The South Sea Bubble, 1720

Essay: "The South Sea Bubble in 2020," Emma Rothschild

Economic life is a combination of the fleeting and the enduring, of numbers and sentiments and things. Even frenzies—like the “shipwreck of the year twenty,” and the ephemera in which it was depicted—can last for 300 years. As Adam Smith wrote in The Theory of Moral Sentiments, elegant coats last for a year, fashionable furniture lasts for five or six years, well-contrived buildings last for many centuries, and a well-written poem may last as long as the world. [1]

The events that are the subject of this exhibition were described at the time as a momentary, quasi-natural storm; a “phrenzy,” a “calamity,” a “contagion,” a conspiracy of “crocodiles” and “cannibals.” It was Edward Gibbon, the historian of the decline and fall of the Roman Empire, who used the image of a shipwreck; his grandfather, also Edward Gibbon, was one of the directors of the South Sea Company, and was arrested, ruined, and fined the equivalent of nine tenths of his assets. [2]

Over the ensuing three centuries, the storm, or the interest in the storm, has never really abated. There is a continuing scholarly literature, and a fluctuating incidence of references over time; the use of the expression “South Sea Bubble” was even a leading indicator, of sorts, of nineteenth- and twentieth-century financial crises. So there is an intriguing question of why this storm—this one bubble, among so many others—has been so astonishingly enduring. Why is it that the events of 1720 mean so much, even in 2020?

There were poems about the South Sea Bubble, and Adam Smith’s explanation of persistence over time is part of the story. The storm endured because of the language in which it was described. The poetry was uninspiring; even Jonathan Swift’s, “Mark where the sly directors creep…/The monsters nestle in the deep.” But the prose of the South Sea Bubble—and Cato’s Letters, in particular, of which the earliest were published in November 1720—became a worldwide model of political rhetoric. “It has been a Bubble from the Beginning,” the authors wrote, in a “spirit of Jealousy and Revenge” against the South Sea directors: “To our deathless Shame, we are the Conquest, the Purchase of Stock-Jobbers. The British Lions crouch to a Nest of Owls!” [3]

Cato’s Letters had an enduring impact in North America. These “libertarian tracts” with “their colorful, slashing, superbly readable pages,” as the great historian of the American Revolution—and great business historian—Bernard Bailyn has written, “left an indelible imprint on the ‘country mind’ everywhere in the English-speaking world”; they were published and republished throughout the eighteenth century, and “‘quoted in every colonial newspaper from Boston to Savannah.’” [4]

The politics of the South Sea Company and the politics of the East India Company, the decadence of the English Tories and the decadence of the Roman Republic, were jumbled together in the American polemics, over the entire course of the American Revolution. The South Sea directors had themselves long retired, to the fortunes they had retained, or restored. But the events of 1720 were of enduring importance because they were identified, above all, as a crisis of the relationship between economic (or financial) and political life; of public-private partnership. As in the title of another pamphlet of the times, it was a Case of Private & National Corruption, & Bribery, impartially considered. [5]

The essential operation of the South Sea Company was a sequence of debt-for-equity swaps; a refinancing of British government debt on a very large scale. The expectation, in the summer of 1720, was that some 80 percent of all outstanding public debt would be owned by the company. [6] The company was itself a public-private partnership, of an unusually complicated variety. It was a private (commercial) company engaged in risky long-distance exchanges, under a monopoly granted by the government, which was also a private (financial) company, engaged in transactions in public (government) debt.

It is this distinctive interrelationship of the “private” and the “national” that has been the enduring theme, over three centuries, in public understanding of the South Sea Bubble. The events themselves were essentially multinational. They were connected—even in a period that corresponds, in the large narratives of economic history, to the “financial revolution” in England, and to the “glorious” or post-glorious revolution of stable property rights, also in England—to markets elsewhere in Europe. They were connected, too, to the long-distance economy of slavery; or rather, to quote Adam Smith, to a “golden dream” of overseas dominion, “not an empire but the project of an empire; not a gold mine but the project of a gold mine.” [7]

The South Sea Company investors came from all over Europe. One of the disgraced directors was a merchant of North German origin, whose assets—in the eventual reckoning, everything except his clothes, and those of his wife and children, was required to be listed—included East India bonds and shares in “adventures” to Cadiz and Seville; another was the son of a Dutch paper merchant who had settled in the small town of Angoulême, in the southwest of France, and whose family married into the minor nobility of the French colonial administration. [8] The South Sea Company crisis of late 1720 was itself the last in a sequence of bubbles across Europe, culminating in the crisis of the Mississippi Company, or the “system of John Law”—also a combination of a trading enterprise and an enterprise for refinancing (French) government debt—of a few weeks earlier. [9]

