South sea bubble, popular name in england for the speculation in the south sea company, which failed disastrously in 1720. William goetzmann, geert rouwenhorst, and rik frehen have collected stock prices for a large number of the traded companies in 1720. South sea bubbles of 171920, the railway manias of nineteenth century britain. Gregory clowes university of york the devils interlude. Isaac newton and the south sea bubble business insider. The next section presents a reconstruction of newton s investments in the south sea bubble. Debtholders of the 1710 lottery loan were offered the option to convert their holdings into company shares. John patrick carswell cb frsl 30 may 1918 12 november 1997 was an english civil servant and author who served as secretary of the british academy from 1978 to 1983. Levasseur 1854 mentions it asa contributory factorbut faure 1977places more emphasison it forthemississippi case. The figures cited in this section are taken primarily from files. Hood and paul andreassen columbia university, new york, ny 10027, usa received june 1984, final version received january 1985 though it is generally accepted that a random walk describes the pattern of successive price changes in. The bubble act 1720 6 geo i, c 18, which forbade the creation of jointstock. South sea bubble short history baker library bloomberg. As a result of lobbying by the company, when the stock price was near its peak, england effectively prohibited the issuance of.
The south sea bubble of 1720 is one of the earliest, largest, and most studied instances of. The south sea company was a british jointstock company founded in 1711, created as a. The south sea bubble was a speculative bubble in the early 18th century involving the shares of the south sea company, a british international trading company that was granted a monopoly in trade with spains colonies in south america and the west indies as part of a treaty made after the war of the spanish succession. Newtons financial misadventures in the south sea bubble digital. Investors warmed to the appeal of this monopoly and the companys shares began their rise. He draws largely on contemporary letters and pamphlets to show how the country went mad over the south sea scheme, just as france had gone mad over laws mississippi project a few months before. The hollow sword blades company was a british jointstock company founded in 1691 by a goldsmith, sir stephen evance, for the manufacture of hollowground rapiers the company ceased manufacturing swords in 1702 following the suicide of its founder dubious discuss and was purchased by a syndicate of businessmen who used the corporate identity of the company to operate as a bank. The south sea bubble of 1720 was a major financial crash in london. Geert rouwenhorst, yale school of management july 27, 2012 abstract the series of events in 1720 called the mississippi bubble, south sea bubble and the. The south sea bubble 1720 the south sea bubble was the british equivalent of the mississippi bubble, and centred on the british jointstock south sea company, which was founded in 1711.
The book is an economic history of the south sea bubble. The plan entailed the south sea company lending investors money to buy its shares, which meant that many shareholders had to sell their shares to cover the plans first installment of payments that were due in august carswell, 1960. The next section presents a reconstruction of newtons investments in the south sea bubble. Dec 28, 2014 the debt originating in part from the south sea bubble, the oldest still on the books, was consolidated into bonds issued in 1853, and those who now own them receive an annual payout of 2. Within a year of the collapse of the bubble, parliament had restored calm by redistributing gains and losses among south sea shareholders, and by punishing at least some of the guilty. Oct 15, 2011 though written over 40 years ago, carswell s study of the south sea bubble is brilliant.
But the south sea bubble is very remote in time and there is very little in the way of data that are of a good standard so as to be useful to a financial economist who wishes to study the bubble. After the crash of the south sea bubble the crown was very prudent in conferring the benefits of incorporation onto businesses. An historical essay and bibliographical finding list boston, ma, isan invaluable guide to much of the available literature. Among the more useful accounts of the mississippi scheme and the south sea bubble are john carswell, the south sea bubble london. In this paper, we examine what factors might cause some asset price bubbles to become very. At one point in time, all the money is britain was not enough to pay down the debts that accrued as a result of the south sea bubble. His career illustrates the power of personal connections and intrigue in the politics of.
Prices on the london stock market rose to unsustainable heights before crashing in the autumn of 1720. The company was formed in 1711 by robert harley harley, robert, 1st earl of oxford, 16611724, english statesman and bibliophile. The south sea bubble kindle edition by wernick, robert. It starts with a name, and not a very memorable name. An economic history of its origins and consequences new york. First, the south sea bubble of 1720 during which many members of parliament took bribes in south sea company stock and traded in the stock on inside information was fol lowed by parliaments draconian restriction in the bubble act on trans ferability of shares for over 100 years thereafter. Though written over 40 years ago, carswells study of the south sea bubble is brilliant. Historical manuscripts commission hereafter hmc, calendar of. The south sea bubble is one of the largest asset bubbles that the world has ever seen. Dec 10, 20 an early example is the case of sir isaac newton and the south sea company, which was established in the early 18th century and granted a monopoly on trade in the south seas in exchange for assuming englands war debt. South sea bubble 24 account of what was done by a great man from the beginning of the year, 1720, to the end of the year, 1721.
