South Sea Bubble Research Articles

From the Voc to the Spac: At the Root of the Corporation’s Soul

This article aims to provide a thorough analysis of the evolution of the company, starting from the inception of the first public company in the seventeenth century, namely the United East India Company (VOC), until the modern expression of a novel form of cash-shell company that in recent years has taken Wall Street by storm: the Special Purpose Acquisition Company (SPAC). As opposed to common wisdom that would like to compare the SPAC to England’s South Sea Bubble of 1720, the paper argues that both the VOC and the SPAC have remarkable similarities by virtue of sharing one of the most important corporate features: ‘venturing beyond’ for special purposes, and being the instruments through which the dreams of entrepreneurs can be realised.

Misplaced Trust: How Positions of Influence Can be Abused in Managed Bubbles

This paper analyzes three of the most socially impactful and financially catastrophic managed bubbles in financial history, in order to understand their formation and guide future preventative legislation and market analysis. Through an in-depth analysis and historical comparison of the South Sea bubble, the Railway Mania of 1845, and the Dot Com bubble of the 1990s, historical parallels are established despite differing levels of existing market complexity. Furthermore, by understanding the key perpetrators of the three historical schemes and their contribution to the growth, manipulation, and collapse of the three bubbles, a generalized understanding of positions prone to financial manipulation can be better understood. The main focus of this paper is placed on the manipulative practices of government and media officials, and comparisons between their actions and methods reveal similar characteristics in their relative schemes, which can act as indicators of fraudulent market manipulation in future bubbling markets. The main characteristics analyzed through the three schemes is the manipulation of authority, credibility, and public perception.

Stock market development: building a risk society since 1688

ABSTRACT Created by speculators in Amsterdam in 1602, and unstable ever since, stock markets have become central to economies globally, despite being recognised as a significant contributor to today’s risk society. History exposes questionable reasons for the stock market’s rise and reveals reversion to a more productive economic framework to be a way of reducing societal risk. The stock market’s spontaneous development by opportunists in London following the 1688 ‘Glorious Revolution’ spread a non-essential, localised, and speculative market to the international political economy. This precipitated London’s first Big Bang: the privatisation of the Bank of England and stock market deregulation, followed by the South Sea Bubble within thirty years. Economists subsequently embedded the market in economic theory. Keynes’ re-definition of ‘investment’ to include share trading began an ontological drift that made stock markets a hallmark of capitalism. Unlike Knight, Keynes’ concern was share-trading risk, and the uncertainty of the unknown future remains an unresolved challenge for risk analysts, speculators, and regulators, their conflicting goals militating against regulation and stability. Re-building the successful capitalist framework that was abandoned as share markets attracted unjustifiable support, remains a viable alternative to continuing centuries of efforts to manage share-trading risks and the uncertainty of an unknowable future.

Calico Madams and South Sea Cheats: Global Trade, Finance, and Popular Protest in Early Hanoverian England

AbstractIn the summer of 1719, woolen and silk weavers took to the streets in cities and towns across England to protest the East India Company's importation of cotton calicoes from South Asia. English weavers viewed these popular imports as hurting their economic livelihoods. During the protests, they violently turned their anger against women wearing calico, tearing off their clothes and even throwing acid on some victims. Their actions spurred widespread condemnation, but the weavers got what they wanted in the end. In March 1721, an act banning the importation and use of all calico cloth in Britain received royal assent. On that same day, an act arranging the first in a series of financial rescues of the South Sea Company in the wake of the South Sea Bubble became law. Drawing from a range of archival and printed sources, the author explores the political and cultural connections between the calico crisis and the South Sea Bubble and investigates how reactions to both episodes intersected ideologically with fears of Jacobitism and foreign invasion and with broader anxieties about gender, the social order, and the political influence of financial corporations.

Credit Provision and Stock Trading: Evidence from the South Sea Bubble

Abstract This article studies the relationship between credit provision and stock trading behavior. We collect every stock transaction of the three major British companies during the 1720 South Sea Bubble and link stock trading to margin loan positions with the Bank of England. We give insights in the selection of traders into the loan facility by comparing the trading behavior and realized returns of borrowers to other traders. We find that loan holders are more likely to buy following high returns and document strong underperformance of borrowers.

