Feeling a Little Shipwrecked this New Year?
© Jack Cashill
f the economical and political tides have washed over you in the fall and left you feeling forlorn, I would recommend that you do what I have done—in my case, quite by accident—pick up a copy of Robinson Crusoe.
Although the outlines of Daniel Defoe’s 1719 novel are well-enough known, the details are not. Nor is the financial backdrop of early 18th-century England, a time and place eerily reminiscent of America during the past six or so years.
Something of an economic player, Defoe flirted with debt much of his life and at least on one occasion was arrested for the same. His patron, Tory minister Robert Harley, bailed him out. Grateful, Defoe went on to write pamphlets in support of Harley when he was appointed Chancellor of the Exchequer.
In 1711, Harley and a partner named John Blunt launched the South Seas Company with an avowed intention of opening South America to British trade. Ignorance helped. The less Blunt and Harley knew about the actual state of South American trade, the more freely they could sell shares in the company. Among the early investors were Isaac Newton, Jonathan Swift, and King George I.
In its first decade as a trading company, the South Seas Company managed to do little more than ship a few slaves from Africa to South America and see its profits eaten up by Spanish taxes. By 1715, Blunt had managed to persuade the Prince of Wales to name him governor of the company. He quietly reoriented its mission toward his own strengths, namely, bribery and market manipulation. He saw opportunity where others only saw problems: specifically, in England’s crushing debt.
Defoe, the company’s chief pamphleteer, laid the blame for the debt on 20 years of bloody war. “Now we see our treasures lost,” he wrote, “our funds exhausted, all our public revenues sold, mortgaged and anticipated, the whole kingdom sold to usury.” It would not be until the late 20th century that “entitlements” supplanted war as the great debt generator.
With Harley out of the picture, and Blunt going rogue, Defoe, nearing 60, turned to writing novels. Robinson Crusoe was his first. In fact, it was one of the earliest novels in the English language. It is not hard to read the book as an allegory.
Crusoe, an ambitious schemer, ab-andons his homeland and his parents’ values to live out a semi-decadent life on the high seas. His adventures take him to Brazil, where he manages to start up a successful plantation. Just as his English values begin to reassert themselves, he yields to “a rash and immoderate desire of rising faster than the nature of things admitted.”
This immoderation takes the form of a slave-trading adventure in South America, not unlike the ones on which the South Seas Company would purportedly make its investors their fortunes. Crusoe, of course, is shipwrecked—in his case, literally. He washes up on his solitary island with little in the way of skills and less in the way of faith.
What Crusoe has to do is to teach himself the fundamentals of a life lived freely. Such a life, he comes to see, is rooted in self-reliance, economic independence and spiritual awareness. Without intending to, he “goes Galt.”
The turning point in the novel comes with the realization that “deliverance” does not really mean escape from his island captivity but “deliverance from the load of guilt that bore down all my comfort.” Hope, he realizes, is secured only “through the encouragement of the Word of God.”
Defoe was telling his fellow Brits that they had allowed themselves to be corrupted morally and economically. The two seem to go together, and not just in 18th-century England.
Unfortunately, not enough of his countrymen got the message. A year after the novel’s publication, England’s debt reached the then-astonishing sum of 31 million pounds. Blunt’s plan was to raise money to purchase that debt. Among the targeted shareholders were the government’s creditors. They would exchange their annuities for shares in the South Sea Company at a higher market rate.
Blunt helped pioneer the whole idea of a public-private partnership. To attract the “public” part of that equation, Blunt did what crony capitalists almost inevitably do—he bribed the government officials. In this case, he sold the British peers and MPs “notional” stock—no money down and criminally easy terms—that they could cash in if the share price rose.
Blunt had one advantage over the Bank of England, his main competitor. He had no legal or political limits on his ability to offer shares. He could sell as many as he chose or give them away. Indeed, he showered the Houses of Lords and Commons with shares.
The South Sea Company could prosper only as long as there were more people willing to buy more shares. To expand the pool, Blunt offered the 18th-century equivalent of subprime loans: 10 percent down and the rest in 10 percent installments spread over four years. Now, everyone wanted in. “I have enquired of some that have come from London, what is the religion there?” Jonathan Swift wrote from abroad. “They tell me it is South Sea stock.”
As night follows day, hyperinflation followed the infusion of excessive paper money. And as day follows night, bad behavior followed hard on the heels of hyperinflation. Nothing seemed grounded anymore. So why not gamble, why not carouse? Why not sell your body if you have already sold your soul? And if you have run out of money of your own, why not take it from others?
There is never enough money in the universe to keep a bubble afloat for long, and this one soon collapsed, taking England’s economy down with it. Jonathan Swift worked out his anxiety in his classic Gulliver’s Travels, which he started writing as the bubble was bursting. In the book, Gulliver is on the way to the South Seas when he is overtaken by a violent storm that leaves him stranded, exhausted, and numb from shock. No doubt but that the British investing class could identify.
Swift wrote his book to expose the fools without. Defoe wrote his to expose the fool within. In this New Year, we all might profit, and the nation with us, by starting with Defoe.
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