The asiento or contract to supply slaves to the Spanish empire in the Americas, which the British government acquired in 1713 and granted to the South Sea Company, had been from the outset a project of public finance for the Spanish Crown. It was acquired in 1701 by the French government, and granted to the Compagnie de Guinée, specialists in the slave trade from Senegal, who held it until 1713; asiento contracts were earlier held by Genoese, Portuguese, and Dutch merchants. The Mississippi Company was entangled with the Louisiana Company of the French financier Antoine Crozat, with Crozat’s slave-trading company of Saint-Domingue (the modern Haiti), with the Guinée and (French) asiento companies, and even with the French “India” and “China” companies of the times. [10]

The financial projects of the 1710s provide a vista, for all these reasons, of the colonial origins of modern European states. But the trading activities of the combined commerce-cum-refinancing companies—and the slave trade, in particular—have been of only marginal interest in the historiography of the South Sea Bubble, and of the other financial catastrophes of the times. The events were seen as crises of private rationality, or public debt, or both; or as indicators of the development of financial networks. The commercial activities of the companies were assumed to be no more than fantasies, even though the golden dreams of the investors were eventually realized in the century-long expansion of the Atlantic slave economy.

It was the political juxtaposition of the “private” and the “public,” above all, that dominated the public reception of Cato’s Letters across colonial North America, and that has endured for so long. “Monsters as they are,” the authors of Cato’s Letters wrote of the South Sea directors in November 1720, “let them only be hang’d, but hang’d speedily… and let the Publick be their Heirs.” [11]

The South Sea Company, like the East India Company, came to represent a frightening indistinctiveness of the state and the market. As in a later polemic against the East India Company, also widely invoked across North America, the directors assumed “multiform characters” of “merchants, or sovereigns,” “all of which characters they can and do assume, as occasion requires.” [12] Several of the directors were Members of Parliament; many were investors in the other monied companies that provided credit to the state, including the East India Company, and the Bank of England. The director of North German origin was married to the daughter of the Lord Mayor of London, and the director from Angoulême was himself a member of the British House of Commons, the son-in-law of an MP, and the brother-in-law of three other MPs. [13]

The “great monied companies,” Edmund Burke wrote in 1769, stand “upon a principle of their own, distinct from, and in some respects contrary to, the relation between prince and subject.” They required a “new species of contract,” and “the idea of power must as much as possible be banished from it.” The implicit contract between the government and the monied companies was one in which government gave up power and gained credit in exchange. It gave up a part of its sovereignty; “in such a case, to talk of the rights of sovereignty is quite idle.” [14] “What is the state?,” the Solicitor-General asked in the British parliament in 1773, and what “if you say the Company is the state”? [15] This was the world of public-private partnership that had become a spectacle, for the first time, in the crisis over the South Sea Company.

The vengeance that the authors of Cato’s Letters called for in 1720 was avoided, in the end. But the “proceedings” against the directors were “violent and arbitrary,” in the younger Edward Gibbon’s description: “a bill of pains and penalties was introduced, a retroactive statute, to punish the offences, which did not exist at the time they were committed,” and the directors were “condemned, absent and unheard, in arbitrary fines and forfeitures, which swept away the greatest part of their substance.” His grandfather, “on these ruins,” was able to construct “the edifice of a new fortune,” “not much inferior to the first.” [16]

The South Sea Bubble was an “epistemic event,” in the historian William Deringer’s description: a financial crisis and a crisis in ways of calculating financial values. [17] It was an epistemic event in a different sense, as well, in that it was a crisis of knowledge about the laws, rules, and norms of economic activity. The laws of the kingdom were changed, after the event, to punish the South Sea Company directors. But the rules of what was political and what was economic, what was licit and what was illicit, what was and was not corrupt, had been uncertain over the entire period of the company’s rise. The directors lived in an environment of risk, and of radical uncertainty.

It is this essential uncertainty that was so evocative in the political crises of colonial North America, and is recognizable, still, in 2020. The shipwreck of 1720 was a crisis of financial calculation, or rationality, and it was also a crisis of expectations about the rules of market games. The years before the rise of the South Sea Company were a time of continuing instability in rules and norms. The British state, so confidence-inspiring in the retrospect of modern historians, was substantiated in six different monarchs between 1670 and 1720, and in almost as many monarchies. But to look back, in our own uncertain times of 2020, at the expectations of 50 years ago, or of 1970—at the norms of 1970 in relation to conflicts of interest, or the licit and illicit uses of political power, or the influence on government of large financial companies—is to see that the world of the early twenty-first century, too, has been a period of transformation in the rules of economic competition.

