Annuities advance notice addressed to John Bardin, Jr. and signed by J. Anderson and W. Dams. Issued by the South Sea Company, London, and dated April 30, 1730.
Courtesy of the General Collection, Beinecke Rare Book and Manuscript Library, Yale University, New Haven, Connecticut
1720 to a paltry 500 a year later. And France inherited massive debt, which necessitated tax increases in order to rid the country of the debt.
Of course, Law got blamed even though he was only partly responsible. His efforts can be seen as fraud, but also as a lesson about the dangers of excessive money printing, as well as betting on future company profits.
The South Sea Bubble and Joint Stock Companies
The South Sea Bubble disaster was a similar, but not identical, setup— this time based in the UK. Like France, the country’ s debt was a stress on the economy.
In 1711, parliament created the South
Sea Company as a way of dealing with the country’ s debts. Two years later, the company was granted a monopoly to trade in the Americas, with expectations for vast profits in the then-New World. It offered 6 % interest on the stock. But things didn’ t work out too well because the booming trade failed to materialize.
Following this setback, King George took over the company in 1718, helping lift the stock price. But the company still wasn’ t making the profits it forecast. What it was doing was trading in its own stock, and company employees began encouraging friends to buy shares.
In 1720, the company took over the national debt. Again, the stock rallied and rallied and rallied some more. In September of that year, the bubble burst and the stock price fell 80 % from its peak. Famously, Isaac Newton— the renowned scientist and warden of the Royal Mint— had zero explanation for the boom and bust. Some people see the rise and fall of the South Sea Company as the first Ponzi scheme or the first financial crash.
French and British Similarities
Both the South Sea and the Mississippi Bubbles came at the dawn of capitalism and the financial markets. In the case of France, there was no real history from which people could learn. Paper money was in its infancy, and there was little understanding of how much or little paper to print to achieve a stable monetary system. Obviously, that’ s changed with the
34 FINANCIAL HISTORY | Spring 2025 | www. MoAF. org