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SOUTH SEA BUBBLE

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Originally appearing in Volume V25, Page 516 of the 1911 Encyclopedia Britannica.
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SOUTH See also:SEA BUBBLE , the name given to a See also:series of See also:financial projects which originated with the See also:incorporation of the South Sea See also:Company in 1711, and ended nine years later in See also:general disaster. The See also:idea at the See also:root of the See also:parent See also:scheme was that the See also:state should sell certain trading monopolies to a company in returnfor a sum of See also:money to be devoted to the reduction of the See also:national See also:debt, and in the See also:form which it took in 1711 it possibly owes its existence to See also:Daniel See also:Defoe, who discussed it frequently with See also:Edward Harley (1664-1735), See also:brother of See also:Robert Harley, See also:earl of See also:Oxford. In 1711 the South Sea Company was formed, and was granted a See also:monopoly of the See also:British See also:trade with South See also:America and the Pacific Islands, the riches of which were popularly regarded as illimitable. Its promoters, mainly wealthy merchants, took over nearly £ro,000,000 of the national debt, on which they were to receive See also:interest at the See also:rate of 6% in addition to £8000 a See also:year for the expenses of arrangement. The £600,00o was secured on certain customs duties. The company prospered, and in 1713, when the See also:Asiento treaty was signed with See also:Spain, it received the lucrative monopoly of the slave trade with See also:Spanish America. It was the See also:special See also:pride of the Tories, who regarded it as a See also:rival to the Whig institution, the See also:Bank of See also:England. In 1716 it obtained further concessions under the new Asiento treaty, and in 1717 it advanced a further sum of £2,000,000 to the See also:government, but its prospects were greatly darkened by the outbreak of See also:war between England and Spain in 1718. Yet it continued to thrive, and See also:early in 1718 the See also:king became its See also:governor. Towards the end of 1719 the See also:directors of the company put before the government, the See also:head of which was See also:Charles See also:Spencer, 3rd earl of See also:Sunderland, a more ambitious scheme. In return for further concessions the company offered to take over the whole of the national debt and to pay £3,500,000 for this See also:privilege. At this See also:time the amount of the debt was £51,300,000, the greater See also:part of which consisted of terminable annuities, money See also:lent to the state in return for a fixed income for See also:life.

The company would receive interest at the rate of 5% until 1727, when it would be reduced to 4%. The See also:

advantage which the government hoped to obtain from this bargain was obvious; it would rid itself of the unpopular and burdensome debt. The advantages hoped for by the company were much greater, although perhaps not equally obvious. The aim of the directors was to persuade the annuitants of the state to See also:exchange their annuities for South Sea stock; the stock would be issued at a high See also:premium and thus a large amount of annuities would be See also:purchased and extinguished by the issue of a comparatively small amount of stock. Moreover, when this See also:process had been carried out the company would still receive from the government a sum of something like £1,500,000 a year. Seriously alarmed at the proposals of the South Sea Company, the directors of the Bank of England offered the government £5,000,000 for the same privilege, but the company outbid them with an offer of £7,567,000. This was accepted, the necessary See also:act of See also:parliament being passed in See also:April 1720. It is interesting to See also:note that one of the most sturdy opponents of the scheme was See also:Sir Robert See also:Walpole. The year 1719, when the South Sea scheme was projected, was remarkably favourable to an undertaking of the See also:kind. It was the year when See also:France went delirious over See also:John See also:Law and his See also:Mississippi Company, and the infection spread to England. But before April 1720, when everything was ready, a terrible reaction had begun in France, confidence and prosperity giving way to ruin and disaster. Nevertheless, the directors proceeded with their See also:plan, and in a few See also:weeks they had persuaded over one-See also:half of the government annuitants to become shareholders in the company.

