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The South Sea Scheme: Greed, Speculation, and the Birth of Financial Folly
Insider trading, rampant speculation, public frenzy and horrendous losses
In 1710, Britain was facing a series of financial challenges brought on by a number of wars, including the War of Spanish Succession and the Great Northern War. As a result, the national debt ballooned out of control and caused the public to lose faith in the government’s most important institutions. To solve this problem, Robert Harley came up with a bold and ingenious plan. He was going to found a company that would then agree to take on the entirety of the British national debt. The company would be called the South Sea Company and it was launched with a great amount of enthusiasm.
The plan was to take on the debt, with agreed-upon annual payments from the Crown in the amount of £568,279. Then, the company was going to sell shares to raise money. Shareholders would then receive dividends from the Crown payments. On its face, it was a good plan given the financial system at the time.
In order to bolster its revenues, the company was given a monopoly on South American trade, which was pitched to the public as a gold mine just waiting to be exploited (hence the name South Sea Company.) The problem was that the Spanish maintained an iron grip on…
