The 1720 speculative bubble whose collapse caused a major London stock-market crash was the South Sea Bubble.
The South Sea Company received a government-backed trading arrangement and became the focus of intense speculation in 1720. Its shares rose dramatically as investors expected enormous profits, even though the company’s actual commercial prospects could not justify the market price. Prominent investors and members of the political establishment became involved, increasing public confidence.
When enthusiasm reversed, the share price collapsed. Many investors suffered ruin, and the scandal produced political consequences in Britain. Parliament investigated the company’s affairs, finding serious corruption and accounting abuses. The episode became one of the best-known early examples of a speculative financial bubble.
The South Sea Bubble is often grouped with the Mississippi Bubble in France, which also burst in 1720, but they were separate schemes. Tulip Mania, another commonly mentioned bubble, occurred in the Dutch Republic during the seventeenth century rather than in London in 1720.