Most of the institutions around us seem to have infancies – or at least paths of evolution along which they staggered in order to become what they are today. Representative democracy, a civil service, even contemporary war descend to us through strange-looking ancestors: the executioners of kings, the treasurer keeping the royal gold under his bed, the marquis riding with his tenantry into the cannon. But capitalism is different. Like Athena born in armour, it bursts on the scene already mature. The sort of joint-stock venture capitalism that swept over north-western Europe in the 17th century lacked the refinements of a 21st-century public limited company. But its cast of characters, and the manic-depressive psychology of speculative investment, were there from the first day.
We know that cast all too well. It didn’t take the Northern Rock affair to show that sober gents with much to lose can take leave of their senses. That was already plain by the 1690s. Douglas Watt’s irresistible, clever book about the Darien Scheme, which ruined Scotland and led indirectly to the 1707 Union, introduces figures we instantly recognise. Here is the mesmerising visionary bounding from cloud to cloud with other people’s savings, and the yuppie so thrilled with early success that he persuades himself that the company’s cash is his own. Here are the grave, respected men of substance who dare not admit to one another that in financial reality they are total ninnies, unable to read profit or loss off a stallholder’s pocket calculator. All these types dance through the short, catastrophic history of the Company of Scotland, which took a nation’s money to found a colony on the Panama isthmus in 1698 and ended flat bust in 1701.
To read about Darien is to feel that, in a deep sense, venture capitalism is incapable of learning from experience. Of course, its technologies in industrial production, financial ingenuity and tax avoidance have changed beyond recognition. But its sustaining element, its oxygen, remains mad hope: the wager that this time, just this time, the law of gravity will not apply. Nothing else explains why the Company of Scotland went back to Darien with a second expedition after the first settlement had collapsed in unmitigated disaster. Nothing else explains why Northern Rock, tarted up as a bank after generations as a sober mutual, suddenly began to borrow insanely short and lend insanely long.
Many books have been written about the Darien Scheme. John Prebble’s The Darien Disaster of 1968 is still the best known. But The Price of Scotland surpasses them all on two grounds: first, Watt’s method and approach; second, his solidly convincing version of the story’s most contested aspect – the significance of Darien for the politicians who decided a few years later to abandon Scotland’s independence and join an incorporating union with England. Watt’s method, roughly, is to follow the money. Not to exclusion: Darien was also about politics, patriotism, shipping, marketing, religion, geography and disease. But the cash flow of the Company of Scotland is a vein of hard evidence, and it turns out that the account books for the whole life of the company have survived intact in the Darien Papers of the National Library of Scotland. Watt describes them as ‘an untapped source for examining the management of capital by the Company’. It would be almost beyond belief if no scholar had at least glanced through the cash-books before now, but Watt is the first writer to use them systematically. He can now give the reader a really detailed picture of the company’s directors – a gullible, erratic pack of nobles, advocates and lairds – and of how they set about raising money and then managing it. Their failure was that they squandered the money uncontrollably, above all in the first years of the scheme. Their achievement – an incredible one – was to gather the capital in the first place, one of the most phenomenally successful fund-raisings in world history, performed in one of the smallest and poorest countries in Europe.
The second strength of this book is its assessment of Darien’s relationship to the Treaty of Union. There have been at least two schools of thought about this. One asserts that the Darien colony and the Company of Scotland were deliberately wrecked by English policy-makers in order to force a ruined, helpless Scotland to surrender its independence. Another, more deterministic version insists that Scotland had already become a terminal basket-case in the last decades of the 17th century, its underdeveloped economy devastated by famines and crop-failures, its trade strangled by Dutch and English competition, its institutions backward and decayed. The Darien disaster – in this view – merely pushed Scotland over a cliff edge that the nation was anyway approaching.
