South Sea Bubble

The name popularly given to a British financial scheme under which the directors of the South Sea Company (incorporated in 1710 by an act which gave to it the monopoly of trading in the Pacific Ocean and along the east coast of South America from the Orinoco to Cape Horn) made an offer to the government in 1720 to pay off the whole National Debt and to buy up the irredeemable annuities, amounting to £800,000 a year, provided the different public securities were consolidated into one fund in their hands and the government gave the company certain exclusive commercial privileges.

The Bank of England projected a rival scheme, but Parliament accepted that of the South Sea Company, which had, in spite of the limited privileges conceded to it in the Assiento by Spain, been highly successful in the slave trade. The moot question was whether the fund-holders would convert their stock for shares in the company, for they could not be compelled to do so. The issue, however, was not long in doubt, as the public, inflamed by the brilliant prospects held out by the directors of the gold and silver lands awaiting exploitation in South America, crowded into the rush for shares. £110 shares rose in price to £1000, the public disregarding the high improbability of the company being able to make a profit of 50 per cent in order to pay interest at the rate of 5 per cent.

The fever of speculation did not end with the South Sea Company. Numerous other concerns, for the most part of a bogus nature, competed for public favour. The south Sea Company's prosecution of some of these concerns merely served to open the eyes of the public to the recklessness of its own scheme, and its shares dropped to £135, with the result that though the few who had sold out reaped enormous profits, the majority of those who had 'held on' were ruined, and the failure assumed the proportions of a gigantic financial disaster. Sir Robert Walpole did much to restore national credit by arranging to assign £9 million of South Sea stock to the Bank of England, a like amount to the East India Company, and to repay the bonus of £7.5 million which the government had received. By this combined operation the proprietors and subscribers got back about one-third of their money.

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