It was in the early 18th century when the South Sea Company created one of the biggest crisis ever recorded in Europe. As a product of intersecting financial, legal, political, and cultural interests, the bubble which grew greatly eventually became an utter disappointment, accompanied with horrible losses.
The years leading up to the South Sea Bubble were a time of financial promise and enthusiasm for Britain. In the 1700s, the British Empire was the strongest force on the entire globe. With vast number of merchant ships, with colonies that supplied the Empire with resources of all kinds, with naval superior fleet, developed science and modern technologies of the time it seemed that time of prosperity would last indefinitely.
Following the War of Spanish Succession (1701-1714), there was the large potential of foreign trade in a more global marketplace, including countries such as Mexico and whole South America continent. The ships sailed, wealth was distributed among the common folk as well as aristocracy.
Consumerism in the British society
It was not long before most of the population had extra funds to invest and were looking for places to put their money. Consumerism was on the rise steadily and investing in the stock market was removing the usual class and gender boundaries. One invention that helped the flow of information to the public at the time was the newspaper. Newspapers emerged as the innovative modern means of information exchange, providing pamphlet literature with recorded intellectual debate, classical literature and more importantly stock articles. In 1702 London had one daily newspaper; by 1709 there were 18. Famous writers Jonathan Swift and Daniel Defoe were among those who presented the South Sea Company in the new popular media.
The South Sea Company easily attracted investors when the company purchased the "rights" to all trade in the South Seas. The image of having exclusive rights to trade with new wealthy countries was an attractive bait for allwho had the opportunity to invest in such a company. The first issue of stock wasn't even enough for the regular speculators capital demands, let alone the average investors who were assured of this company's coming dominance. The popular idea at the time was that Mexicans and South Americans were just waiting to be introduced to the finery of wool and fleece in exchange for their jewels and gold.
Too few investment opportunities
So nobody really questioned the repeated re-issues of stocks by the South Sea Company, fundamentals, reports or even actual business possibilities. Instead the people just bought the stocks as soon as new issue was offered. Another reason for the demand was in the lack of quality stocks to invest in. The few companies offering stock at that time were all good but conservative investments to buy.
For example, the East India Company was paying out considerable tax-free dividends to their 499 investors. The Mississippi Company was the other major company established in France. The worth of the stock increased rapidly after being issued and was soon worth 80 times more than all the gold and silver in France. All the success on the continent stirred British pride and belief that British companies could not fail. What a fatal mistake it proved to be.