South Sea Bubble Research Articles

From the Economic Imagination to the Economics of the Imagination: The Case of the South Sea Bubble

From the Economic Imagination to the Economics of the Imagination: The Case of the South Sea Bubble

New Evidence on the First Financial Bubble

The series of events in 1720 called the Mississippi Bubble, South Sea Bubble and the Dutch Windhandel represent the first and by some measures the largest global financial bubble in history. Stock prices of more than 50 companies rose by 100% to 800% in less than a year and then lost nearly all of their gains within two months. The question is: why? In this paper we hand-collect new, high-frequency, cross-sectional data from 1720 to test theories about market bubbles. Our tests suggest that innovation was a key driver of bubble expectations. We present evidence in contrast with the currently prevailing debt-for-equity conversion hypothesis and relate stock returns to innovations in Atlantic trade and insurance. We find evidence consistent with the innovation-driven bubble dynamics documented by Pastor and Veronesi’s (2009) for new economy stocks. Using detailed transactions data for one major bubble company in the Netherlands we also test recent clientele-based theories about bubbles. In contrast to results for the recent tech bubble, we find no evidence that the trades of either insiders or arbitrageurs were coordinated or that they triggered the Dutch 1720 crash. We also show little evidence of arbitrageurs liquidating their positions shortly after the price collapse.

Helen J. Paul. The South Sea Bubble: An Economic History of Its Origins and Consequences. Routledge Explorations in Economic History. London: Routledge, 2010. Pp. 176. $145.00 (cloth).

Helen J. Paul. The South Sea Bubble: An Economic History of Its Origins and Consequences. Routledge Explorations in Economic History. London: Routledge, 2010. Pp. 176. $145.00 (cloth).

‘A masterpiece of knavery’? The activities of the Sword Blade Company in London's early financial markets

Best known for their role in promoting the South Sea Bubble, the proprietors of the Sword Blade Company were involved in an audacious debt-for-equity swap more than 15 years earlier. Close study of this demonstrates the deployment of some of the same financial and rhetorical techniques albeit on a more modest scale. It also throws light on the operation of early financial markets in London, and the opportunities that existed for financiers to exploit the porous barrier between the public and private financial spheres, while underlining the instability of institutional architecture during the financial revolution.

‘The folly of particulars’: the political economy of the South Sea Bubble

In 1720 Britain embarked on a project to convert a large part of the public debt into shares in the South Sea Company. Most narratives assume the Company stood to profit from an anticipated increase in the market price of its shares. Though some have noted that this assumption is incorrect, no one has yet tried to find an alternative explanation for the Company's motivation for entering into the project. In this article I argue that the Company had no need to profit directly from the conversion operation and instead saw it as an opportunity to establish dominance in the British banking industry.

The Bubble on the Periphery: Scotland and the South Sea Bubble

The South Sea bubble of 1720 has traditionally been seen as a London-centric event, with its impact on the British peripheries of Ireland and Scotland being largely ignored. This article examines the Scottish context of the bubble, looking at Scottish investment in London, the reactions of Scots to the rise and fall of the Company, and its impact on Scottish projects and schemes. Drawing on a range of manuscript and printed sources, and through the exploration of individual case studies, this article demonstrates that the Scottish experience of the financial revolution extended beyond the collapse of the Darien project and the Act of Union. The findings presented here suggest a need to revisit both the historiography of the bubble and the financial history of post-Union Scotland.

“What Must Poor People Do?”: Economic Protest and Plebeian Culture in Philadelphia, 1682–1754

By the early 1720s falling prices for grain exports to the West Indies and the bursting of the South Sea Bubble resulted in the worst economic crisis in Pennsylvania's short history. As trade ground to a standstill in Philadelphia, unemployment rose and Pennsylvanians submitted numerous petitions to the provincial assembly requesting the printing of paper money in the cash-poor colony. The assembly responded by emitting £15,000 in bills of credit in 1722, followed by another printing of £30,000 in 1723 and the creation of a provincial Loan Office. Despite the emissions, in subsequent years urban tradesmen and small farmers continued to protest the lack of money in the province and persistently demanded an increase in the money supply throughout the colonial era. Supporters of paper currency, such as Roger Plowman, claimed in 1725 that the poor Husbandman was being squeezed by usurious landlords, while urban smiths, shoemakers, tanners, tailors, weavers, and shopkeepers were beset by a thousand Difficulties in carrying on their trades because of the scarcity of money in the town. The city's merchants were divided on the issue—Quaker trader Francis Rawle penned the first public argument in favor of paper money, while defenders of the elite merchant and proprietary interest subscribed to a hard money position, believing supporters of paper encouraged disorder among the mighty and many Headed Multitude.

