The South Sea Bubble was much like modern-day, fraudulent, speculative-ventures and banking fraud.
I first read about the intriguingly named SOUTH SEA BUBBLE reading a romance novel, THROUGH A GLASS DARKLY by Karleen Koen (Amazon). I am often interested enough to try to find out more about something when I read about it in a novel.
I loved finding this “cigarette card.” It is from the
George Arents Collection, The New York Public Library. “The South Sea bubble.” The New York Public Library Digital Collections. http://digitalcollections.nypl.org/items/510d47e4-587c-a3d9-e040-e00a18064a99
THE SOUTH SEA company was promised the trade with Spanish Colonies in South America when a treaty was reached over the War of Spanish Succession. They sold shares in this company based on the “promise.”
When the treaty was concluded however the promise was not fulfilled and only gave the SSC the right to import slaves to the Spanish Colonies. So, the company diversified into buying debt (something that just sounds downright idiotic to me) from the government.
“Although unsuccessful in South Sea trade, the company did effectively persuade the British government to approve the conversion of successive portions of the national debt into South Sea Company shares. Building on the war debt conversion of 1711, Parliament authorized the South Sea Company in 1719 to assume an additional portion of the national debt.”
There was a lot of false hope and wild speculation, along with rumored finds in the South Seas that raised stock prices higher and higher. The beginning of the “Bubble Year,” 1720, the SSC stock was £120, a staggering sum for the time but considered modest for the investments of the period. By the end of June it was over a thousand pounds. The SSC was not alone in creating an investment bubble and the concept of, and interest in joint-sock companies became a mania that further increased interest in the SSC. Many of these companies created little bubbles of their own. 1
Presumably pushed forward by the SSC a “Bubble Act” was passed in June requiring joint-stock companies to receive a royal charter. The SSC did receive a charter.
“The founders of the scheme engaged in insider trading, using their advance knowledge of when national debt was to be consolidated to make large profits from purchasing debt in advance.” https://en.wikipedia.org/wiki/South_Sea_Company
“Investor confidence began to wane, however. The sell-off began by early July and the collapse occurred quickly. By the end of August stock was valued at less than £800. By September the share price had plummeted to £175, devastating institutions and individuals alike. In 1721 formal investigations exposed a web of deceit, corruption, and bribery that led to the prosecution of many of the major players in the crisis, including both company and government officials.”
I have been wondering how the South Sea bubble may have contributed to the way the Crown decided to levy taxes and limitations on the American Colonies to recoup it’s losses, and thus how it contributed to the American Revolution.
In an articulate summary of the cause and effect of the event, Harvard Business School offers a collection of information and art on the subject because of it’s relevance in today;s world. This is perhaps the most important two paragraphs I have read showing the need for history in education.
“The years leading up to the South Sea Bubble were a time of financial promise and enthusiasm for Britain. Following the War of Spanish Succession (1701-1714), there was the increased potential of foreign trade and the turn toward a more global marketplace. Wealth and luxury were no longer reserved to the aristocracy. Consumerism was on the rise, and class and gender boundaries were increasingly blurred when it came to investing in the stock market. The newspaper emerged as the innovative new information exchange, pamphlet literature recorded intellectual debate, and the coffee house was the thriving epicenter of literati and stock-jobber alike. It is in this environment that the South Sea Bubble story unfolds.
The South Sea Bubble affair takes on new allegorical overtones with each generation of financial exploration. In the early years of the twenty-first century, it is the events of the Dotcom Bubble and the Enron scandal that conjure up the lessons of the past. The South Sea Bubble continues to resonate with contemporary readers, who readily identify with the exposure of the scandal, the trauma of personal financial ruin, the vacuum of accountability following the collapse of the company, and the frightening awareness of the fragility of human reason. “