Understanding financial derivatives during the south sea. Over 10 million scientific documents at your fingertips. The ensuing legislation was passed, but neutered beyond recognition. The south sea company was founded in 1711, in the expectation that peace between spain and england after the end of the war of the spanish succession would produce profitable trading opportunities with the south seas that is, spanish america. South sea bubble, the speculation mania that ruined many british investors in 1720. Tilburg university recreating the south sea bubble giusti. Shea school of economics and finance, university of st. This was problematic in that it threatened mens role as breadwinners and. The south sea company officially the governor and company of the merchants of great britain, trading to the south seas and other parts of america, and for the encouragement of fishing was a british jointstock company founded in 1711, created as a publicprivate partnership to consolidate and reduce the cost of the national debt. University of york the devils interlude in the south sea bubble this article attempts to make sense of how contemporaries understood the first major financial crash in british history, the south sea bubble of 1720. He characterizes blunt as of powerful jowl and heavilylidded eyes, an industrious, domineering man whom it. By june 1720, the south sea company s share price soared to.
The south sea bubble coincided with the rapid development of financial markets in the late seventeenth and early eighteenth centuries. The south sea bubble by carswell, john and a great selection of related books, art and collectibles available now at. South sea company brought to the people, it survived. These satirical playing cards depict the speculative fever of 1721.
An authoritative account of this extraordinary 18thcentury financial. A leading journal in early american history and culture, the william and mary quarterly publishes refereed scholarship in history and related disciplines from initial old worldnew world contacts to the early nineteenth century. However, the south sea bubble was popularly supposed to. As south sea company and other bubble company share prices imploded, speculators who had purchased. The bubble, or hoax, centred on the fortunes of the south sea company, founded in 1711 to trade mainly in slaves with spanish america, on the assumption that the war of the spanish succession, then drawing to a close, would end with a treaty permitting such trade.
It combines economic theory and quantitative analysis with historical evidence in order to provide a rounded account. In fact, this bubble bankrupted the newly prosperous british economy during the 17th century. South sea bubble the south sea bubble collection baker. Although the company is most closely associated with the south sea bubble, this paper does not discuss this particular instance in the companys long history. The south sea bubble among the many companies to go public in 1720 isfamouslyone that advertised itself as a company for carrying out an undertaking of great advantage, but nobody to know what it is. The south sea bubble of 17201 was the first and most celebrated of all the great financial scandals. The boom was primarily associated with a company called the south sea company.
An authoritative account of this extraordinary 18thcentury financial, political, and royal scandal, this book describes the drama of the promotion, the insane fever of speculation, and the international impact of the final collapse. His account of the complex transactions of the south sea company would. The late historian and civil servant john carswell, former secretary of the british academy, wrote an esteemed study, the south sea bubble sutton, revised edition, 1993, chronicling the heady, fraudulent proceedings launched in 1711. The south sea bubble 1720 is one of the most famous examples of a financial bubble. Themississippibubbleinfrance,thesouthseabubbleinengland, and similar bubbles in holland and germany during theyears 1719 and 1720 were partsofthe first internationalstock market speculative boom. Carswell, the south sea bubble revised edn, stroud. By surveying contemporary sources this article reveals direct evidence for the involvement of the south sea company in the passage of the bubble act. Download it once and read it on your kindle device, pc, phones or tablets. That topic, and the large associated literature, will be treated separately. Recreating the south sea bubble department of economics. In fact, nearly 300 years ago unscrupulous players, political cronies and laissezfaire government combined to create a too big to fail company, and then stood around helpless when it did.
