The South Sea Bubble
The South Sea Company's shares rose from £128 to £1,000 in 1720 and were back under £150 by the autumn. The company had been founded in 1711 with a monopoly of British trade to Spanish South America, which was worth almost nothing because Spain permitted one ship a year. Its actual business was the national debt. It offered to convert government annuities into its own shares, taking on the debt in exchange for interest from the Treasury and the right to issue stock — a scheme lifted from John Law's operation in France and running at the same time. The mechanism was self-reinforcing. The higher the share price, the fewer shares needed to buy out each annuity holder, and the more left over to sell; so the directors lent money to buyers of their own stock, spread rumours of trade concessions, and distributed shares to ministers and to the king's mistresses on terms that could not lose. The mania spread to other ventures, including one advertised as an undertaking of great advantage with nobody to know what it is. The collapse came when the directors' own Bubble Act, passed to suppress competitors, forced sales that broke confidence. Thousands were ruined, including Newton, who lost some £20,000 and reportedly said he could calculate the motion of heavenly bodies but not the madness of people. Parliament confiscated the directors' estates, the chancellor was imprisoned in the Tower, and Robert Walpole emerged from the wreckage as the man who had cleaned it up.
- Year: 1720 CE
- Category: Economic
