Extraordinary Popular Delusions and the Madness of Crowds: The South Sea Bubble

In 1720, the South Sea Company promised the British people enormous profits from trade with South America.Its shares rose so fast that all of London rushed to buy them, and Mackay describes what happened next.

“Meanwhile, countless new companies started up everywhere, and people soon called them ‘Bubbles’; no name could have been more fitting.Some lasted a week or two and were never heard of again; others did not even live that long.Every evening brought new schemes, and every morning new projects, and the greatest lords were as eager as the poorest traders.

One company would build a wheel that turned for ever; another, it was said, would make wooden boards out of sawdust.But the most absurd of all was ‘a company for carrying on an undertaking of great advantage, but nobody to know what it is’.Its founder asked for a deposit of two pounds a share and promised a hundred pounds a year for each one.He opened his office at nine in the morning, and by three o’clock a thousand shares had been paid for.That same evening he left for the Continent, and he was never heard of again.”

Within months the South Sea shares crashed, and thousands of families lost everything they had.The word ‘bubble’ has been used for wild markets ever since.