The secret history of the south sea bubble and the worlds first great financial scandal fourth estate, 2009 john carswell, the south sea bubble. Professionally and as an author, he was known as j. It immediately followed a similar crash on the paris stock market, known as the mississippi bubble. However, the south sea bubble was popularly supposed to have been caused by fraud and folly. The south sea bubble was an ambitious scheme to simultaneously pay off the british governments enormous debts while simultaneously getting rich in londons newly created stock market. Charles lamb, who was born almost 55 years after that notoriousincident of south sea bubble had worked in the south sea house, and wrote an essay on the south sea house which was published in his celebrated work known as the essays of elia. South sea bubble 1720 project yale school of management. Of all published articles, the following were the most read within the past 12 months. There is a rich body of earlier research on the emergence of bubbles. In other words, the rise in the stock price, the issuance of new shares, and the possibility of buying out debt holders created winners and losers carswell 1993. A new dataset, in the form of a network graph, is used to study inventory and trading behaviour amongst owners of east india company eic and bank of england boestock around the south sea bubble. The first global financial bubble occurred in 1720 in paris, london and the netherlands. A social network for trade and inventories of stock during. This period saw the introduction of an active secondary market in both debt and equity securities, the appearance of a new type of financial intermediary known as the stockjobber, and the emergency of a breed of monied men whose recently amassed.
Palgrave studies in cultural and intellectual history. This short history is just an overview, intended to provide a context for research in the south sea bubble. We were thumbing through some of jeremy granthams old research and saw this great chart from marc faber. For those in possession of shares or documents proving. Due to the highly graphical nature of the vision statement, we offer this reprint in color, pdf format only. How isaac newton went flat broke chasing a stock bubble. It was arguably the first financial scandal to play out in the public eyeand even jonathan swift and daniel defoe got behind it.
In 1720 the whole of england became involved with what has since become known as the south sea bubble. Full text of the south sea bubble internet archive. Lessons from the south sea bubble patrick walsh working papers in history and policy no. But the failure of the south sea company, which had undertaken to take over the national debt, was to cause more than a catastrophic financial crisis, shattering a confident government. Dec 20, 2012 melvyn bragg and his guests discuss the south sea bubble, the speculation mania in early 18thcentury england which ended in the financial ruin of many of its investors. Apr 25, 20 in fact, nearly 300 years ago unscrupulous players, political cronies and laissezfaire government combined to create a too big to fail company, and then stood around helpless when it did. The dominant position of the company and of its national debt conversion scheme in the affairs of england in 1720 support the conclusion that the act was in fact a piece of specialinterest. Everyday low prices and free delivery on eligible orders. The south sea company was founded in 1711, in the expectation that peace between spain and england after the end of.
I can calculate the movement of stars, but not the madness of men, newton apparently. Sperling, the south sea companyat 5 cited in note 2. It brings together scholarship from a variety of different fields to update the existing historical work on the bubble. Understanding financial derivatives during the south sea bubble. Journal of economic behavior and organization 6 1985 323329. An early example is the case of sir isaac newton and the south sea company, which was established in the early 18th century and granted a monopoly on trade in the south seas in exchange for assuming englands war debt. The financial centres of europe were interlinked and hence the south sea bubble had effects. The south sea bubble was a complex event, the product of intersecting financial, legal, political, and cultural factors. Lewis melville has written an entertaining book about that strange outburst of frenzied speculation, the south sea bubble of 1720. Luxury, moderation, and the south sea bubble springerlink. The south sea bubble john carswell snippet view 1960. Aug 15, 2017 the south sea bubble has become legendary, synonymous with ruin and bankruptcy, with big business running rampantly out of control. A wide variety of sources, rather than just stock ledgers and price data, are employed to place the bubble in broader economic and social contexts and, in particular, to help the reader understand the purpose and strengths of the south sea company, both before 1720 and until its dissolution in 1854. Britains finances were in a shambolic state after years of war with france.
The south sea company article about the south sea company. Oct 21, 2008 the first great financial bubble can be traced back to 1720, when englands south sea company decided to expand its activities by issuing new shares and buying up government debt. The company behind all the trouble was officially known as the governor and company of the merchants of great britain, trading to the south seas and other parts. The south sea company officially the governor and company of the merchants of great britain, trading to the south seas and other parts of america, and for the encouragement of fishing was a british jointstock company founded in 1711, created as a publicprivate partnership to consolidate and reduce the cost of national debt. Carswell, the south sea bubble at 58 cited in note 5 pointing out that the direc. Jul 03, 2018 discover the rise and fall of the south sea company in 18th century british economics with extra credits. This paper avoids a key question, namely the extent to which the south sea bubble was a bubble, meaning an episode in which the economic fundamentals guaranteed a collapse.
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