in existence for 142 years. The Lacock Archive records show that in 1832 Lady Caroline Augusta (Feilding) Edgecumbe bequeathed £500 of South Sea annuities to her half-brother, William Henry Fox Talbot. Presumably she had originally inherited them herself and the only way of dealing with them was by passing them on. In 1853 William Gladstone, the Chancellor of the Exchequer consolidated the National Debt and the South Sea Company whose bubble had burst in 1720, finally disappeared.

References

Lacock Archive: Prefixes: 2664/2B, 2664/3/2D/2, 26643F/3, 2664/3G/4, 2664/2/5G, 2664/3/1E/25
Book: ‘A Very English Deceit’ by Malcolm Balen, London 2002

Jean Waltham, Lacock Unlocked volunteer

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