The South Sea Company was a British joint-stock company whose failure in 1720 bankrupted many investors and shook the foundations of the British government. The company promised to resolve England’s debt by converting it into company shares that would gain value through the monopolization of England’s trade with New Spain. In 1710 George Coswall and John Blunt informed Lord Treasurer Robert Harley of their plan to exchange company shares for England’s short-term war debt. The scheme relied on the hopes that Britain would succeed in the War of the Spanish Succession and thereby gain access to lucrative markets in New Spain. In 1711 Harley chartered the South Sea Company, and it accepted 10 million in government debt for exclusive trading rights and a perpetual annuity of ?576,534. The 1713 Treaty of Utrecht curtailed some of these hopes by limiting England’s trading rights in New Spain. While England received the Asiento, which granted it the right to supply New Spain with African slaves, its ventures in New Spain were not as profitable as hoped.
In 1720 Parliament accepted the company’s second debt conversion plan. The company’s directors popularized this by making numerous false claims concerning the riches of New Spain. This created a speculation bubble as others created joint-stock companies to profit from the investment frenzy. Scandal followed the bubble’s collapse when it was learned that various politicians, along with the king’s mistresses, pushed the speculation forward to profit at little risks to themselves. Parliament responded by passing the Bubble Act in 1720, stipulating that all joint-stock companies must possess a royal charter.
Further reading: Virginia Cowles, The Great Swindle: The Story of the South Sea Bubble (New York: Harper & Row, 1960).
—Ty M. Reese
World History