Crowd and environmental management during mass gatherings

Crowds are a feature of large cities, occurring not only at mass gatherings but also at routine events such as the journey to work. To address extreme crowding, various computer models for crowd movement have been developed in the past decade, and we review these and show how they can be used to identify health and safety issues. State-of-the-art models that simulate the spread of epidemics operate on a population level, but the collection of fine-scale data might enable the development of models for epidemics that operate on a microscopic scale, similar to models for crowd movement. We provide an example of such simulations, showing how an individual-based crowd model can mirror aggregate susceptible-infected-recovered models that have been the main models for epidemics so far.

The South Sea Bubble: an economic history of its origins and consequences – By Helen J. Paul

The Economic History ReviewVolume 65, Issue 1 p. 383-384 The South Sea Bubble: an economic history of its origins and consequences – By Helen J. Paul D'MARIS COFFMAN, D'MARIS COFFMAN Newnham College, CambridgeSearch for more papers by this author D'MARIS COFFMAN, D'MARIS COFFMAN Newnham College, CambridgeSearch for more papers by this author First published: 06 January 2012 https://doi.org/10.1111/j.1468-0289.2011.00622_7.xCitations: 1Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat Citing Literature Volume65, Issue1February 2012Pages 383-384 RelatedInformation

The Origins of English Financial Markets: Investment and Speculation before the South Sea Bubble. By Anne L. Murphy (New York, Cambridge University Press, 2009) 283 pp. $99.00

<i>The Origins of English Financial Markets: Investment and Speculation before the South Sea Bubble.</i> By Anne L. Murphy (New York, Cambridge University Press, 2009) 283 pp. $99.00

Helen J. Paul, The South Sea Bubble: An Economic History of its Origins and Consequences (New York: Routledge, 2011, 176 pp., £90.00)

Helen J. Paul, The South Sea Bubble: An Economic History of its Origins and Consequences (New York: Routledge, 2011, 176 pp., £90.00)

Public credit and liquidity in James Steuart's Principles

The aim of this article is to shed new light on the monetary and financial theory of James Steuart (1767) through his examination of the speculative bubbles of 1720: that is, the John Law System in France and the South Sea Bubble in England. In contrast to most contemporary writers – particularly David Hume and Adam Smith – Steuart had a balanced opinion about these two financial experiments. On the one hand, Steuart considered them worthwhile, since they were attempts at public debt restructuring by reducing its expense and increasing its liquidity. Moreover, according to Steuart, a well-managed public debt favours the liquidity of both banks and the financial market. These worked together for the growth of wealth. However, on the other hand, Steuart claimed that the failure of these experiments was due to: (i) a poor management of money; (ii) a violation of credit rules and its corollary, the weakness of banks; (iii) the adoption of contestable dividend and financial information policy. This article presents Steuart's proposals for creating the liquidity of both banks and the financial market via a well-managed public debt.

Anne L. Murphy, The Origins of English Financial Markets: Investment and Speculation before the South Sea Bubble (Cambridge: Cambridge University Press, 2009, 258 pp., cloth, £55.00)

Anne L. Murphy, The Origins of English Financial Markets: Investment and Speculation before the South Sea Bubble (Cambridge: Cambridge University Press, 2009, 258 pp., cloth, £55.00) - Volume 18 Issue 1

ANNEL. MURPHY. The Origins of English Financial Markets: Investment and Speculation before the South Sea Bubble. (Cambridge Studies in Economic History.) New York: Cambridge University Press. 2009. Pp. xiii, 283. $99.00

Many kinds of scholars have been interested in the origins of London's financial markets: historians, economists, political scientists, and sociologists. Approaching the topic from a variety of disciplinary perspectives, a steady if not voluminous stream of publications has followed P. G. M. Dickson's magisterial book The Financial Revolution in England: A Study in the Development of Public Credit, 1688–1756 (1967). Anne L. Murphy now adds a valuable contribution to this literature, building on earlier work, refining older arguments, and clarifying previous claims. In journalistic renderings, the South Sea Bubble of 1720 provides the conventional starting point for the London stock market. For those following the well‐known interpretation of Douglass C. North and Barry R. Weingast, things really began with the political changes associated with the Glorious Revolution. Murphy moves the starting point even further back, tracing various markers of market activity beginning in the 1670s. Consistent with this shift, Murphy...

