The South Sea Bubble was the speculative bubble whose collapse helped trigger Britain’s 1720 stock-market crash.
The South Sea Company received a government-backed monopoly over trade with Spanish South America, although its realistic trading prospects were far smaller than many investors imagined. In 1720, the company proposed converting part of Britain’s national debt into its shares. The plan increased public attention and encouraged intense speculation.
Share prices rose dramatically during the year, attracting aristocrats, merchants, and ordinary investors. Parliament passed the Bubble Act in June 1720, partly to restrict rival joint-stock ventures, but confidence in the South Sea Company weakened later that year. Its share price then collapsed, ruining many investors and causing a political scandal.
The South Sea Bubble is often discussed alongside France’s Mississippi Bubble, which collapsed in the same broad period. They were separate schemes, however. The South Sea episode helped establish the enduring use of “bubble” for a financial boom followed by a sudden collapse.