Three hundred years ago the South Sea Bubble burst. This was a big event in the history of the Atlantic trade, and it has again become a topic of interest with its 300th anniversary. In this blog post we can only hit some of the high points — entire books have been written on this for anyone who wants to know more.
Map of the coast, countries and islands within the limits of the South Sea Company, with a view of the general and coasting trade-winds and particular draughts of the most important bays, ports &c., 1711
//www.loc.gov/item/gm71005443/
The story behind the South Sea Bubble is complicated, but the history can be traced to the founding of the South Sea Company in 1711 as the Governor and Company of the merchants of Great Britain, trading to the South Seas and other parts of America, and for the encouragement of the Fishery. Robert Harley, 1st Earl of Oxford created the company and intended it to be a public-private partnership to consolidate and reduce England’s national debt while also making money for investors by underwriting the national debt on a promise of interest from the government. In the beginning, things were mostly quiet — but that would change.
At the time of the company’s founding, the War of the Spanish Succession had been going on for a number of years, but it ended in 1713 with the signing of the Treaty of Utrecht. While the British government was still fighting the French, they had already incurred a lot of debt and some saw an opportunity.
The South Sea Bill was passed in 1720 and it gave the South Sea Company a monopoly in trade with the west coast of the Americas in return for a loan for the government. It allowed the company to make money on trade as well as on the interest on the loan. It looked like a promising investment and many rushed to invest. Through the summer of 1720, the price of shares rose fast and speculation ran rampant. Even Isaac Newton invested.
Satire on rise and fall of the South Sea Company described as “Satire on the financial crisis in 1720 shows different actions of people with a ‘kei’ (cobble stone) in their heads, with many engraved inscriptions reffering to the ‘Wind Trade’,” 1720
//www.loc.gov/item/2006677592/
In September, the bubble burst when the stock crashed. It was not just the wealthy that were impacted – many middle class people and even some clergy had invested. People all over the country lost money and some lost everything. There were even a number of suicides.
The scheme involved many powerful people in Britain, including Peers and members of the House of Commons. The directors of the board were arrested and lost their lands, the Chancellor of the Exchequer was ousted, and other government officials were found guilty of corruption and imprisoned. Robert Walpole, later Prime Minister, became Chancellor to sort out the financial mess. Even with all that, the company wasn’t dissolved and continued to operate long after 1720.
For 300 years, the events have been a topic of interest, because beyond the bubble and its collapse, there was a much more lasting impact to Britain – the Financial Revolution. This Revolution brought economic and financial practices, including the idea of public debt (first government bonds were issued in 1693), the Bank of England, joint-stock companies going public, and the emergence of a stock market in places like Jonathan’s Coffee House.
For anyone looking to do research on the Bubble, the company, and the cast of characters involved, there are number of resources. There have been a number of books written on the South Sea bubble and many of the people directly involved. If you are more interested in digital content, there were news articles in 1920 and 1921 digitized for its 200th anniversary. Harvard has a South Sea Bubble collection (there is a companion exhibit), and you can search in HathiTrust for older items like The South Sea Bubble and The Origins of the South Sea Company, as well as books on related topics like History of the War of the Succession in Spain. The Internet Archive also has material, including a look at then Chancellor Robert Harley, a piece written by Robert Walpole, and a two-volume history on the Bank of England and John Blunt’s A True State of the South Sea Scheme.
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