The 1720 London financial crisis caused by the collapse of the South Sea Company’s speculative share price was the South Sea Bubble.
The South Sea Company received a government-backed monopoly over trade with parts of Spanish South America, although its realistic trading opportunities were much smaller than many investors believed. In 1720, Parliament approved a plan for the company to assume part of Britain’s national debt. Its shares then rose dramatically as investors expected enormous profits.
The excitement encouraged a wave of new ventures and speculative buying. When confidence weakened, the share price fell rapidly. Many investors had bought with borrowed money, so falling prices caused severe losses, bankruptcies, and political scandal. Parliament investigated the company’s directors and associates.
The South Sea Bubble is often discussed alongside John Law’s Mississippi Bubble in France, which also collapsed in 1720. They were separate schemes, although their timing helped create a wider European financial shock. The episode is also sometimes loosely compared with Tulip Mania, but the South Sea Bubble involved a publicly traded company, government debt, and a major parliamentary scandal.