Watt disagrees with both these lines. English obstruction was real and devastating, but it was not the decisive factor in Darien’s failure. As for the ‘basket-case’ notion, Watt argues that Darien showed the opposite. Scotland in the 1690s suffered the ‘seven ill years’ of hunger after failed harvests. But the Darien Scheme in the same decade showed also that Scotland at the end of the century had acquired the sophistication, the capital resources and the outward-looking energy in its elites to attempt an astounding leap forward to catch up with far bigger and wealthier colonial powers. The leap failed – indeed, it could never have succeeded. Nonetheless, the connection between that failure and the Union some six years later was anything but direct. Darien did not crush the Scots; on the contrary, it inflamed them into a passion of anti-English patriotism. Public opinion concluded after Darien – quite rightly – that the 1603 Union of Crowns was now being operated exclusively to England’s benefit and had become intolerable for Scotland.
What should be done about that? A popular view, maybe a majority one, reasoned that there should be no regal union at all, let alone an even closer one, and that Scotland should choose its own Protestant monarch when William III died. That this desire did not prevail, and that the Scottish Parliament voted for its own abolition only a few years later while hostile crowds rampaged through the streets of Edinburgh, had a great deal to do with Darien but little to do with any sense of national failure. For the parliamentarians, and for their far more numerous relatives, clients and colleagues who populated Scotland’s pays légal, the clinching factor was ‘the Equivalent’. Six years after the thousands of shareholders in the Darien Scheme had seen their investments vanish down the plughole of ruin, England offered them every penny of their lost money back – plus 42 per cent interest! If, that is, they accepted the Union Treaty, in which the Equivalent figured as Article 15.
When Robert Burns wrote ‘We’re bought and sold for English gold,’ he was probably thinking of those Scottish politicians who were directly bribed with cash and job offers, and who became despised and notorious. But the Equivalent was far more effective and far more discreet. It affected a large part of Scotland’s literate and economically active population. There were something like three thousand Darien shareholders, and full repayment was also offered to everyone who was owed unpaid military and civil pensions and fees by the Scottish government. Counting their families and dependents, the Equivalent was being dangled under the noses of perhaps 15 per cent of Scotland’s population of one million. That was a very large ‘parcel of rogues in a nation’, who could persuade themselves that they were merely being compensated rather than corrupted.
As the anti-Union politician George Lockhart of Carnwath remarked, the Equivalent was ‘the cleanliest Way of bribing a Nation, to undo themselves; and alas! It had the design’d Effect.’ Daniel Defoe, working in Edinburgh as an English spy, noticed how easily the Equivalent anaesthetised patriot consciences: ‘Nor among the most Malecontent persons could I ever find any, that when the Money upon the . . . Stock came to be paid, would think the Species Unhallowed enough to refuse their share of it.’
It was a lot of money: £398,000 sterling, equivalent to more than £55 million today. A convoy of a dozen wagons escorted by dragoons rumbled over the bridge at Berwick. The Edinburgh mob stoned the wagons when they reached the High Street on 5 August 1707, three months after the Union came into force. Long queues formed. The Company of Scotland directors and investors got their whack first. Government creditors and unpaid pensioners such as wounded soldiers came very much last. But Scotland, whose very coinage had been shovelled into the bottomless Darien pit, now had a liquid currency again.
The Company of Scotland Tradeing to Affrica and the Indies, to give its full title, had been established in 1695. Scottish trade was being increasingly squeezed, especially by England’s exclusion of Scots from English colonial markets and by the protected competition of the East India Company. Scottish entrepreneurs decided to create and finance a joint-stock company on the scale of the EIC and its Dutch rival, the Verenigde Oostindische Compagnie.
This was a very bold ambition. Recognising that, the founders got from the Scottish government an act conferring unusually luscious privileges on the new company: a 31-year monopoly on Scottish foreign trade and – designed to attract foreign investors – exemption from all customs duties for 21 years. The decision to set up the company suggests that English hostility to Scotland’s economic interest was taken for granted. And yet the first plan was to base the company in London as well as Edinburgh, in the hope of gathering the major initial investment on the London money markets.
At first, all went well. A group of London-based Scots, whose leading figure was William Paterson, set out to raise the enormous sum of £600,000 from ‘subscribers’, hyping the project as a ‘new Scotch-English, or English-Scotch Indian company’ which would ‘bury in oblivion, the distinguishing names of Scotch and English’. Soon, however, the East India Company woke up and set to lobbying against the Scots. The English Parliament petitioned William III, who agreed that he should never have allowed the Scots to set up an enterprise so inconvenient for English business. Everything turned sour. English investment was banned, and there was a threat to arrest the directors and the company secretary. The Company of Scotland retreated to Scotland.
