he South Sea Company was formed in 1711 by the Tory government of Harley to trade with Spanish America, and to offset the financial support which the Bank of England had provided for previous Whig governments. Money was freely invested in company stock because the trading privileges and monopolies granted to Britain after the Treaty of Utrecht (concluding Marlborough's Wars) were expected to prove enormously profitable. In 1720 a bill was passed enabling persons to whom the government owed portions of the national debt (which had been growing steadily larger since it originated after the Glorious Revolution as a means of meeting government expenditures) to exchange their claims for shares in company stock, and shortly the directors of the South Sea Company had assumed three-fifths of the national debt — some £9,000,000 — of Great Britain. The bill triggered an enormous burst of speculation in company stock--shares rose in value from £100 to £1,000--but by 1719 the directors of the Company outbid the Bank of England for the conversion of an additional £31,000,000 of debt, while unprincipled speculators took advantage of investors to obtain subscriptions for patently impossible projects, and when the bubble burst in September 1720 (the expected profits from the South Seas, which were expected to sustain the project, had still not materialized) vast numbers of investors were entirely ruined.
The whole episode was reflected in the literature and in the life of literary figures of the time: Swift, for example, parodied it in his Gulliver's Travels, while Pope, after making a considerable profit, shrewdly withdrew most of his funds in time. Charles Lamb was employed in the East India House as a clerk for many years after the bubble had burst.
Last modified 1988