“The British Lions Crouched to a Nest of Owls”: The South Sea Bubble through the Lens of the London Press

The South Sea Bubble is one of history's most iconic economic events. While much ink was spilled during the bubble year to make sense of events as they unfolded, commentators were left scrambling for ways to grasp what happened because no one had ever experienced a stock market bubble before. This article focuses on how the London press covered the events that later became known as the South Sea Bubble. A review of every newspaper article in which the company was mentioned during the year of 1720 captures how the movement of the price of the company's stock was interpreted, as well as how it was related to broader social, political, and geopolitical affairs.

An Investigation on Real Estate Market Dynamics and Bubble Formation Modeling

Abstract A speculative bubble arises when the market price of a financial asset diverges from its fundamental value, resulting in abrupt and disproportionate hikes that cannot be rationally explained by its underlying intrinsic value. This behavior is often followed by market crashes, as observed during historical asset bubbles such as the Dutch Tulip Mania (1634-1637), the Mississippi bubble (1719-1720), the South Sea bubble (1720), the stock-market bubble of the US (1921-1929), the Japanese stock market and real estate bubbles (1986-1991), and the recent US housing bubble and the stock market crash (2002-2006). In the housing market, speculative bubbles can be attributed to excessive public expectations of future price increases, leading to overpricing and eventually diminishing demand and instability of inflated home prices (Case and Shiller, 2003). The cycle of a housing market bubble involves individuals continuing to purchase houses despite awareness of overpricing, with the expectation of compensation through further price increases. This perception of continuous price increases leads to increased demand, which further drives up prices. However, house prices cannot increase indefinitely, and the steady increase eventually becomes unstable, resulting in a downward adjustment that may occur at a much faster pace than price increases. The existence of speculative bubbles in stock and housing markets has led academics to investigate their potential role in financial crises.

The Cambridge Companion to Eighteenth-Century Thought, ed. Frans De Bruyn

<i>The Cambridge Companion to Eighteenth-Century Thought</i>, ed. Frans De Bruyn

Burkert, Mattie. Speculative Enterprise: Public Theaters and Financial Markets in London: 1688–1763

Burkert, Mattie. <i>Speculative Enterprise: Public Theaters and Financial Markets in London: 1688–1763</i>

Boom and Bust: A Global History of Financial Bubbles by William Quinn and John D. Turner

