What was the South Sea Bubble?

South Sea Bubble

The South Sea Bubble was the financial collapse of the South Sea Company in 1720. The company was formed to supply slaves to Spanish America.

The South Sea Company was formed in 1711 in London and its purpose was to supply 4800 slaves each year for 30 years to the Spanish plantations in Central and Southern America.

Treaty of Utrecht

Britain had secured the rights to supply slaves to Spanish America at the Treaty of Utrecht in 1713. The South Sea Company bought the contract from the British government for £9,500,000, a large proportion of Britain’s national debt.

The sum was so huge because it was hoped that more lucrative trading rights with South America could be won once Britain got a toehold in the market. It was also assumed that the profits from slave trading would be enormous, which proved not to be the case.

The bubble bursts

Speculators paid inflated prices for the stock, leading eventually to the company’s spectacular financial collapse in 1720. A large number of people were ruined by the share collapse, and the national economy greatly reduced as a result. A parliamentary inquiry held afterwards, found that many had profited unlawfully from the company and had their assets confiscated.

Jonathan Swift and the Bubble

The author of Gulliver’s Travels, Jonathan Swift, himself a stockholder in the company and one who also lost a considerable amount of money in its collapse, wrote this savage satirical ballad on the subject:

Thus, the deluded Bankrupt raves;

Puts all upon a desp'rate Bet

Then plunges in the Southern Waves

Dipt over Head and Ears – in Debt.