The South Sea Bubble: Britain's First Great Stock Mania
A trading company with little real business ballooned into Britain's most spectacular speculative frenzy — and even Isaac Newton lost a fortune in it.
Sara Kimura
Contributing Historian
The South Sea Company was founded in 1711, granted a monopoly by the British government on trade with Spanish South America in exchange for taking on a portion of the national debt. In practice, the trading rights were of limited real value, hemmed in by ongoing conflict with Spain, and the company's actual commercial activity never amounted to much.
None of that stopped the company's shares from becoming the centre of a speculative frenzy in 1720. The company proposed an ambitious scheme to take on even more government debt in exchange for further stock issuance, and share prices began climbing rapidly as investors, encouraged by aggressive promotion and rumours of fabulous profits to come, poured in.
The share price rose from around £128 at the start of 1720 to over £1,000 by August of that year — an increase of roughly tenfold in a matter of months, driven almost entirely by speculation rather than any change in the underlying business. The mania drew in investors across British society, from aristocrats to first-time speculators.
The bubble burst in the autumn of 1720, as confidence evaporated and share prices collapsed even faster than they had risen. Among the many investors who lost substantial sums was Sir Isaac Newton, who was reported to have sold his initial holding at a profit, only to buy back in near the peak and lose a considerable fortune when the price collapsed.
The fallout led to Britain's first serious attempt at securities regulation, the Bubble Act of 1720, which restricted the formation of joint-stock companies without a royal charter — though the act was arguably more a reaction to protect the South Sea Company's own position than a genuine investor protection measure, and it was eventually repealed a century later.
The episode entered the language as a byword for speculative excess, and 'bubble' has been used to describe unsustainable market manias ever since — a direct linguistic legacy of a scheme whose underlying business was, from the start, almost beside the point.