As financial crises became more frequent during recent decades, so also have books about them, as well as about crises that occurred centuries earlier. These studies tend to come in three styles: (1) narratives of one or more crises, usually by historians and journalists; (2) financial-economic-heuristic models of the typical patterns or essential stages of crises, as illustrated by historical examples, often adduced by financial economists with historical interests; and (3) large-scale data assemblies and econometric analyses covering decades or centuries of crises by economists.1Boom and Bust, written by two financial economists who observed firsthand from their posts in Belfast the devastating effects of the global financial crisis from 2007 to 2009 on Ireland, combines styles 1 and 2. The authors call their simple model “the bubble triangle.” Its three sides (with analogies to a fire) are marketability (oxygen), money and credit (fuel), and speculation (heat). Financial bubbles form when it is easy to buy and sell assets, when ample money and credit is available to finance speculative purchases, and when people are in a mood to speculate. These, however, are only necessary conditions for a bubble. They become sufficiently hot to inflate a bubble only with the right spark, which the authors contend can come from either of two sources, a captivating technological breakthrough (for example, the internet leading to the “dot com” bubble) or governmental policies that cause a rise in asset prices (for example, home-ownership policies leading to the sub-prime bubble).The authors develop narratives of several bubbles and then analyze each of them using their bubble-triangle framework. Some of the cases—the Mississippi and South Sea bubbles of 1719/20, the British railway mania of the 1840s, the Wall Street stock bubble of the late 1920s, Japan’s stock and real-estate bubble of the 1980s, and the recent “dot com” and sub-prime bubbles—are familiar to financial historians. Others such as the Australian real-estate bubble of the 1880s and the British bicycle mania of the 1890s are more obscure.The book’s discussion and analysis of two stock-market bubbles in China, in 2007 and 2015, is particularly useful because these bubbles are recent and not well known. In each instance, the Chinese authorities engineered a bubble to advance a policy goal. In 2007, the authorities wanted to privatize government-owned untraded shares in state-owned enterprises into privately owned tradable shares, and a bubble eased achievement of the goal. In 2015, after encouraging massive private-sector borrowing to alleviate the impact of the global crisis from 2007 to 2009, China’s authorities hoped that a new stock bubble would allow companies to raise equity capital on easy terms and use it to reduce their bloated debts. China’s 2015 bubble promoted debt for equity swaps to ease corporate debt burdens in the same way that John Law’s Mississippi bubble and the South Sea Company’s bubble did in 1719/20 to ease the debt burdens of the French and British governments. Financial history is cyclical, forever blowing bubbles.Quinn and Turner tout their model as predictive. A test of its predictive power seems underway (as of mid-2021), when the S&amp;P 500 stock index hit an all-time high. All the authors’ necessary conditions for a bubble scenario appear to be in place. Competition of financial firms for assets and trades has made the marketability of stocks and other assets easier and cheaper than ever before. The Federal Reserve roughly doubled its balance sheet over the past year, vastly expanding the supply of money and credit. To fight the economic slowdown caused by the Covid-19 pandemic, Congress enacted trillions of dollars of fiscal stimulus, with more on the way. Signs of speculative excesses abound, with names such as Archegos, Bitcoin, Credit Suisse, GameStop, Greensill, non-fungible tokens (nfts), Nomura, Reddit, Robinhood, and special-purpose acquisition companies (spacs) attached to them. So far, none of these potential sparks has started the deflation of a bubble, if indeed there is one in mid-2021. Conventional wisdom, challenged by Quinn and Turner, holds that we can know a bubble only after it bursts. By the time this review is published, we may have some test results.

McTague, John. Things That Didn’t Happen: Writing, Politics and the Counterhistorical, 1678–1743.

McTague, John. <i>Things That Didn’t Happen: Writing, Politics and the Counterhistorical, 1678–1743</i>.

남해로 가는 길: 로빈슨 크루소 삼부작에서 읽는 자본주의의 거품기 작동 이야기

This paper aims to examine Daniel Defoe’s Robinson Crusoe Trilogy, that is, Robinson Crusoe (1719), The Further Adventures of Robinson Crusoe (1720), and Serious Reflections During the Life and Surprising Adventures of Robinson Crusoe (1720), as a meta-narrative that justifies Daniel Defoe’s conviction about the British venture into the South Seas. Daniel Defoe strongly believes that Britain’s success as a trading nation depends on the successful venture into the South Seas. His last novel, A New Voyage Round the World (1724), is literary propaganda for his conviction about the South Seas where, the anonymous speaker asserts, there are ample opportunities to gather infinite wealth free from the law of scarcity. This paper argues that Robinson Crusoe Trilogy serves as the passage to the South Seas because Defoe reveals in these novels why his island is a failure as a colony, how fierce is the competition for advantageous trade in the China Sea, and why it is impossible to have the favourable balance of trade with China, the master of 18th-century global commerce. Robinson Crusoe Trilogy expresses Defoe’s argument as a mercantilist, this paper suggests, that Britain should establish free and advantageous trade with a region where there are favourable conditions for trade. Robinson Crusoe Trilogy becomes the passage to the South Seas because Defoe, through the adventures of Robinson Crusoe, argues this fantastic region is indeed the South Seas. However, this paper contends, through making promises about the future venture into the South Seas, Defoe becomes entangled with the capitalism working the whipping machine, as capitalism operates by making promises about the future (attracting investment/raising debt), converting that promise (investment/debt) into stock, and postponing the realization of the promise while inflating the share price. By fantasizing about a South Seas that is free from the law of scarcity but cannot exist in reality, Defoe implicates himself unwittingly with the South Sea Bubble which comes to burst in 1721.

