What was the South Sea Bubble?

The South Sea Bubble was a period of speculation frenzy and collapse on the British stock market, revolving around the fate of a single company. For years, the South Sea Company had been at the centre of a complex and tangled web of financial manoeuvrings; deliberately obfuscated dealings around selling shares and government debt; the exploitation of publicity and hype to inflate stock prices; as well as bribery, corruption and the slave trade.


It worked for a while and stock prices skyrocketed in 1720, until the bubble burst. Investors were ruined and an inquiry had to be held. While the South Sea Bubble went down in history as the cause of a total financial crash, that wasn’t actually the case: it certainly had its losers, but it had its winners, too.

What was the state of Britain's finances before the Bubble?

The Bank of England formed 26 years earlier had grown into a powerful institution as the sole lender to the government. It was, however, controlled by one of the two main political parties, the Whigs, so when Robert Harley became the new Tory chancellor of the Exchequer in 1710, he looked for other means of making money. With Britain engaged in expensive wars and the government debt at around £9m, funds were preciously needed.

Robert Harley, Earl of Oxford
Robert Harley, 1st Earl of Oxford (5 December 1661 21 May 1724), after the portrait by Sir Godfrey Kneller (Photo by Culture Club/Getty Images)

Harley gave the job of organising the Bank of England’s lotteries to John Blunt, the less-than scrupulous director of an unofficial bank (and sword manufacturer) called the Hollow Sword Blades Company. While the ironically named Blunt had great success selling lottery tickets, the two men devised a grander scheme to make serious money. That’s where the South Sea Company came in.

So, what was the South Sea Company?

It formed in 1711 with the purpose of consolidating the government’s debt. In return for taking on and paying off this debt, the company would be granted a monopoly on trade between Britain and Spain (particularly the sale of slaves) in the ‘South Seas’ around South America. This idea had a major problem, though: Britain was at war with Spain and in no position to dictate the trade there, unless favourable terms were reached in peace talks.

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How successful did the company get?

The Peace of Utrecht – a series of treaties signed between 1713 and 1715 – did indeed grant the South Sea Company a monopoly, or Asiento de Negros, for 4,800 enslaved people a year, but the Spanish put a tax on the ‘cargo’ and permitted only one ship at each port annually for other goods. The company ultimately transported tens of thousands of slaves, helped by the Royal African Company and Royal Navy protection. Yet the restrictions meant profits would never be enough to resolve the debt.

Instead, what proved more lucrative was getting investors enthused. From its headquarters on Threadneedle Street in London, the company launched a propaganda campaign to sell shares: promising riches and marketing the business as a patriotic venture. Success for the South Sea Company would be a success for Britain. By 1718, nobles, politicians and celebrities, like author Jonathan Swift and scientist Isaac Newton, had invested, and George I had been appointed as governor.

How did the sale of shares work?

It was a cunning, if convoluted, scheme: the company encouraged all the individual people who held an ‘instrument of debt’ (essentially, an IOU from the government) to swap them for shares. In other words, swapping the hope of getting paid back by the government for the promise of getting payouts from the company’s profits. Every year, investors would also receive a dividend. But that didn’t mean the company was out of pocket since the government paid interest on the total debt taken on, set at a high six per cent.

South Sea annuities share certificate.
South Sea annuities share certificate London, 1784 (Photo by Universal History Archive/Universal Images Group via Getty Images)

Simply, the point was to keep the share value going up – and the more shares sold, the higher it got. To that end, the company introduced several other reckless, legally questionable methods, including lending people its own money so they would buy shares. In terms of the stock market, this created the illusion that share demand was high, which inflated the value. And if people made personal fortunes by exploiting the market or politicians had to be bribed to ensure their support, so be it.

How high did the share value reach?

Converting debt into shares was working so well that the South Sea Company hatched an audacious plan to take on most of the unconsolidated national debt, which stood at over £30m. If successful, it would become the biggest financial institution in Britain. Never mind that its actual profits from the slave trade were nowhere near strong enough to justify this. This set off a massive boom in the stock price, from £128 per share to over £1,000 in August.

Is that when South Sea Bubble burst?

Other businesses tried to get in on the act, which resulted in a flurry of speculative and unwise investments. The Bubble Act of June 1720 put a stop to this, and essentially removed all competition to the South Sea juggernaut, but this didn’t last long. By September, the market collapsed and company shares plummeted to £124 by the end of the year.

What was the fallout?

Thousands of investors were ruined and the resulting parliamentary investigation revealed widespread corruption. The Bank of England stepped in as company directors were disgraced and had assets seized; government members were impeached; and the chancellor of the Exchequer, John Aislabie, was imprisoned in the Tower of London. As for Blunt, who had been made a baronet earlier that year, he had cashed out before the collapse.

It was one of the first economic bubbles known to the general public – and came at the same time as another one in France – so was pounced on by satirists, writers and artists, including the famous William Hogarth. It also inspired a crusade by politician Robert Walpole to restore faith in the financial system. Despite being a South Sea investor himself, he made stern examples of a handful of those implicated, while ensuring others (his friends and the king, say) were left alone. In fact, Walpole did such a thorough job that he grew into power and popularity to become the first de facto prime minister of Britain.


This article was first published in the October 2022 issue of BBC History Revealed


Jonny Wilkes
Jonny WilkesFreelance writer

Jonny Wilkes is a former staff writer for BBC History Revealed, and he continues to write for both the magazine and HistoryExtra. He has BA in History from the University of York.