Antique Book George 3 South Sea Company Trade 7 pages

The company, established in 1711 by (among others) the Lord Treasurer Robert Harley and the previous director of the Sword Blade Company John Blunt, was granted exclusive trading rights in Spanish South America. At that time, when continental America was being explored and colonized, Europeans applied the term "South Seas" only to South America and surrounding waters, not to any other ocean. The trading rights were presupposed on the successful conclusion of the War of the Spanish Succession, which did not end until 1713, and the actual treaty-granted rights were not as comprehensive as Harley had originally hoped.

Harley needed to provide a mechanism for funding government debt incurred in the course of that war. However, he could not establish a bank, because the charter of the Bank of Englandmade it the only joint stock bank. He therefore established what, on its face, was a trading company, though its main activity was in fact the funding of government debt.

In return for its exclusive trading rights the government saw an opportunity for a profitable trade-off. The government and the company convinced the holders of around £10 million of short-term government debt to exchange it with a new issue of stock in the company. In exchange, the government granted the company a perpetual annuity from the government paying £576,534 annually on the company's books, or a perpetual loan of £10 million paying 6 percent. This guaranteed the new equity owners a steady stream of earnings to this new venture. The government thought it was in a win-win situation because it would fund the interest payment by placing a tariff on the goods brought from South America.

The Treaty of Utrecht of 1713 granted the company the right to send one trading ship per year, the Navío de Permiso (though this was in practice accompanied by two "tenders"), as well as the Asiento, the contract to supply the Spanish colonies with slaves.