One of the things I liked most about the work I did for 35 years was that it involved visiting a lot of hospitals. Some of them were prestigious and often they were housed in remarkable places.
Take Guy’s Hospital in South London. It’s not the oldest. But the eighteenth century, when it was founded, is one of the high points of British architecture. The original buildings certainly give the impression that you’re entering one of the high temples of medicine. A place dedicated to the best in patient care. An institution in constant pursuit of excellence.
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| The quad at Guy's Hospital |
That was the greed for riches.
You don’t know the story? Oh, let me tell it to you.
The South Sea Company was a brilliant scheme. One of those superb ideas from which everyone can get rich quick. Which means it was pretty much bound to end belly up.
The initial idea seemed good. By the early eighteenth century, Britain was becoming one of the major world trading powers. That meant it could afford to fund the wars it was fighting, one after the other, in monotonous succession.
That didn’t mean the British government had the funds it needed. Its credit was good, because the country’s economy was strong, but it had to borrow again and again. The burden of its debts began to be hard to bear.
Along came the South Sea Company with an extraordinary offer. They suggested they could shoulder a large portion of that debt. Unsurprisingly, government leapt at the chance.
In particular, the company took over a great many government annuities. These were yearly payments to individuals throughout their lives. The government had raised significant funds that way, but as their needs had increased, so had the interest rates they had to pay, peaking at 6%. Fine if the beneficiaries died young, so the annuity stopped, but if they lived into ripe old age, the cost could be massive.
The company took a lot of annuities over. Then it set out to swap as many as possible for company shares. Since the shares were growing quickly in value, that proved easy. In fact, people were dying to exchange their boring if reliable annuities for shares, since their rising value meant they could multiply their stakes several times over in just a few months. Shareholders could make a fortune.
On paper.
The enthusiasm spread. New companies were launched, ready to cash in on the buying frenzy. There were companies to improve gardens, to convert mercury into a malleable metal, to build a perpetual motion machine (which is a physical impossibility). Best of all was a company “for carrying on an undertaking of great advantage; but nobody to know what it is”.
It more or less didn’t matter what your company was set up to do. If it was a company, and if it was offering shares for sale, people bought them.
Where they didn’t have enough money, they borrowed to fund their share purchases. And they found borrowing easy, since lenders were happy to advance them the loans for such a fine purpose.
But what about the South Sea Company itself? What was it in business for? What did it get in return for taking on so much government debt?
The government had granted it the exclusive right to trade in ‘the South Seas and West Indies’. That, above all, meant trading in slaves. And the South Seas were South America and its islands.
Unfortunately, South America was the possession of Spain and Portugal. I don’t know whether anyone in Britain thought that those two nations would say, “Hey! The Brits want to come and trade here? In particular, they want to get into that great act, trading in African Slaves? We’d better just give up our monopoly on trade with our possessions and let them in.”
Neither Portugal or Spain decided to do Britain or the South Sea Company any such favours, except at a minimum level as a result of war or under its threat. But then, the Company wasn’t intended to do much trading. It was intended to keep growing its share value. Once the shares had started climbing breathtakingly, the conviction spread, as it does in all bubbles, that it would go on growing forever.
Why, after all, should it stop?
Well, what makes it stop is when big investors decide that it isn’t going to go on much longer and decide to take their profits. They sell, others follow their example, share values dip, start to slip, and finally crash. When that happened with the South Sea Bubble, a lot of people went broke. First the ones who’d borrowed to fund their share purchasers. Then those that had lent to them. And of course the ones who’d traded annuities for shares found themselves without their regular income, and holding a bunch of near worthless paper instead.
The shareholders who sold in time did very well indeed. Isaac Newton, not just an outstanding physicist but also a good financial mind (he ended his career running the Royal Mint), made £7000, over £1.6 million in 2020 terms. Most staggering of all, Thomas Guy made £180,000, equivalent to over £40 million.
You wouldn’t get a hospital for £40 million today. Not with the operating theatres, the MRI scanners, and all the kit a modern hospital needs. Especially not for the size of hospital we build today. But back then? Well, you could set up quite a centre of medical excellence without spending all your money.
That’s what Thomas Guy did.
So Guy’s hospital is an impressive monument to human endeavour and professional excellence. But also to the greed for easy money that drives a bubble. And to the ingenuity of the small number of people who actually do well by one.
See why visiting hospitals can be so interesting?
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