406 Ch. 1 1 • Dynastic Rivalries and Politics
Company the right to take over the national debt. The South Sea Company
had been founded in 1711. Two years later, the government had awarded it
a monopoly over the slave trade with Latin America and favorable condi
tions for European trade. But because of the intermittent fighting with
Spain during the War of the Spanish Succession, any profits from such
trade seemed in the distant future. Needing a rapid infusion of capital, the
directors of the company offered stock for sale on attractive terms. They
bribed some potential purchasers and developed ties with high government
officials.
With the help of unscrupulous investors, many of whom were holders of
part of the national debt who wanted to get their money back, the com
pany converted the debt owed them by the state into company shares. The
directors parlayed the price of the stock higher. The scam worked as long
as there were enough investors whose funds could be used to pay dividends
to those who had bought shares earlier. But the profits were all based on
the sale of the stock rather than on real commercial gains.
A fever of speculation seized England. Smaller companies started up
overnight, most of them insolvent or strangely organized, such as one liter
ally limited to women dressed in calico. One joint-stock company (made
up of shareholders who would divide profits according to the amount of
their investments) was created for “a purpose to be announced.” The spec
ulative craze ended with a jolt in 1720. With no gains of any kind forth
coming, the “South Sea Bubble” burst in September of that year. It was the
1720 cartoon showing
how speculation caused
shares in the South Sea
Company to rise, which
would eventually lead to