The South Sea Bubble 1720: the greatest British financial scandal of the 18th century
How a company with a nonexistent monopoly ruined thousands of British investors including Isaac Newton
In 1720, South Sea Company shares rose 1000% in a few months before crashing. Isaac Newton lost £20,000. The British Parliament was overwhelmed by a corruption scandal.
The imaginary monopoly
The South Sea Company was founded in 1711 with an exclusive monopoly on trade with Spanish colonies in South America. The problem: Spain had never actually agreed to this monopoly. The company had few real assets but very great expectations.
The share rush
In 1720, the South Sea Company proposed to take over British government debt in exchange for shares. The operation created a wave of speculative enthusiasm. From January to June 1720, shares went from £128 to £1,050 — a 720% rise in six months.
Isaac Newton, after selling with a small profit, re-entered near the top attracted by the euphoria. In the end he lost £20,000 — a huge fortune. He said: "I can calculate the motion of heavenly bodies, but not the madness of men."
The crash and scandal
The crash began in August 1720. By September, shares were back to £175. It emerged that company directors had distributed free shares to government ministers to buy their support. Several ministers were jailed. The Chancellor of the Exchequer was impeached.
- Even geniuses can lose in irrational markets: Newton was the greatest scientist of his time — and still lost in the market.
- Momentum creates bubbles: shares rose because they rose — not because there were fundamentals.
- Corruption amplifies bubbles: political support bought with free shares delayed market judgment.