The South Sea Bubble and the Erasure of Slavery and Impressment

ABSTRACT When the South Sea Bubble burst in 1720, there was an outpouring of critical commentary. This took a variety of forms but centred around common themes of fraud and ruin. Three hundred years later, there is a renewed focus on the horrors of the slave trade. In addition, slaving companies needed the help of the Royal Navy and the navy used impressment. Forced labour was an essential part of the Bubble story but is often erased from it or merely mentioned in passing. Complaints by wealthy people about their losses have drowned out the voices of the enslaved.

An examination of higher-moment contagion during the South Sea Bubble

ABSTRACT The objective of this paper is to investigate the nature and the direction of the contagion during the episode of the South Sea Bubble. Previous research in this area has adopted a correlation and cointegration approach. In preference, though, we place reliance upon four different tests of linear and higher-moment contagion. From using daily data on the share prices of six companies from December 1719 to January 1721, strong evidence is obtained of contagion when applying co-skewness, co-volatility, and co-kurtosis tests.

스위프트의 「사우스씨 프로젝트에 대하여」에 나타난 바다의 풍자적 고찰

This paper aims to explore the properties of the sea in Jonathan Swift’s “Upon the South Sea Bubble” (1720). By analyzing it as a symbol of the various changes that took place in eighteenth-century Britain and as an object of delusion and distortion, this paper examines the ways in which Swift unravels the historical stock bubble caused by the imperfections of the new modern financial economic structure as well as the abuses of government power and management entities. I argue that Swift blames their irresistible forces for causing a speculative frenzy, which misled the citizens into an unestablished sea-like pit. Swift depicts the sea through a variety of classical metaphors to portray economic systems, national public credit, national identity, and the confusion the citizens experienced over intangible assets. Departing from the neoclassical criticism that Swift’s works are caustic satires full of hatred, madness, disorder and chaos, this paper presents a new enlightening view that the poet rather consoles the citizens who have been victims of social chaos and the enormous damage that consequently ensued. I assert that Swift’s satirical irony consists of double metaphors profound enough to convey the poet’s voice only when read separately from the narrator’s raillery.

Sketch for a financial theory of the poem

ABSTRACT This paper claims that there is such a thing as poetry that is sensitive to the capitalist logics of financial abstraction. It does this by situating poetry from the eighteenth and twenty-first centuries in relation to historically comparable revolutions in finance and financial instruments. It argues that such poetry offers ways in which to apprehend and materialise historical and contemporary financial abstraction; it further claims that such work signals and responds to the ways in which finance influences the relationship between social life and knowledge, in poems that interface the production of knowledge with capital’s relentless chasing after value. In different ways and from different motivations, the work of Jonathan Swift and William Fuller leverages aesthetic form against the abstractive mechanisms of financialization and acts as a counterbalance against them. For Swift, this means the Tory humanist satire of credit and banking in the wake of the English Financial Revolution (and especially in the context of England’s first great financial crisis, the so-called South Sea Bubble of 1720); for Fuller, this means his poetry’s syntactical animation, and lyrical transcendence, of the formal logics of the derivative, the most profoundly transformative financial form of modern capitalism.

Bitcoin and the South Sea Company: A comparative analysis

This paper examines historical Bitcoin price data together with the price data of a well-known and generally accepted historical asset price bubble (the 1720 South Sea Bubble) with the aim of identifying possible similarities. In order to find empirical evidence of speculative bubble tendencies, the article analyses distribution moments and autoregressive models of time series of both assets. Results show that historical daily prices of both assets—taking into account one year before and one year after the maximum price level—clearly show the two phases of bubble expansion and subsequent crash. Furthermore, various similarities between the South Sea Bubble and Bitcoin can be found in descriptive statistics, such as mean of return, standard deviation, and skewness. Statistical tests also show several explosive moments in the time series of the South Sea Company and Bitcoin returns, which implies that both assets exhibit more than one financial bubble.

