The South Sea Company collapsed in 1720 during the South Sea Bubble, one of the earliest widely documented major stock-market crashes.
The company received a British government monopoly over trade with parts of South America, although its realistic trading prospects were far smaller than many investors believed. It also took on government debt, and its shares became the focus of intense speculation.
Prices rose dramatically during 1720 as investors rushed to buy shares. The company’s promotion, easy credit, and the excitement surrounding new joint-stock ventures helped create a speculative mania. When confidence weakened, prices fell rapidly, ruining many investors and provoking a political scandal in Britain.
The South Sea Bubble was not the only speculative collapse of 1720. France’s Mississippi Company also crashed under John Law’s financial system. The two events are sometimes grouped together, but they were separate companies and separate schemes.