Darien Scheme, a disastrous speculation projected by William Paterson (q.v.), the founder of the Bank of England, was established by act of the Scottish parliament, and was sanctioned by royal authority in 1695. Its object was to plant a colony on the Atlantic side of the Isthmus of Panamá, and so form a commercial entrepôt between the eastern and western hemispheres. An entire monopoly of the trade of Asia, Africa, and America, for a term of thirty-one years, was granted to the Company. At that time, the foreign trade of Scotland had been ruined by the English Navigation Act of 1660, which provided that all trade with the English colonies should be conducted in English ships alone, so that when Paterson opened his subscription-list, the nobility, the gentry, the merchants, and people, royal burghs, and public bodies in Scotland all hastened to subscribe. No less than £400,000 was immediately put down on paper, of which £220,000 was actually paid up. Deputies in England received subscriptions to the amount of £300,000; and the Dutch and Hamburgers subscribed £200,000. The English parliament, however, actuated by a feeling of national antipathy, and the jealous clamours of trading corporations, gave its unequivocal condemnation to the scheme. The British resident at Hamburg, probably with the concurrence of William III., also made various insinuations against it. The result of this interference was the almost total withdrawal of the Dutch and English subscriptions. It must now be admitted that there was one fatal objection to the scheme—viz. the danger of settling on ground claimed by Spain, without coming to a proper understanding with that country beforehand. Unable, however, to see any sort of obstacles, incited by the vehement eloquence of Paterson, and dazzled by the magnificent proportions of the scheme, the Scotch hurried forward their arrangements. Five ships, with 1200 men on board, set sail from Leith for Panamá on the 25th July 1698. They reached their destination in four months, near what is still called Puerto Escoces (in 8° 50' N. lat.), and having bargained with the natives for a country which they called New Caledonia, the colonists fixed the site of what was to be their capital, New Edinburgh, and built a fort in its vicinity, which they named New St Andrews. Having thus constituted their colony, they issued a proclamation of perfect freedom of trade and universal toleration in religious matters to all who should join them. For the first few months they seemed to be on the highway to success. But the climate, which was tolerable in winter, became unbearable in summer, and many sickened under it; their supplies failed before they could derive a return from the soil; and on sending to the British colonies in America for provisions, they learned with the deepest indignation and despair that the British American colonies, having been informed that King William had not given his sanction to the expedition, had resolved to hold no intercourse with the new colony at Panamá.
Sickly and desponding, they waited long for supplies from the mother-country; but the Company at home was not aware of their wretched condition, and none came. At length, having waited eight months for assistance, the colony broke up. In the meantime, 1300 colonists had set sail from Scotland, but ere they arrived the pioneers had fled. A Spanish force of 1500 men, and a squadron of 11 ships, immediately threatened the new-comers. Captain Campbell marched by night with a body of 200 Scots upon the Spanish camp, which he broke and completely dispersed. On returning to the fort, however, he found it invested by the Spanish squadron. The ammunition of the colonists had now become exhausted, and they were obliged to capitulate, the Spaniards granting honourable terms. Not more than thirty of the colonists, among whom was Paterson, who was rendered for a time insane by his dreadful misfortunes, ever came back to Scotland. The scheme and its collapse caused unprecedented excitement in Scotland from 1695 till 1703, when the last of the adventurers reached home, and contributed to render the union of the kingdoms highly unpopular. It has been fairly contended that, but for the hostility of the king and the jealousy of the English companies, the scheme might have led to enormous extension of British commerce and British territory. And it should be remembered that a Panamá Canal was included in the plans of the far-seeing projector. The books and other documents which had belonged to the Company are preserved in the Advocates' Library; the most complete account of the scheme is J. H. Burton's Darien Papers, printed by the Bannatyne Club (1849). See also his History of Scotland, vol. viii., and Warburton's novel Darien.