Planting an Asylum for Religion: Berkeley's Bermuda Scheme and the Transmission of Virtue in the Eighteenth‐Century Atlantic World

Following the aftermath of the South Sea bubble, George Berkeley grew disenchanted with British morality and turned his attention to a new project: a missionary college in Bermuda. Not only did he personally lobby friends and government officials, but he also worked tirelessly to persuade the public of his scheme's value. To this end, he published his plan under the title A Proposal for the Better Supplying of Churches in Our Foreign Plantations (1724) and at the height of this enthusiasm wrote his only (existent) poem “America, or the Muse's Refuge” (1725/26). These verses were premised upon a classical commonplace, the notion of a translatio imperii and translatio religionis: the belief in the constant westward migration of empire and religion that provided the foundation of his plan. Through a contextual reading of these two pieces, this paper examines Berkeley's contributions to early eighteent‐century missionary activity in the Atlantic world.

The origins of the English financial markets: investment and speculation before the South Sea Bubble – By Anne L. Murphy

The origins of the English financial markets: investment and speculation before the South Sea Bubble – By Anne L. Murphy

William Petty in Boston: Political Economy, Religion, and Money in Provincial New England

Transformations in Puritan ideas about God's rule in the world, or Providence, spurred the reception of formal economic theories in New England from 1680 through the 1720s. English political economists such as William Petty and Charles Davenant critiqued customary notions of money and credit as they promoted England's competition with European powers. New Englanders turned to these thinkers to inform provincial monetary policy. They imported political economy through serial accounts of parliamentary debates about the Bank of England, the South Sea Bubble, and trade policies, as well as through merchant handbooks and literary accounts of merchants. Religious convictions informed this receptivity. Boston clergy such as Cotton Mather and civic leaders such as Samuel Sewall understood the British Empire to be a bulwark against Catholic hegemony. Taking the works of Petty and Davenant to be descriptions of an economic order that abetted Protestant empire, they reshaped Puritan moral convictions. Once hostile to treating credit as a commodity and money as a fungible good, they embraced the latest techniques for exchanging credit and abandoned prohibitions against usury. In this sense, changes in Puritan theology were integral to the development of a market culture in provincial New England.

Richard Mead, Thomas Guy, the South Sea Bubble and the founding of Guy's Hospital

Several of London's major hospitals were founded in the first half of the 18th century. The Westminster Hospital was built in Petty France in 1719, St George's at Hyde Park Corner in 1732, the Royal London at Moorfields in 1740 and the Middlesex Hospital in Windmill Street, Soho in 1745. Guy's Hospital, founded in 1721, was a product of this voluntary hospital movement, in which charity hospitals, supported by individual contributions, but not by the State, were established in response to a range of scientific, social and humanitarian motives, some of them at a time of austerity following the war against France.

‘A knavish people…’: London Jewry and the stock market during the South Sea Bubble

In an era when financial markets were only beginning the move from personal to impersonal relations, this paper examines the role of Jewish brokers in the market for Bank of England stock at a time when their status as recent immigrants, subject to constraints due to religion and ethnicity, made them unlikely intermediaries beyond their own communities. Using formal network analysis, an examination of their activity during the first half of 1720 suggests a marginal role. However, as the Bubble began to burst a few Jewish financiers became disproportionately involved as purchasers of a stock clearly on the decline.

Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets: An Overinvestment View

Abstract‘Capitalism without failure is like religion without sin’. Charles Kindleberger's book Manias, Panics and Crashes points out that speculation and crises have always been present: the world economic crisis of the 20th century, the South Sea bubble in the 18th century, and the tulip mania in the first part of the 17th century. Starting with the Japanese bubble in the 1980s we take the reader on a tour through 20 years of bubbles in emerging markets and industrial countries which have recently culminated in the 2007/08 US subprime market crisis. We explain the global stock market and real estate booms based on the real and monetary overinvestment theories of Hayek, Wicksell and Schumpeter, arguing that ample liquidity supply originating in the large industrialised countries has contributed – independent from the exchange rate regime – to overinvestment cycles in new and emerging markets around the globe. The policy implication is to keep interest rates not too low for too long in response to bursting bubbles.