Some of its promoters were dismayed. But not William Paterson. This outrageous and yet deeply familiar figure, the marketing genius of his age who never lost the power to make others share his fantasies, now became the central figure in the Darien saga. He was what was then called ‘a Projector’, a creature born in the financial revolution of the 1690s who understood bulls and bears, secondary share markets, trading in government debt. As a great salesman, he grasped, as Watt says, the irrational, even hysterical element in stock markets and in the stampedes to invest that a clever ‘projector’ could provoke. A year before the Company of Scotland was launched, he had ‘projected’ the Bank of England, only to be heaved off the board by his own colleagues. He had projected the Hampstead Water Works and the Orphans’ Fund, solid ventures. But deep inside himself, he still hugged the grand, unrealised dream of his life. It was called Darien.
William Paterson was not entirely sane. Darien, on the east coast of the Panama isthmus, was a jungly, fever-ridden piece of shore which had been under Spanish control for almost two centuries. But Paterson was granted a vision in which Darien was a temperate, hospitable paradise twinkling with gold and silver. Based in Darien, a European colony could harvest the natural wealth of both hemispheres, the trade of the Pacific and the Atlantic. He called Darien the ‘door of the seas and the key of the universe . . . [it] will of course enable its proprietors to give laws to both oceans.’ Paterson, accompanied by his evasive little sidekick James Smyth, had been trolling around Europe with a Darien plan long before he sold it to his fellow Scots. In Amsterdam coffee houses, he had tried to enthuse Dutch bankers with ‘a Common Wealth and free port in the Emperour of Dariens Countrey’. In Brandenburg, he had offered to make Prussia’s glory in a German-speaking Darien. Nothing came of any of that. Now Paterson turned to the Scots. At first, they were sceptical about Darien, preferring a trading-post in Africa or the Indies. Then suddenly, in 1697, the directors changed their mind.
Watt remarks: ‘Why the Scots believed they could maintain a settlement in the centre of the Spanish Empire remains one of the great mysteries.’ Why they believed permanent European settlement was possible in a tropical rainforest, unfit for temperate crops and the site of lethal diseases, is a mystery too. A number of English and Scottish voyagers and pirates knew the Western Caribbean well, and had visited the Panama region; Paterson himself had been in the Caribbean when young, though not in Darien. None of this seemed to count. Hope was what mattered. Paterson sold the Darien mirage to the company of Scotland, and the company sold it to the Scottish investors. The scheme had to succeed. In many Scottish minds, it had already succeeded before the first ships sailed from Leith on 14 July 1698.
The Scots rushed to invest. Watt identifies what followed as a classic ‘mania’, to be ranked with the Dutch tulip mania or the other great ‘bubbles’ typical of early capitalism. The company’s offices in Milne’s Square, on the High Street, were besieged by subscribers to ‘the most diffusive and National joynt-stock in the world’, as the directors called it. Soon the subscriptions – promises to pay when the company made a call for cash – reached £400,000. All this, in a country with a fifth of England’s population, a 36th of its tax yield and a 40th of its money supply. Watt, keeping his usual watch on the books, points out that Darien absorbed something between a quarter and a half of Scotland’s circulating coinage, and would have swallowed almost all of it if all the subscriptions had been paid up on call. It was a staggering proportion, as he says, which left Scotland without the liquid cash to finance the crucial secondary market in shares that every joint-stock needed.
The directors were sitting on a mountain of money. The first call on subscriptions raised £56,000 in ready cash by the summer of 1696. This led to a ‘cash burn’, in which the directors simply lost control of expenditure. A year later, they had just over £4000 left. Some had been lost in an ill-planned banking venture, some went on buying ships at absurdly inflated prices, and some had simply been stolen. Paterson entrusted a third of the company’s cash to his apprentice sorcerer Smyth, telling him to go to London and buy sterling with it. Smyth, aka Schmitten, aka Jacques le Serrurier from Wallonia, had impressive past form as an embezzler; he treated the money as his own, lost it and bolted. Some of the money was recovered, but ‘Smyth’ cost the company at least 10 per cent of its capital.
