The enduring lessons of Walter Scott’s tangled finances


August 15 will be the 250th anniversary of the birth of Sir Walter Scott, the man who gave Scotland “a sense of itself”, according to the website that lists the festivities. It is true. The romantic view of the country’s landscape and history that colours everything from politics to biscuit tins began with his novels.

In his choreography of the visit of George IV to Edinburgh in 1822 he gave the country tartan as its motif — even persuading the portly king to wear a mini kilt. Scott became and remains a national treasure, as famous and successful in his time as perhaps only JK Rowling in our age.

Yet his relevance to us now goes beyond his marketing wizardry or his genius with the pen. At the height of his power and prestige he was financially ruined and, like some modern titan of finance or business, his sudden fall seemingly came from nowhere and shocked the nation.

Every generation likes to think its problems are unique. Ours is an age of debt — unprecedented government borrowing, sustained low interest rates and easy credit. Markets are booming. Companies are offered to the public at astronomical valuations — only to be oversubscribed. Fortunes are quickly made and lost in the same short timespan. Scott would have wagged his head in woeful recognition.

The first quarter of the 19th century had it all. In a saga with echoes I would argue of the current mania for cryptocurrencies, the fraudster Gregor MacGregor promoted the currency of “Poyais”, a supposed Central American country — which did not exist. Investors flocked to buy “Poyais” bonds and he even persuaded would-be settlers to exchange their sterling for “Poyais dollars”. They died in their hundreds in the undeveloped mosquito-infested swamp they found — but before the survivors returned, MacGregor had fled to France to try the same scam again.

This was the febrile context of the times in which Scott made and lost then made again a fortune. In the decade leading up to his fall in 1825, Scott had ridden the boom and made himself rich and influential. We don’t know whether he speculated in the markets like some of his close associates, but we do know he continually ran up large debts to fund his lifestyle and social position, borrowing from banks, family and friends.

Sir William Allan’s ‘Sir Walter Scott, 1771-1832. Novelist and poet’ (1844) © Alamy

There is even an echo of Lex Greensill, founder of the eponymous finance company; Scott’s wealth brought him privileged access to Tory ministers but, unlike Greensill, Scott did not push his own business interests into the government. Greensill had to wait for his CBE but Scott’s knighthood came easily. He was even made a baronet by a grateful monarch after leading an expedition to “rediscover” the crown jewels of Scotland — carelessly mislaid in the cellars of Edinburgh Castle at the time of the Act of Union in 1707.

Scott’s day job was as a lawyer, but it was his writing that enabled him to amass an apparent fortune and a place in society well above that which a legal clerk and part-time provincial judge might be expected to hold. At first epic poems such as “Marmion” and “The Lay of the Last Minstrel” brought him fame and huge sales, which he followed with a series of romantic historical novels, named after his first story, Waverley. His productivity was astonishing: in the 10 years up to 1824 he published 18 novels, including some of his most famous: Ivanhoe, Rob Roy and The Bride of Lammermoor.

They sold in their tens of thousands and enabled him to force his publisher to pay him big advances. The £88,000 Prime Minister Boris Johnson is reported to have been paid for a yet-to-be-delivered book on Shakespeare would have been loose change to Scott, who could regularly demand sums equivalent to £1m in today’s money — on one occasion for four books for which he hadn’t yet thought of a title or a subject.

© Cat O’Neil

Like today’s self-made billionaires, he spent lavishly and acquired assets. He had an elegant bow-fronted townhouse built for him in Edinburgh’s fashionable New Town and a fantasy castle on the bank of the river Tweed in the Scottish borders. He was well-connected in business, politics and society — on good enough terms with the Duke of Buccleuch, the richest man in Britain, to be able to borrow money on the strength of his name when the need arose.

He was in demand as a businessman — governor of one insurance company, director of another and chair of a new technology start-up (the wrong technology as it happened, his oil gas company losing out to coal gas in offering energy to light streets and houses). He was president of the august Royal Society of Edinburgh, founded by many of the leading figures of the Scottish Enlightenment, including Adam Smith, the father of modern economics.

