South Sea Bubble

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South Sea Bubble,

popular name in England for the speculation in the South Sea Company, which failed disastrously in 1720. The company was formed in 1711 by Robert HarleyHarley, Robert, 1st earl of Oxford,
1661–1724, English statesman and bibliophile. His career illustrates the power of personal connections and intrigue in the politics of his day.
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, who needed allies to carry through the peace negotiations to end the War of the Spanish SuccessionSpanish Succession, War of the,
1701–14, last of the general European wars caused by the efforts of King Louis XIV to extend French power. The conflict in America corresponding to the period of the War of the Spanish Succession was known as Queen Anne's War (see French and
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. Holders of £9 million worth of government bonds were allowed to exchange their bonds for stock (with 6% interest) in the new company, which was given a monopoly of British trade with the islands of the South Seas and South America.

The monopoly was based on the expectation of securing extensive trading concessions from Spain in the peace treaty. These concessions barely materialized, however, so that the company had a very shaky commercial basis. Nonetheless, it was active financially, and in 1720 it proposed that it should assume responsibility for the entire national debt, again offering its own stock in exchange for government bonds, a transaction on which it expected to make a considerable profit. The government accepted this proposal, and the result was an incredible wave of speculation, which drove the price of the company's stock from £128 1-2 in Jan., 1720, to £1,000 in August. Many dishonest and imprudent speculative ventures sprang up in imitation.

In Sept., 1720, the bubble burst. Banks failed when they could not collect loans on inflated stock, prices of stock fell, thousands were ruined (including many members of the government), and fraud in the South Sea Company was exposed. Robert WalpoleWalpole, Robert, 1st earl of Orford,
1676–1745, English statesman. Early Life and Career

He was the younger son of a prominent Whig family of Norfolk.
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 became first lord of the treasury and chancellor of the exchequer and started a series of measures to restore the credit of the company and to reorganize it. The bursting of the bubble, which coincided with the similar collapse of the Mississippi SchemeMississippi Scheme,
plan formulated by John Law for the colonization and commercial exploitation of the Mississippi valley and other French colonial areas. In 1717 the French merchant Antoine Crozat transferred his monopoly of commercial privileges in Louisiana to Law, who, with
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 in France, ended the prevalent belief that prosperity could be achieved through unlimited expansion of credit. Legislation was enacted that forbade unincorporated joint stock enterprise.

Bibliography

See studies by L. S. Benjamin (1921, repr. 1968), J. Carswell (1960), and V. S. Cowles (1960).

South Sea Bubble

fraud is exposed in British South Sea Company (1720). [Br. Hist.: EB, IX: 383]
See: Scandal
References in periodicals archive ?
Like bitcoin, the South Sea Company relied on investor's believing a story, this one entailed the company being able to take over the Bank of England's debt business if enough investors piled in to give them the resources to do so.
As John Merewether, a factor for the South Sea Company in Jamaica, explained in 1737, "By the last half years account we sent home, we bought only 940 out of 2907 Negroes imported [from Africa], And we did not put by one, that we thought would please the Spaniards." (34) The South Sea Company purchased only the most marketable people for transshipment.
Defoe characterizes the Bill to charter the South Sea Company as "a Proposal to Supplant the French in the South-Seas, and make that Profit [Britain's] own ...
One additional chapter explores the establishment of the South Sea Company and the plans, later abandoned, for a naval expedition supporting it in 1712.
@mrchrisaddison: Everyone else is panicking about the economy but I just moved all my money into tulips and The South Sea Company. Winning.
But Phillips also exposes the stories of countries that failed (Albania and Iceland), lesser known corporate failures (Digiscents, Home-Stake Production Co., and USWeb, for example), and even failures that occurred hundreds of years ago (the Mississippi Company of 1719, the South Sea Company of 1720, and Tulip Mania of 1636).
Comparing the two contemporary stock bubbles - South Sea and Mississippi - Niall Ferguson concludes: "In Britain, by contrast, the contemporaneous South Sea Bubble was significantly smaller and ruined few people - not least because the South Sea Company never gained control of the Bank of England the way Law had controlled the Banque Royale."
Those reeling from the market setbacks of recent years and nervous about the future might take a moment to read up on the South Sea Bubble, which began on this date in 1720, when the British House of Commons accepted a proposal to allow refinancing of short-term bonds held by investors in the South Sea Company.
He dissects Daniel Defoe's attempts to bolster national and theological identity through rhetorical attacks on China in the second and third installments of his Crusoe trilogy (chapter 5) that thinly disguise outrage at the virtuous Chinese and their prosperous trade practices, then addresses Defoe's later advocacy of the South Sea Company (chapter 6) through A New Voyage Around the World (1724), a trade narrative rationalizing credit, illegal trading, privateering, and the bartering of cheap goods in pursuit of resources inexhaustible and, hence, "free of the grim calculus of scarcity" (212).
Against this background the South Sea Company had been formed in 1711 by a group of merchants and financiers, precisely to export merchandize to the Pacific and South America.
When it commissioned its first building from George Sampson in 1733, it had already seen off competition from organisations like the South Sea Company as a manager of public debt, and proved its ability to finance Britain's wars more efficiently than other countries.