Eight months in Panama cost Scotland its parliament

In July 1698, five ships left the port of Leith, next to Edinburgh, carrying some 1,200 passengers. They were going to found a Scottish colony on the Isthmus of Darién, in what is now Panama. The colony lasted eight months, and nine years later the Parliament of Scotland voted itself out of existence with the bill for that voyage written into the deal.

The idea belonged to William Paterson, a Scottish merchant who had taken part in the founding of the Bank of England. His reasoning was geographical: somewhere between the Atlantic and the Pacific the land narrows to less than a hundred kilometres. Whoever put a warehouse there would charge a toll on half the world's trade without having to round Cape Horn. Two hundred years later, on that very isthmus, the Panama Canal opened.

In 1695 Scotland was a poor country locked out of trade from the outside: the English Navigation Acts — laws reserving colonial traffic for English ships — kept it out of the American business. Its Parliament answered by creating by statute, in June 1695, the Company of Scotland Trading to Africa and the Indies. English investors signed up first and withdrew later, pressured by the East India Company, which wanted no competitor to the north. The money had to come entirely from within: £400,000 sterling was subscribed, a sum reckoned ever since at roughly a fifth of all the available capital in the country. It was put in by trade guilds, town councils, lawyers, widows and shopkeepers, in entries of a hundred pounds and of twenty-five.

The fleet reached Darién on 2 November 1698 and christened the place New Caledonia. It built a fort, Fort St Andrew, and a village it called New Edinburgh.

They had landed in one of the rainiest places on the continent, right at the end of the rainy season, and with their holds full of wigs, combs, mirrors, heavy woollen stockings, shoes and Bibles: goods designed for a European market and shipped to a jungle at ten degrees north. They sold almost nothing. What arrived quickly was fever and dysentery: at the worst of it they were burying around ten colonists a day, and one survivor's diary describes days of twelve and fourteen. A few days' march away there were Spanish garrisons, because this was territory claimed by Spain. And from the English colonies in the Caribbean, which was where provisions could have come from, nothing came at all: England forbade them to help, and the Scottish ships that tried in Jamaica and New York came back with nothing.

In July 1699 the survivors abandoned the fort. Of the 1,200 who had sailed from Leith, about 300 survived, and far fewer than that reached Scotland: the Caledonia landed some 250 of them in New York.

A second fleet had already set out knowing none of this. It arrived in November 1699 with some 1,300 more people, found the settlement abandoned and tried again. Spanish troops blockaded them between February and March 1700, the capitulation was agreed at the end of March and the evacuation took place on 11 April. Between the two expeditions, around 2,000 people died.

The money never came back, and with it went the savings of an entire class of small investors: the same guilds, councils and shopkeepers from the twenty-five-pound entries. When the union of the two parliaments was negotiated in 1706, that entered the treaty.

Article XV created what was called the Equivalent: £398,085 and 10 shillings — almost exactly what had been subscribed for Darién — that England would pay Scotland in exchange for Scotland taking on part of the English debt. The article also ordered that the shareholders of the Company of Scotland be repaid their capital with 5% annual interest, and that the company be wound up.

The people with the twenty-five-pound entries were not paid in 1707. They were paid in paper: debentures at 5% issued from 1708, whose interest went unpaid for some six years. Not until 1719 was an annual fund of £10,000, charged on customs and excise, set up to service them: on the 400,000 subscribed, 2.5% a year, half of what had been promised. The holders of those debentures ended up grouping together, in 1724, into a company created to collect them: the Equivalent Company.

Three years later, in 1727, that company opened a bank to put the money to work. It is called the Royal Bank of Scotland.