An Empire on the Edge

by Nick Bunker

  In the words of his sister-in-law, Fordyce aspired to be “the richest commoner in England.” In the days after he vanished, people talked about his desperate quest to find a wife of noble blood. “He would have none but a Lady of Quality,” it was said, but it was an age of snobbery as well as speculation. Because he had begun his career as a mere clerk in a London bank, Fordyce had to wait until he was forty to find a suitable match: the daughter of a Scottish earl, very young and very pretty. Her husband made sure that her picture could be seen in every print shop in the capital.

  People like Fordyce have always existed, but in the reign of George III they found a host of new ways to advance themselves. At the time of the peace talks in Paris, Fordyce was among those, like Sir George Colebrooke, who made a killing from insider trading in government bonds. It was a common practice at a time when, as Colebrooke put it, “every member of the cabinet had relations and friends to serve by a revelation of what he knew.” And then in 1766, as the East India Company’s earnings rose to new heights, Fordyce made another fortune by trading in its stock.

  Only rarely did he buy and sell it directly. Instead, Fordyce dealt in the secret world of derivatives, where brokers created dark pools of risk that only a few professionals could fathom. He placed his bets on the market by way of “contracts for difference,” a device used in London and Amsterdam in the eighteenth century to make large profits from small movements in the price of paper assets or commodities. That was how he came to lose so much, when he sold the company’s stock short and it failed to drop as he expected. To fund his activities, Fordyce built a network of friendly bankers at home and in the Netherlands. The largest was a firm called Hope & Company, an Amsterdam bank that financed wars, smugglers of tea, and slave plantations in the Caribbean, and liked to consider itself respectable. The Hopes gave him long lines of credit and dealt discreetly on his behalf.10

  The trader from Aberdeen was an accident waiting to happen, but his exit from the scene would not have caused such a calamity unless the rest of the system was already very fragile. The effects were so severe because so many other people participated in the same culture of debt and speculation, dealing not only in paper but also in property. A boom occurred in real estate, adding the last ingredient required to bring about the crash of 1772.

  In the past, newly rich men had simply bought English farmland, as a safe bet and a badge of social status. But over time, rolling acres full of wheat became a little less attractive. For as long as anybody could remember, the price of rural property had risen, but at last a moment came when it was simply too expensive and the future profits were likely to be dull. Bored with the shires, entrepreneurs looked further afield for places to invest the profits they had made.11

  In Scotland, where the farmers were still backward with their oats and wooden plows, rents were low and the price of land was cheap. So cheap, in fact, that in the late 1760s we find English investors crossing the border to buy tens of thousands of acres of moors and bogs, hoping to improve them with fences and ditches and lime, often turning for finance to a new Scottish industrial bank, Douglas, Heron, founded in Ayr in 1769. With its plans to transform the region with new roads, mills, canals, and factories for linen, it recruited the local aristocracy among its backers. And if investors did not care for the countryside, they could opt for real estate in Edinburgh, where at this moment the city’s banking elite began to create the Georgian elegance of the New Town.

  Or if they preferred a warmer climate, at last investors could find new prospects in the West Indies. The old British colonies were full, but as part of the Treaty of Paris the French had been compelled to hand over the Windward Islands, far to the south of Jamaica. To help pay down its debts, the British government sold land on the islands to a squad of eager buyers. Speculators hurried to Grenada, Tobago, and Dominica to buy estates and slaves, with money borrowed in London or from Dutch firms including the Hopes.

  So much for Scotland and the colonies; but if you wished to find the cutting edge of risk, as always you had to go to the West End of London. When the cost of a mortgage fell below 4 percent, a boom in construction began in the city, the greatest it had ever seen. The traces it left can still be seen by the banks of the Thames, five minutes’ walk from the house in Craven Street where Benjamin Franklin lived at the time. Near the Savoy Hotel a flight of steps leads up from the embankment, toward a tall brick building, unmistakably Georgian. With its frieze, its pediment, and its pilasters, the house at 3 Robert Street was designed partly to evoke the memory of the ancient world, and partly to make a great deal of money for Robert Adam, the Scottish architect who brought it into being.