Meanwhile the stock of the company had been appreciating steadily in value, and when the new scheme was launched the public began to See also:

purchase it more eagerly than before. From 1282 at the beginning of the year the See also:price See also:rose to 330 in See also:March, and in April the directors sold two and a See also:quarter millions of stock at 300. In May the price rose to 550, in See also:June to 890, and in See also:July it touched See also:roc*. At this tremendous premium the directors sold five millions of stock. By this time the extraordinary success of the South Sea Company had produced a See also:crowd of imitators, and the result was a See also:wild See also:mania of See also:speculation, and its inevitable end—a See also:crash. Hundreds of companies were formed, some of them being fortunate enough to secure the active support of royal and titled personages; thus the See also:prince of See also:Wales, afterwards See also:George II., became governor of the Welsh See also:Copper Company. Some of these new companies, like the Royal Exchange and the See also:London Assurance, were perfectly legitimate and See also:honourable under-takings, but the See also:great See also:majority put forward the most audacious and chimerical proposals for extracting money from the public. One was " for a See also:wheel for perpetual See also:motion "; another was for a " See also:design which will hereafter be promulgated," and it has been estimated that the See also:total See also:capital asked for by the promoters of these schemes amounted to £300,000,000. Profiting by the sad experience of France, the British government made an See also:attempt to check this See also:movement, and an act was passed for this purpose early in 1720. A See also:proclamation of the 11th of June against the promoters of illegal companies followed, and the directors of the South Sea Company persuaded the lords justices, who were acting as regents during the See also:absence of the king, to abolish 86 companies as illegal. In See also:August the fall in the price of South Sea stock began, and in See also:September, just as the " insiders " had sold out, it became serious. Instead of being a buyer every one became a seller, and the result was that in a few days the stock of the South Sea Company See also:fell to 175, while the See also:stocks of many other companies were unsaleable.

In See also:

November South Sea stock fell to 135, and in four months the stock of the Bank of England fell from 263 to 145. Thousands were ruined, and many who were committed to heavy payments fled from the See also:country. The popular cry was for speedy and severe vengeance, both on the members of the government and on the directors of the unfortunate company. Parliament was called together on the 8th of See also:December 1720, and at once both houses proceeded to investigate the affairs of the company, the See also:lower See also:house soon entrusting this to a See also:committee of secrecy. To See also:stem the See also:tide of disaster Sir Robert Walpole proposed that the Bank of England and the See also:East See also:India Company should each take over nine millions of South Sea stock, but al-though this received the assent of parliament it never came into force. More to the liking of the See also:people was the act of See also:January 1721 which restrained the directors from leaving the See also:kingdom and compelled them to declare the value of their estates. The committee of secrecy reported in See also:February 1721, and it proved that there had been See also:fraud and corruption on a large See also:scale. The company's books contained entries which were entirely fictitious, and the favours which the directors had secured from the state had been purchased by gifts. to ministers, some of whom had also made large sums of money by speculating in the stock. The See also:chief persons implicated were John See also:Aislabie (1670-1742), See also:chancellor of the See also:exchequer; See also:James See also:Craggs, See also:joint postmaster-general; his son James Craggs, secretary of state; and to a lesser degree the earl of Sunderland and Charles See also:Stanhope, a See also:commissioner of the See also:treasury. Aislabie, who was perhaps the most deeply implicated, resigned his See also:office in January, and in March he was found guilty by the House of See also:Commons of the " most notorious, dangerous and infamous corruption "; he was expelled from the house and was imprisoned. Both the See also:elder and the younger Craggs died in March, while owing to the efforts of Walpole both Sunderland and Stanhope were acquitted, the latter by the narrow majority of three. By act of parliament the estates of the directors were confiscated; these were valued at 2,014,123, of which £354,600 was returned to them for their See also:maintenance, the See also:balance being devoted to the See also:relief of the sufferers.

Under the guidance of Walpole parliament then proceeded to See also:

deal with the See also:wreck. £11,000,000 had been lent by the directors of the South Sea Company on the See also:security of their own stock, the debtors of the company including 138 members of the House of Commons. This debt was remitted on See also:payment of ro% of the sum borrowed, this being afterwards reduced to 5%, and the £7,567,000 due from the company to the government was also remitted. More serious, perhaps, was the See also:case of those persons who had exchanged the substance of a government See also:annuity for the See also:shadow of a See also:dividend on South Sea stock. They asked that the state should again See also:guarantee to them their in-comes, but in the end they only received something like one-half of what they had enioved before the bubble. The South Sea Company with a capital of nearly £40,000,000 continued to exist, but not to flourish. Various changes were made in the nature of its capital, and in 1750 it received £roo,000 from the Spanish government for the surrender of certain rights. Its commercial See also:history then ended, but its exclusive privileges were not taken away until 1807. In 1853 the existing South Sea annuities were either redeemed or converted into government stock. The London headquarters of the company were the South Sea House in Threadneedle See also:Street.

End of Article: SOUTH SEA BUBBLE

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