C&B Notes

A Personal Tale of the South Sea Bubble

Alexander Pope, the 18th-century English poet, could not resist the temptation of the infamous South Sea Bubble.  A personal letter from August 1720 reveals his euphoria about the run-up of the security.  It didn’t take long for him to lose his shirt, which he would later allude to in his poems.

…he wrote to his friend, Lady Mary Wortley Montagu:

“I was made acquainted late last night, that I might depend upon it as a certain gain, to Buy the South Sea-Stock at the present price, which will certainly rise in some weeks, or less. I can be as sure of this, as the nature of any such thing will allow, from the first & best hands.”

Pope, author of “An Essay on Man,” translator of Homer and one of the sharpest wits ever to put a pen to paper, had — like thousands of other Englishmen of the time — lost his financial mind in one of the first bubbles to sweep the markets.  Pope had good company, including Sir Isaac Newton, the eminent portrait painter Sir Godfrey Kneller, numerous members of Parliament and the Prince of Wales’s valet.

Shares in the South Sea Co., the global trading company with a scheme to alleviate Britain’s government debt, had risen roughly 800% between January and August 1720. The price had hit £950 (about £114,000 in today’s money) just weeks before, and the company launched its final secondary stock offering on Aug. 24, 1720 at a price of £1,000 per share — with only 20% of the price payable immediately, so that investors could pay the remaining £800 in installments over the next 36 months.

As has been the case so often in subsequent bubbles, too, that surge of leverage signaled the end of the boom. The share price of the South Sea Co. collapsed from around £775 on Aug. 31 to roughly £290 by Oct. 1, 1720 — approximately a 63% loss in four weeks.

As Pope wrote in 1733, in Epistle III of his “Moral Essays”:

At length Corruption, like a gen’ral flood

(So long by watchful ministers withstood)

Shall deluge all; and Av’rice, creeping on,

Spread like a low-born mist and block the sun;

Statement and Patriot ply alike the stocks,

Peeress and Butler share alike the box,

And judges job¹, and bishops bite² the town,

And mighty dukes pack cards for half a crown:

See Britain sunk in lucre’s sordid charms,

And France revenged of Anne’s and Edward’s arms!

…Riches, like insects, when conceal’d they lie,

Wait but for wings, and in their season fly.

¹ job: to deal in stocks, as in “a stockjobber,” or broker

² bite: to speculate, particularly to take advantage of naive investors