South Sea Bubble

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South Sea Company annuity of £ 820  at 4% annual interest (1730)
South Sea Bubble by EM Ward
(19th century, in the style of Hogarth)
The South Sea Scheme by William Hogarth (contemporary)

The South Sea Bubble (Engl. South Sea Bubble , also South Sea Bubble ) of 1720 was a major asset bubble of the early modern period . It happened at the same time as the Mississippi Bubble in France. The tulip bubble in Holland burst as early as 1637 .

Stock market boom

A flourishing stock exchange had developed in London at the beginning of the 18th century. As with almost every stock market boom, the South Sea Bubble also thrived on the fascination of a new field of business that promised fairytale profits. At the beginning of the 18th century, the South Seas promised high profits from the trade in exotic products, raw materials and slaves.

South Sea Company

The main initiators of the South Sea Company , founded in 1711, were John Blunt and George Caswell, co-owners of the Sword Blade Company (bankers), and an anonymous Baptist. The British government also had a stake. It gave the company a monopoly in trade with South America, including areas not yet discovered. One speculated on a quick and for England favorable end of the Spanish War of Succession , with which the Spanish privilege of the slave trade ( Asiento de Negros ) could be removed. However, the Treaty of Utrecht was not concluded until 1713, and the Spanish prerogatives were not completely eliminated, only limited. The first trade voyage on behalf of the South Sea Company could not be undertaken until 1717. It turned out to be unprofitable.

The South Sea Company's first great success was not with the trade in goods, but again with the British government: In January 1720 it took over the national debt (including from the Bank of England ) in the amount of 9 million pounds with an interest rate of 6% annually and received the right to issue additional shares ( capital increase ). Gradually, the company took over the additional national debt and issued even more shares in return. Lord North and Gray feared in Parliament on April 5, 1720 in the vote on the South Seas Act (South Sea Bill) dire consequences, hoping that "would not ruined the country by trading imaginary riches." Two days later, King George I confirmed Parliament's decision.

The £ 100 face value of the company's stock was £ 120 in early 1720. After that it shot up like a rocket and hit a staggering 950 pounds in July. For a couple of weeks it was more or less able to maintain its high level. King George, the Duchess of Marlborough, and many of the foreign investors sold. It was not yet clear to the other investors that the dividends could never be paid, especially not since the slave trade had not yet taken place.

But this was not without consequences. Other company founders followed suit, throwing new company shares onto the market, which were also selling well. At that time, the business fields ranged from loss of earnings insurance for sailors to various development perspectives, from the import business for walnut trees to technology for the processing of mercury.

In June 1720, Parliament decided that all societies should have a royal appointment, which led to a further appreciation of society ( Bubble Act , because it triggered the bubble). The law forbade listed companies to operate outside of their original business area. With this monopoly, the high level of the share was to be maintained, as already in June it became clear to parts of parliament that only a fraction of the share was covered, and this only under the assumption that the business idea would work well. Stocks have now traded up to £ 950. The South Sea Company had not yet earned a single pound in South Sea trade. When the company used the South Seas Act as a weapon against unpleasant competition - companies were reported and two had to cease operations - it expanded its monopoly. But the increasing problems of the French Mississippi Company fueled the development further, as many investors withdrew their money from France and instead invested it in England.

Until then, not a single dividend had been paid; the first payment date was August 1, 1720. Only now did it become clear that the funds were not available. The first investors wanted to quickly turn their profits, like the king and some of his confidants, and sold their papers. Meanwhile, the company's shares fell from over £ 800 to £ 200 after August 18, 1720, and even lower within half a month. In December 1720 the value approached 100 pounds.

consequences

A recession followed . Trade and production declined after several investors lost large sums (some ₤ 10,000). The physicist Isaac Newton even lost £ 20,000, whereupon his famous comment on the stock market crash read: "I can measure the movement of a body, but not human stupidity."

The executives of the South Sea Company have been held responsible and prosecuted by the UK government. Some ended up in prison, others committed suicide or fled abroad. The South Sea Company was not dissolved and continued to act in peacetime until it was dissolved in the reforms of the 1850s. The costs were borne by the East India Company and the Bank of England . The administrator of this solution was the Chancellor of the Exchequer Robert Walpole (1676–1745), who thereby established his great power in Great Britain.

According to a December 2014 report in the New York Times , the UK Treasury was still paying interest on a small portion of the bonds of that time in 2014. Great Britain's Chancellor of the Exchequer George Osborne is planning to repay these ancient bonds (interest: 2.5 to 4 percent) and to raise “fresh money” at 1.5 percent.

literature

Web links

Commons : South Sea Bubble  - collection of pictures, videos and audio files

Individual evidence

  1. ↑ Wolfgang Michael: The South Sea swindle from 1720 . In: Quarterly for social and economic history . tape 6 , no. 3/4 , 1908, p. 549-570 , JSTOR : 20725857 .
  2. ^ That Debt From 1720? Britain's Payment Is Coming
  3. ↑ spiegel.de: Great Britain is paying back debt that is 300 years old