  A view of the Thames in about 1772, with Robert Adam’s Adelphi project under construction on the right, from a painting attributed to William Hodges. Westminster Abbey is in the background. Yale Center for British Art

  When historians try to capture the atmosphere of the period, often they turn to poems, or novels, but this emphasis on written texts can be misleading. Highly educated though they were, the moneyed and political elite took more interest in houses, pictures, pottery, and parties than they did in literature; and the literary genre they enjoyed the most was the theater, for its visual appeal as much as the lines the actors spoke. As their arbiter of style, the elite looked to Robert Adam and his brothers, who gave them something especially exciting and concrete. Three cabinet ministers lived in homes that he created, and so did the sister of Lord North. Adam defined the culture of the age in a way that words could never do.12

  The house in Robert Street survives as a relic of his boldest venture, the Adelphi, a residential complex built along the waterfront. Anyone who looked at the plans could see what Adam was trying to achieve: a revival of the glamour of antiquity. Some people, including Samuel Johnson, found his work too ornate and overpowering, but Adam’s clientele loved every marble fireplace and every gilded swag of stucco. The movement he led had a manifesto, composed by his friend John Gwynn, a civil engineer, which explains the secret of its appeal. “The English are now what the Romans were of old, distinguished like them by power and opulence,” he wrote. “Our wisdom is respected, our laws are envied and our dominions are spread over a large part of the globe. Let us no longer neglect to enjoy our superiority; let us employ our riches … by promoting the advancement of elegance.” In defense of luxury, Gwynn spoke of rebuilding the capital to sweep away the debris of the past. The citizens of London would share in what he called “Publick Magnificence,” their waking hours enriched by scenes of beauty. To make his point, his book contained pictures showing the embanking of the Thames, where the mud and squalor were replaced with fine terraces and colonnades, surpassing those of Rome in splendor and durability.

  Britain’s politicians had spent their youth studying the classics, and so when Robert Adam asked for their consent to build along the riverbank, they readily gave the Adelphi their blessing. What better way to beautify the city, in the manner of Augustus? Adam built seventy houses on a slope leading up to the Strand over cellars copied from vaults he had studied in the Palace of Diocletian. By the spring of 1772, the buildings were nearly finished, and the first trophy tenant had arrived: David Garrick, the finest actor of the age. At breakfast time, surrounded by the paintings of Hogarth, Garrick would receive his guests and recite Shakespeare while they admired the view. It was precisely the effect that Robert Adam had striven to create.13

  It was all very grand, but sadly the Adelphi rested on a flimsy pyramid of credit. To finance the project, the Adam brothers turned to the new private banks, chiefly those from their native land. The new Scottish banks were small, with too little capital, but they found Robert Adam the money he needed by running up their own vast debts to larger banks in London. Altogether the Adams raised about £200,000, which they kept on deposit with the same small Scottish firms, including one owned by John Fordyce, a kinsman of the cheat from Aberdeen. The crash was about to occur, and Robert Adam would become its most famous vi
ctim, with the Adelphi another symbol of the British cult of speculation.14

  THE CRASH OF 1772

  It did not come entirely without warning. A man who tried to keep abreast of things, George III took a daily paper, the Public Advertiser, where early in April the king would have seen a prophecy of doom. Disaster was about to strike, the writer said, because of what he called “the great Extent, shameful Abuse, and fatal Consequences of CREDIT.”

