The South Sea Bubble was the 1720 British financial bubble that burst after South Sea Company shares soared and collapsed.
The South Sea Company was founded in 1711 and received a government-backed monopoly over British trade with parts of Spanish South America, although its actual trading opportunities were far more limited than promotional claims suggested. In 1720, the company took on a large portion of the British national debt, and enthusiasm for its shares spread among investors.
Its stock price rose dramatically during the year, encouraging speculation in the company and in numerous other ventures. Parliament passed the Bubble Act in 1720, partly to restrict unauthorized joint-stock companies, but the speculative boom was already unstable. When confidence broke, shares plunged and many investors suffered severe losses.
The South Sea Bubble is sometimes mixed up with the contemporaneous Mississippi Bubble in France. Both were major early financial bubbles, but the South Sea episode centered on a British company and British government debt. The scandal also damaged the reputations of prominent figures, including the scientist Isaac Newton, who invested and later lost money after selling and re-entering the market.