The South Sea Company’s collapse became a famous example of an early speculative stock-market crash in 1720.
The South Sea Company received a government-backed plan to convert part of Britain’s public debt into company shares. Its promoters encouraged expectations of enormous trade profits, even though the company’s actual opportunities in South America were limited. Share prices rose rapidly as investors chased the boom.
By late 1720, confidence failed and the shares collapsed. The episode ruined many investors and produced a political scandal involving company directors and public officials. Parliament investigated the affair, and new restrictions on joint-stock companies followed for a time.
The South Sea Bubble is often discussed alongside France’s Mississippi Bubble, which collapsed in the same broad period. They were separate companies and schemes. The South Sea episode is also not the world’s first financial bubble, but it is among the best documented early stock-market manias.