ON THIS DAY: 1 August 1720 – The infamous ‘South Sea Bubble’ began to collapse. By December, shares in the South Sea Company had plummeted from a dazzling £1,000 to a dismal £124. Often called the first financial crash and sometimes dubbed the world’s first Ponzi scheme, it devastated investors across Britain. Even Isaac Newton wasn’t spared; he reportedly lost the equivalent of £40 million in today’s money.
The South Sea Company was founded in 1711 by an Act of Parliament. It was a British joint-stock company created to manage national debt and boost trade in the ‘South Seas’ primarily in the Spanish colonies of South America including Caribbean ports under Spanish control. The catch? Britain didn’t actually trade much there as Spain controlled most of the region. But that didn’t stop the company from selling a fantasy. It promised unimaginable wealth from exotic ventures: gold, silver, and the slave trade. Hype outshined reality.
In 1720, the company secured permission to absorb even more government debt in exchange for shares. Investors were invited to trade their national bonds for company stock. The twist? The British government backed the scheme, giving it an air of ironclad legitimacy.
What followed was financial hysteria. Shares surged from £100 in January to over £1,000 by June. It was like the dot-com bubble or the crypto craze – only in the age of powdered wigs. Everyone jumped in: nobles mortgaged estates, clergy gambled pensions, and everyday citizens emptied their savings. Prices soared, not because of actual profits, but because everyone believed they’d keep soaring.
By late July, cracks began to appear. Investors started to realise the company had no real earnings. On 1 August, the panic set in. A mass sell-off began, and within weeks, the stock price crashed below £200. Fortunes evaporated. Some were ruined overnight. Suicides, arrests, and public outrage followed.
Parliament launched a sweeping investigation. Scandals erupted. Bribes, insider trading, and deep-rooted corruption came to light, even the Chancellor of the Exchequer was implicated. In the aftermath, financial regulations tightened, and reforms were introduced to prevent future catastrophes.
The South Sea Bubble is more than a historical footnote—it’s a timeless tale of what happens when hype, greed, and human psychology collide with money.