The 1720 collapse of Britain’s South Sea Company and its inflated share price was called the South Sea Bubble.
The South Sea Company was founded in 1711 to trade with Spanish America, but its commercial prospects were limited. In 1720, Parliament approved a plan for the company to assume part of Britain’s national debt. Investors became enthusiastic, and the share price rose dramatically even though the company’s actual trading opportunities did not justify the valuation.
The surge attracted speculators from many social classes and encouraged the creation of other questionable ventures. When confidence weakened, South Sea Company shares fell sharply, ruining many investors and causing a political scandal. Several directors and officials were accused of corruption, while Parliament investigated the affair.
The South Sea Bubble is often discussed alongside France’s Mississippi Bubble, which also collapsed in 1720. They were separate schemes, however: the South Sea Bubble centered on Britain’s South Sea Company, while the Mississippi Bubble centered on John Law’s financial system in France.