The South Sea Bubble was the 1720 stock-market collapse centered on shares of the British South Sea Company.
The South Sea Company received government backing and promoted a plan to convert part of Britain’s national debt into company shares. Investors were attracted by the prospect of trading privileges and profits linked to Spanish America, although the company’s realistic commercial opportunities were far more limited than promotional claims suggested.
Share prices rose dramatically during 1720 as speculation spread. Many investors bought with borrowed money, and new companies appeared to benefit from the excitement. When confidence broke, South Sea shares plunged, ruining investors and causing political scandal. Parliament investigated the episode, and several directors were accused of corruption.
The South Sea Bubble is often discussed alongside France’s Mississippi Bubble, which also collapsed in 1720. They were related episodes in a wider European speculative boom, but they were different companies and markets. The phrase “bubble” became especially associated with the extraordinary rise and fall of South Sea Company shares.