  According to the Advertiser, the hectic pace of lending had strayed far beyond the boundaries of prudence. It blamed the Bank of England for keeping interest rates too low and giving other banks free access to its funds. The newspaper made a fair point, and privately the central bank had reached an identical conclusion. The very same week, a well-informed reporter elsewhere in the press said that the Bank of England was quietly refusing to grant new loans to the Scotsmen who financed the Adelphi or the Dutch firms like the Hopes who were so close to Alexander Fordyce.15

  One firm worried the authorities more than any other: the bank from Ayr, otherwise known as Douglas, Heron. In the space of just three years it had outgrown all its rivals, borrowing vast sums in London from bankers including the East India Company’s Sir George Colebrooke and laying the money out north of the border. Up to a point Douglas, Heron made for progress, leaving a permanent mark on the southwest of Scotland with new harbors, new highways, and streets of little whitewashed cottages for linen weavers. But its directors were rash and aggressive to the point of fraud, running the bank with what an official inquiry later called “the highest pitch of abuse and irregularity.” More than half the bank’s loans were suspicious, said the inquiry, unsecured and given to the partners and their friends.

  In the words of a hostile observer, the Ayr Bank financed “a black swarm of projects,” not only the Adelphi, but also slave plantations in Grenada, bought at the top of the market.*1 Apparently, it never lent money directly to Alexander Fordyce, but even so it was partly because of Douglas, Heron that the Fordyce affair turned out to be so catastrophic. When Fordyce absconded, the bank from Ayr had huge debts in the capital, all of them due for repayment within ten weeks. In a crisis the Ayr Bank was bound to fail and bring down many others in its wake.16

  On Wednesday, June 10, when it emerged that Fordyce had vanished, at first the city of London remained relatively calm. As a central bank was supposed to do, the Bank of England stepped in and lent freely to any bankers in distress. But in Scotland the reaction was entirely different. Late on Friday a horseman rode into Edinburgh with the news, and on Monday morning the banks began to collapse.

  The first domino to fall was John Fordyce. On the government’s behalf, his bank held the proceeds of the Scottish land tax; the authorities were worried that the money might be lost, and so they went to court to get instant payment of what they were owed. When the news leaked out, the townspeople hurried to withdraw their funds. The Fordyce bank locked its doors, and a run began on every bank in the city. On the cobblestones of the Canongate, crowds gathered outside the offices of Douglas, Heron demanding to regain their deposits in gold. For a week or so the management prevaricated, blaming “foolish or malicious persons” for spreading false rumors about its situation. But still the panic went on. Five more banks went down while Douglas, Heron frantically looked for help from London, where another storm was about to break.

  Despite the best efforts of the Bank of England, the city was rapidly losing its nerve. The following weekend, the first man killed himself, a trader from the suburbs who cut his throat while his wife slept peacefully beside him. Hearing him choke, she awoke to find the pillows drenched with his blood. Two days later, on Monday, June 22, panic set in. That very day somebody spotted Alexander Fordyce at Dover, boarding a boat for France; and while the villain fled, depositors were laying siege to every banking house in London. By ten o’clock one had gone down to ruin, and the partners of eighteen more had gathered in a frightened huddle at the Bank of England. In the next three days the bank lent them nearly £1 million, but it could not prevent the economic slump that followed.17

  At the Adelphi hundreds of craftsmen reported for work as usual, unaware that Robert Adam had lost the money to pay their wages. “When informed of it they came down from the walls in silence,” the newspapers said. “They stood for some time in the street in a body, and at last went off one by one, with every regret for the fate of their masters.” Work on the project ceased. All across the capital credit disappeared, with tradesmen demanding cash from any customers who crossed their doorsteps. Even George III had lost his nerve, it was said, and withdrawn all his money from his bankers in the Strand. The story was invented, but not the distress that swept away a multitude of lesser beings. By the end of the week it was reported that twenty firms of merchants had failed, with more tales of suicide by razor, by pistol, or by leaping from a window.

  It took another fortnight for calm to be restored. The Bank of England went on lending, and at last the crisis produced two saviors, Scotsmen of rank and property, for whom the fate of Douglas, Heron was an affair of honor, like a duel begun with a challenge they could not refuse. Into the breach stepped the young Duke of Buccleuch and his cousin the Duke of Queensberry, proprietors of vast estates between the Solway and the Clyde. Both men had been among the founders of the bank, which grew as swiftly as it did partly because they gave it their seal of approval. Feeling duty-bound to save the bank of Ayr, they pledged their land as collateral. An emergency loan was arranged by the Bank of England, and the firm survived to fight another day. The following year, when things did not improve, Douglas, Heron had to close, but it was wound up in an orderly fashion. By the 1790s, the bank had repaid almost everything it owed, but that was far longer than most of its creditors could wait.

