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(Re)financing the Slave Trade with the Royal African Company in the Boom Markets of 1720

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  • Gary S. Shea

Abstract

In 1720, subscription finance and its attendant financial policies were highly successful for the Royal African Company. The values of subscription shares are easily understandable using standard elements of derivative security pricing theory. Sophisticated provision for protection of shareholder wealth made subscription finance successful; its parallels with modern innovated securities are demonstrated. A majority of Company shareholders participated in the re-financing, but could provide only a small portion of the new equity required. The re-financing attracted to the subscription an investment class that was strongly composed of parliamentary and aristocratic elements, but appeared to be only weakly attractive to persons who had already invested in the East India Company and was not attractive at all to Bank of England investors or to those persons who were investing in newly created marine insurance companies. Subsequent trade in subscription shares was more intense than was other share trading during the South Sea Bubble, but the trade was only lightly served by financial intermediaries. Professional financial intermediaries did not form densely connected networks of trade that were the hallmarks of Bank of England and East India Company share trading. The re-financing launched an only briefly successful revival of the Company¡¯s slave trade.

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Bibliographic Info

Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 201114.

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Date of creation: 15 Oct 2011
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Handle: RePEc:san:cdmawp:1114

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Keywords: South Sea Company; South Sea Bubble; goldsmith bankers; subscription shares; call options; derivatives; installment receipts; innovated securities; networks.;

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  1. Ann Carlos & Karen Maguire & Larry Neal, 2006. "Financial acumen, women speculators, and the Royal African company during the South Sea bubble," Accounting History Review, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(2), pages 219-243.
  2. Carlos, Ann M. & Moyen, Nathalie & Hill, Jonathan, 2002. "Royal African Company Share Prices during the South Sea Bubble," Explorations in Economic History, Elsevier, Elsevier, vol. 39(1), pages 61-87, January.
  3. Gary S. Shea, 2011. "A Social Network for Trade and Inventories of Stock during the South Sea Bubble," CDMA Working Paper Series, Centre for Dynamic Macroeconomic Analysis 201110, Centre for Dynamic Macroeconomic Analysis.
  4. Ann Carlos & Karen Maguire & Larry Neal, 2008. "'A knavish people…': London Jewry and the stock market during the South Sea Bubble," Business History, Taylor & Francis Journals, vol. 50(6), pages 728-748.
  5. Andrew Mays & Gary S. Shea, 2011. "East India Company and Bank of England Shareholders during the South Sea Bubble: Partitions, Components and Connectivity in a Dynamic Trading Network," CDMA Working Paper Series, Centre for Dynamic Macroeconomic Analysis 201109, Centre for Dynamic Macroeconomic Analysis.
  6. Gary S. Shea, 2005. "Financial Market Analysis Can Go Mad (in the search for irrational behaviour during the South Sea Bubble)," CDMA Working Paper Series, Centre for Dynamic Macroeconomic Analysis 200508, Centre for Dynamic Macroeconomic Analysis.
  7. Gary S. Shea, 2005. "Understanding financial derivatives during the South Sea Bubble: the case of the South Sea subscription shares," CDMA Working Paper Series, Centre for Dynamic Macroeconomic Analysis 200512, Centre for Dynamic Macroeconomic Analysis.
  8. Charupat, Narat & Prisman, Eliezer Z., 2004. "An essay on financial innovation: The case of instalment receipts," Journal of Banking & Finance, Elsevier, vol. 28(1), pages 129-156, January.
  9. Ann M. Carlos & Jamie Brown Kruse, 1996. "The decline of the Royal African Company: fringe firms and the role of the charter," Economic History Review, Economic History Society, Economic History Society, vol. 49(2), pages 291-313, 05.
  10. Ann M. Carlos & Larry Neal, 2006. "The micro-foundations of the early London capital market: Bank of England shareholders during and after the South Sea Bubble, 1720-25 -super-1," Economic History Review, Economic History Society, Economic History Society, vol. 59(3), pages 498-538, 08.
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