The South Sea Company’s collapse triggered Britain’s famous 1720 South Sea Bubble crash.
Founded in 1711, the company received a government-backed monopoly over trade with Spanish South America in exchange for taking on part of Britain’s public debt. Investors came to expect enormous profits, although the company’s practical trading opportunities were far more limited than promotional claims suggested.
Its shares rose dramatically in 1720 as speculation spread. The boom was reinforced by easy credit, enthusiastic promotion, and the appearance of many other speculative ventures. Parliament passed the Bubble Act in June 1720, targeting companies operating without a legal charter, but the measure did not prevent the South Sea Company’s share price from collapsing later that year.
The crash ruined many investors and damaged confidence in London’s financial markets. The contemporaneous Mississippi Bubble in France is a common source of confusion; it involved John Law’s Mississippi Company and unfolded in the same broad period. The South Sea episode helped establish “bubble” as a lasting term for speculative market manias.