Nobody, it seems, thought of blaming Paterson. He had led a costly and fruitless ‘road-show’ to raise more capital in the Netherlands and Hamburg, in order to pay for the ships being built on the Continent. The failure was not his fault: Dutch financiers were initially attracted by the company’s duty-free privilege, but the English intervened. An official letter warned the Hamburg Senate that King William would regard any agreements with the Company of Scotland as an ‘affront’. Paterson and his delegation returned almost empty-handed.
Meanwhile, the directors had managed to slow the cash haemorrhage just before the company went broke. The first expedition sailed from the Forth in 1698. The five ships carried nearly 1300 settlers, including Paterson and his wife, and £19,000 worth of equipment and trade goods. (The legend that they took 4000 periwigs to sell to the natives is a slander; Watt has been through the cargo lists and found only 219 wigs.) The Darien colonists took with them a £70,000 debt to the company, which the directors assumed would be repaid by instalments from the colony’s profits. But there were no profits. The only sound investment the company ever made was in Edinburgh property: its own offices eventually fetched a good price.
Darien was a disaster. The local Tule people were friendly; the harbour looked safe; a Fort St Andrew was constructed at New Edinburgh. But insects, climate, flooding, disease and the threat of attack by Spanish troops from Panama were against the Scots. The settlers disembarked in October 1698, and by March 1699, starving and dying of fevers, they were demoralised. In April, England forbade its American and West Indian colonies to supply Darien. In June, the 900 survivors abandoned the place and set off for Jamaica or America. Hundreds more died on these voyages. Paterson, whose wife had died in Darien and who had almost perished himself, made it back to Scotland.
Rumours of catastrophe began to reach Edinburgh in late 1699, and were soon confirmed. But two more expeditions had already sailed, one carrying 300 colonists and the second some 1300. They arrived on St Andrew’s Day to find Darien deserted and overgrown, a ‘waste, howling wilderness’. Most of the colonists made for Jamaica. Around 500 pioneers stayed and the fort was rebuilt; a small Spanish attack was beaten off. But hunger, fever and paranoia soon set in. A bigger Spanish force returned and the Scots surrendered in March 1700.
The human and economic balance of Darien was awful. Watt reckons that 71 per cent of the men, women and children who sailed on the two expeditions died. Eleven of the 14 ships that left Scotland were lost, and – as Watt points out – nothing was insured; commercial insurance, already developing in Amsterdam and London, was no more than an embryo in Scotland. And yet the strangest feature of the whole calamity is the impenetrable optimism of Darien’s promoters, including many who had actually seen and experienced the place.
Paterson reported that Darien ‘will in a small time be the most flourishing colony and settlement in the East or West Indies’. Daniel MacKay, a colony councillor, wrote that ‘it is one of the fruitfullest spots of ground on the face of the Earth and best situat for trade.’ Captain Drummond, who commanded a ship in the first expedition, announced that the colony had only been abandoned because of the English trade ban: ‘the Climate was undoubtedly as wholesome as any in America.’ Lieutenant Loudon, another survivor, somehow felt able to insist that there were no mosquitoes or vermin at Darien. Paterson wrote a report on his return which blamed the English, the planners who had provisioned the ships, and the malcontents among the settlers, but never Darien itself, prized for ‘healthfullness, fruitfulness, and riches, above all other in the Indies’.
Back in Scotland, some people were beginning to emerge from their golden delusions. Walter Herries, a doctor on the first expedition, turned against the whole venture: in ‘[New] Caledonia’, he wrote, ‘there’s nothing to be had but hard Labour, Sweat, Hungry Bellies and shallow Graves.’ William Paterson was a ‘Pedlar, Tub-preacher, and at last Whimsical Projector’. But Herries’s book was burned by the Edinburgh hangman, while Paterson continued to be treated with awed respect long after Darien had returned to jungle and the company’s shares had become worthless. Paterson had never put a penny of his own money into Darien, it transpired, and it’s good to read that the directors summoned the nerve to refuse him a share of the Equivalent. But after the Union he moved to London, lobbied the Westminster Parliament for Equivalent compensation, and in 1714 walked into the sunset with a sum equivalent to well over two million pounds.
