The Sword Blade Company was a child of its aggressive times, an exploiter of the government’s financial difficulties, and the progenitor of the most corrupt financial institution the country was ever to spawn. The company’s first step was to buy up large tracts of Ireland, at the bottom of the market, acquiring for about £200,000 land worth £20,000 a year in rents. To bankroll its purchase, it decided to issue stock in the company. It did so in a complicated but highly profitable manner, announcing that it would exchange its stock not for money but for government debts called ‘army debentures’. Debentures were slips of paper given to people who had lent money to the government, a type of IOU issued by the Paymaster of the Forces to raise money for the constant state of war. The debts were unsecured, however, and had fallen in value since they first came on the market.
The Sword Blade’s idea was to call in as many debentures as it could from the people who had lent the government money, by offering them what looked like a profitable exchange deal. The debentures stood at 85 on the stock market, and their holders were offered, in return, Sword Blade shares worth 100. How then could the company make a profit? The answer was that it had, effectively, rigged the market through what today would be called ‘insider trading’. It simply bought up as many debentures as cheaply as it could before announcing its plans, knowing that the scale of its share-swap scheme would cause their price to rise. By this method, the company made an estimated profit of around £25,000. The government, too, was satisfied. As well as buying land from it, the company lent it some £20,000 at a low level of interest as a ‘sweetener’ to facilitate the business between them. Through its financial adventures it became the Sword Blade Bank. It was a key moment in its history, the turning point in what became a growing, and corrupt, entanglement with affairs of state.
The Bank of England looked on unamused. Its banking monopoly had been enshrined in an Act of 1697, and now it seemed the Sword Blade Company was acting as a land bank, not just as a land corporation. Treasury lawyers pored over the case, and pronounced in favour of the Bank, but no action was ever taken. The deal had been too profitable for the government. But there was worse to come for the Bank of England. A mysterious syndicate, its backers unknown but almost certainly including partners from the Sword Blade Company, offered to lend the government £1.5 million. The Bank could clearly see the danger of such a manoeuvre by its unknown rival. Its charter had only three more years to run, and only by offering to match the size of the loan, and by cutting interest rates to 4.5 per cent, did it see off the threat to its position. Its reward was the extension of its charter to 1732.
This early skirmish between the two rivals presaged what would be in 1720 their all-out hostility, and the government seemed to be the beneficiary, paying less for its money than before. But the charter’s extension still proved to be a problem for the Chancellor, Robert Harley. The government had, by confirming the Bank’s monopoly, tied itself to a single banking institution to raise money for its conflicts and, over the next three years, the Bank increasingly struggled to deliver. What else could Harley do?
In 1710, battling with the nation’s finances, he was impressed by the acumen of John Blunt, and the profit he was making. Harley began to discuss the issue of the national debt with Blunt in the hope of finding a radical solution. The first proposal that his new ally put forward, however, was distinctly traditional. Just five years after John Law had produced what would turn out to be one of the greatest analyses of the eighteenth century as a possible cure for Scotland’s economic ills, Blunt persuaded Harley to resurrect the old Whig solution of the lottery; and to let him run a far bigger game than the one which had captured von Uffenbach’s attention in the Banqueting House back in 1710, one which offered even bigger cash prizes and was more a game of chance. It would capitalise on the general fever for gambling and have the delightful side-effect, if it succeeded, of wresting some financial control from the Whig-dominated Bank of England. On 3 March 1711, the new lottery was launched.
Ostensibly, it was the traditional way of raising loans, to be paid back through yearly payments, or annuities, at a guaranteed rate of interest. One hundred and fifty thousand numbered tickets, costing £10 each, were to be sold, inscribed with the legend: ‘This ticket entitles the bearer to ten Pounds to be paid in due course with Interest to commence from the Nine and twenty Day of September One thousand seven hundred and eleven or a better chance’ – that is, a prize. Interest was to be paid at 6 per cent. But Blunt had made big changes to the scale of the prize money. There were 25,000 prizes to be won, with the smallest at £20 and the largest at a staggering £12,000. The first and last tickets drawn out of the box would win an extra £500. In total, more than £678,000 – nearly as much as it cost to build St Paul’s Cathedral – was to be given away in prize money. Not surprisingly, the lottery was a tremendous success. One knight of the realm complained to a friend who asked him to buy tickets: ‘You may assure yourself that I used my endeavours to have put your money in the Lottery, but it was impossible to do it though I was very early that morning in the City, and a vast number of persons was disappointed as well as myself … As for buying up tickets, I cannot tell how to advise you, such advantage is made of them by the stock-jobbers.’
John Blunt was on his way to the top, but at a price. The lottery was the first to raise huge sums for the state, triggering a succession of similar enterprises over the next decade, while weighing down the government with the annuities it was obliged to pay to the subscribers. By raising the stakes with such large prize money, the lottery also prepared the ground for the grand speculation of 1720. Eventually, there was to be an explosion of investment which made Wren’s continual pleas for cash to fund his dome seem like requests for loose change, rather than the serious financial commitment that Parliament invariably resisted.
After the triumph of his first lottery, Blunt immediately marketed his second, known as ‘the Adventure of Two Millions’ or ‘the Classis’. Never before had the state attempted to hold a lottery on this scale; the tickets cost £100, which was half the annual income of a middle-class family and ten times the income of a manservant. The top prize was £20,000, the equivalent of the multimillion-pound jackpot today. The tickets were within the reach of only the very rich, except when the stockjobbers sold shares in them. But Blunt’s revolutionary idea was to divide the draw into five ranks, or classes, each with a different level of prizes. In the First Classis (or section), 1,330 tickets would win prizes ranging from £110 to £1,000. Then the prize money was stepped up: in the Second Classis, 2,670 tickets would win between £115 and £3,000; in the Third Classis there were 4,000 prizes, from £120 to £4,000; in the Fourth Classis, 5,340 tickets would win £125 to £5,000; and in the final draw, the Fifth Classis, there were 6,660 winning tickets with prizes ranging from £130 to the top prize, again, of £20,000. In effect, there were five different lotteries, draw succeeding draw so as to build the excitement to fever pitch. If their number did not come up, investors would not know whether to be pleased or disappointed until the last ticket of the fifth and final draw was produced from the box to win the biggest prize of all.
The Sword Blade Company was in charge of marketing the game, and all the tickets were sold within nine days. In this short space of time, Blunt’s two lotteries raised £3.5 million. Some investors were either very lucky, or bought heavily: the Duchess of Newcastle won eleven times, the Dukes of Rutland and Buckingham eight times. In the Second Classis an apothecary from Reading, Robert Dean, won the top prize of £3,000; in the Third, a gentleman from Westminster, Thomas Layton, the £4,000 jackpot. In the Fourth, Thomas Scawen, an alderman from London, won the £3,000 prize; another London merchant, John Upton, £4,000; and a gentleman from Northamptonshire, John Hunt, the top prize of £5,000. In the Fifth Classis, ‘The Hon. Thomas Cornwallis of St Martins in ye Fields, esquire’ won £3,000; a London scrivener, James Colebrook, £4,000, and Samuel Strode, a London surgeon, £5,000. The final ticket to be drawn belonged to Thomas Weddell, a merchant of Gray’s Inn, who scooped the £20,000