The stock-market collapse after the South Sea Company’s bubble burst in 1720 is known as the South Sea Bubble.
The South Sea Company received special trading privileges linked to Britain’s government debt and promoted unrealistic expectations about profits from trade with Spanish South America. Its shares rose dramatically as investors, including prominent public figures, bought into the excitement. In reality, the company’s commercial prospects were far smaller than its reputation suggested.
The bubble collapsed in late 1720. Share prices plunged, ruining many investors and causing a political scandal in Britain. Parliamentary investigations found corruption and bribery among company directors and public officials.
The South Sea Bubble unfolded alongside John Law’s Mississippi Bubble in France, another famous speculative collapse. These events helped establish the lasting meaning of “bubble”: prices driven far above plausible underlying value before a sudden reversal. Neither episode was a modern exchange crash in the electronic sense, but both were major early financial-market collapses.