If Scott had read Smith’s seminal work, The Wealth of Nations, he had not learnt its lessons, any more than had the founders of Greensill, Wirecard, Carillion or any other of the 21st-century corporations that have collapsed under the weight of their debts. In 1776, Smith had warned against the lure of easy credit and the pitfall of “fictitious bills” that could bring down both the lender and the borrower. Yet 50 years later, Scott was issuing such bills himself — and 250 years later dubious invoices were at the heart of both the Greensill and Wirecard collapses.

Scott had a phenomenal ability to earn money, but an even greater ability to spend it. He lived in great style and encouraged his French wife to be lavish with the household expenses.

His cellar reputedly contained 4,000 bottles of wine and 400 bottles of spirits. He entertained regularly and was generous to his family and friends — buying his eldest son successively more expensive commissions in the Hussars and the sumptuous uniforms to go with them. He guaranteed a lease on the Adelphi Theatre, London, for his friend, the actor-manager Daniel Terry, who had dramatised some of his stories. But it was Abbotsford, his fantasy castle on the Tweed, that was the largest drain on his income.

It was the sort of country seat he believed the descendant of illustrious border Scotts ought to have. Beginning with a modest property, nicknamed Clarty Hole Farm (“clarty” being the Scots word for dirty or muddy), he paid over the market price to secure neighbouring land until he had amassed a sizeable estate.

He planted trees and had landscaped gardens laid out. He commissioned a substantial baronial hall, which he kept enlarging. Each new room had to be overdecorated and furnished in a style that reflected his longing for a past age of adventure and chivalry. The walls hung with tapestries and artworks, the ceilings embossed with the armorial bearings of his ancestors. He collected artefacts of dubious provenance: the skull of Robert the Bruce, the musket of Rob Roy.

A bond signed by Archibald Constable to Walter Scott, dated July 1825 and payable in six months — by which time Constable was bankrupt

However much Scott romanticised them, his forebears had in truth been little more than border farmers perhaps not beyond a little cattle rustling. As his spending outstripped his earning power, Scott resorted not to theft, but to borrowing and deviousness to fill the gap. Modern firms rely on shell companies and offshore holdings to avoid scrutiny; Scott had an easier time. Most firms were private partnerships and there was no legal requirement for disclosure of accounts or shareholdings.

His first venture was to try to cut his Edinburgh publisher, Archibald Constable, out of the profits of his books by setting up a publishing business of his own. Scott’s involvement was kept secret and he enlisted the naive but willing John Ballantyne, brother of Scott’s school friend James, to front it. Their first venture, The Lady of the Lake, produced big profits, but rather than leave the money in the business, Scott spent it.

The company might have succeeded had it stuck to publishing his own works, but he made a series of disastrous editorial decisions, resulting in a warehouse full of unsold books and a mountain of debt. Fearing bankruptcy and inevitable exposure, he borrowed using the Duke of Buccleuch as guarantor, paid the firm’s creditors and quietly closed it, slinking back to Constable.

That was not the end of Scott’s underhand dealings. He persuaded James Ballantyne to set up a printing business with Scott as the dominant secret partner (and, for a while, the sole owner). He ensured a steady stream of lucrative business by insisting that Constable use Ballantyne to print all his books — and he solicited print jobs from friends without disclosing his own financial interest.

The profits were large and Scott withdrew and spent them, obliging the business to run up huge debts. Ballantyne and Constable, their London publishers and agents, Hurst Robinson & Company, and Scott himself prospered during the boom years, constantly expanding their businesses and enhancing their opulent lifestyles on borrowed cash.

Greensill may have believed he had a modern and innovative business model in “supply chain financing”, but discounting trade bills was a major form of lending in 18th and 19th century Britain. Economist Smith made a distinction between different sorts of bills. On the one hand, there were genuine bills, where a businessman who knew he had money coming in payment for services provided or goods delivered could issue a bill (essentially a handwritten IOU) to a bank as security for borrowing. The discount the bank applied was the interest payment and varied according to the creditworthiness of the borrower.