“In the race for wealth, and honours, and preferments,” to quote Adam Smith one last time, the individual “may run as hard as he can, and strain every nerve and every muscle, in order to outstrip all his competitors. But if he should jostle, or throw down any of them, the indulgence of the spectators is entirely at an end. It is a violation of fair play, which they cannot admit of.” [18] The South Sea Company directors were understood, almost overnight, to have competed unfairly, and the rules were in turn changed against them, in a “spirit of Jealousy and Revenge.” [19] It was this sense of violation, two centuries later, that led another great theorist of competition and uncertainty, Frank H. Knight, to predict (wrongly) that liberal democracy was ceding everywhere, in 1934, to nationalism and authoritarianism: “the game is, or soon becomes, so ‘unfair’ that the losers can hardly be morally condemned if they refuse to abide by its rules and results.” [20]

Will the South Sea Bubble be evocative, still, in 2320? Or will our own crisis of political and epistemic uncertainty, in 2020, be remembered in what is for us an almost unimaginably distant future? We know so much about the South Sea Bubble, now, because there were so many pamphlets and prints and registers and playing cards and inventories, and because there were individuals, and institutions who conserved them with such perseverance, over the course of three centuries. It is possible—in the end, or without future conservation, and future perseverance—that there will be nothing left at all of our own exchanges: no registers, no text messages, no inventories, and not even any poems.

Emma Rothschild, Jeremy and Jane Knowles Professor of History, Harvard University. November 2020.

Copyright Emma Rothschild 2020


[1]. Adam Smith, The Theory of Moral Sentiments, ed. D. D. Raphael and A. L. Macfie (Oxford: Oxford University Press, 1976), 195.

[2]. [John Trenchard and Thomas Gordon], Cato’s Letters, 4 vols. (London, 1724), 1:12, 13, 21, 26; Edward Gibbon, The Autobiography of Edward Gibbon (London: Dent, 1911), 13.

[3]. [Trenchard/Gordon], Cato’s Letters, 7, 25, 28; Jonathan Swift, Poems on Several Occasions (Dublin, 1737), 143.

[4]. Bernard Bailyn, The Ideological Origins of the American Revolution (Cambridge, MA: Belknap Press, 2017), 36.

[5]. [Thomas Gordon], Francis, Lord Bacon: Or, the Case of Private & National Corruption, & Bribery, impartially considered (London, 1721).

[6]. William Deringer, Calculated Values: Finance, Politics, and the Quantitative Age (Cambridge, MA: Harvard University Press, 2018), 191.

[7]. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, ed. R. H. Campbell and A. S. Skinner (Oxford: Oxford University Press, 1976), 947.

[8]. The particular and inventory of all and singular the lands, tenements, and hereditaments, goods, chattels, debts and personal estate whatsoever, of Sir Jacob Jacobsen, Knt (London, 1721); Sir Theodore Janssen, Kt. Bart. his particular and inventory : containing The Particulars of all and singular the Lands, Tenements, and Hereditaments, Goods, Chattels, Debts, and Personal Estate whatsoever (London, 1721); on Sir Theodore Janssen’s French connections, see Emma Rothschild, An Infinite History: The Story of a Family in France over Three Centuries (Princeton: Princeton University Press, 2021).

[9]. See Arnaud Orain, La politique du merveilleux: une autre histoire du Système de Law (1695–1795) (Paris: Fayard, 2018).

[10]. Léon Vignols, “L’Asiento français (1701–1713) et anglais (1713–1750) et le commerce franco-espagnol vers 1700 à 1730: Avec deux Mémoires français de 1728 sur ces sujets,” Revue d’histoire économique et sociale 17, no. 3–4 (1929): 403–436; A Full and Impartial Account of the Company of Mississippi, otherwise call'd the French East-India-Company, projected and settled by Mr. Law (London, 1720), 5–7; Claude-Frédéric Lévy, Capitalistes et Pouvoir au siècle des lumières, 3 vols. (Paris: Mouton, 1969-1980).

[11]. [Trenchard/Gordon], Cato’s Letters, 12.

[12]. William Bolts, Considerations on India Affairs; particularly respecting the present state of Bengal and its Dependencies, 3 vols. (London, 1772–1775), 1:93–94.

[13]. History of Parliament, Members database,, 1690–1715, 1715–1754.

[14]. Observations on a Late State of the Nation (1769), in The Writings and Speeches of Edmund Burke, ed. Paul Langford and William B. Todd, 9 vols. (Oxford: Oxford University Press, 1981–2000), 2:175–176.

[15]. “Speech of Alexander Wedderburn of May 10 1773, debate in the House of Commons on General Burgoyne's Motions relating to the Conduct of Lord Clive in India,” in The Parliamentary History of England, from the Earliest Period to the Year 1803, 36 vols. (London, 1806–1820), 17:col. 865.

[16]. Gibbon, Autobiography of Edward Gibbon, 13–16.

[17]. Deringer, Calculated Values, 225.

[18]. Smith, Theory of Moral Sentiments, 83.

[19]. [Trenchard/Gordon], Cato’s Letters, 7.

[20]. Frank H. Knight, “Economic Theory and Nationalism,” in Knight, The Ethics of Competition and Other Essays (New York and London: Harper and Brothers, 1935), 277–359; 293.