South Sea Company directors were accused of treason and fraud. The inevitable crash back down to £100 per share by the end of the year came as a shock to those who thought they could make their fortunes overnight. The stock price went up from £100 in 1719 to more than £1,000 by August 1720. This pushed up prices even more, in the short term. While it was clear that the high prices were unsustainable, canny speculators bought in hoping to sell out in time. Once the South Sea Bubble had started to inflate, it attracted more naive investors and those who would prey upon them. The rapid rise and fall of South Sea Company shares. Investors took their money out of the Paris market – some moved it to London, helping push up share prices there. The French stock market boomed and then crashed. His attempts to modernise France’s economy did not work, partly because the rigid social system remained unchanged. Law’s ideas were ahead of his time, but he moved too quickly. The French economy had undergone a huge set of reforms under the control of a Scottish economist called John Law. This was partly because new investors came into the market and got carried away. Shareholders were interested in the South Sea Company because it was strongly backed by the British state.īy the summer of 1720, South Sea Company shares became overvalued and other companies also saw their share prices increase. It also received convoy protection from the Royal Navy. The South Sea Company shipped thousands of people across the Atlantic as slaves, working with an established slave trading company called the Royal African Company. Older accounts state that the company did not actually trade at all. The debt management and slaving aspects of the company’s history have often been misunderstood or downplayed. Shareholders could easily sell on their shares or simply collect dividends. The company would then pass on the interest payment in the form of dividends, along with profits from its trading arm. The company would collect an annual interest payment from the government, instead of the government paying out interest to a large number of debt-holders. So debt holders were encouraged to hand their debt instruments to the South Sea Company in exchange for shares. The government struggled to pay holders of its debt on time and investors had difficulty selling on their debt to others due to legal difficulties.
The South Sea Company, which gave its name to the event, helped the government manage its debt and also traded enslaved Africans to the Spanish colonies of the Americas. The real reasons behind the bubble are complex. It shows how the narrative told to the public can easily diverge from the truth: fake news, if you will. The episode shows how a perceived crisis can be the subject of intense public outcry and moral panic, even when people do not understand what has happened. While some investors lost out from the speculation, it did not make much of a dent in the wider economy, unlike the more recent crashes of 19 – and what the long-term economic effects will be from COVID-19. In reality, it was a scandal but not much of a disaster. It is thought of as a major economic disaster and huge scandal. This was the moment when, in 1720, share prices in London boomed and then fell sharply. Coronavirus has caused a great deal of stock market turbulence and, somewhat inevitably, comparisons have been made to the volatility caused by the South Sea Bubble 300 years ago.
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