The South Sea Company’s collapse in 1720 helped define the South Sea Bubble, one of history’s earliest major stock-market crashes.
The company was created in 1711 to trade with Spanish South America and also received rights to manage part of Britain’s government debt. Its shares rose dramatically in 1720 as investors believed the company could become enormously profitable. Parliament passed the Bubble Act that year, restricting unlicensed joint-stock companies and helping intensify the speculative atmosphere.
The South Sea Company’s actual trading opportunities were far smaller than many investors imagined. As confidence weakened, insiders and other shareholders tried to sell. The share price collapsed, ruining many investors and provoking public anger. Parliamentary investigations found corruption and bribery among officials and company directors.
The South Sea Bubble overlapped with the Mississippi Bubble in France, associated with John Law’s Mississippi Company. These events are often mentioned together because both involved debt conversion, aggressive promotion, and speculative share buying in 1720. They were not a single crash, however: the South Sea episode occurred in Britain, while the Mississippi episode centered on France.