The South Sea Bubble was the 1720 English financial bubble whose collapse caused a major stock-market crash.
The South Sea Company received a government-backed monopoly connected with trade in the South Seas, and its shares rose dramatically as investors anticipated enormous profits. The company also took on government debt in exchange for shares, creating a close relationship between public finance and speculation. In reality, its commercial prospects were far less impressive than the market’s expectations.
When confidence weakened in 1720, the share price collapsed. The failure damaged investors, exposed fraudulent promotion, and produced political scandal. Parliament investigated the company’s directors, and several officials faced accusations of corruption. The episode also led to restrictions on the formation and promotion of joint-stock companies.
The South Sea Bubble is often mentioned alongside France’s Mississippi Bubble, which collapsed in the same broad period. They were separate schemes, however. South Sea shares were centered in England, while John Law’s Mississippi system was based in France.