In 1711 lord Robert Harley Duke, Chancellor of the Exchequer, founded the South Sea company. He planned to play on human trust as a year before John Law did in France (referring to the Mississippi Company), having got monopoly on trade with North America.
The shareholders of the South Sea company received promises of Asiento — the exclusive right to trade with the Spanish part of South America. According to the agreement with the government the South Sea Company in exchange for certain privileges helped England pay off the national debt, which arose after the war with Spain.
Lord Robert Harley Duke. Payment receipt on The South Sea Company shares.
Every now and then mass media reported about fabulous dividends on the shares of the South Sea company, and people believed it. In 1720, the company’s share prices began to grow very quickly. That time great scams took place periodically, so it was not surprising that in January, the price was 128 pounds, and in May, already 550.
Many important and noble people bought shares for themselves. Due to advertising the company attracted elite as its shareholders and managed to attract a huge number of other simpler customers. Also, there was the rumor that Spain gave its ports at shareholders’ disposal, but in fact no more than three ships a year went there.
Angry Depositors of the South Sea Company
Among shareholders there were not only the British, but also the Dutch, their deposits gradually blowing the “bubble”.
The whole country was massively purchasing shares from peasants and to lords. In early August the price already reached 1,000 pounds. Even Isaac Newton was involved in the company, expecting its collapse. He sold his shares very beneficially, earning £ 7,000, but at once bought a new lot.
In September, the shares depreciation started. at the end of the month the shares fell in price to 150 pounds. Thousands of investors including prominent members of the aristocracy went bankrupt. And on September 24, the bank declared its bankruptcy, and the South Sea Company completed its list of the greatest financial frauds. Many famous people, including Isaac Newton and Jonathan Swift, lost their savings.
In 1721, the Parliament undertook an investigation, which showed that the directors of the company were fraudsters. Many of them fled abroad. Many members of the government lobbying for the interests of swindlers were imprisoned.