The Darien Debacle: Scotland’s imprudent investment


At the close of the 17th century, Scotland’s economic situation was grim. Four years of failed harvest had resulted in famine and depopulation. Trade with the Baltic and France had slumped due to protectionist trade barriers, and King William’s wars on the continent were being paid for through high taxation on the people. The final nail in the proverbial coffin, however, was that Scotland’s traditional rival in the south, England was building an empire through mercantile trade.

In 1695, the Scottish Parliament met in Edinburgh to work out how they would compete with the English. A Bank of Scotland with a starting capital of £100,000, modeled on the Bank of England (founded a year earlier with £600,000) was established.  In addition, a public chartered company, emulating England’s own East India Company, was created in order to establish a sea-born Scottish trading empire.


The Company of Scotland was the brainchild of William Paterson, who was a key member in drawing up the proposal of the Bank of England. He proposed a joint venture between England and Scotland, and was granted a permanent monopoly for Scottish trade with Asia and Africa and a 31 year monopoly with America. This, however, was met with hostility from England’s merchants, and the original intent of the company was foiled.

Paterson was undeterred, and on July 23rd, 1696, convinced the committee on Foreign Trade to allow his company to establish a new colony on the Isthmus of Panama. He was convinced that this uninhabited strip of land would be at a critical juncture for future trade between the Pacific and the Atlantic.

The English did everything they could to prevent the venture to the new colony, and in particular there was massive resistance from the powerful and influential East India Company. English and Dutch subscribers withdrew, and bankers in Amsterdam and Hamburg were told their favorable dealings with London would be withdrawn if they committed any capital to the venture.

The Scottish people were understandably furious, and in a deluge of patriotic sentiment mixed with resentment for the English, as well as determination to see the scheme succeed if only to spite them, decided to raise the capital themselves. Landowners & merchants emptied their pockets, Scotland’s aristocrats mortgaged their property and thousands of ordinary Scottish citizens invested money in the expedition. The total capital raised through this early equity fundraising was to the tune of approximately £400,000, which by some estimates was about half the total capital available in Scotland at the time.

A ledger of investor records 

The ill-fated voyage

On July 17th, 1698, a fleet of five ships sailed from Leith docks near Edinburgh carrying 1,200 settlers to found a colony in Panama, arriving at the Bay of Darien on November 3rd to establish the colony of Caledonia.

The Expedition Routes

The trip was a disaster from the get-go. The colonists discovered that their provisions were woefully inadequate, and the English made sure that their trading posts in Jamaica and Havana didn’t provide the Scots with any further supplies. The mosquito-infested tropical climate caused an outbreak of disease that relentlessly and rapidly reduced the settler headcount. Discipline collapsed and mutinies broke out. Finally, the Spanish, who had already laid claim to the area, decided they wanted it back. They relentlessly assaulted the camp. In the end, only a fraction of the original colonists survived, sailing home both beaten and exhausted scarcely a year after their initial voyage.

At this point, the Scots should really have cut their losses, but their pride got the better of them (again). Two more expeditions were sent out, with the last one engaging the Spanish almost incessantly in jungle warfare. Finally, besieged by the Spanish and threatened with certain annihilation if they did not surrender, the Scots abandoned the colony in 1700 and headed home for the last time.

The Predictable Consequences

(a) Financial disaster: Over 2000 lives and £200,000 pounds were lost in this ill-conceived scheme. Many families and businesses were driven to ruin, and the struggling Bank of Scotland was forced to suspend payments to it’s creditors .

(b) Further degradation of relations with England: English antagonism, which had been simmering throughout this encounter, reached a boiling point. In 1704, English Parliament passed the Aliens act, ruling that all Scottish nationals living in England were officially foreign aliens incapable of bequeathing their property to their heirs.


History can be a fine teacher, if only to point out that human beings are both capable of remarkable heights of brilliance and astounding depths of foolishness, often in alternating cycles of the two. The Scottish people have contributed much to modern society, but this wasn’t their finest hour.

(a) Beware of Bias from Authority

William Paterson’s harebrained scheme was no doubt given a great deal of legitimacy from his involvement in the Bank of England project. It’s kind of like when modern day celebrities talk about important issues and people listen to them merely because they are celebrities.

(b) Don’t ever bet the farm: 

The fact that so many were driven to ruin by the failure of their investment proves that they clearly invested more than they could afford to. From a risk management standpoint, it was downright irresponsible, especially given the economic climate being what it was.

(c) Don’t get emotional about stocks – it clouds your judgement

This iconic line by Gordon Gekko in the movie Wall Street is especially pertinent here. The Scottish were so blinded by their hatred of the resentment of the English that they let emotions get in the way of dispassionate decision making.

(d) Sunk cost biases can be costly

The Scots really should have cut their losses the first time. I mean, as the saying goes the definition of insanity is doing the same thing over and over again and expecting different results.

(e) The value of prior research & considering the consequences

The Scots may not have had Google maps and the Internet, but as the historian Patrick Riley put it: “No one can really defend an attempt to establish a colony in a fever-ridden territory belonging to someone else”. 

The consequences of provoking England, who were no doubt both amused and alarmed in equal measure by Scotland’s challenge to their trade superiority, were not given enough thought. As Sun Tzu put it, “So in war, the way is to avoid what is strong, and strike at what is weak”. Challenging England in such a manner when their economy and military were on the rise was a big mistake.





2 thoughts on “The Darien Debacle: Scotland’s imprudent investment

  1. Interesting, never heard of this incident before. Goes to show you that history is really the same everywhere in every corner of the world and human nature , with all its biases and imperfections , doesn’t change at all . Although the Scots would also have been hailed as path breaking visionaries if one of the voyages had succeeded. All a matter of perspective 🙂

    1. I appreciate the “alternate history” viewpoint, but this wasn’t one of those 50-50 scenarios where it could have gone either way. It was a foolhardy venture done out of sheer pride and stubbornness in the face of opposition from two powerful adversaries (The English and The Spanish), to establish a colony in a torrid, tropical climate on the fanciful notions of William Paterson who thought Panama would be important in the future. There was never any chance that they would succeed, nor was it likely to have made a meaningful change to their economic position.

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