The Famous New Bubbles of the 21st Century: Cases of Irrational Exuberance

Speculative economic, financial, and cryptocurrency bubbles are not arcane anymore; nonetheless, they are still misunderstood. For this exact reason, they continue to form even centuries after the famous first speculative bubbles of 17th and 18th centuries. Bubbles do not form instantaneously; quite the opposite, they progress through several distinct stages that can be monitored and studied in order to take proper policy actions to avoid costly crises. Speculation, as an economic cycle, fuels investment activity; therefore, it is not entirely bad unless it is done excessively via manipulative actions which ultimately cause panic among investors. Speculation alone does not result in a crash, but the induced fear spiraling through the broader economy like the venom of a poisonous snake can be enough to rattle markets and cause bubbles to burst. Exactly what happened in the famous first three bubbles; the Dutch Tulipmania (1634-38), the Mississippi Bubble (1719-20), and the South Sea Bubble (1720). We all know that history repeats itself; every time it does, the damage is far greater than before. Three centuries after the famous first bubbles, the 21st century began with its own famous three bubbles; the Internet Bubble (the dot.com crisis of 2002), the U.S. Housing Bubble (the subprime crisis of 2006-07 followed by the 2008 global financial crisis), and the Cryptocurrency Bubble (Bitcoinmania).

Did profitable slave trading enable the expansion of empire?: The Asiento de Negros, the South Sea Company and the financial revolution in Great Britain

In 1711, British Parliament chartered the South Sea Company, a public–private corporation chartered to reduce the cost of government borrowing by swapping illiquid short-term government debt for tradeable shares of the South Sea Co. To attract subscribers, the government also awarded the South Sea Co. an international monopoly in the trade of African slaves to Spanish America—the Asiento de Negros. This paper considers the extent to which Asiento-related slave trading was profitable for South Sea Co. shareholders and beneficial to the British financial revolution between 1713 and 1743. First, we use historical financial data to estimate the parameters of a capital asset pricing model of excess returns for South Sea Co. shareholders. We find that the Asiento contract increased risk-adjusted excess returns on South Sea Co. stock between 18 and 24% per year. Second, we estimate profit margins in the South Sea Co. Asiento slave trade. These show a stark positive correlation with company share prices before and after the South Sea Bubble of 1720. Adding slave ship departures to the CAPM specifications confirms the direct contribution of slave trading to shareholder returns. We also find that the Asiento and Asiento-related slave trading increased central government fiscal surplus by 16%. This suggests that profitable slave trading by the South Sea Co. under the Asiento enhanced Great Britian’s fiscal capacity, which could be utilized to enhance a military capacity necessary for securing an empire.

A Conspiracy of Paper? William Paterson and the Mysterious Origins of Banking and Company Law

This article examines the creation of the Bank of England and other contemporary banks, the Scottish Darien Scheme and the South Sea Bubble. It considers the role of William Paterson, a progressive Scottish merchant and economist, in all of these and the negotiations over the Act of Union of England and Scotland. The article reflects on the use of legislation and royal charters, together with the idea of joint stock and negotiability. It seeks to untangle the complex relationships of the Darien Company and the South Sea Company to banking operations of the time. Although Paterson had a minor role in the South Sea company, it was based on some of his ideas but he opposed the ultimate scheme to take over the national debt in exchange for stock which followed the policies of his compatriot John Law for France. Law in his turn had been influenced by the Bank of England and the Darien Scheme fund raising. The Bubble Act 1720, responding to the panic caused by collapse of bubble companies, was passed a year after his death and impeded the development of company and banking law for over a century. What this history demonstrates is the difficulty in benefitting from innovation. How the idea of projection or promotion began as something which was thought of in dubious terms. Vested interests were keen to exploit innovation after they initially fought hard to resist it. Then speculative mania took over. The history also reflects a surprisingly high fiduciary duty on a director based on guild ideas before the modern concept developed. Notwithstanding this conflict of interest was practised by influential people often with impunity until it became a political issue when the results were draconian but not necessarily consistent in the absence of modern winding up laws and insolvent trading. A similar picture is illustrated by the experience of John Law in France with the Banque Royale and the Mississippi Company. Their writings represent some of the earliest theorising on economics, banking and international trade more than fifty years before Adam Smith’s Wealth of Nations. It was not simply a conspiracy of paper