  For the time being, the East India Company survived apparently unscathed, with its own line of credit from the Bank of England and a few months left to go until the next tea auctions. The rest of the kingdom sank into a deep recession, which dragged on into the spring of 1773. More businesses failed, and many thousands of workers lost their livelihood. The output of linen collapsed, demand for coal and woolens fell away, and new canals were left half excavated. In the midst of perfecting his new steam engine, James Watt had to lay down his tools when Matthew Boulton lost the cash for the project in one of the insolvent banks. In London, Robert Adam had to hold a lottery, raising the funds to complete the Adelphi by raffling off five of the finest houses in the scheme.

  All of this occurred beneath the watchful eyes of visiting Americans, who promptly wrote home with the news. “Were I to recount the many Catastrophes that have happen’d & the many families reduced to want & Beggary I should fill a volume of incidents,” wrote a young man from Virginia who was living in England as a dealer in tobacco. But among all the Americans in London, the opinions of one man about the crash have a special interest and relevance: not Benjamin Franklin, who simply shrugged his shoulders—by now, British muddle and mismanagement came as no surprise to him—but a friend of his, Henry Marchant, the attorney general of Rhode Island. The province had sent the lawyer to England to resolve its disputes with the mother country.18

  His mission was a failure, but Marchant traveled widely and kept a careful record of everything he saw. Little known and never published in its entirety, his journal gives us perhaps the best American account of the mother country on the eve of the revolution. Other visitors tended to linger in London, but Marchant, a young man of thirty-one, toured the rest of the country as well, inspecting schools and jails, peering down coal mines, and chatting with men and women who spun cotton. With Franklin at his side he marveled at a wonder of the age, the Carron ironworks in Scotland. Returning to the capital, he left his card with David Garrick, who took him backstage at Drury Lane and invited him to join the throng at breakfast time.

  Much of what Marchant saw evoked his admiration, but he also came away appalled. His meetings with the government, politicians, and businessmen left him deepl
y troubled by what he took to be a national malaise. Great Britain, he believed, was greedy, arrogant, and riding for a fall, and the banking crash appeared to prove him right. June 22 found him in London, an eyewitness to the panic in the city. Like James Boswell, he blamed it on moral decline. The crash came about, said Marchant, because of what he called “the Luxury and Folly of the Times; the madness of Paper Credit, and false Appearance of Riches.” It was merely a prelude, he believed, to the entire collapse of British power.

  Four weeks later the news arrived of the loss of the Gaspée. Just along Threadneedle Street from the Fordyce bank, Americans would gather at the New England Coffee House to trade in whale oil, charter ships, and collect their mail. The lawyer from Rhode Island was on the premises on July 17 when word came in about the burning of the schooner. Horrified by what he heard—he called the raid “a mad and foolish act”—Henry Marchant sailed for the colonies filled with a sense of foreboding.19

  To begin with, the Gaspée story made only a few lines in the papers, falsely reporting that Dudingston was dead. But the authorities knew the truth: they had the letter from the admiral. Eleven days later it reached the man who, on the British side, would play the central role in the revolutionary drama. He was the leader of the government, Frederick, Lord North, First Lord of the Treasury and chancellor of the Exchequer.

  After nearly two decades in politics, Lord North was apparently a statesman in his prime. Clever and amusing, he enjoyed the respect of his opponents as well as the admiration of his friends. A few weeks earlier, George III had made him a knight of the Garter, the highest rank he could bestow. And yet, for all his prestige and his outward confidence, in private North suffered agonies of self-doubt. The state of the kingdom gave him many reasons to be fretful.*2