INTRODUCTION

“the great Follies of Life”

LONDON, 1719

The year had begun well enough for London’s stock traders, working from their corner of the city, a narrow passage called Exchange Alley. Buying and selling shares—dealing not in things but in numbers—was still new to the city. There was no fixed marketplace for traders in paper. So those who had mastered what was to many still a very dark art concentrated in a few taverns and inns, at Garraway’s, a coffeehouse that catered to the gentry, and more of them just around the corner at Jonathan’s, the rival coffeehouse that saw the most feverish trade in all the new ways in which it was possible to make—or be—money.

Exchange Alley in its early-eighteenth-century layout

For journalist, propagandist, and gadfly Daniel Defoe, Jonathan’s and the rest were familiar—and dangerous: dens of iniquity. Defoe had been warning his fellow Britons about the perils of the Alley for almost three decades. Now, near midsummer, he was ready with his most desperate alarm yet, a pamphlet titled The Anatomy of Exchange Alley,written in the voice of “a jobber,” or unlicensed dealer in stocks. In part, the pamphlet served as a kind of travel story, leading its readers on a journey to an exotic spot. Exchange Alley was an island in miniature. It could be walked in a minute or two: “Stepping out of Jonathan’s [Coffeehouse] into the Alley, you turn your Face full South,moving on a few Paces, and then turning Due East,you advance to Garraway’s; from thence going out at the other Door, you go on still Eastinto Birchin-Lane,and then halting a little at the Sword-Blade Bank to do much Mischief in fewest Words, you immediately face to the North,enter Cornhill,visit two or three petty Provinces there in your way West.” There, a few hundred paces at most, and the visitor would be almost done: “Having Box’d your Compass, and sail’d round the whole Stock-jobbing Globe, you turn into Jonathan’s again.” Home again!—but not in safe harbor, for the jobber concludes that “as most of the great Follies of Life oblige us to do, you end just where you began.”

And what folly it was! Defoe painted the risk faced by any reckless soul foolish enough to wander into Jonathan’s, in the tale of a naïvely avaricious countryman who encounters a couple of con men. They ply him with rumors, urge him to trade on their insider’s knowledge, and surgically extract his entire fortune: “his Coach and Horses, his fine Seat and rich Furniture,” all sold “to make good the Deficiency.”

That was typical of Exchange Alley, Defoe warned his readers. It fostered “a compleat System of Knavery…a Trade founded in Fraud.” Its tricks were hardly new, of course. In some form, they’re as old as human desire, as the book of Proverbs attests: “The getting of treasures by a lying tongue is a vanity tossed to and fro of them that seek death.” But this hopeful, nervous year of 1719 held something new, a scheme more ambitious than anything previous attempted by the devilish denizens of the Alley. The South Sea Company had opened for business in 1711. The firm had never really managed to do the work implied by its name, shipping goods and slaves to the Spanish ports of South America. Instead, it played in what was then just being born, a marketplace for credit, all the notes and bonds and much stranger inventions that the British government was using to build its ever-growing mountain of debt. For several years, the South Sea Company itself had nibbled around the edges of this market, completing a handful of minor deals, but its directors now aimed at a vastly more ambitious project—one that would, if it worked, solve Britain’s borrowing problem once and for all. They proposed a heroic attempt at what we would now call financial engineering—taking the whole of the national debt, accumulated over a seemingly endless series of wars, and turning it into shares of a private company—theirs—which could be traded back and forth at will in the nascent stock exchange. In its partisans’ view, that would be the saving of the nation.