If you’ve been watching the current frenzy around artificial intelligence – the breathless predictions, the overnight billionaires, the declarations that civilisation is either saved or doomed – you may feel a faint sense of déjà vu as you read this article.
Every few centuries, humanity convinces itself that its latest invention will transform the world so completely that old rules no longer apply. Today, that invention is AI. Three hundred years ago, it was a British joint-stock company with a glamorous name, a royal endorsement, and about as much real earning potential as a broken vending machine.
The South Sea Company promised to shrink the national debt, conquer international trade, and shower investors with endless wealth. What it actually delivered was probably the first financial implosion in history. But before the bubble burst, it began (as these things often do) with an idea that sounded (almost) reasonable.
Act I: An empire, a debt, and a very big promise
In 1711, Britain was staggering under a mountain of debt left behind by the War of the Spanish Succession. Parliament’s solution was to create a public–private company that would somehow make money while also helping the government tidy up its finances. Thus the South Sea Company was born, carrying the sort of sweeping optimism usually reserved for national lotteries and new-year gym memberships.
The company was granted a lucrative trading monopoly in the Americas, including the asiento, a contract allowing it to supply enslaved Africans to the Spanish and Portuguese empires. Slave traders had been making money hand-over-fist for centuries, and people were confident that once the War of the Spanish Succession ended, profits would explode like a cork from a champagne bottle.
Enthusiasm was high. Morality was, unsurprisingly for the era, not part of the conversation. Humanity has thankfully come a long way.
To sweeten the prospect, the company offered investors a 6% return, which was enough to convince the public that this venture was not only grand but inevitable. It seemed perfectly timed: the war would end, the seas would open, and the company would flourish. At least, that was the dream.
Act II: The dream meets reality
When the Treaty of Utrecht finally brought peace in 1713, the company rushed to claim its anticipated glory – and immediately ran into a Spanish wall. Far from rolling out the red carpet, Spain imposed tight restrictions on Britain’s trading rights. Taxes were increased, paperwork multiplied, and British ships were limited to exactly one vessel per year for “general trade,” a phrase so broad and useless you could practically hear investors grinding their teeth.
One ship per year was not going to deliver the fortune everyone had imagined. Still, the company pressed on, and the public continued to believe that any day now, the oceans would part and the profits would pour in.
Then came an unexpected gift: in 1718, King George I himself agreed to become the company’s governor. It was the 18th-century equivalent of the president of a country endorsing a listed company (now where have we seen that play out this year, hmm?). Unsurprisingly, public trust in the South Sea Company soared. If the king himself believed in the company, how bad could it be?
Act III: The bubble begins to swell
Despite the lack of meaningful trade, the South Sea Company began returning extraordinary interest to shareholders. The secret, of course, was that the money wasn’t coming from commerce. It was coming from the shares themselves. As more people bought in, the price climbed. As the price climbed, more people bought in. It was a beautifully circular system, assuming you never asked what it was based on.
The company’s directors were so determined to keep the momentum going that they began encouraging, cajoling, and in some cases bribing well-connected acquaintances to purchase shares. Word spread that fortunes were being made, and soon the entire country seemed to be caught up in the excitement. People sold their homes to buy stock. Servants pooled their wages. Aristocrats mortgaged land that had been in their families since the Tudors. Even Sir Isaac Newton, who initially made a tidy profit after investing and selling early, watched prices continue to rise and decided he must have been too cautious. He bought back in at the height of the frenzy.
Act IV: Parliament fans the flames
In 1720, the madness came to a head when Parliament allowed the South Sea Company to take over Britain’s entire national debt. The company purchased the £32 million debt at a fraction of its value, promising it could manage the interest payments through its booming stock sales. Investors were invited to exchange their government bonds for company shares, a move that boosted confidence even higher. The cycle intensified: the more investors joined, the higher the price rose, and the higher the price rose, the more foolish it seemed to stay out.
By August of that year, the share price reached an astonishing £1,000 (or around £180,000 in today’s money). The South Sea Company had become the glittering centre of British dreams – not because of what it had achieved, but because of what people believed it was about to achieve. Reality was a distant, inconvenient rumour.
Act V: The fall
Bubbles, unfortunately, do not announce when they are about to burst. In September 1720, the frenzy finally snapped. Confidence wavered and questions began to surface. The smallest tremor of hesitation was enough: prices wobbled, then plunged. Those who had borrowed to buy shares found themselves ruined overnight. Entire fortunes collapsed in weeks. By December, shares were down to £124, an 80% loss from their peak. The country was gripped by outrage, despair, and disbelief.
Newton, who reportedly lost around £20,000 (a cool £3 million in today’s money), is said to have remarked: “I can calculate the motions of the heavenly bodies, but not the madness of men”. The irony is hard to miss: the man who understood gravity better than anyone failed to spot the gravitational pull of mass delusion.
Act VI: Picking up the pieces
The crisis was so severe that Parliament launched an investigation. What it uncovered was a catalogue of bribery, corruption, reckless speculation, political manipulation, and a general disregard for anything resembling sense.
But not everyone had been swept up in the mania. A pamphleteer named Archibald Hutcheson had been warning anyone who would listen that the company’s shares were wildly overvalued. He estimated their true worth at around £200, and history proved him remarkably accurate. I can only imagine that he was an absolute pain to be around in the weeks that followed.
To restore confidence in the financial system, Parliament passed the Bubble Act of 1720, which restricted the formation of joint-stock companies without explicit royal approval. It was an attempt to prevent another national disaster, though (as history has proven) it did little to curb human enthusiasm for grand promises dressed in shiny packaging.
In a twist almost too absurd to believe, the South Sea Company survived the scandal. After a major restructuring, it continued trading (quietly and unglamorously) until 1853. Many of the other “bubble companies” launched during the South Sea frenzy vanished without trace, though a few, including the Royal Exchange and London Assurance, still exist today.
The echoes of 1720
Today, financial historians, economists, and anyone who has ever watched a market soar beyond reason find themselves returning to the South Sea Bubble with a mixture of fascination and disbelief. The patterns are eerily familiar: grand promises, charismatic promoters, a wave of optimism that drowns out caution, and a collective certainty that this time, finally, the rules of reality have changed.
Whether the current excitement around AI will be remembered as a genuine revolution or another shimmering bubble remains to be seen. Every age produces its own South Sea Company, its own irresistible dream, its own version of the claim that the future has arrived and that this time, the profits will surely follow.
About the author: Dominique Olivier
Dominique Olivier is the founder of human.writer, where she uses her love of storytelling and ideation to help brands solve problems.
She is a weekly columnist in Ghost Mail and collaborates with The Finance Ghost on Ghost Mail Weekender, a Sunday publication designed to help you be more interesting. She now also writes a regular column for Daily Maverick.
Dominique can be reached on LinkedIn here.