Obscene pay-offs for fat-cats who lead their companies into ruin are nothing new. And, after all, the Scottish directors were hardly more deserving than Paterson. To be bailed out by the Equivalent at 142 pence in the pound for an enterprise that had gone totally broke six years before was, as Watt says, ‘a truly incredible result for the directors, who had squandered the capital of the Company and now, as major shareholders, were to be generously rewarded for their mismanagement’. But the Bank of England bail-out was about politics, not business. And politics, not finance, induced the same bank to bail out Northern Rock three centuries later. At least the Union Treaty insisted that the Company of Scotland should be wound up as the price for rescuing its victims. Northern Rock cut a better deal; its bosses took the money and stayed trading.
The long-term, post-Union influence of Darien is disputed. Watt is right to point out that the unexpected economic confidence revealed, rather than generated, by the Darien Scheme did not disperse. Instead, it carried on in Scotland’s energetic seizing of the new British Empire’s opportunities: colonising, emigrating, investing, trading and eventually manufacturing industrial goods for imperial markets. As Watt says, the Union provided Scotland with three ‘crucial benefits’: free access to world markets, a liquid currency and the backing of a strong, business-minded state. The first years of Union were rocky, but in the thirty years before 1772, at the height of the Scottish Enlightenment, banknote circulation in Scotland grew fifteen-fold. The ‘Hotbed of Genius’ had a mattress stuffed with healthy money.
Missing from this book, however, is any coherent attempt to set Darien into the wider context of Scottish colonialism. This is a pity, because a survey of the way the Scots encountered the outside world in the centuries before Darien would have shown how untypical it was. There were two quite different colonial structures. One model, much the older and more successful, was settlement in another European country as a recognised trading minority, usually at the invitation of the local ruler who used the Scots to exploit natural resources and furnish him or her with tax revenue. In this pattern, the Scots played a symbiotic role comparable to that of the Armenians or Jews, and over time often assimilated into local society. The other model, totally different, only got going in the early 17th century when James VI of Scotland became also James I of England; this was the imitation of English colony-planting ventures in the New World. None of these succeeded. The Nova Scotia scheme in the 1620s was a fiasco even though James – in contrast to William III seventy years later – strongly encouraged its founders. Darien was the last flare of that particular colonial notion, which had achieved nothing whatever for Scotland in its brief span of popularity.
But the other, traditional pattern survived, and in many ways Scottish overseas enterprise returned to it after Darien. The word ‘Poland’ does not appear in Watt’s index. And yet the three centuries of Scottish colonisation there, the network of largely kinship-based settlements that managed the up-country Vistula grain trade, had brought opportunity and often a good living to thousands of families from eastern and north-eastern Scotland. It was this ‘Vistula’ pattern, not the grand joint-stock company, that reasserted itself after the Union and thrived within the British Empire and beyond it until the mid-20th century. Especially in Asia and Australia, Scottish capitalism in the Victorian age centred on ‘private partnerships’. These were, typically, small patriarchal outfits recruiting through recommendations by family and friends back in Scotland, lending money adventurously and ploughing profits back into the local economy – all traits visible in the 17th century Baltic settlements. But Darien, like its ‘American’ predecessors, turned its back on all this experience and pretended that Scotland could in a single leap achieve a conquest-based empire in the English, Spanish or Dutch style.
Darien never had a chance. It was not so much Paterson’s lethal charisma or the incompetence of the company’s directors. It was not even the very effective sabotage by the English. If the time and place had been different, Darien might have overcome all that. But the climate, the epidemics and the fatally underestimated Spanish military grip on the Panama isthmus were decisive. Francis Borland, one of the Kirk ministers on the second expedition, blamed ‘a holy and sovereign God, signally appearing and fighting against this undertaking’. But the culprit was not God but Man, and the human lust to be deluded.