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 to 800,000l. a year. An offer was made by the South Sea Company to take them over and to pay 7,567,000l. for the privilege. The scheme was warmly opposed by Walpole as financially and constitutionally unsound; nevertheless it was accepted by the house. Walpole published a pamphlet condemning it by the title of ‘The South Sea Scheme Considered.’ But speculation in South Sea stock spread like a fever. The Princess of Wales (Caroline) took to gambling in stocks, and, Walpole having the reputation of extraordinary financial ability, she sought his advice. To Walpole's career this association proved of momentous importance. It was cemented, scandal said, by an intrigue between the prince and Mrs. Walpole, ‘which both he and the princess knew’ (, Diary, p. 134). On 20 May 1720 Lady Cowper wrote, ‘Mr. Walpole so possessed her [the princess's] mind that there was not room for the least truth;’ and again, ‘The prince is guided by the princess as she is by Walpole’ (10 May 1720). He himself took advantage of the public mania, bought largely in South Sea stock, and sold out at the top of the market at 1,000 per cent. profit. With the fortune thus acquired he rebuilt Houghton and began his famous collection of pictures. His association with the prince through the princess led to his becoming an intermediary for the reconciliation of the prince to the king. Sunderland felt the ground slipping under his feet. He made overtures to Walpole, who at first refused to take service under him (ib. 15 April 1720). As Walpole afterwards explained to Lord Holland, ‘his [Sunderland's] temper was so violent that he would have done his best to throw me out of window’ (, Autobiogr. i. 35). This probably explains why Walpole was content to accept the inferior but lucrative position of paymaster of the forces instead of desiring to sit in the cabinet. Sunderland was deeply involved in the South Sea business, and, as Walpole had predicted the collapse (, Diary, p. 136), he probably foresaw Sunderland's speedy and compulsory retirement. His personal dislike of Sunderland perhaps led him, contrary to his custom, to spend the summer of 1720 in the country.

Meanwhile South Sea stock was declining. By September panic had set in. Walpole was called up from the country to assist the Bank of England with his advice. He drew what was afterwards known as ‘the bank contract,’ by which the bank agreed to take the bonds of the company at 400 per cent. premium for a sum of 3,700,000l. due to it. But the fall still continued. Prompted by Sunderland, the king, who used to say of Walpole that he could convert stones to gold (, ii. 520), now called upon him to produce a scheme for the restoration of public credit. In Lord Hervey's belief the commission was given him by Sunderland with the expectation that he would fail, and that the odium attaching to the cabinet would be transferred to him. Walpole undertook the task. On 21 Dec. he presented to the House of Commons a plan suggested by Jacombe, under-secretary at war, the substance of which was to engraft nine millions of South Sea stock into Bank and East India stock respectively. This proposal became law in 1720 (7 Geo. I, st. 1, c. 5), but before taking effect it was partly superseded by another act of 1721 (7 Geo. I, c. 2), also framed by Walpole, remitting more than 5,000,000l. of the 7,500,000l. which the South Sea directors had agreed to pay the public. The 2,000,000l. was remitted in December 1723 (Parl. Hist. viii. 53) and other measures taken to lighten the disaster to the sufferers. While the tide of indignation was flowing in full force against the South Sea promoters, Walpole behaved with consummate tact and judgement. He pleaded extenuating circumstances for Aislabie [see ], who had been compelled to resign the chancellorship of the exchequer (23 Jan. 1721). He successfully defended Sunderland (15 March), not for love of the man, but to avert the danger of a tory ministry. He insisted that the accused directors should be allowed counsel. His fairness drew obloquy upon himself. In the squibs and caricatures of the day he was nicknamed ‘The Screen’ (, ii. 216). On 4 Feb. 1721 Stanhope, on 16 Feb. James Craggs the younger [q. v.], and on 16 March James Craggs the elder [q. v.] died. Sunderland was compelled by public opprobrium to retire, and on 3 April Walpole was appointed chancellor of the exchequer and first lord of the treasury. On 10 Feb. his brother-in-law Townshend had taken Stanhope's post as secretary of state. An extraordinary conjuncture of circumstances had thus restored the two ministers to power and annihilated the opposing faction.

In the administration that followed Walpole began by affecting a comparative indifference to foreign policy. As Palm wrote to the emperor on 13 Dec. 1726, ‘Sir R. Walpole … does not meddle in foreign affairs, but receives accounts of them in general, leaving for the rest the direction of them entirely to Lord Townshend.’ Walpole in return was left absolute master of home