‘The State of the Money Market’ (1825) reveals the crash’s different effects on banks north and south of the border © University of Glasgow

But there was another sort of bill that Smith branded as fictitious — the “accommodation bill”. Two individuals — say Scott and Constable — would write bills to each other promising to pay, say, £750 in three months’ time. No money changed hands but both now had the security to go to their bank and borrow cash at a discount. When the bills expired the money could either be repaid or, more likely, new bills issued and the debt rolled over. It wasn’t just Scott and Constable who indulged in this dubious practice: so did Ballantyne, Hurst Robinson, hundreds of other companies and thousands of individuals.

There were many opportunities to use the funds to make more money. Foreign governments issued bonds in London and companies claiming to own gold and silver mines in South America issued their prospectuses. Some did not own mines at all, but that did not stop their shares from being bought and traded, with early investors taking a profit from more gullible later buyers. Firms supposedly exploiting new technologies such as gas lighting, railways and steamship services offered equity; and to facilitate the exchange of cash for paper a new type of financial professional appeared — the stockbroker.

The bubble burst in 1825 when the Bank of England, frightened at the expansion of the money supply, tightened credit suddenly, refused to discount the bills of a number of fringe lenders and precipitated a crash that brought down 60 English banks.

Scotland had a more robust banking system in the 19th century — unlike in 2008, when Britain’s two biggest casualties were Bank of Scotland and Royal Bank of Scotland. Only three small banks failed north of the border, but the avoidance of a wider meltdown was not enough to save Scott. Joseph Robinson, partner in his London agents, had been speculating in the market for hops and as prices fell could not sell his holding or repay his enormous borrowings.

© Cat O’Neil

Hurst Robinson was locked in a spiral of overdue bills with Constable, Scott’s publisher, which in turn owed money to Ballantyne, his printer. Each had guaranteed the borrowings of the others. Each had borrowed from numerous banks on the strength of worthless bills. As their search for credit became increasingly frantic they found more and more doors closed to them.

They staggered on through the winter of 1825 but, in January 1826, the whole house of cards collapsed. All three companies were private partnerships and one by one their principals were bankrupted, their homes and possessions sold and their families evicted. The last man standing was Scott, who found himself liable for debts from all three firms as well as his own borrowing.

Ashamed and guilty, he feared the humiliation of bankruptcy. He would lose everything, have to resign from his legal duties and, like Wirecard’s former chief operating officer, escape abroad. His despair was worsened by the death of his wife, but he rallied and summoned the imagined courage and sense of honour of his Scott predecessors. “I find my eyes moistening and that will not do. I will not yield without a fight,” he wrote in his journal. Facing defeat, earlier Scotts had looked to their swords, but Walter found redemption in his pen.

He begged his creditors not to bankrupt him. His lawyer, John Gibson, persuaded the banks to set up a trust, which would benefit from all Scott’s assets and his future earnings and he pledged to redeem the debt. His townhouse and contents were sold.

Scott had the embarrassment of eating off his own crockery on his own dining table when he ate with Gibson, who had bought them at knockdown prices. Abbotsford, which he had made over to his oldest son, was saved and the creditors allowed him to live and write there for the remainder of his life. They even allowed him to keep his wine cellar.

Despite declining health, in his last six years, Scott produced at least nine books — the first two, the novel Woodstock and a multi-volume life of Napoleon, alone paid off 15 per cent of the outstanding amount and by the time he died in 1832 it had been reduced by half. The entire debt was repaid by 1847, with the sale of his remaining copyrights. By contrast, the creditors of Constable, Ballantyne and Hurst Robinson received at best 10 per cent of what they were owed.

His reputation was secured and his grateful creditors contributed to the Gothic memorial that still dominates Edinburgh’s Princes Street. Scott’s prolix style makes his work unfashionable today, but the popularity of his books paved the way for the writers who came after him.

Despite his fecklessness with money, he showed that serious writing could be commercially successful and he pioneered the “publisher’s advance” as a way of financing the preparation of a book. For that alone he deserves the thanks of authors and to have his 250th birthday remembered and celebrated.

Ray Perman’s latest book is ‘The Rise and Fall of the City of Money: A Financial History of Edinburgh’

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