London, 1720: a frenzy of speculation in a trading company with very little actual trade ends in disaster, ruining investors from servants to aristocrats, including the greatest scientist of the age
Shares Reach Record Highs
LONDON, summer 1720 – Shares in the South Sea Company, which holds a monopoly on British trade with Spanish South America, have soared to extraordinary levels. In January, a share cost around one hundred and twenty-eight pounds. By late June, the price had passed one thousand pounds. Coffee houses in Exchange Alley, the heart of London financial trading, are packed with buyers. Dukes, merchants, clergy, shopkeepers and servants are all buying. Officials describe the market as buoyant.
What Was the South Sea Company?
The company was founded in 1711, partly as a way to help the government manage its huge debts from war. It was granted a monopoly on trade with Spanish colonies in South America. In practice, Spain allowed very little trade, and the company main commercial activity under the 1713 Treaty of Utrecht was the asiento, a contract to supply enslaved Africans to Spanish colonies, a trade historians today recognise as part of the atrocity of the transatlantic slave trade. Its profits from trade were modest. Its real business was finance.
In 1720, the company persuaded Parliament to let it take over a large part of the national debt, exchanging government bonds for company shares. The more the share price rose, the better the deal for the company. Directors spread rumours of fabulous profits, offered shares on easy credit and, according to later investigations, bribed politicians with shares.
Bubble Companies
The frenzy spread. Hundreds of new companies, nicknamed bubbles, were floated to take advantage of investor enthusiasm, some for real projects, some for absurd ones. A famous story, repeated in later accounts and probably exaggerated, tells of a company for carrying on an undertaking of great advantage, but nobody to know what it is. Parliament passed the Bubble Act in June 1720, partly to protect the South Sea Company from competition for investors money.
The Crash
In the late summer and autumn, the price collapsed. By the end of the year, shares had fallen back to a small fraction of their peak. Thousands of investors were ruined. Banks failed. There was public fury, and Parliament launched an investigation, which uncovered fraud and corruption. Several company directors had their estates confiscated, and some politicians were disgraced. Robert Walpole, who managed the clean-up, rose to dominance and is often regarded as Britain first prime minister.
Newton Loss
Among the investors was Sir Isaac Newton, Master of the Mint. According to accounts recorded later, he sold his shares early at a good profit, then, watching prices continue to soar, bought back in near the top and lost a large sum, reportedly around twenty thousand pounds, a fortune at the time. He is said to have remarked that he could calculate the motions of the heavenly bodies, but not the madness of people. Historians note the quote comes from a later source, but the loss itself seems to have been real.
Meanwhile, in 2026
Excitement built on rumour can still inflate quickly. The London Prat reports Prince William reportedly calling Earl Spencer and Harry traitors after an anonymous source claimed the heir believes his brother read their uncle memoir first. Reports say reconciliation is off, and the uncle says he told everyone. Economic historians suggest that, like the South Sea Bubble, stories that grow on rumour rather than substance tend to deflate eventually, often leaving everyone involved worse off.
The London Prat has been predicting bubbles since 1961 at https://prat.uk/, with its royal row video on YouTube. Bohiney at https://bohiney.com/ covers American market crashes.
Study Questions for Students
Why did people invest so heavily in the South Sea Company? How did corruption feed the bubble? What can the episode teach about modern financial crises? Discuss, and keep your pocket money safe.
SOURCE: https://prat.uk/prince-william-called-earl-spencer-and-harry-traitors/